Good afternoon. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Rob Seim, you may begin your conference.

Thank you. Good afternoon, and welcome to the Omnicell 2011 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 earnings 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 Forward-Looking Statements in our press release today and under the headings Risk Factors and Management's Discussion and Analysis, the Financial Condition and Results of Operations in the Omnicell Annual Report on Form 10-K filed with the SEC on March 11, 2011, as well as more recent reports filed 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 26, 2012, and all forward-looking statements made on this call are made based on the beliefs of Omnicell 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 expressed written consent of Omnicell is prohibited. I'll start the call today with a summary of our results. Randy will cover an update on our business, and then I'll cover our guidance for 2012. And following that, we'll take any questions. Our 2011 financial performance was strong with revenues of $245.5 million and non-GAAP net income of $0.60 per share, both above the guidance range set at the beginning of the year.…

Thanks, Rob. Good afternoon, and thank you for joining us today. Overall, 2011 was a very good year for Omnicell. Revenue was up 10%. Non-GAAP net income was up 42%. And although year-ending backlog was lower than expectations, backlog grew 6% for 2010. We completely refreshed our product lines with our G4 announcement in early May. That refresh brought 11 new products to the market, including a new computer console for our medication and supply management systems, a new version of our open platform supply system, a new operating room medication management system for anesthesiologists, a new controlled substance management system for the central pharmacy, and a new version of our analytics software. Our customers have the ability to upgrade their installed systems to get the latest in technological capabilities while protecting 70% to 80% of their investment. We believe these updated product lines give us a substantial upgrade opportunity with each of the over 30,000 Omnicell systems currently installed. Our unique industry-leading products, such as SinglePointe, which allows up to 100% of the medications used in a hospital facility, to be managed with our systems and Anywhere RN, which allows for management of our systems from virtually any computer in a healthcare facility, continue to distinguish us. Towards the end of 2011, we launched another industry-first product. We began shipping medication-labeling capability, integrated into our medication systems as an addition to our G4 product line, which allows nurses to apply patient-specific labels in their medication workflow and supports compliance with the Joint Commission National Patient Safety Goal. In the summer, we achieved modular certification for Meaningful Use of an electronic health care record which gives CIOs satisfaction that our systems are compatible with the investments they are making in their clinical systems to meet new regulations and take advantage…

Thanks, Randy. So our hospital customers will be facing unprecedented change over the upcoming years. We're optimistic about how we can help them meet regulatory and cost challenges. But we're also realistic about the constraints all healthcare organizations will experience. We believe our solutions are a key part of the technology that makes any healthcare organization more efficient. Based on our opening backlog in the pipeline for new business that we have now, we expect 2012 revenue to be between $263 million and $267 million, up 7% to 8%. We expect non-GAAP earnings to be between $0.67 and $0.72 per share, up 14% to 22%. We expect there to be steady growth through the year, but we expect Q1 2012 to be $63 million to $64 million of revenue and approximately $0.13 of non-GAAP earnings per share. We typically experienced higher expense levels in Q1 due to several seasonality factors in our business. And we do not expect the benefits from variable compensation or the tax rate to repeat in Q1. Consistent with our strategy, we expect orders to shift towards existing customers as the G4 upgrade cycle becomes a greater percentage of our business. Of the new customers, we expect Greenfield customers to be a higher mix of our business because most international accounts are first-time buyers of medication or supply automation. And consistent with being a little more cautious about the market, we expect 2012 year-end product backlog to be between $138 million and $142 million, an increase of up to 6% from 2011. We're keeping our sights on our goal of 15% non-GAAP operating margins and expect to make significant progress towards this goal through 2012. And by the end of the year, we expect to be very close to achieving the 15%. So at this point, I'd like to open the call to any questions.

[Operator Instructions] Your first question comes from Steven Crowley with Craig-Hallum Capital Group.

In terms of the business and the order book in the second half of the year, were there some elements or characteristics of customers who were healthier than others, large customers, small customers, type of institutions? Can you give us a little more color for where the sledding was easier and more difficult?

Well, Steve, through the years, we've seen kind of step function, incremental improvements in the small customers. I would say that as we got through the second half of the year, we saw both the government and small customers coming back into the order book in a greater amount. I think just enough time has passed that those customers need to upgrade their systems. They're looking to expand their systems, they're looking to gain greater efficiencies. So that was encouraging to see more business from the -- those customers. We also, of course, have more feet on the street, so to speak. We have more people on our sales teams, so we're able to cover those customers better.

And in terms of the larger pieces of business that you were hoping to close where you had been selected vendor of choice, was there a common theme to why those have been still slower to close? And what is the status of those closing opportunities? Do they really move to the end of the first quarter or to some logical time in the future? Or have you had the opportunity to close some of those already in Q1?

Well, like we've said before, those larger deals have a lot of decision-makers involved and a lot of approval hoops to go through, especially in today's economy. They -- the orders that did not close that we had in our forecast will be worked on through this year. But it's our experience that when they slip, it's usually because of additional approvals that have been put in the process or something like that. And that takes more sales cycles, more effort on our part. So we recognize that we'll have to spend time on those to close them in 2012.

And then one more question for me. I'll hop back on the queue. In terms of international, the fact that you've been able to take initial orders out of China, it seems encouraging. As you look at that market for 2012, is that something that can gather momentum on a steady basis? Or do you think it's going to be more fits and starts? And what other markets in 2012 internationally, can we look to with promise?

Well, as you guys know, we just announced the partnership with our new distributor in China in late November, so that's -- it's very early. I think our viewpoint is still the same as it was when we made that announcement. We're optimistic about the marketplace. We believe we're the first in the market with the -- a Mandarin-based product. We believe we've got a great distributor there and great partnership to get into the market. And we believe there's a commanding need for our products. With that all being said, it is a brand-new market and we've got to do the work to -- between us and our distributor to get the market to understand what our products do and how they help, how they provide value. Our experience with new markets is usually hospitals install a few systems at first, try them out, figure out how they would have to change their workflow to optimize the systems and then full expansion to come after that cycle. And we're still expecting it to be like that. But it -- I think it's encouraging that we've got the initial orders. We've got initial hospitals lined up to do the installations there.

Your next question comes from the line of Steve Halper with Stifel, Nicolaus.

Sure, so I understand the large orders. Just one other question, you based on what was in the pipeline. Did any of those go away yet to, say, competitors?

So that -- the orders are, as Steve Crowley said it, are generally ones where we're a vendor of choice. Not everything that we had in our pipeline were we at that stage. And if we haven't got to vendor of choice, it's still a competitive situation. So there's always some of those that we don't win. But generally, once we get to vendor of choice, those orders tend to be our business.

So that's how you would characterize the orders that didn't sign. Most of them were vendor of choice.

Right.

Okay. Other -- one other question. On the $0.67 to $0.72 per share in earnings for next year, what is the implied stock comp assumption?

We're still assuming that the stock comp will roll along at about the same rate that it has been, between the $2 million and $2.3 million per quarter.

Your next question comes from Gene Mannheimer with Auriga.

Just a couple of follow-on questions with respect to the deals that slipped. Can you sort of quantify for us? I thought that Randy mentioned at the start that -- or Rob mentioned that there were 4 deals that slipped and maybe correct me if I'm wrong on that. How many of them you think could potentially close in, say, the first half of the year? Second question, on the number of customers you added during the year, 200, how many institutions or contracts did that comprise?

So the 200 -- I'll take the second part of that first. The 200 new customers are individual facilities. We do have IDNs that are -- quite a few IDNs in our business base. I don't have the exact number of individual contracts. But IDNs tend to be anywhere from a couple of hospitals to generally, in the 8 to 10 range, it would be a larger multi-hospital organization. The -- as far as the number of contracts -- so in any one quarter, the difference between making our objectives and not making our objectives, typically hinges on a few of the larger deals. And certainly in any quarter, we take 600 or so orders, but there's a few larger ones that can make the difference. And it's those larger ones that are -- you have a lot of aspects in sales cycle yet to happen. That's because negotiations and contracts, they might be in competitive positions if we're not the vendor of choice. So I didn't say that it was 4, but it's always a handful of deals. And certainly, we're working on closing a number of those deals each and every quarter, and we'll be working on closing those in Q1, in Q2, in Q3. Every quarter will have probably a handful of those. It's the nature of the business.

Okay. And a last question for me. The G4 upgrade, I think Randy mentioned that perhaps you'd over-forecasted the conversion of the pipeline there. Some big numbers being thrown around on the theoretical opportunity for G4. How much of your growth forecast should we view as the G4 opportunity?

Well, a normal part of our business, of course, consists of upgrades. We rarely lose a customer but our customers do like to stay current technologically. And so when we offer a new technology which either in the form of software versions or a new piece of the hardware, hardware upgrades, there's a kind of a usual cycle of customers upgrading. And it's been a part of our revenue in the past. We do expect that G4 gives us more opportunity because we now have all of our install base essentially that has this upgrade available. We have got a reasonable ramp up of that baked into our forecast for 2012. I would say that there's probably always upside if customers move faster. But we do have some good history on how customers move and that's more of less what we have baked into our sales forecast.

[Operator Instructions] Your next question comes Mohan Naidu with Piper Jaffray.

Rob, for the gross margins, do you continue to see the current level as the new baseline going forward?

Well, we worked very hard on our cost base and gross margins and we've got quite a bit of efficiency in some of our more fixed cost areas that are -- they're in the cost of goods sold. And we do believe that given the mix of products hitting where it's at, that yes, we can maintain these sort of gross margins. We do have quite a bit of variability in some of our products. We have some very high margin products. We have those products where we OEM that are our lower margins in any one quarter. We could see some variability in the gross margins just based on the product mix.

Okay. On the guidance, it does not include any international revenue, does it? Or in the backlog?

No international orders flow through our backlog just like all other orders.

Okay. How much are you counting in right now in the guidance?

For international business, it's still a relatively small percent of our business. I mean, we're encouraged because it has grown, but it's still under 10% of our business.

Okay. My last question, the new sales force that you added last year, how productive are they right now? Are they up to the level that you're expecting? Or do you have some time to go?

They are pretty productive. We're pretty pleased with the extended reach that we've been able to have with the sales force, particularly in the second half of the year. And I think it really shows up in the number of new accounts. We'd never had new accounts quite at the level, quantity level, that we had last year.

Okay. And they have the quotas like almost similar to the usual that you would expect?

I'm sorry. Say it again?

Yes. The quotas are...

The quotas, the quotas.

Yes, they're kind of consistent with growth rates.

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

I have a couple of questions. The first question regarding the competitive environment. We saw at AHSP, your competitors scrolling [ph] out some new product introductions and even though some maybe considered me toos. Have you seen them having any impact in your sales? Or from your sales force comments in the first quarter of this year so far? Or is it too early to tell?

Well, I think we introduced the whole cluster of new products in our platform. And I think at the marketplace, both our current customers and new prospective competitive customers, we've been engaged with that over the 6 months. And I still feel like we have the best products in the industry, things like SinglePointe, single-dose dispensing. And other -- I mentioned Anywhere RN. These are unique feature sets that we offer that I think still give us a great competitive advantage. And so I would say that it's probably a little too early to tell what impact that is. But I would say we haven't seen any significant change in competitive positioning of where we are today.

And then turning to the international market, any updates on Europe and the Middle East? I think I saw in an outset from you regarding the Middle East recently?

Yes. We just -- we're in the Middle East. We have a team there, we have a small office in Dubai, a training center that we opened earlier in 2011. So we have been expanding in that area. And I mean, as far as Europe goes, we have good distributors in Europe. And we've got some good business going on there. But of course, the economy is pretty muted in Europe. We do believe that the growth areas are probably more in the Middle East and in China, some other areas in Asia where they're building new hospitals and kind of going on through a standard that's similar to -- a clinical standard that's similar to the United States.

Okay. And then last, return to the capital spending environment, if I heard your comments, and then hopefully I interpret them correctly, it sounds like the small hospital market seems to be improving year-over-year, whereas the large hospital market, because of needs for more approvals, these orders kind of drag themselves and the fact was it was just elongated a little bit more? Is that a correct characterization?

Well, I think we're seeing the small hospital market open up kind of incrementally each quarter. And like I said, I'm not sure that it's that they necessarily have a lot more money to spend or the business is getting a lot better for them. But I think they have been holding back for a few years now. And they get to the point where they're far enough behind technologically that they have to do something. We had -- did see a good rebound with the government business through 2011. And we have incrementally seen more business from the small hospitals. I would also say that -- I said earlier, the fact that we have more salespeople on our team gives us an opportunity to call on more of those customers. And I think that's probably also helped us.

Your next question is a follow-up question from the line of Steven Crowley with Craig-Hallum Capital Group.

Just some clarification or some context for that record number of new accounts, the 200 number that you've referenced. What is that compared to as a for example, a prior high watermark for a year?

Well, we typically have somewhere in the range of 50 to 75 competitive conversions and 75 to 100 new Greenfield accounts each year. And so I call it around 150 new customers coming onto our install base every year. In the last 3 years for instance, we had 500 customers come on, and 200 of them are here in the last year. So it gives you an idea of the growth.

Thanks for that color, I think that's useful. Now, in terms of the market reaction in your progress with the Savvy card introduction, can you give us a little feel for what kind of reaction and traction, you've either gained or think you can gain with that product? And how as you learned more about it that works into your backlog or may not work into your backlog, meaning is it faster turn? And what does that do to the character of your backlog? So there are couple of different questions embedded there.

So as time goes on, we have gained more information about kind of more market intelligence about how that product is going to work in the market. As we take more orders we see how fast customers will be installing it. The Savvy system installs very quickly because it runs on the same database as the rest of our products. So it's easy in that respect. However, there is a workflow change that customers have to go through. And what we're experiencing is that workflow change takes as long as the kind of flow through the backlog as any other installation. So we're expecting the Savvy products to flow through the -- they're at the same cycle of time, I guess, I should say between order and installation as the rest of our products.

In terms of market reaction and traction and competitors to that approach, what can you tell us about that?

Well, Savvy is pretty unique in the marketplace. I think it's the only medication control system of its type, combines a computer on a mobile system that allows customers to run all their other HIT systems with specific medication control software in a locked environment, controlled environment physically for the medication that hooks right into our systems. I believe we're the only one with this type of product in the marketplace.

I think it's -- and it positions us well when a customer is looking -- considering changing to us. They may not -- that's usually probably the, one of the later pieces they would install in the process. So there may be a lot of high interest in the product, but they need to get some other parts of the installation done first and then that would come in the next year's budget at times. So it's a great product. And I think it will have great adoption, and it certainly is helpful in winning new accounts both existing and new competitive wins.

Your final question comes the line of Steve Halper with Stifel, Nicolaus.

What level of CapEx are you expecting in 2012?

You're talking about the marketplace or in our own business?

No, no, for your own business?

Okay. So in 2011, we had a little bit over $8 million of CapEx. We expect it to be at roughly the same amount in 2012.

And what does that go for principally?

It's mostly for our own infrastructure and operating the business. The software that we use internally, upgrades to our own IT infrastructure and facility upgrades.

At this time, there are no further questions. I will now turn the call back over to Randy Lipps for any closing remarks.

Well, thank you for joining us today. We did have a great year in 2011. I really like to thank the Omnicell team for doing a great performance for us. We believe ahead of us, we have another solid year in 2012. We're well positioned in the marketplace. We've got the new solution set, the expanded sales force and a great opportunity in international. And so we're very proud of that to go forward. Thanks for joining us today.

Thank you for participating in today's conference call. You may now disconnect.