Omnicell Inc (OMCL) 2008 Q1 法說會逐字稿

Good afternoon. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you, Mr. Seim, you may begin your conference.

Thank you. Good afternoon, and welcome to the Omnicell 2008 first quarter results conference call. Joining me is Randall Lipps, Omnicell President and CEO. You can find our results in the Omnicell first quarter press release posted in the Investor Relations section of our website at www.Omnicell.com. 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 Risk Factors and under the heading Management's Discussion and Analysis of Financial Conditions and Results of Operations in the Omnicell annual report on Form 10-K filed with the SEC on March 14, 2008, as well as our more recent 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 21, 2008 and all forward-looking statements made on this call are made based on Omnicell's beliefs as of this date only. Future events or simply the passage of time may cause these beliefs to change. Finally, 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. During 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 quarter's business highlights. I'll then discuss Omnicell's guidance for 2008. After that, we'll open the call to your questions.

In the first quarter of 2008, we again posted record revenues. Profits from operations were up from this time last year. We did see some new and large orders slow down towards the end of the quarter, and we believe the rate at which orders are closing is being affected by conditions in the capital markets and the macroeconomic environment. While we had a very strong start to the first quarter, we saw some customers, particularly new customers, postpone the timing of their acquisition decision toward the end of the quarter. Our financial results for the first quarter demonstrate our ability to moderate swings in our business caused by economic disruptions. Along with revenues slightly higher than expectations, our non-GAAP earnings were $0.19 per share, excluding stock compensation expenses, $0.01 per share above analyst expectations. And as a reminder, we are now fully taxed as compared to 2007 when we enjoyed a benefit from tax valuation allowances.

EBITDA is up 40% year-to-year. We remain within our backlog objective range of six to nine months of forward revenue. Backlog has allowed us stability in our financial performance over the past two quarters when our order rates have fluctuated and were affected by economic conditions. Our backlog is also afforded us time to assess those economic conditions. We believe that there has been no change in our competitive position during the quarter. We also did not experience any degradation of pricing or other business terms during Q1, but postponement of buying decisions did affect percentage of business from new customers. While we have been named vendor of choice in several new accounts, newer customers accounted for 21% of our bookings in Q1 which is lower than our historical average.

New customers are comprised of the combination of competitive conversions and green field accounts. Green field accounts are those customers installing automation for the first time. In Q1, about two-thirds of the new business came from green field wins. We also saw very few initial hospital orders from the new multi-hospital accounts that we signed in the second half of 2007 as these product acquisition decisions have also been postponed. These orders and more are still in our sales opportunity pipeline which is stronger than it has ever been. As in previous quarters, we have continued to add customer installation and support staff to handle the growth from our new customers and to support our increased install base. As I reported midway through Q1, our hiring has been less than we originally predicted and during Q1, we added 15 new positions. We also converted 32 temporary employees already in our workforce to permanent positions, bringing our regular full-time head count to 853.

Now, I would like to discuss our first quarter financial performance. I will first discuss our financial performance in accordance with generally accepted accounting principles with year-to-year comparisons. Revenue for the first quarter of fiscal 2008 was $62.1 million, up 29% year-over-year and up 7% from the fourth quarter of 2007. On a GAAP basis, gross margins were down as expected quarter-to-quarter to 52.1% due to the dilutive effect of the acquisition of the Rioux Vision mobile cart business. This compares to 52.4% posted in Q1 of last year. Operating expenses were $27.5 million, including stock compensation expenses and reflect our investments made during 2007. Operating expenses increased $5.7 million or 26% from $21.7 million in Q1 of 2007.

Net earnings after taxes were $3.7 million, or $0.10 per share and included an effective tax rate of 40% on GAAP income. This compares to earnings of $4 million in Q1 2007 when the effective tax rate was only 6%. Over the past year, we have offset most of this tax change by significantly increasing our operating profit nearly 40%. A good measure of the increase of our profitability is in EBITDA or earnings before interest, taxes, depreciation, and amortization. EBITDA was $10 million, up $2.9 million or 40% from the first quarter of 2007. Now, I would like to cover our non-GAAP results, excluding stock compensation expenses. I will cover non-GAAP gross margins, operating expenses, and earnings per share. For each of these discussions, the only adjustment to GAAP results is the exclusion of stock compensation expense.

Stock compensation expense includes the estimated future value of employee stock options, restricted stock, and our employee stock purchase plan. Since stock compensation expense is a noncash expense, we use financial statements internally that exclude stock-based compensation expense in order to measure some of our operating results. We use these statements in addition to GAAP financial statements and we feel it's useful for investors to understand the noncash stock compensation expenses that are a component of our reported results. A full reconciliation of our GAAP, non-GAAP results is included in our press release and will be posted to our website. Our non-GAAP gross margin for the first quarter of 2008 was 52.9%, compared to a non-GAAP gross margin of 53.2% in the same quarter last year. Gross margins were as we expected and included the dilutive effect of the acquisition of Rioux Vision. Our non-GAAP operating expenses were $24.9 million, up $5.4 million or 28% from our Q1 2007 non-GAAP operating expenses of $19.5 million and driven mainly by head count added during 2007.

Our Q1 '08 non-GAAP net income was $6.8 million or $0.19 per share which exceeded analyst consensus by $0.01 per share. Our Q1 2008 non-GAAP net income was up $0.2 million or 3% year-to-year from Q1 2007 non-GAAP income of $6.6 million. Again, increases in overall profit were offset by increases in the effective tax rate. During Q 1, we announced and completed a $40 million stock repurchase, totaling 2.1 million shares. Since it was completed later in the quarter, there was a negligible effect on results for the quarter. As we noted during the quarter, we are seeing an effect from the market reductions in interest rates, interest income was down $0.5 million from Q4 '07. Our cash and short-term investments were $143 million at the end of Q1 2008, a decrease of $27 million from the end of 2007. During the quarter, the $40 million we used in the stock repurchase was offset by $2 million cash generated from stock option exercises and $11 million provided by the results of operations.

Our day sale outstanding were 68, an increase from last quarter of 61. Our inventories were $15.2 million, an increase from $13.7 million in Q4 '07. Now, I would like to turn the call over to Randy to provide some updates on the business.

Thanks, Rob. Thanks for joining us today. Despite the slower-than-expected order flow for the quarter, we continue to see our existing customers in every segment expand their automated medication management platforms. We believe that when economic conditions improve, we will be well-positioned to take advantage of the market opportunity, because of our strong product offerings and our focus on providing the best customer experience in healthcare. Our SinglePointe solution, announced in December, is successfully completing multi-month beta testing in a number of hospitals around the country and I'm very pleased with the results.

We announced last week that hospital pharmacy staff at Rice Memorial, one of our beta sites, have report a 55% reduction in the time they spend managing medications with the SinglePointe solution. This can be translated into increased staff efficiencies, and improvements for pharmacy and nursing. Rice Memorial staff have also indicated that their automation of the medication management system is enabling them to enhance patient safety by allowing profiled to patient-specific medications. We are also on track to integrate medication control software with our mobile cart, creating a new class of product solution, we're able to offer following our Rioux Vision acquisition in December. We expect to begin shipping the first version of these integrated mobile carts during the summer, providing a platform to integrate automated medication control into the bedside point-of-care environment. We expect further integration with SinglePointe to be available in early 2009.

The need for our products is evident in the marketplace, as the industry continues to focus on how to improve medication management to address patient safety concerns. A study in this month's issue of Pediatrics Journal details how medication mix-ups, accidental overdoses, and adverse drug reactions harm one out of every 15 hospitalized children. In anticipation of the need to better track medications placed in medications systems for pediatric units, our upcoming release of our Omnicell software has a feature that alerts a pharmacist when an adult dose of medication is being stocked in a pediatric medication dispensing system.

Finally, I am pleased to say that the investments we made last year to strengthen our installation and service teams, are showing a strong impact on our customer satisfaction with an increase in our overall customer satisfaction ratings, as measured by both external and internal reporting sources. Although orders were not as strong as we had expected this past quarter, I am confident in the long-term strength of our business because of our product offering and our focus on the customer experience. As I look forward to the remainder of 2008, we see a pipeline that is more robust than we have ever had in the history of Omnicell. We have approximately two and one half quarters of product revenue and backlog. Due to our recent experience with orders, we feel it's prudent to revise our previous guidance relative to our revenue growth until we begin to see orders released. With that, I'll turn it back over to Rob to go through the details of our revised guidance.

Thank you, Randy. We had previously guided to revenue growth in 2008 of 25 to 28% from 2007. Until we see more of the sales pipeline converting to firm orders, we are lowering that guidance. We now expect revenue to be up 17 to 20% from 2007. We expect product backlog will be between 135 and 145 million at the end of 2008, and will remain approximately two and one half quarters of future product revenue.

In Q1 '08, our operating margins were on track at 13%. We expect a continued management of our margins, but the lower revenue guidance will decrease profit overall for the year. We expect $0.65 to $0.70 non-GAAP EPS during 2008. This includes a further degradation in interest income of $0.03 per share from our previous guidance and an assumed 40% effective tax rate. We now expect further head count growth to be very moderate at 5% or less for the remainder of the year. The positions added will be in areas that allow us to take advantage of market opportunities with existing customers, with new customers who are now installing and the new customers we expect to sign in coming quarters. Now, I would like to open the call to questions.

Okay. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Stephen Crowley.

Good afternoon, gentlemen.

Hi, Steve.

A couple questions for you. The nature of the postponement decisions or the nature of those decisions being postponed, as you talk to your sales force, as you queried the customers, was there a common landscape item that caused that postponement? How big is the psychological element to the equation? Can you paint a little bit of a picture for us as to what you ran into?

Well, Steve, this is Randy. Hi. As we said before, macroeconomic conditions. I think that does include access to capital, and what the conditions of those markets are. We particularly saw that in large --- larger deals. Some of those obviously were also competitive conversion opportunities for us that basically just sat on CFO's desks and were deferred 'til people felt the conditions were ripe for moving forward. So we -- it's hard to pinpoint. Every one is a little bit different story. But I think it's mostly in the large order category. It's mostly having to do with hospitals putting out large capital expenditures until the credit markets calm down.

Do you have any sense for whether or not the credit market situation that matters most to your customers is --- has stagnated? Whether or not CFOs are working through their individual solutions? What kind of feel do you have for that?

Steve, this is Rob. I think the thing that people are most afraid of is that all hospitals are funded by auction rate securities and found the cost of their capital go way up. We actually didn't find the largest, the deals that moved out of the quarter and sat on CFOs desk, as Randy said, were actually hospitals that had auction rate securities. But I believe what's happened in the overall market is all CFOs see the turmoil, caused by the mortgage environment and auction rate securities and so forth. They see the interest rates tumbling down and it just gives them a cause to pause, and want to see what's happening over time. Certainly if the interest rates are coming down, you might want to just wait and see if the interest rates are going to come down more before you fund a big capital purchase.

In terms of two areas that are either newer or enhanced product area for you, you touched on both of them in the prepared comments. But in terms of SinglePointe, seems like there's been quite a bit of customer excitement about the functionality that you're bringing with SinglePointe. It seems to be proving out in the beta sets. Has that opened up new doors for you in large customer opportunities as of yet? Or is that something we're still looking forward to?

No. I -- we are in full bore discussions with a lot of new and current customer potentials. A lot of people when they are making a big decision like that, they want to say, hey, where's your product going. SinglePointe really addresses the broader questions of how to control all the drugs that are flowing up to hospital floors. When they see the product, it's really exciting and it really, it really distinguishes us from our competitors as a next generation product. We're just excited from the initial results from our beta sites and we know it's going to be a great product in the marketplace.

Excellent. I'll hop back in queue and let some other folks have some questions. Thanks.

Thanks, Steve.

Your next question comes from the line of Tom Gallucci.

Thank you. Good evening, everybody. I guess --- don't want to beat a dead horse at all, but you said there was sort of a different situation for each example. Is it possible just to offer one or two anecdotes, in terms of the orders so we can get a little bit of a feel specifically for the types of things that you're really seeing on the street?

Yes. One large deal we actually had a commitment from the CFO at a large organization to have that done well within the quarter. During the quarter, the banking line that they had was with a bank that had some issues. So they came back to us and said, we're still going to give you the order, but we're going to go out and get a different leasing line from a different organization that has more stability at this point. That took a different tact there in that deal. Another one, the large order that we also had in place decided that larger orders now had to go back through the board for reapproval at the board level when it had already been approved.

We had to cycle through another meeting that previously wasn't in the cycle. Both of these were caused by the macro-environmental issues, and these two large orders were pretty substantial. Didn't lose either order. They looked good to get in the next quarter or two as the cycle is being stretched out. There was a direct effect of the macro-economic conditions.

Right. Any evidence that any of the pause on behalf of CFOs is also due to just their financial health as opposed to the balance sheet side of things and the credit markets?

Not at all. Not at all. I think that my, sort of -- it's sort of a surreal environment, because the CFOs are actually cheering the lower interest rates and saying, boy, that will even help our access to capital more as soon as the markets settle down. I think the strength, the financial strength of the hospitals and most of our customers are very good.

Okay. Then given sort of some of the examples that you're describing there and everything that you've seen, I'm curious if you could maybe let us know how you came up with the 17 to 20% and the backlog, 135 to 145. I mean is it sort of -- well, I guess is there anymore detail behind that so we know that it's how much of a guess it is versus how visible it is?

Well, it's very visible. Last quarter, we had orders that didn't complete at the end of the quarter and moved over into January, and gave us an extremely strong start. We started the quarter with a very, very large pipeline. This quarter is a little bit different. It isn't so much just the timing. It's, as Randy said, it was just slowdown.

What we've looked at is the part of our pipeline which is frankly, very large now, larger than we've ever, ever seen. We've looked at the probability of each order of course, and we've only assessed that the most --- the orders most probable to close will close. We're going to keep it that way until we start seeing something change in the way that these organizations are behaving. The 17 to 20% is, as we're growing now, we've got a pretty long backlog. Those are predominantly orders that are in the backlog at this point, so there's a lot of good visibility to it.

That doesn't really assume much growth to the backlog basically. I guess where -- you ended the fourth quarter where again?

We ended the fourth quarter at about 137.

So you're sort of anticipating you can replace what you take out as opposed to really growing it.

Right.

Then --- if could just last question, if you could just describe I guess, would the mix of those so-called higher-probability orders be skewed toward existing customers or new orders or green fields or competitive wins? Or is there anything there that we should be thinking about?

We don't see a material change in the mix of the business, relative to what we've seen over the last four to six quarters. This last quarter, we had much more existing business than we previously had. When we look at the pipeline, we see it just as healthy in new business as it has always been. But of course, those are probably the orders that are the least easy to call, in terms of when they are actually going to close. Now, keep in mind, Tom, that I think we mentioned in the prepared comments that we announced during the call last quarter, several large hospital organizations, multi-hospital organizations, that were predominantly new customers that signed with us. Most of them haven't even placed their initial orders yet. Those are customers that are not only well along, but they are all essentially almost all the way through the pipeline. The business is ours. The contracts are ours. They just haven't ordered yet.

Okay. Thank you.

Your next question comes from the line of Newton Juhng.

Good afternoon, gentlemen. Had a quick question here on the kind of competitive displacements. Obviously, the numbers you gave looks at about a 7% of your overall which is a little light. What I'm wondering about is, are we seeing any changes in kind of your major competitors, like Pyxis, to make any moves to try and compete more favorably with you? I mean I know you guys are making a lot of investments here in the type of new products you're bringing. What about them on the competitive front?

Yes. I think our new SinglePointe software has just been a homerun for us and continues to drive a lot of interest in our product line. I think the -- we are extremely well-positioned when it comes to our product and the technology we're offering. The other thing that is improved since just last quarter is the reporting of the customer satisfaction ratings, both the internal and external reports that showed significant jump-ups in our ability to get the highest ratings in the industry and really start to make a significant delta between us and our competitors. So on both fronts, we feel like we're really well-positioned and we have a lot of activity in our pipeline. There's been no new announcements by competitors, so we're the ones doing most of the announcements. I think we've got the momentum when it comes to products and service.

Just in regard to the quarter itself though, with it being down a little bit, is it, is it just kind of an isolated incident point here?

Yes. The biggest driver in there we said was that --- a couple of the deals that got pushed out were the large deals, and some of those were competitive versions. We didn't get to include those in the new accounts. We didn't get to include those in those totals.

Okay, then. Randy, in terms of the pipeline that you're looking at here, with the reduction that you've made in the revenue guidance, are we looking at the --- I guess the mix skewing a little bit more towards Greenfield or current existing customer accounts?

Well, I think it's a little hard to tell until we kind of get outside of the macro-economics. I would say that once we're through this transition, you would see the -- we would expect to see the same kinds of splits and mixes that we've had in the past.

Okay. I was talking about it more in terms of your current guidance that you have, that you've put out today. So, all right. Then the other thing I was wondering about was with the real carts. If I heard you correctly, you're saying that the first version of the cart's coming out this summer, further integration available in early 2009. The 2009 ones, are those going to be the ones that are getting fully integrated with your system? The ones that were coming out December, are the ones that are just kind of updated?

Yes. The ones coming out this summer have basic functionality and the one later, in the early part of 2009 will have the full functionality that will work with SinglePointe. It will be sort of a dual offering, because when SinglePointe comes out this summer and then the automated mobile system comes out first part of 2009. The initial cart that's coming out this summer is, I would just say it's the basic set of features and functions.

Newton, that's the same schedule that we've discussed before. Just clarification point, the percentage mix of new customers refers to orders. We've actually never talked about the percentage mix of new customers in the installation. When we're talking about the pipeline looking like it has the same mix as we've had historically, and expecting to have that same mix going forward, we are talking about the new orders that haven't closed yet through the rest of the year.

Got cha. Thanks for that clarification, Rob. Randy, thanks for the response. I'll hop back in the queue. Thanks.

Your next question comes from the line of Steve Halper.

Hi. Thanks. This is actually Alan Fishman for Steve. I just had a few quick questions. First, I guess, can you talk a little bit about the companies that buy your leases and the sale lease-- during the sale transactions -- the sale-type leases, can you discuss their appetite for your leases at this point?

Alan, that's a good question. Yes. We have several firms that we do business with that buy the lease drains. Actually in the portfolio, I've been told by them, the portfolios that we're in are doing very well. They are actually looking for more risk than less on a go-forward basis. We're having no problem with being able to sell those lease drains. Now, of course there's always some amount of institutions that are not the best credits and those are always going to be difficult to sell off, no matter what the economic conditions are. Everything is kind of going along as normal with our leasing partners.

Okay. Excellent. Then, I guess my second question has to do with the kind of commentary you're hearing from the CFOs. I guess they are going back and reassessing purchasing decisions. What type of things do you think the CFOs are looking for in order to let those decisions move forward?

Well, of course I'm not in their board meetings or their internal meetings. What we typically hear is just manifested in more review cycles. Now, being in that kind of position myself, what that says to me is those are the sort of things that all CFOs do when there's uncertainty, when there's -- it's unclear what the conditions are going to be. You don't necessarily want to commit yourself to a big capital purchase until you re-review it and make sure it's at the top of the priority list. It's very important to do. It's the most important thing to do in case there might be some sort of cutbacks.

A good thing about that is we have been at the top of the capital priority list for a while now. Patient safety is extremely important. Medication control is very important. In fact, some recent surveys show that medication control devices are at the top of the capital equipment list that people and hospitals say they are going to be purchasing over the next two years. I think once the economic environment settles down a little bit, we'll see these orders coming through.

Okay. Thank you. Oh, Randy?

Yes, just one other thing. One thing we have seen is the- that has extended the cycle is we've seen some people switch from purchase to lease or lease to purchase. People are --- I think when the disruption came, particularly at the mid-March, we saw some people decide they wanted to move away from purchase to lease. It's just added some more time into the processing of getting an order.

Oh, switch from leasing to purchasing or vice versa?

Well, both ways.

Both. Okay.

Yes. We've seen it go both ways. Interestingly enough, we've seen some hospital organizations that we are preparing leases for and going through that type of documentation to suddenly come in and say, you know what, I think we're just going to purchase this. Looks like the economic life of these is long enough that we really just want to own them. We've had other customers come in and say, wow, the interest rates are dropping and my cost of capital, my lease rates are actually going down. Now I want to lease, where they were thinking about purchasing, so it's going both ways.

Okay. Thank you very much.

Your next question comes from the line of Sean Wieland.

Hi. Thank you. What's your best guess as to how long this is going to last?

Gee, Sean, I wish I knew that. I don't think we quite have that crystal ball.

Okay. How about from this perspective. Randy, have you --- you've been in this business awhile. Have you ever seen this kind of behavior in other economic cycles?

Well, not quite like this. I mean we had a definitive drop-off in orders at the end of March, particularly from large orders. That's a very unique thing for us. I think for us, what we want to do is to see a couple of quarters of good orders. That would be the sign to us that things are back on track. In 2005, we also saw some hesitation of order rates from hospitals when the Medicare bill was changed at the end of 2004, early 2005. So there are moments in times when hospital customers, particularly on capital equipment items, will hesitate.

Okay. Can you give us any sense on the magnitude of the shortfall? Was it less than 20%? Was it less than 10%?

Well, as you know, we really don't report the orders so.

I know, but just relative to your own internal expectations.

Yes. It was enough to cause us to take down our go-forward guidance from the 25 to 28% growth to 17 to 20% growth. I think that's a pretty good indicator of how we feel about, at least the immediate future until we see the orders start coming back.

Okay. You said that it was, that large orders were delayed. Could you characterize what you mean by large?

Well, large orders for us, even when we sign a multi-hospital organization that's many, many millions, it's comprised of individual hospitals that order at a rate of about $0.5 million to $2 million each. Large orders when we're talking about that, are generally in the $2 million to $2.5-million range for a hospital. But we did see that the large orders of course, affect us more, but we did see this across the board. We saw it in all size orders which is a little bit unusual.

Okay. Is there a particular profile of customer that was delaying purchases? Or was it all over the map?

All over the map.

Okay. All right. That's very helpful. Thank you very much.

Thanks, Sean.

Your next question comes from the line of Leo Carpio.

Good afternoon, gentlemen. I have a couple quick questions. Regarding this whole problem from the hospitals, slowing down the purchases, if you could just tell us how exactly it happened. In terms of how soon did you know it was becoming a problem? Was it by the end of the quarter or beginning of the quarter?

It was very late in the quarter. The whole profile pipeline looked fairly normal, except for the fact that we had extremely strong January with the orders falling over from the previous quarter. It wasn't until we got into March, and even late in March, where the orders that were solidly expected, by that I mean contracts were done, there were --- credit was all done. Everything was done. It was just a matter of signing the purchase orders. That's when we saw them going into additional review cycles.

Okay. In terms of the additional review cycles, have they -- are these like the standard review cycles? Or is this a short, abbreviated process?

Well, I think every institution has a little bit different capital appropriation process. Some of them have them on periodic basis. Some of them have them on special calls. What we saw was additional special meetings being thrown in, people not available to sign, things like that. All indicators that folks were just stopping for awhile.

Okay. Then in terms of the first quarter backlog, if I recall last quarter you had said you were going to give us some sort of progress versus your annual bogey. How was that quarter-over-quarter sequentially, versus fourth quarter and first quarter? Was that flat? Up?

Well, we're not commenting on the actual number for the quarter, but clearly, it was not on track to meet the previous year-end guidance. That's why we brought down the revenue and the backlog guidance for the end of this year.

Okay. All right. Well, thanks. That's all my questions.

Your next question comes from the line of Steven Crowley.

Hey, gentlemen. One point of clarification. Your new non-GAAP EPS guidance range is 65 to, is it 70 or 75?

70.

70. Okay. In terms of how we should think about the way in which you're going to run and tune your business, given the uncertain environment, analyzing the first quarter revenue performance isn't a whole lot different than the low end of your revenue guidance range for the year. What I'm trying to get to here is --- is there a level at which you're going to normalize the business from here? Does it look a whole lot like first quarter? Then if things pick up, that's our upside? Or are you going take a step lower and then build from that base? I'm trying to get a sense for the slope of the year from here.

Yes. Well, we do have a lot of orders in the backlog. We need to keep the revenue, as you pointed out. The lower end of our guidance would be about the same level as the first quarter. We need to do that to meet the customers' expectations on when those systems are installed. That's the expectation going forward. What we're really doing is holding at that level and kind of setting the business at that level until we see when these orders start closing. We're not doing anything that would put us in jeopardy of being unable to install at the customer's pace or unable to install the --- a lot of the large new orders that we see in the pipeline right now, should they actually close, should the economic conditions change and the orders start flowing in. I think it's a prudent task, or prudent path that we're taking to make sure that we're well in position to take opportunity as it comes.

Okay. Now, in terms of the Rioux business, can you give us a little bit of a feel for how that performed in the first quarter and what kind of contribution? My sense was that the regular way existing mobile cart business was pretty good. Then you have the additional gears in front of us from the product enhancements.

Well, that's true. The product enhancements and the integration with our systems is all still in front of us. It was a --- what we're selling today as the Rioux business is the existing mobile cart that was in the product line when we purchased them. It performed about as expected. As we said, Rioux is dilutive to this year and that was more front-end loaded. That's exactly what happened.

You see our gross margins down quarter-to-quarter. That's pretty much all associated -- well, it is all associated with, in addition to Rioux. The existing mobile cart business is not at the gross margin level that the rest of our business is because there isn't much software content on it. Of course when we bring in our additional software for medication management in the summer and full software in the beginning of 2009, that's what starts to bring a much higher margin product into the market.

In terms of the integration of the Rioux organization into the Omnicell organization, what can you tell us, at least qualitatively, about that process and how it's going?

That process is going very well. It's going better than expected, frankly. It's the first acquisition that we had done for a while. We put a lot of effort into it. Frankly, we thought about it a lot ahead of time. We have folks from Omnicell headquarters on site at Rioux every other week. That whole integration is actually going very well.

Is the right way for us to think about that business as $2.5 million, $3 million a quarter with a nice uptick in the second half of the year and then, maybe something special next year?

Well, what we had guided to when we did the acquisition was about a 5% additional revenue growth which is $10 million, $11 million. We're still on track for that. It's most -- it's dilutive in the first half, more dilutive in the first half, as I said before, and there's an uptick of revenue as we go through the year.

Okay. Thanks very much.

We have no further questions at this time. I would now like to turn the call back over to Mr. Lipps for any closing remarks.

Well, I really want to thank everybody for joining us today. I would like to reiterate that the change in our projected revenue growth is caused by the overall economic conditions. We deliver technology, products and services that truly differentiate us from our competitors. We're out giving the absolute best customer experience in the industry with our products. I expect continued growth momentum for our business in 2008. I'm very confident we can continue to deliver the medication and supply management solutions that our customers want. Thanks for joining us today.

This concludes today's teleconference. You may now disconnect.