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Executives

Rob Seim – Vice President, Finance & Chief Financial Officer

Randall A. Lipps – Chairman, President & Chief Executive Officer

Analysts

Steven Crowley – Craig-Hallum Capital

Sean Wieland – Piper Jaffray

Newton Juhng – BB&T Capital Markets

Glenn Garmont – ThinkEquity

Gene Mannheimer – Auriga Securities

Leo Carpio – Caris & Company

Alan Fishman – Thomas Weisel Partners

Omnicell, Inc. (OMCL) Q4 2008 Earnings Call January 29, 2009 4:30 PM ET

Operator

Good afternoon. My name is Ella and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth 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. I would now like to turn the call over to Rob Seim, CFO of Omnicell. Sir, you may begin your conference.

Rob Seim

Thank you and good afternoon and welcome to the Omnicell 2008 fourth quarter results conference call. Joining me today is Randall Lipps, Omnicell Chairman, President and CEO. You can find our results in the Omnicell fourth 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 the 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 Discussions 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 January 29, 2009. And all forward-looking statements made on this call are made based on the beliefs of Omnicell’s of this date only. Future events or simply the passage of time may cause these beliefs to change. Finally, this conference call is a property of Omnicell Incorporated and any taping, other duplication or rebroadcast without the expressed written consent of Omnicell is prohibited.

During the call today, I will start with an overview of the financial results for the quarter and for the full year of 2008. Followed by Randy, who will cover some of the quarter’s business highlights. I will then discuss our guidance for 2009 and after that we will open the call for your questions. Fourth quarter revenue met objectives and profit exceeded expectations. However, order volume was less than expected as global economic conditions caused major new customers to slow their acquisition processes.

Backlog, which consists of firm orders due to completion, or due to complete installation within one-year, was a $110 million considerably short of our expectations. While two large contracts and orders with the Duke University Health System and with Emory Healthcare were received in January, we believe the economic environment that is causing our customers to postpone their acquisition decisions will continue well into 2009 and we will experience delays in closing contracts.

We do not see our competitive position changing, we do not see a loss of market share, and we do not see fewer greenfield or competitive swap out opportunities in our pipeline of potential orders to 2009. In the fourth quarter, 30% of our orders came from new customers. New customers are comprised of a combination of competitive conversions and greenfield accounts or accounts installing automation for the first time. The split between greenfield and competitive conversions was about 50:50. The new customer volume continues to broad-based and was not driven by any one particular new customer.

Orders from new customers comprised 33% of our total orders for all of 2008. We continue to see developments of our international business with orders from Europe, Asia, and the Middle East in Q4. We believe international opportunities are good source of growth for us and expect international orders to increase, to be up to 5% of our orders in 2009. The credit markets were challenging for some our leasing partners during the quarter, but we continue to shift our business to other leasing partners that are not as challenged by the current market.

We were able to pay in financing for all customers that were ready to place an order with us in the fourth quarter at immediate credit. Providing financing alternatives to our customers remains an important part of our business and one that we have so far been able to manage with no disruptions to the sales process. We did see a delay in collections in the fourth quarter due to the transition to new leasing partners which drove our receivable balance higher than it has historically been. This is mostly a paperwork transition from customers who signed leasing documents with one partner at the time of placing an order and are now signing documents with a new leasing partner at the time of installation. We expect this receivable issue to work itself through in Q1 of 2009.

Now, I would like to discuss our fourth quarter financial performance. I will first discuss our financial performance in accordance with Generally Accepted Accounting Principles, with year-to-year comparison. Revenue for the fourth quarter of fiscal 2008 was $62.1 million, up 7% year-over-year, but down $2.3 million or 4% from the third quarter of 2008. Revenue for the full year of 2008 was $252 million, an 18% increase from 2007 revenue of $213 million and consistent with our guidance. Net earnings after taxes were $3.3 million or $0.10 per share, which compares to $14.3 million or $0.39 per share in Q4 2007.

Net earnings for the full year of 2008 were $12.7 million or $0.38 per share, which compares to $43.3 million or a $1.28 per share in 2007. Now, there are several one-time tax impacts affecting both 2008 and the prior year. And 2007 results were positively affected by a one-time benefit associated with the partial release of an allowance against our deferred tax assets. The total of $7.2 million or $0.20 per share in Q4 '07 and $20 million or $0.59 per share for the full year of 2007. 2007 results were also positively affected by an overall effective tax rate excluding the one-time benefits of 4% driven by utilization of net operating loss carry forwards. In 2008, Omnicell no longer has the benefit of net operating loss carry forwards and its fully taxed at the statutory rates.

However, results did include a benefit from a study of our utilization of tax credits, which included in Q4 rates. The study produced favorable results, which cut our full year 2008 effective tax rate to 39% and produced an additional one-time tax benefit of $0.02 per share. We do believe the availability of tax credits will continue through 2009. And now expect our effective tax rate in 2009 to be between 40 and 42%. Now, I would like to cover our non-GAAP results, the only adjustments to GAAP results are the exclusion of stock compensation expense, the exclusion of one-time tax benefits in 2008 and the exclusion of one-time tax benefits in 2007 related to the partial release of our reserve of deferred tax assets.

Stock compensation expense includes the future estimated value of employee stock options, restricted stocks and our employee stock purchase plan. In stock compensation expense is a non-cash expense and 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 that 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 Q4 ’08 non-GAAP net income was $5.5 million or $0.17 per share, which exceeded analyst consensus by $0.01 per share. Our Q4 2008 non-GAAP net income was down $4.8 million or a $0.11 per share year-to-year from Q4 ’07 non-GAAP income of $10.2 million were $0.28 per share driven primarily by becoming fully taxed in 2008.

Full year 2008 non-GAAP net income was $0.71 per diluted share, compared to $1.02 per share in 2007 driven again by the effective tax rate. These results for 2008 exceeded our guidance range of $0.65 to $0.70. EBITDA for earnings, before interest, taxes, depreciation and amortization was $7.9 million for the fourth quarter of 2008, down $2 million or 20% from the fourth quarter of 2007. For the full year of 2008, EBITDA was $36.9 million, an increase of 9% in 2007.

Our balance sheet remains strong. Our cash and short-term investments were $120 million at the end of Q4 2008, a decrease of $5 million from last quarter. Our days sales outstanding were 86, an increase of 16 days driven by the transition to new leasing partners, I mentioned earlier. Our receivables are very current and view the receivable increase as short-term. All other results from operations outside receivable generated $5 million in cash flow, partially offsetting the increase in accounts receivable.

And our inventories were $11.8 million down $1.9 million from Q3 ’08. Now, I’d like to turn the call over to Randy to provide an update on the business.

Randall A. Lipps

Thanks, Rob. I would like to start by commenting on some of our recent customer wins. We continue to flow significant new orders for some of the best healthcare facilities in the world. The Duke University Health System recently signed a contract for a full suite of medication automation products, which includes our new SinglePointe solution, operating room systems and automated dispensing system. In addition, Emory Healthcare signed a system-wide contract for a wide range of products from simple pharmacy to automated dispensing systems with our highest security technology.

We now count ten of the U.S. news and world reports, 15 top ranked hospitals in the United States as customers. Earlier this week, we announced that the University of Florida, Shands Healthcare will be utilizing our operating room supply product, which is a complete physician preference card system and perpetual inventory management system for the operating room, which significantly improves charge capture. Customers such as Duke, Emory and Shands go through lengthy decision processes, where all of the competitive solutions are examined and detailed and we are very pleased to be chosen the supplier of the medication and surgical supply management solution.

Over the last 60 days, we have announced new products and our continued steps towards increased customer intimacy that will drive growth in Omnicell once the economic environment improves. We are disappointed with the order volume in Q4 2008, but we continue to position our company to take advantage of the available market when the economy recovers.

In December, we announced further extensions to our product line with a version 14 of our software. 14 provides significant enhancements to our operating room system for anesthesiologist including a case management solution that significantly reduces the workflow steps in managing drugs in the operating room setting. Allowing increased flexibility that improves patient safety, while maintaining the control that is needed. Also included in the release is Anywhere RN, a solution that allows our automated dispensing systems to be managed from any computer station within the hospital. Among other benefits this features facilities significantly improves controls in dispensing of our drugs.

Looking forward we continue to see a pipeline that is robust including excellent opportunities at large multi hospital organizations and new opportunities in the international market. We don’t have a lot of clarity on the speed that these opportunities will close. So, we've set the operating level of the company consistent with the order volume we might expect. Earlier this week, we reduced our workforce to 744 regular employees. We also significantly reduced our temporary workforce. We did so with particular attention to minimize the direct impact on our customer facing field team]in an effort to maintain continued high levels of customer satisfaction.

While these are difficult decisions, we believe we are at the right level to maintain service to our customers and remain profitable and cash flow positive in these challenging times. We believe our solutions are important component of safety and healthcare today and regulatory agencies continue to impose entry safety requirements that drives rather adoption of medication management technology. We continue to believe that the majority of the hospitals in the United States have only partially implemented these types of medication management solutions and I am very confident in the long-range prospect for Omnicell. Rob?

Rob Seim

Guidance for 2009 remains at the levels we discussed last week. We expect 2009 revenue to be between $200 and $210 million for the full year of 2009. We expect to take a one-time charge associated with our reduction in workforce completed this week of approximately $2.5 million and we expect $0.30 to $0.35 of non-GAAP EPS excluding stock compensation expense and excluding the one-time charge for the full year 2008. We only see a partial benefit from the staff reduction in Q1 and expect Q1 profit to be in the range of $0.04 to $0.06 per share. Excluding stock compensation and the one-time charge.

We see a strong order pipeline with several larger purchases in process, but we do not yet know how the current economic conditions may affect the timing of those and other orders. At this point, we expect this revenue level to maintain backlog at the $110 million level by the end of 2009. We expect to operate through the year with backlog within our stated objective of 6 to 9 months of forward revenue. Now, I would like to open the call to your questions. Operator, if you could open the line.

Question-and-Answer SessionOperatorYes sir. (Operator Instructions). Your first question comes from the line of Steven Crowley of Craig-Hallum Capital.Unidentified Company RepresentativeIt took forever.Steven Crowley – Craig-Hallum CapitalGood afternoon gentlemen. Thanks for taking my questions. In terms of the two deals that you put on the Newswire yesterday, or in recent days Emory and Duke. You referenced them earlier in your prepared commentary about them being January deals. For what we can gather, they most like they were competitive swap-outs, first of all could you confirm that and maybe talk to us a little bit about the impression that these deals slipped from Q4 and the kind of things that led them to slip and let them to close, I guess somewhat surprisingly here in January?Rob SeimWell I do not know if there is any surprises about this, these are large transaction for us, large deals. We are very pleased to win both of them they were competitive swaps. Deals like this are in the works for a long time, our sales cycle as we mentioned before can range anywhere from several quarters up to a couple of years. And these deals have been in the works for many quarters. Like I have said before at any one quarter, we’re typically working on 5 to 10 relatively large deals. They do not all close in the quarter, there are many, many things that can make a deal slip from one quarter to other, there are big decisions for these institutions that lot of people are involved. That is one of the reasons why we're so pleased to win these, because you really have to get many people in the organization to be in agreement about moving to our systems and clearly they were in these cases. But, there is contracts to complete, there are their own assessments of various lenders, there is their own appropriations process for the capital. So, there is many things that the hospital has to think about and go through before they can complete a transaction like this. They can easily make it move from one quarter to another, and even to a second quarter. We are just very happy to have won these two deals, and very pleased that they chose Omnicell.Steven Crowley - Craig-Hallum CapitalThen the fact that you were able to get these deals closed in January, give us any indication that there certainly is capital out there for some players, really in calendar ’09 because typically the capital has been gathered to consummate a deal like that as a question I guess in the form of a statement?Rob SeimWell, there is certainly still capital dollars available. The hospitals are not closing down and they are not stopping their purchase entirely. They have had to step back and reassess where they are spending their capital because, typically they have a little bit less in a economy like this or a lot less in economy like this. Our systems are important from a patient safety perspective, they typically fall pretty high on the capital appropriations list. Our customers may have to stop and, reassess how much they have to spend, but very frequently when after they have done that we are still on the list, but we have to go through that process of reassessing. I do believe and we all believe that there will be capital dollars in our customer's budgets for our systems, but it's just a little unclear how long they will take these deals to close.Steven Crowley - Craig-Hallum CapitalGreat. Second topic lost in the reset of financial expectation here its been a discussion of REU and your strategy from the Mobile Cart and the integration with your medication management systems software. Has the plan changed to any degree and maybe you could just update us on the prospects for REU as we move through 2009?Unidentified Company RepresentativeRob and I laugh all the time?Rob SeimThe prospects for REU are the same as they have been. We, as you recall we bought the REU companies as the Mobile Cart with an integrated computer on it and our intention is to put our medication management control software onto that cart and have it fully integrated with our OmniRx systems with SinglePointe. We are still on that process, we still expect to make that system available in 2009, it's not the easiest thing in the world to do, but we are on-track to get it done. We still believe that that is a, that can be a fairly robust market and we still see it as essential significant part of our revenue stream in the future.Steven Crowley - Craig-Hallum CapitalMakes enough to give us some indication about international in terms of REU. Does it have a shot at being, approaching 10% of your business in 2009 at the new levels or what kind of indications can you give us in terms of it's prospects?Rob SeimWell we do believe that that product line could be 10% of our revenue stream at some point in the future, but the product doesn’t come out until well into 2009 and there is the typical sales cycle. So, we are really not expecting a lot of material sales and shipment and revenue of that system in 2009.Steven Crowley - Craig-Hallum CapitalOkay, thanks. I will hop back in the queue.Rob SeimThank you.OperatorNext question comes from the line of Sean Wieland of Piper Jaffray.Sean Wieland - Piper JaffrayHi, thanks. Rob, just couple of modeling question on 2009. If I look at the breakdown of revenue between automation and service, is that going to be roughly like $150 million, $50 million?Rob SeimServices, service and other revenues, which include month-to-month charges that we get from customers that are at the end of their lease streams and a few other miscellaneous revenue categories. Services are running about $10 million for quarter now, services have been growing with the installed base, we expect it to continue to grow. So, it will stay in that range between $10 and $11 million per quarter during the year.Sean Wieland - Piper JaffrayOkay. So, the balance of course coming from automation revenue and you said that you want to end the year in 2009 with roughly the same level of backlog at around a $110 million, if I heard you correctly, which would mean you need to put in you need to sell $150, $160 million in 2009 in order for all those statements to add up. Something, I think you said a couple of weeks ago was you expect your guidance is based on a sales number in 2009 kind of as Q4 annualized, Q4 ’08 annualized, did I get that right? So, my question is this. Are you expecting an inflection point or an increase in the sales at some point during 2009 in order to make your guidance?Rob SeimYeah, actually our guidance was for $200 million to $210 million in 2009, which would be an average of 50 to 53 per quarter.We just ended Q4 ’08 at $62 million. So, there will be a decrease in the quarterly run rate in 2009.Sean Wieland - Piper JaffrayOkay. I’m thinking though about in terms of total dollar value of contracts signed of bookings equivalent if you will. I know you do not disclose bookings but do you expect the bookings number to increase throughout 2009?Rob SeimSolet me give you the answer in terms of backlog. We do not expect there to be substantial fluctuations in the backlog as we go through the year. We tend to have, our stated range is between six to nine months, which is a pretty broad range, but we do intend to keep the backlog in the, kind of that two and a half quarter range, which seems to be what our customers are comfortable with. Unless of course there was a real big increase in new customers and then the backlog tends to go up a bit, because they take longer to install. But we really expect the backlog to stay in that range that our customers find comfortable throughout the year.Sean Wieland - Piper JaffrayOkay. One other quick question, international business do you invoice in local currencies or in U.S. currencies?Rob SeimAll of our distributors buy from us in U.S. dollars and in Canada we go direct and we do sell in Canadian dollars in Canada.Sean Wieland - Piper JaffrayOkay. So, other than Canadian foreign currency exchange you are not exposed?Rob SeimYeah.Sean Wieland - Piper JaffrayOkay.Rob SeimRight.Sean Wieland - Piper JaffrayOkay, great. Thanks a lot.OperatorOur next question comes from the line of Newton Juhng of BB&T Capital Markets.Newton Juhng – BB&T Capital MarketsGood afternoon guys, I had a couple of questions here. One, just Rob I appreciate that number on the cash flow front. Do you have what the CapEx was in the quarter as well?Rob SeimCapEx was about $4 million in the quarter as we finished up the installations of our new systems that we put in place, and believe I’ve mentioned that before in previous quarters that we were implementing new IT systems inside our company's new infrastructure.Newton Juhng - BB&T Capital MarketsAll right. And then kind of as we look out to 2009, I am just, you kind of give us some color on the expectations of positive cash flow. But we are looking for I am just looking to kind of get a baseline for what your base CapEx is versus that one-time spend?Rob SeimWe typically spend between $3 million and $4 million, a year on CapEx mainly just keeping our IT systems up to speed and anything we can do in facilities.Newton Juhng - BB&T Capital MarketsGotcha. And with the headcount reduction here, can you give us a bit of a breakdown I guess of where you are deciding to cut back. I mean is it just straight across the board or are there particular areas where you thought you could go a little deeper?Rob SeimWell the important thing that we felt about this headcount reduction is that we kept our customer relationships intact as much as possible and so there is very minimal changes to our sales organization, to our actual sales people in the company and to our field service organization. Other than that we cut in all areas of the company and geographies and all our sites.Newton Juhng - BB&T Capital MarketsOkay, great. And then just one last question before I let you guys go and I will jump back in the queue. With the pipeline continuing to be strong, but the sales definitely falling short I guess of prior expectations I think its safe to assume that your close rate on your contracts in your pipeline is not what its been in the past. So, what I am wondering about is what kind of plan do you have to try and improve that close rate in the future or are we really just looking at these more of a macro trend and there is really not much you can do to kind of improve your situation?Rob SeimWell there is a macro trend here, but, keep in mind that we continue to come out with new versions of our products with some pretty compelling solutions embedded in those new versions. Our SinglePointe was a big one last year, Randy talked about some improvements we are making through the Anesthesia Workstation and the Anywhere RN feature, those type of things make it more and more compelling for our customers to put in the systems to meet patient safety needs and we continue to make it as easy as possible for customers to buy from us. We’ve done a lot of work, as I mentioned in the last couple of quarters making sure that we transition to new leasing partners that have the capability to keep financing customer as well as other financial institutions have been having difficulty. So, those are the things that we’re doing as much as we can in the short-term. We’re also have put a big emphasis in the company on training, making sure that all of our staff have a good understanding of the features and benefits of our systems not just the patient safety, but cost saving features, cost saving benefits of our systems also. And so that is more and more part of what we talk about. The decision still is typically a clinical decision based on patient safety.Newton Juhng - BB&T Capital MarketsI see, Rob. All right. Well I have some more questions, but I will take them off-line and, come back in the queue. Thanks.

OperatorOur next question comes from the line of Glenn Garmont of ThinkEquity.Glenn Garmont - ThinkEquityThanks good afternoon. Just two quick ones Rob I appreciate the additional guidance on the first quarter earnings expectation I was wondering, can you provide some color on how you see sort of the revenue progression coming out throughout the year, should we be modeling sort of step-down in revenue in the first quarter and then maybe a modest sequential improvement from there or will it be a bit lumpier than that. And then my second question I didn't see specifically in the Duke press release that that was the sole source contract? Can you verify that that was a case as it sounds like it was? Thanks.

Rob Seim

After our pretty substantial success in Q3 last year with new customers, those customers scheduled in lot of their installations in Q1, Q2, and Q3. And so at this point in time we really expect the revenue stream to be relatively consistent during the year. And as far as Duke, Duke has for automated dispensing systems is utilizing Omnicell at this point in time. Duke is a very large institution and have contracts with many different vendors and I'm sure their other contracts are not canceled. But for our made dispensing systems they had to put in Omnicell.

Glenn Garmont - ThinkEquity

Okay, that is helpful. Thank you.

Operator

Your next question comes from the line of Gene Mannheimer of Auriga Securities.

Gene Mannheimer - Auriga Securities

Thanks. Congrats on Duke and Emory, two obviously prestigious academic medical centers. Can you distinguish for us at least your view on the financial health of the academics versus community hospitals, for-profit chains and government owned facilities and can you characterize what your exposure is to each of those? Thanks.

Randall A. Lipps

You can hear from me, Gene, it's Randy Lipps. I think academic centers have tended to have better financial situations obviously because they have sort of a large doner group and they tend to be sort of a premium healthcare group that people go through when they have unique issues and problems. And I think they will continue to attract those kinds of patients and bring in those kinds. But in the same light, they have been hit with slowdowns and donations from their endowments as well, but they tend to be some of the healthiest I think out there from my perspective and then I think we have a leading edge product in the marketplace today and these types of institutions like I said in the call, 10 out of the 15 best hospitals according to U.S. News and World Report have moved to Omnicell in the past and I think more are going to continue to do that because as they want to be on the best technology available that help them drive safety and cost effectiveness. And so certainly we have always been positioned that way, but our SinglePointe solution really helps us to get there. I think as far as the government is concerned, we saw good sales last year and I think that they're probably less impacted then maybe your general community hospitals. But that is kind of a mixed bag all over the place. We are strong in the government side, so I think that we are looking for good results from that sector again this year, but maybe not as quite good as last year. And the community hospitals are really a mixed bag, some are very healthy some are not quite as healthy and some have slowed down altogether. So, I think that is probably the right picture there for us looking forward.

Gene Mannheimer - Auriga Securities

Okay, thank you.

Randall A. Lipps

Sure.

Operator

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

Leo Carpio – Caris & Company

Hi, good afternoon gentlemen. I have a couple of questions. First regarding these cuts you are making in terms of staffing. If we would hit that inflection point later on the year in that bookings and order flows seem to becoming improving, how quickly can you ramp up to meet the demand?

Rob Seim

Well I think we've demonstrated in the past that we are able to ramp up in order to meet installation demand. Remember that if we hit that "inflection point" that you are talking about and the economy improves and customers start ordering really rapidly. They still have an installation cycle, and so they won’t be looking for those orders to be installed instantaneously, and that gives us some time to get more staff on board and trained up to do the installation.

Leo Carpio – Caris & Company

Okay. And then turning next to Obama’s Healthcare IT program, any incentives you're going to be providing for the hospitals. Is there anyway your product could be able to be qualified as part of that programs in terms of some loop hole or perhaps some funding that is being provided to the community hospitals I mean to the community clinics or to immune healthcare facilities?

Rob Seim

Well, that is unclear as to exactly how that might directly impact our ability to sell our particular product to hospitals, but any help that hospital gets and any type of incentives to get premium dollars from the government for IT helps the hospital financially and then in turn it helps us get our products in because there are so high on the capital list. It's really unfair at this point as to how it might impact us directly, but indirectly we know what’s good for us and what is good for us.

Leo Carpio – Caris & Company

Okay. And then my last question regarding the international markets, how much presence do you have in China because last week China announced their expectation to spend about $100 billion plus on their healthcare reform program and since our healthcare system is very centric and financed by the sale of drugs to patients, it seems like your cabinets will be a nice national fit for that country?

Randall A. Lipps

Yeah it's Randy I think the China market is certainly an opportunity and it's emerging and we don’t have anything significantly going there and we will just have to see as market that progresses.

Leo Carpio – Caris & Company

Okay. Thank you.

Randall A. Lipps

Okay.

Operator

Your next question comes from the line of Alan Fishman of Thomas Weisel Partners.

Alan Fishman – Thomas Weisel Partners

Hey guys. I just have one question for Rob. I guess we saw the DSOs pickup again this quarter, when you say it’s going to work through in the first quarter, where can the DSO settle from here ,in the 70s or 60s range? Where would we be able to consider success there?

Rob Seim

Well so first of all we do have this transition issue going to some of the new leasing partners I mentioned the paper work issue that is and caused the DSOs to pick up. We do expect that to work through in the first quarter. But on top of that we realize that our forecast or revenue is down and so the base that the DSO will be calculated against is actually smaller and we’re still working through the collections from prior quarters that were based on a higher level of revenue. So, the actual DSOs will step down through the year and we will get back, we anticipate, to the mid-60s level that we had been operating at and it will probably be in the second half of the year.

Alan Fishman - Thomas Weisel Partners

Okay. Thank you.

Operator

I have no further questions at this time. Mr. Lipps you have [close] further remarks.

Randall A. Lipps

Well operator could you just make one more call for questions and then we will go into closing remarks.

Operator

Yes sir. (Operator Instructions). And you do have a question from the line of Steven Crowley of Craig-Hallum Capital.

Steven Crowley – Craig Hallum Capital

Yes, Rob. One follow-up question in the conference call we had a week or so ago you made some reference to long-term operating margins and what you were trying to reconstruct here. Could you talk to us about some of your operating margin objectives maybe over the say the near term 2009 and then that is implied by your guidance obviously, but as we would look out, what kind of recovery and where can we get back to and what are the key components to getting back to that target level?

Rob Seim

Steve we have not abandoned our goal to be at 15% operating margins, we've been there before and we will be there again. With our revenue levels at 200 to 210, we won't be quite at that operating margin level of course over the near term future within our guidance range. We do expect the market to recover to come back after we get through these economic turmoil. And we do expect our revenues to be able to climb again to where we have been through 2008 level, and certainly once we get backup to that level, we will have a, we will be in a much better position to hit 15% operating margin. When exactly that will be kind of depends on how the economy goes.

Steven Crowley - Craig-Hallum Capital

Implied by the response, that there has been no real significant change to competitive dynamics, deal dynamics. The question I am getting on somewhat regular basis, are we seeing this environment cultivate anything strange or different on the pricing front? You just had some recent deals given out, so you've got an ongoing experience that has been pricing, have you seen any thing strange there or any thing strange out in the marketplace?

Rob Seim

Pricing is pretty consistent in our industry. There is quite a bit of software value in these systems and the customers recognize it. There isn't a lot of odd or strange competitive dynamics going on in the industry, the deals are competitive they are all competitive, and they been competitive for multiple years. So, nothing has really changed there.

Steven Crowley - Craig-Hallum Capital

Thanks for taking the follow-up.

Operator

I’m showing no further questions.

Randall A. Lipps

Okay. Well this is Randy Lipps. I'd like to just summarize the call by reiterating we believe demand for our products will eventually return to the levels we have seen previously. We're profitable now and expect to continue to be profitable and cash flow positive in 2009. And we're making the tough decisions to manage our expenses and making sure our leasing partners are intact. And we continue to bring new innovative products to the market. Thanks for joining us today.

Operator

This concludes today’s Omnicell fourth quarter earnings call. You may now disconnect.

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Source: Omnicell, Inc. Q4 2008 Earnings Call Transcript
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