Omnicell Inc (OMCL) 2008 Q2 法說會逐字稿

Good afternoon. My name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell's second 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. If you would like to ask a question during this time, (OPERATOR INSTRUCTIONS). Thank you.

Mr. Rob Seim, you may begin your conference call.

Thank you. Good afternoon, and welcome to the Omnicell 2008 second quarter results conference call. Joining me today is Randall Lipps, Omnicell President and CEO. You can find our results in the Omnicell's second 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, Discussions and Analysis of Financial Condition 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 the conference call is July 21, 2008. 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 will then discuss Omnicell's guidance for 2008, and after that, we'll open the call to your questions.

In the second quarter of 2008, we again posted record revenues and our profits exceeded expectations. The slowing economic conditions we saw in March did continue through Q2, and it is clearer now that hospitals had experienced diminishing cash flows from lower interest rate returns on investments and increasing operating costs.

Despite these conditions, orders were within our expected range and we saw some of the larger acquisitions of our products moving towards completion. We expect several on these multi-hospital organizations will complete their purchasing cycles during the second half of 2008. And during the quarter, we saw competitive conversions increase. Our orders during the quarter from new customers increased to 33% of our total orders, which is back within the historical range after a dip in Q1.

New customers are comprised of a combination of competitive convergence and greenfield accounts, where greenfield accounts are those customers installing automation for the first time. In Q2, we saw the competitive conversions return to over half of the new business mix, as customers continued to replace our competitors' products with Omnicell solutions.

Our financial results for the second quarter continued to demonstrate our ability to manage through tough economic conditions. Along with revenues higher than expectations, our non-GAAP earnings were $0.17 per share, excluding stock compensation expenses; $0.01 per share above analyst expectations. As a reminder, we are now fully taxed as compared to 2007, when we enjoyed a benefit from tax evaluation allowances. And profit from our operations measured by EBITDA grew faster than revenue.

Backlog continues to allow us a stability in our financial performance, and we remain within our backlog objective of six to nine months. We continue to drive customer satisfaction through our high-touch sales, service, and installation processes, and we continue to complete installations on the customer's timetable. We have seen no degradation in the overall pricing or general business terms in our market, and our competitive position remains strong, with a robust sales pipeline.

While customers have become more cautious and their buying decision processes have lengthened, we found our products remained competitive during the quarter.

Last quarter in light of the uncertain economic conditions, we indicated that we would increase our staff by no more than 5% during the remainder of 2008. We have slowed our headcount growth and now have 880 full-time employees onboard. We believe this staffing level is appropriate to maintain our customer satisfaction ratings, to continue new product development, and to complete implementation of some of the major infrastructure improvements in our training and our systems area. We do not expect to expand headcount further until the economic environment has improved.

During the quarter, we also announced the closure of our Elgin, South Carolina facility. It became part of Omnicell during the acquisition of Rioux Vision in late 2007. The consolidation of Mobile Cart manufacturing closer to our California development labs supports the strategy of integrating medication management technology with Mobile Cart technology. The facility is scheduled to be closed by the end of July.

Most of the production is moving to contract suppliers, with final assembly and test relocating to an existing facility in California. We incurred approximately $0.4 million of close-down charges in Q2, and will incur another $0.5 million to $0.7 million close-down charges in Q3. We expect the consolidation to save approximately $1.3 million annually.

Now I'd like to discuss our second quarter financial performance. I'll first discuss our financial performance in accordance with Generally Accepted Accounting Principles with year-to-year comparisons.

Revenue for the second quarter of fiscal 2008 was $63.4 million, up 22% year-over-year and up 2% from the first quarter of 2008. On a GAAP basis, gross margins were down as expected quarter to quarter, 51.1% due to the dilutive effect of the acquisition of the Rioux Vision Mobile Cart business and costs of the Elgin shut-down. This compares to 52.8% posted in Q2 of last year.

Operating expenses were $27.9 million, including stock compensation expenses, an increase of $4.7 million or 20% from $23.2 million in Q2 of 2007. Net earnings after taxes are $2.8 million or $0.08 per share, which compares to $18.1 million or $0.55 per share in Q2 2007, when the effective tax rate was only 6% and we booked a partial release of the allowance against our deferred tax assets for a one-time benefit of $12.9 million.

In the current Q2 '08 quarter, our tax rate was unfavorably affected by a year-to-date adjustments due to additional taxes on stock compensation expense for incentive stock options and the employee stock purchase plan. Under Generally Accepted Accounting Principles, a tax deduction is not allowed for these expenses in the period they are booked. A deduction is instead allowed in the period when the employee sells the stock. This causes a timing difference that is not accounted for in deferred tax assets and may affect quarterly taxes.

So far in 2008, we have had fewer sales of stock by employees in these programs, causing fewer tax deductions. In Q2, we booked a catch-up provision to get us to a 43.5% tax rate year-to-date. And this rate will not change unless the pattern of stock sales changes in the second half of the year.

Since there are multiple tax adjustments to GAAP earnings in both last year and this year's results, we believe a good measure of our continued profitability is in EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA was $9.8 million, up $2.1 million or up 27% from the second quarter of 2007.

Now I'd like to cover our non-GAAP results, excluding stock compensation expenses and one-time tax benefits. The only adjustment to GAAP results is the exclusion of stock compensation expense and the release of the allowance against our deferred tax assets during 2007.

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 non-cash expense, we use financial statements internally that exclude stock-based compensation expense or as to measure some of our operating results. We use these statements in addition to GAAP financial statements, and we feel it is useful for investors to understand the non-cash stock compensation expenses that are a component of our reported results. A full reconciliation of our GAAP to non-GAAP results is included in our press release and will be posted to our website.

Our 2008 -- or Q2 2008 non-GAAP net income was $5.7 million or $0.17 per share, which exceeded analysts' consensus by $0.01 per share. Profitability in the quarter was aided by a more favorable than expected mix of lease renewal business, by management of staffing levels, and by a partial completion of an authorized $50 million stock repurchase announced during the quarter. During Q2, we repurchased $25 million or 1.9 million shares of common stock at an average price of $12.91 per share. The repurchase contributed to our profits during the quarter in a very modest way, but is expected to be accretive to earnings by $0.01 per share per quarter, prospectively.

Finishing up on profit, our Q2 2008 non-GAAP net income was down $2.2 million, or 28% year-to-year from Q2 2007 non-GAAP income of $7.9 million, and driven by increases in the effective tax rate. Our cash and short-term investments were $123 million at the end of Q2 2008, a decrease of $20 million from the end of 2007 -- the end of last quarter, excuse me. During the quarter, the $25 million we used in the stock repurchase was offset by $5 million cash provided from the results of operations.

Our day sales outstanding were 61, a decrease of seven days. I'm very pleased with our collections effort during the quarter. Our receivables aging is very, very current. Our inventories were $15.5 million, flat to Q1 '08.

With that, I'd like to turn the call over to Randy to provide an update on the business.

Thanks, Rob, and thanks for joining us today. With new reports highlighting a slowing economy published almost daily, the environment for our hospital customers to start new capital projects is challenging. Nonetheless, we are managing to optimize the business. We are balancing expense management with our continuing focus on the levels of customer satisfaction that we believe differentiate us in the market. We continue to see hospitals add on to their current installations, install automation for the first time, and switch from our competitors' products to ours.

And as Rob mentioned earlier, Q2 orders from new customers were 33% of our total orders, and competitive conversions increased to over half of those new orders.

In June, we began shipping our SinglePointe solution, which allows hospitals to manage up to 100% of the medications through an automated dispensing system. SinglePointe is the first of its kind in the marketplace and provides a solution available nowhere else. In April, we hosted several regional roadshows where our Beta partners presented their findings after implementing SinglePointe. Both current and prospective customers learned about our new solutions at these meetings. Participants from over 100 hospitals attended, and heard our beta partners present results that included a 31% decrease in missing doses; a 55% reduction in the time required to manage specific -- patient-specific medications; and a 70% reduction in potential medication errors during their use of the SinglePointe solution. SinglePointe has been very well received since we announced it last December.

Looking forward to the remainder of 2008, we continue to see a pipeline that is very robust, including excellent opportunities at large multi-hospital organizations. We see ourselves positioned well competitively, and are optimistic about our ability to close these opportunities in the next two quarters. We have approximately 2.5 quarters of product revenue in backlog, and we continue to generate high marks in customer satisfaction.

In light of recent and ongoing press coverage of medication errors, especially in pediatric areas, we see hospital customers continuing to seek our solutions to help them safely manage medications to prevent errors and increase patient safety.

Rob, I'll turn it over to you for some guidance.

Okay, thank you. So, following the results of the second quarter, we are reaffirming our previous guidance for 2008. We expect revenue to be up 17% to 20% from 2007. We continue to believe product backlog will be between $135 million and $145 million at the end of 2008, and will remain approximately 2.5 quarters at future product revenue.

The benefits of our earnings performance in Q2 and of our stock repurchases that we've completed to date have caused us to expect earnings to be at the high end of our previously stated range of $0.65 to $0.70 per share, non-GAAP, excluding stock compensation expense.

In this earnings guidance, we have absorbed the cost of the Rioux shut-down. During Q3, we will incur the remainder of the cost to shut down our South Carolina facility, and some additional expenses to complete strategic projects that we believe will make us stronger in the future.

Now I'd like to open the call to questions.

(OPERATOR INSTRUCTIONS). Newton Juhng, BB&T Capital.

I had a question. Just off of the last call, we talked a lot about CFO concerns, and I was just wondering if you could give -- within the hospitals -- and I was wondering if you could give us an idea as to what has gone on with your interaction with them that has caused you to believe that you're going to see the uptick in the back half of the year?

Well, CFO's are definitely still concerned; don't want to give the impression that we don't still see that. Yes, we talked about the credit markets a lot last time, just causing a lot of angst amongst the financial management at hospitals. That's still there and I think it's going to take some time for that to go away.

On top of that, we're, as I said in the call, we have learned that a lot of hospitals have less interest income, less cash flow, even though their admissions are the same and their reimbursements may be the same; they just have a lot of less cash flowing through their systems. And their operating costs are up with so many of the things that they purchased being based in petroleum or just the freight in on it.

So we still see that kind of environment. We have been working, though, over the last six months to, of course, make sure that we're as competitive as we can possibly be. The SinglePointe product in the marketplace now is definitely gaining a lot of interest. It's just a lot of following for it. There's always large hospital organizations that are in the process. And as I said and Randy said, we see several large hospital organizations in our pipeline and moving through their process now, where they had been beginning of last quarter, more stalled.

We have additional leasing partners on, in case there's any concerns with financing with our customers. We have more lease capacity available to us. So, all of that gives us some visibility to what is coming. It's still a little bit unclear to us exactly how fast or how slow the market is moving, but we're 90 days smarter now from last quarter and we can see what's coming in front of us.

Okay. Thanks for the comments there, Rob. And I guess, one of the things I was just wondering about is just with the share buyback here. You said that you had 25 million done at the end of the quarter. Can you give us an update just where you are right now? Is there still some room left there? Because we're just trying to figure out what level of share count would be appropriate for the third quarter.

So, right now, as of this point, we have not repurchased any more shares past the 25 million. We do have in our plans to continue repurchasing against that authorization once the open window opens for us. We don't have any specific plan in place at this point in time. The Board authorized us to execute that repurchase over the course of the year and we still intend to do so.

Okay, great. And just one last question here -- on competitive displacements, it sounds like it came back pretty strong this quarter. I was just wondering if you could give us any update as to, one, how that's looking going forward for you guys in terms of your pipeline. And then two, Cardinal did announce a bunch of announcements in June about some product changes. And we're wondering if you had a chance to kind of take a look at that and see if it has any effect to what you're expecting going forward?

Yes, I'll take that one, Newton. First of all, on the competitive front, I think we're extremely well positioned. It really hasn't changed any bit since we announced the SinglePointe, which is probably the most dramatic announcement and product release in the last couple of years in our industry; and feel that that particular product is helping us drive more competitive interest in our product, and we see very robust pipeline as we move forward with that product line.

We did see a new entrant in the marketplace with a product that is mostly targeted to a different market than ours -- not the hospital market -- that has some features that our product already has. So we didn't think that announcement really had any impact on our competitiveness in the marketplace, and feel that we continue to be extremely well positioned as we move forward.

Okay, Randy. Thanks for the comment.

Steven Crowley, Craig-Hallum Capital.

Good afternoon, gentlemen. Nice performance. A follow-up question to the issue around the competitive landscape. Some of the insinuation by one of your competitors related to them doing a better job with customer satisfaction, service, the whole experience. Having looked at the MD Buyline numbers or statistics for the first quarter, that didn't seem to show up in those statistics in a meaningful way. You probably had a glance at the second quarter statistics, and I'm wondering if you can give us a flavor for what they -- what kind of story they tell?

Well, the MD Buyline statistics continue to show Omnicell very favorably against any of our competitors. We're generally the overall composite either above the competitors or consistent with the competitors, usually above over the past -- I think it's 18, 20 quarters.

So, I don't know what the particular claims are, but we don't feel that we've seen any degradation in our service capability. In fact, we've invested pretty heavily in that, as you know, to keep the service as a differentiating factor for us. And we do a lot of surveying ourselves, when we talk to our own customers probably a lot more than MD Buyline talks to them. And we're pretty fair with ourselves and pretty harsh on ourselves in that regard, and expect our customers to be also. And our own internal surveys have been very favorable. So, we're feeling pretty good about our customer satisfaction.

Yes, let me just also comment, we're just not -- people aren't just choosing us because we have a little bit better service or even a lot better service; it's a lot about product, types of releases and the future of our product, where we've taken our product, the roadmap. People are really looking for the next generation of product to help them deal with these difficult medication issues. We've seen that more in the news, as I mentioned, and we actually see some states stepping up and fining hospitals for improper medication management within hospitals, which is probably the first time those kinds of activities have happened.

So, there's a lot of pressure on the hospitals to make significant movements to managing all of their medications. And that's important for us, because that's the road that we've taken with our product line. And I think it rings very true to what hospitals are trying to accomplish in the marketplace.

I trust SinglePointe is a rather significant arrow to have in that quiver.

Yes, and that's exactly it. And whether you're ready to roll out SinglePointe or not, eventually you will be. And so if you're about to make a five to ten-year investment with Omnicell with our product line or switch out from a competitive product, you want to understand what the roadmap is in order for you to get where you want to be, which is 100% tracking of your medications to meet regulatory -- not only to be safe, but just to meet regulatory requirements. And so we feel like we're the best positioned in the marketplace to address those.

Is that product availability or the prospects of it or the thinking long-term in customer's plans, definitively helped you win some sizable chunks of business as of yet?

No question. No question. And we just released -- started shipping it and we've got some robust orders for it. But whether they deploy it on the first order -- and we've had some customers order it the first time with us on an order -- or you're planning to roll it out later in your process, it has been made a big point of discussion with our customers.

Okay. One final question, then I'll hop back in the queue. Related to the service gross profit margin in the quarter, is that where some of the real expense had to knock that down? Or was it just a utilization, a personnel story that will resolve itself or likely resolve itself -- I guess it's a two part question -- will it resolve itself and move back towards 40% over the back of the year?

Yes, there are periodic times, Steve, when we do stock up our service parts depots. We have some products, as you know, that we OEM in our central pharmacy line. And we have decided to stock up more parts, carry more parts on those. Those affected the margins during the quarter and that's kind of a one-time deal.

And there were some Rioux charges in the quarter in service also. We have invested a lot in service. We had fairly intentionally brought the margins down there, but continue to maintain or improve our product margins. So it's kind of in the overall strategy of how we deliver our products to the marketplace. But the 40% range is kind of where we've been and seeing that business will be.

That's very helpful. Thanks. I'll hop back in the queue.

Tom Gallucci, Merrill Lynch.

Just a couple of housekeeping items first. Maybe I missed it, but the costs of the Rioux shut-down -- where are they, just on your (technical difficulty) statement so we can make sure we identify that?

The cost of the Rioux shut-down they're talking about is a one-time charge or -- sorry, do we have some echo there?

I heard you.

Yes, the costs of the Rioux shut-down are not called out as a one-time charge or an extraordinary charge of any sort of kind. They're kind of small to the overall basis of the business, so they're just embedded in the various line items where they would naturally fall. So they are both in costs and OpEx.

Okay. So not predominately in either?

Predominately in costs.

Okay. And then the DSOs, down a lot. I guess two questions there -- what's driving that? And did it change your cash flow expectations at all for the year?

In the past, as DSOs have fluctuated, there's been some explanation around different leasing content and things like that. But in this case, this quarter, it was just all collections. The collections team here did a -- just a phenomenal job. I expect that DSOs will hover in the 60s. I don't think that we're -- we've got anything that will really get the DSOs a lot better now. The aging is very good. So, I've said in the past that that's kind of the national place of this business.

Okay. So they may be up a little, they may be down a little, but we're sort of at 61, so that's almost as good as it gets and we should be sustainable in this range?

Yes, I think in the 60s is pretty normal for this business, as I said.

Okay. And then I guess, just given some of the dynamics that are out there are around the health of the customer base, sort of two big picture questions. One, you notes the CFO's are still sort of concerned. Is there anything out there that you see that sort of is a light at the end of the tunnel at some point? Is there any particular metric that CFO's are looking at? Or that you can tell that says, hey, we're a couple of quarters away and things will be more back to normal.

And then I guess on that note, how do you sort of peg the market growth rate at this point for the business and what your market share is?

Tom, let me just start with hospital CFO's a little bit. I think there's a lot of -- every institution has a story, but you see the academic centers doing fairly well and continuing to spend just because I think they have other resources of cash. You see people who have lots of building projects that have -- you know, they've got to buy our product because they got a new facility opening up and have to put products in place. So, we don't see a lot of slowdown in some of those areas.

Then you see some small hospitals where people are automating for the first time to meet regulatory requirements. They have to go ahead and spend that money. And you see people that may have options to expand or to upgrade; their products maybe move a little bit slower because maybe they don't have to do something at this moment, because they have something in place. And you see -- and you don't see them canceling their decision to move forward; you just see those kind of delaying out there.

So I think those are the types that are really in question as to when people feel more comfortable. A lot of talking about pushing out their orders into the 2009 -- not pushing out their orders, but maybe push out some of their orders into the 2009 capital spend, which for some hospitals started July 1; others will start January 1.

So it's still all in the pipeline. It's just a matter of how quickly it thaws and some of us definitely thought, and I think depending on what kind of institution you're in and the economics that you're facing, it will just dictate the rate of fall. But it's certainly not sort of a gridlock we saw, I think, in the early end of March, beginning of April.

And we'll just have to continue to see what it looks like. But hospitals have to have our products and they've got to solve these problems, and we're best positioned for that.

And then market growth and where your market share is these days?

Well, we're 25% of the market. And we think it's a healthy market and will continue to grow. I mean, historically it's grown probably in aggregate somewhere between 10% and 15%. And we've typically been able to grow faster than that. And just a lot of lot depends on what happens the back half of this year, particularly as to how fast we will grow immediately after that. But it's -- you know, again, it's about how quickly we see some of these hospitals come back to life.

Well, thanks for all the color.

Glenn Garmont, Broadpoint Capital.

Just a couple of quick questions. First, on the re-use side, has the salesforce started selling that integrated product at this point? And what's the reception been? And then secondarily, when can we expect you to begin shipping that product?

And then, Rob, I just want to make sure I heard you correctly -- sort of the average tax rate through the first two quarters, 43%, about 43.5% -- that should be the expectation for the foreseeable future, as well?

Yes, so let me take them in succession. The Rioux product, if you remember, the integration plan for the Rioux Company has already taken place. For the Rioux product to be integrated with our medication control software was a two-phase. This first phase was to just put our bedside software, which is called SafetyMed, onto the Rioux product. And that has just been completed; just announced that it's available.

But the main product there is to put the full OmniRx capability on to the Rioux in a mobile wireless type of cart environment, so that they worked in tandem and worked together, the Cart and the OmniCenter OmniRx. And that won't -- that engineering work isn't planned to be done until the beginning of next year, the first half of next year. And that's when we'll put that in the marketplace. And we're selling the overall roadmap, but we aren't selling the product yet; it's too early to start taking orders on that product. It really hasn't even been through its beta testing cycle yet.

So, we're on track with the developments, but at this point, the Rioux business is actually in the marketplace except for SafetyMed being available as the original Rioux business that we bought.

As far as the tax rate, yes, you heard right. We're at 43.5%. You can kind of think of federal tax as 35% and the state's average about 5% to 6%. And then right now we're not getting a deduction for this incentive stock option, employee stock purchase plan expense. There's a timing difference going on, that will kick in when people start exercising or selling their shares, disposing of those shares.

Okay, thanks, Rob.

Steve Halper, Thomas Weisel Partners.

On the gross margin, it looks like it declined from a year-ago level. Can you just talk about that? Do you still have the issue of the SG&A cost moving into the cost of goods sold? Or are there Rioux costs, shut-down costs, in that gross profit line -- just kind of give us some more insight into the gross margin erosion.

Yes, well, there's the main factor year to year is the dilutive effect of the addition of Rioux, which you recall, when we did the acquisition, we said it would be $0.05 dilutive and kind of strong, more dilutive in the beginning of the year and less towards the end of the year. And that's still the case, that's still affecting us.

We also do have $400,000 of shut-down costs associated with the Elgin, South Carolina facility in the quarter. And most of that, as I said earlier, is in cost of goods sold.

Right. So is there any reason to believe once you have a more streamlined manufacturing process, like you have for your existing products, that Rioux wouldn't have comparable margins to your cabinet business?

Rioux will not have comparable margins to the cabinet business until we have the fully integrated product out. As it ships right now, it does not have software other than the battery management software on it. And it was -- I think I'd said before in the past, it was, depending upon the model, it's kind of 30%, 40% margin products as they're designed. So, yes, that business will not bring the same margins as the cabinets until the integrated product is out. We do expect (multiple speakers) --

Remind us of the time line on that, again?

The fully integrated product is the first half of next year.

Okay, great. Thanks.

Sean Wieland, Piper Jaffray.

Just want to pick away at this rate of thought question that we've been touching on. Have any of the customers that are in the pipeline that delayed out of Q1, have any of them given you a verbal commitment or indication on when they intend to sign a contract?

Oh, absolutely -- or have signed contracts.

Okay (multiple speakers) --

As Q1, you mean people at the end of Q1 who haven't signed contracts that got pushed out? Yes, absolutely.

Okay. And so you have verbal commitments for those contracts to be signed in the second half?

Verbal or they've -- it actually has already been signed.

Yes, some of them had signed an order.

Okay, so, what percentage of them have been signed?

I don't have that in front of me, but they're all in the pipeline and they're, I would say, fairly much in the near-term (multiple speakers) -- go ahead.

Okay. So of the deals that haven't signed yet, how are they factored into your current thoughts on the backlog guidance?

Well, I think the difference is, is that depending kind of on how we've segmented our business based on the probability of being pushed out again. And what we generally see is people who are buying for the first time from us in a large order may be more susceptible to a timing difference, based on pushing through the contract and reconfirming all configurations and reconfirming budget cycles. But current customers or accounts that are better positioned to make acquisitions faster or generally have more cash or whatever, we're more -- we obviously would rate at a different pace.

But the thing that we feel real confident about is the pipeline has not really diminished at all. It continues to increase. It's bigger than it was last quarter, obviously. And it just depends on really handicapping some of the larger deals based on their individual timing issues.

Okay. Great. And then one other thing on the Rioux, the Q3 costs, Rob, what was that again?

It's between $500,000 and $700,000. It's the facility shut-down costs itself as we exit the buildings.

Okay. Then that goes away for Q4?

Yes.

That's it for me. Thank you.

Scott Haugen, Tygh Capital.

What was the month one, two and three linearity of sales this quarter versus last quarter when you had a tougher time?

Well, I don't know that Q1 is actually a very good measure. It was such an odd quarter. As you recall, in Q1, we had a very, very strong January. We had the strongest January we'd ever had, which gave us a level of confidence going into the quarter, and then it went very dry through the middle quarter. And the end of the quarter was not as strong as they typically are.

This quarter, Q2, had a pattern that was very consistent with all the patterns of quarters in the past. And I don't think any sales quarter is linear, but it was very consistent with patterns of the past. So, yes, that's another indicator that deals are starting to move and people are kind of getting towards -- moving a little bit back towards normal.

Yes, I guess I'm just trying to wonder here if there's any sort of spill-over. Did you have a particularly strong first month of the quarter with spill-over from some of those cancellations or delays you saw in Q1?

No. No, we didn't. I think I actually said that on the call back in April -- we did not see a bunch of spill-over from March into April like we did from December to January. In December to January, it would really -- appeared to be a timing issue, because all the deals that spilled from December all closed in January. We did not see that from March to April.

Do you see any changes with the percentage of business you're doing in leases now versus Q1, given the credit markets and the news we've heard out of GE Capital and all that?

No, not -- well, I guess that the leases are a little bit stronger during Q2, but it's nothing that is a material trend. So our lease business still remains around 40% of our business.

We did bring on, as I mentioned, we did bring on additional leasing partners, though, to just give us more capability during the quarter.

I'm just kind of wondering how much of an impact that leasing in the credit environment had on your weaker Q1 versus more economic fears from these CFO's -- or if you could weight kind of credit weakness versus fears of economic weakness, what would you pin it on more?

The credit weaknesses were isolated and they were kind of oddities. It wasn't that a hospital couldn't get credit that could in previous quarters; it was more that hospitals had credit partners -- if not us, but their own lines of credit that occasionally something was going wrong with some of those credit partners. I think those things have kind of been in the news. And they also had to change partners. And so that slowed them down. There was a period of time that they had to go through to make that change.

I would say the general, just kind of overall fear, as you described it, would be the thing that we saw as slowing down the general environment more.

Okay. And then I guess, final question -- if you look into your pipeline of business versus this backlog and then your revenue guidance, how dependent on hitting your actual numbers in guidance this year are you on a couple of very large deals or megadeals, whatnot? What would be the dispersion of deals you need to see you to hit your revenue and earnings guidance?

Well, for this year, all of the business is in backlog now. So, for the 2008 guidance, that's pretty much -- we pretty much know what's going to happen there in terms of revenue.

I guess then to see your backlogs stay the same and hit your guidance then --?

(inaudible) Okay. For our earnings guidance, of course there is always the element of managing our costs and expenses and inventories and so forth.

As far as hitting the backlog guidance, of course hitting the backlog guidance is dependent upon some large deals being in the mix. We always have, as I've said before, we always have many deals in the quarter -- hundreds; 500, 600 deals in a quarter. But there are a few of those deals that typically are quite large and have an impact on a quarter with the timing of them, where they have one quarter where they hit the next and can have a pretty substantive impact.

Okay. Guess that's all I have. Thanks.

Your final question comes from the line of Leo Carpio with Caris & Company.

Good afternoon, gentlemen. I apologize, you probably covered this topic already -- going back to the competitive environment. In terms of this quarter versus the prior quarter, what changes did you notice, in particular from [Pixis] and some of the other major competitors? Did they change their posture in terms of products or leasing terms that they offered? Just any color would be appreciated.

No, we didn't see any dramatic changes. I think we go after about 100 competitive convergents a year, and about half of those we win and half we don't. And we've continued to run along at that pace and don't see that pace slowing down at all.

There was a new introduction of our product, but we have had no impact from that, and I don't even know if it's been involved in a deal that's been involved that we've had. We've seen -- haven't really seen much that's really changed our positioning, which is really based upon the SinglePointe software we discussed. And that becomes the real topic, is, how do you really deploy the next generation systems to address the increased regulatory environment and patient safety requirements to get to?

And so, there's been nothing in the marketplace that stem that kind of discussion. And so I think that positions us really well. And we have a reputation on service and installation and response time, and a bunch of other things that we also talk about. So, those continue to be -- put us in a good position to win a fair number of highly contested deals.

Okay. And just a last question -- in terms of the credit crunch impact, was that mostly focused on the mid-size community hospitals or the large hospital systems? And was there any region-specific that was weak versus other regions, in terms of --?

It seemed to be pretty individual stories throughout the country that -- where the credit impact took place. And it just depended on whose partner was with which hospital group and what the terms of their deal were, and whether they could get a better deal because the interest rates are changed or risk factors had changed at these institutions, where they were going to charge higher amounts, so they went out and got a different group to -- it takes time for hospitals to do this. And a lot of these large hospitals, it takes a lot of time to go through and set these lines of credit or leasing up.

And so I think the people that needed to change have changed. But I still think that capital acquisition committees and folks are still cautious on exactly when they want to spend the dollars with Omni, so not necessarily if, but how and when. And we pretty much reconfirmed those in the marketplace and feel good about going forward.

Operator, was that the last question?

At this time there are no further questions.

Well, great. I'd like to just summarize by reiterating that we are doing well, considering an environment that has become less favorable to large capital equipment projects. Omnicell -- we're profitable and cash flow positive. The technology of products and services we provide do differentiate us from our competitors, and we deliver a customer experience that we believe is the absolute best in the industry.

The market we serve needs medication management solutions to provide the safe patient environment that everyone wants, and I believe our products offer the absolute best solutions to meet those needs. And thanks for joining us today and we'll see you next time.

This concludes today's Omnicell second quarter earnings conference call. You may now disconnect.