Good afternoon, my name is Susan and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2012 Omnicell's Earnings Call. [Operator Instructions] Mr. Rob Seim, Chief Financial Officer, you may begin your conference.

Thank you. Good afternoon, and welcome to the Omnicell 2012 First Quarter Results Conference Call, where we will also cover our announcement today and the agreement to acquire privately held MTS Medication Technologies. Joining me today is Randall Lipps, Omnicell Chairman, President and CEO; and Bill Shields, President of MTS Medication Technologies. You can find our results in the Omnicell first-quarter earnings press release and in the announcement of the agreement to acquire MTS, 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 of Financial Condition and Results of Operations in the Omnicell Annual Report on Form 10-K filed with the SEC on March 8, 2012, 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 during the day. The date of this conference call is May 2, 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 redistribution without the express written consent of Omnicell is prohibited. Randy and Bill will start the call today discussing the acquisition, and Randy will give us an update on the Omnicell business from Q1. I'll finish up with the financial aspects of the acquisition, our Q1 results and our forecast going forward. Following that, we'll open the call to your questions. Randy?

Well, good afternoon. I'm very excited to announce our agreement to acquire MTS Medication Technologies today. MTS is a technology and market leader in medication management systems for the long-term care market with a primary focus on medication adherence, packaging and solutions. Today, the Omnicell business is predominantly in the acute care market. We provide both equipment and software that improves financial and clinical outcomes by helping nurses and pharmacists assure they get the right medications to patients in a timely manner with the lowest amount of clinical work. MTS provides similar benefits for the long-term care space through medication automation systems and consumables that help patients and caregivers adhere to the medication regime prescribed. Customers see medication adherence as a key requirement for closing the medication loop and delivering better clinical outcomes and financial results. We will discuss medication adherence and explain some of the details of the transaction later in the call but right up front, I'd like to cover why this acquisition is a great strategic fit for both companies. First, the combination creates a company that is aligned with the evolving trends of the Healthcare market. Healthcare is moving towards organizations that are responsible for the health of patients across the continuum of care and moving away from patients -- from payment for an episode of treatment. The combination of our 2 companies establishes a market-leading organization that can provide medication management across that broader continuum of care. Together we cannot only provide greater comprehensive management of medications, we can also contribute to improving clinical outcomes by helping healthcare providers ensure that medications are administered correctly and in a timely manner. We believe that medication management solutions, which provide consistent improvement in cost and quality will be appealing to the emerging Accountable Care Organizations, and broader…

That's great, Randy. Thank you, I'd be happy to. First, let me say how excited and thrilled I and my team are about the business combination. We have a great team here at MTS, and we believe that we share very similar management values to Omnicell. So joining forces makes a lot of sense and gives us all an opportunity to reach new heights. I joined MTS Medication Technologies 16 months ago as President. MTS has a 28-year history of providing medication management solutions to the long-term care and retail pharmacy markets. As Randy said, our primary customers are institutional pharmacies that supply highly specialized pharmacy services to long-term care facilities. Our equipment, consumables and software all work together to provide varying levels of automation to these pharmacies, our customers. As you may know, institutional pharmacies provide service to nursing homes, assisted-living facilities, correctional facilities as well as our large range of facilities that all need to manage complex medication regimens. In all of those settings, specialized packaging is a core operating requirement to the pharmacy in order to facilitate the safe and cost-effective storage, management and administration of medications by nurses, other healthcare professionals and care givers. Our equipment and automation product line rounds out our value proposition by enabling pharmacies to pack, seal and label medications in our blister cards. These systems range in price from a few thousand dollars to relatively basic equipment that enables the filling and sealing of a single medication blister pack to much more complex and fully automated equipment that can cost up to $1 million per unit. All of our products are intended to help the medical industry overcome the problem of medication non-adherence and medication safety. Medication non-adherence is a universally recognized problem for people who live at home. Patients who…

Thank you, Bill, and we are looking forward to working with you and your team. Bill will report directly to me and remain in charge of all currently branded MTS Medication Technologies solutions. Over time, as our strategies meld together, we will take advantage of opportunities that our combined capabilities provide for us. I'd like to emphasize our history in acquisitions, 85% of the revenue at Omnicell today is associated with an acquisition. So we feel that we have been relatively successful. Over the past 3 years, we have extended our acquisition integration expertise in Omnicell to allow us to be successful with larger transactions. We feel we are well-prepared for the acquisition of MTS and the fact that Bill and his team will be staying with us helps assure success. Speaking of success, I'd like to turn to Omnicell's results for Q1. We had a solid quarter in Q1 that keeps our momentum in line with our annual growth projections for both revenue and profit. The new products we announced last year and the expansion of our sales team are driving new sales. Our entry into the China market is going well. We feel our international strategy is working and in all aspects, Q1 financial results met expectations. A great example of a long-standing customer where our new products provide an even better partnership with Omnicell is in our current announcement of the G4 expansion at Texas Children's Hospital. Texas Children's has been an Omnicell customer for 10 years. Over time, they have expanded their installations to encompass most of the solutions we sell. Children's hospitals have a very exacting standards. Their cases are the utmost sensitivity. The range of medications and doses is the widest of any healthcare setting. There's no tolerance for error. This the type of…

Thanks. So first, I'll cover the MTS acquisition, and as we said in the past, growth through acquisition is one of the 3 pillars to our overall strategy along with international market expansion and further penetration of our customer base in the United States. The acquisition of MTS expands our business significantly and we believe it's a good use of our cash because it's expected to drive growth in our business. Omnicell's acquiring MTS Medication Technologies for $156 million in an all-cash transaction. We expect the transaction to close in late Q2 or early Q3, following the Hart-Scott-Rodino antitrust review. For reference here, MTS recorded approximately $75 million of revenue and $12 million of EBITDA in their last fiscal year, which ended on March 31, 2012. Excluding amortization of intangible, acquisition-related cost, we expect the acquisition to be accretive in 2012. We will able to give a more specific forecast for 2012 as we get more clarity on the actual close date. For 2013, when we have a full year of MTS included in our results, we currently anticipate non-GAAP EPS accretion of approximately $0.15 to $0.17 per share. And that's excluding amortization of the acquisition-related cost. Following the acquisition, Omnicell's employee base will be approximately 1,100 regular employees worldwide and we will add facility locations in Florida, in Ohio, in the United Kingdom and in Germany. Following the acquisition, we expect to have approximately $50 million to $55 million of cash and cash equivalents remaining on our balance sheet. So now turning to the first quarter of 2012, Omnicell results were just about exactly where we had previously expected. With $64.1 million of revenue and $0.13 per share of non-GAAP earnings. Our orders were a little more skewed to existing customers as we expect them to be while adoption…

[Operator Instructions] Your first question comes from the line of Charles Rhyee with Cowen and Company.

Maybe if I could just ask a couple of questions to Bill. When MTS went private, I guess it was in '09, when you look at the last Q that was available, it looked like results were sort of flat, basically, I think look like about 5% EBITDA margins, revenue is annualized around $70 million now we’re talking about $75 million and $12 million in EBITDA, can you talk about what were the issues back then that led the company go private and talk about what you were able to achieve while you came on board?

Sure. I couldn't really speak to all the different reasons that the company -- not having been there, why it went private. I think that was a great opportunity for the company to make investments in process and in people. And over that time, a lot of that is exactly what we've done. We've made substantial efforts in operating efficiency and product margin expansion using lean manufacturing. We brought in a lot of new talent to the organization both here and abroad and continue to focused on the thing that makes MTS a great opportunity, which is innovating with our customers and great customer service. So those are the things that combine to create the company that we are today.

Bill, a little bit of not quite the same business today you divested a little bit during that time also.

That's also true. One of the things we did last year, we had an add-on acquisition to MTS the name of which was Bath [ph] in the U.K., it was a much more commodity-driven business. And we thought that was a distraction to our core, so last year we did a lot of work in the international side to consolidate 5 locations to a single location, brought in new leadership and exited that smaller business in the U.K. So we really feel like the International business is prime to not only continue to grow at the rate that it has been growing successfully in the past, but accelerate forward in the future.

Can you maybe describe what the revenue growth has been, because if I annualized the 6 months ended in fiscal '09 it looks like the compounded growth is only been maybe 3% but it seems like if we back out the divestiture, what will the growth rate have been?

I think the growth rate over the last 10 years has been between around 5% and 8%. Consumable stream has been a very steady, continuous opportunity for the company sometimes we also have, as I mentioned earlier, our equipment like any capital sales that can have some lumps in its progression. But overall, consumables continue to drive very steady and continuous growth curve and the equipment's doing very well as well.

And just two last questions, I apologize here. One, if I look at the mix between -- as of the last public Q between consumables and total revenue, is that still roughly the same percentage or is equipment a bigger piece today?

Consumables today are 85% of the business and 15% is represented by small equipment all the way through to the more complex automation that I already mentioned. And also some service and support revenue that goes with that equipment and automation. So 85%, 15% today.

And last question here, really, is my understanding is Omnicare is your largest customer. Is that still correct?

It is.

And so when we think about the future growth, and maybe this is a question for Robin and Randy as well, because I understand that you already start to work with Omnicare. Is that sort of how you guys are brought together, just kind of found out about each other or were you guys -- or Randy and Rob were you looking at MTS prior to perhaps work with Omnicare? And when we look at Omnicare's discussions about their goals for automation and how much they want to have dispensed through automated dispensing, is that sort of jumps -- sort of we should expect coming through the MTS line, though?

This is Randy. I think I've known MTS and Todd Siegel, the founder, for many years, and so we're aware of the company and, yes, in our own business line, we see, Omnicell's line, we see the acceleration of sales into a long-term-care environment through an institutional pharmacy. But our primary objective wasn't only that and really when you look at our overall business, Omnicare will not be a very large portion of the business when you combine it with all of Omnicell's business. It's really to drive outside of the 4 walls of the hospital. The healthcare trend is to get patients out of hospitals, and then some of those patients that are outside a hospital, they used to be in hospitals, now they need more sophisticated care and skilled nursing and long-term-care in order to kind of do some of the same things that we're doing in a hospital. So this is a big healthcare mega-trend and we're looking for a good strategic fit that help us take this outside the 4 walls of the hospital. And that's what's really driving us there is our customer base. The IDMs that we work with, they are either acquiring or doing joint deals in the long-term-care environment. So we certainly see that synergistic market effect through the healthcare trend.

Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

A couple of questions here. First, it appears that this is the first uptick in product sales you've had from Q4 to Q1 going back all the way to 2008, sounds like the mix was consistent with what you would telegraph. Could you talk a little bit about the pipeline. I know that exiting Q4 there was a fair amount or a number of large deals that were in the pipeline, hadn't gotten to the goal yet, could you give us an update on those?

Yes, I think that we've had -- we don't report back home just give guidance to the bookings but I would just say, most of those deals, they'd eventually closed in Q1. I'm not sure if they all did but new deals close and new deals get pushed out. But I would just say that we had a very strong -- we had a strong quarter in all aspects, financially for Q1 and feel really positive about the business on the go-forward. We can see the momentum in the pipeline for G4 building.

So is it fair to say then that since you closed a lot of those large deals that barring the MTS acquisition, if that wasn't occurring, it sounds like there was almost an opportunity that you could've increased your year-end backlog guidance, is that accurate?

I think we gave the guidance we gave because it was the right guidance. So as I said in the call, as I said in the script, I just -- we reaffirmed our guidance and we feel that we're on the right path to hit those numbers.

So Matt, like we had sort of questions about this last quarter when we announced. When we have a deal that slips into the subsequent quarter, it usually doesn't just show up as an order the next week or in the next couple of weeks. Usually it is slipped because additional sales cycles have to be taken. And when we're extending the time on those additional sales cycles for the customer, that's time that we're not spending someplace else. So when those deals slip, they don't just become incremental to the subsequent year. We did close several of the deals that didn't close in Q4, but we feel that the guidance we gave in Q1 already contemplated that and we're on track to it.

Secondly, it sounds like you had a very strong quarter internationally. If I heard you correctly, have you had initial sales in China? Could you give us an update maybe on the Middle East, how that's progressing?

So actually, as I reported last quarter, we have had initial sales, initial orders in China. We are doing installations now. We're happy with how that launch has gone in China. The Middle East continues to be an area that is a good opportunity for us and we continue to have installations. We've done business from the Middle East for quite some time now. So those are the 2 predominant areas that we're focusing on internationally, although as you know, we're in over 20 countries around the world. So we had sales in various geographies at any point in time.

So last question for me and then I'll hop back in the queue. And this, I guess, is for Bill. Could you describe the margin structure and little bit at MTS today? I think going back in the historical record, it was like a 33% gross margin business but it sounds like you've done quite a bit to increase the efficiency there. Where does that stand today?

Gross margins of equipment and consumables are approximately 45% and I think some of that reflects again my earlier comments about our work with lean manufacturing and improving operating efficiency and the operating margins of MTS are then fairly similar to what Omnicell has today and we expect future operating margins to continue to improve.

Just add a little bit to that. Obviously, all businesses had different types of gross margin structures. Omnicell has a gross margin structure that is in the high '50s. MTS has a structure that's a little bit different, but less sales cost and less engineering cost involved. And so the operating margin structure is just about the same as where we're at and our plans line up for achieving 15% operating margin. So it's the same goal as we've had all along.

Your next question comes from the line of Mohan Naidu with Piper Jaffray.

For Bill, to start off, you said that 20% outside of the U.S. revenue mostly in Europe right now. Do you have any presence outside of Europe?

We do. We shipped I think last year probably to about 26 different countries but we've gotten automation and consumable presence in Australia, Europe, Germany, Spain, U.K., et cetera. So we think we have a lot of business opportunity to continue expanding. The multi-dose market segment for us is very interesting overseas and we see adoption of multi-med packaging that is much faster than what we've been given to see here in the U.S. So we're very excited about those opportunities.

And Randy, with Europe, target market for you, do you have a significant presence right now in Europe?

Well, Omnicell does have a presence in Europe and pretty much the same with country as Spain, the U.K. or so is the main places. We do have some in France and some of the other countries. But the U.K., Spain are the primary. Middle East and the Far East, Singapore and China are our biggest. So we actually have the opportunity to take the MTS solution into these countries where they're not and a little bit vice versa. But I think we'll have a lot of opportunities in the U.K. to combine the momentum we have there and their momentum to offer joint solution to patients so they could have a Omnicell solution inside the acute care or inside the hospital and outside the hospital.

We've also had a growing market in Germany as well. I'm not sure if I mentioned that.

And on the growth profile, you said like 5% to 8% in the last 10 years. So is like the midrange of that is an accurate representation for going forward maybe for 2013 if we look at it all?

So we're really not prepared on this call to give guidance for 2013. I gave you, in the prepared remarks, a structure of what we thought the EPS would be next year. And I think when you look at the MTS business, there's a lot of consumable business there, a lot of recurring revenue that's based on the placements of their equipment. And you should expect that same sort of placement in the future and growth as the acuity increases, patients. So there's more people -- of older and older people in the system. We feel that overall, our growth profile for the combined company will be consistent with what we've been seeing and what we've been forecasting in the past.

Well, switching back on the Hospital market, you commented last quarter I think the small hospital segment [indiscernible] markets is resuming a little bit. Any updates on that? Any changes in that view?

Yes, so we've certainly now seen a trend through the second half of 2011 and the first quarter of 2012 of a rebound in the smaller institutions. Like I said before, I think that's due to 2 factors. One, those institutions really went on a, I'd say, a buying hiatus for a while, and that's to the point where they needed to then make some purchases of our types of equipment. So you're seeing maybe a little bit of that resumption of the demand. Also, with the expansion of our sales force, we have a lot more people calling on customers so we're able to get to more of the smaller customers and I think that presence has helped. I probably also add that with our product refresh last year, we brought products to market that are very appealing to some of the smaller customers. So there would be a lot of factors going on there. I can't tell exactly how much is just market-driven and how much is driven by us.

One last question, I guess on the higher R&D because of no capitalization in the quarter. When do you expect to some capitalization in there? Or you felt for next couple of quarters, how do see that getting out?

Well, based on our product plans, we do expect to have more normal level of capitalization throughout the rest of the year. It is lumpy of course, to remind everyone, that portion of software R&D expense is capitalized once the product reaches technical feasibility, which is kind of late in the software development cycle. We have ranged anywhere from to nothing capitalized that you saw this quarter up to even $1.5 million capitalized in the quarter. So we will continue to see variability quarter-to-quarter but we expect overall to be at similar levels to what we have been in the past over the rest of the year.

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

Just on that follow-up on the earlier question, margin profile, could you delineate for us the consumable margin from the equipment, historically?

It's about the same right now, Gene. They're about 45%.

And then with respect to competition in that space, can you talk just a little bit about that and what share you comprise?

I wouldn't comment directly on the share that we have. We believe we're market-leading competitor. But when we do see some competing technologies in the packaging space with regards to the pouches and sometimes reusable plastic trays and even in some cases, vials. But MTS is fairly unique and the fact that we have both consumables, equipment and automation. So we have something for a pharmacy at every end of the spectrum, if you want to pack for 10 patients we can help you do that. If you want to pack for tens of thousands of patients, we can help you do that as well. So we think we're very unique and believe that will help us to continue our success in the future.

And then just switching to the quarterly results, while the SG&A looked pretty tight this Q, is that -- was there anything extraordinary about that or is that the right sort of run rate to use going forward?

So SG&A of course, is up a little bit from the prior quarter because we didn't have the expenses associated with paying out some of the bonuses last quarter. Our Q1 expenses are always higher because, as you know, we've got a lot of professional folks in the company and they had the payroll tax time again, and so you get that in Q1 and Q2. And then typically, the expenses start to decline as you go through the rest of the quarter. And we've got other seasonal expenses that hit during Q1, our audits, and we gave our kickoffs for the year and so forth.

So say to expect in that SG&A, that may be the high point for the year in Q1?

Q1 typically is the high point.

Your next question comes from the line of Brad Hoover with Sidoti & Company.

Bill, just curious to see what your view might be as far as the opportunity in Asia for MTS seeing that Omnicell sees great long-term potential there?

We have not yet spent a lot of time there, although we have just recently began discussions with some folks in Japan who have placed their first orders for consumables. So we've kind of had a natural extension of our product marketing and supply chain across the pond to Europe and to Australia. So it's very interesting obviously. All of the macro factors like a growing aging population, modernization of healthcare, all the things that drive our business, are present in large measure. So we'll be looking after the close to work with Omnicell on those opportunities in those markets.

And then just secondly, as far as I see you're more in the long-term care and Omnicell in the acute care side. But as far as kind of getting your foot in the door of the kind of C-Suite of providers, curious as though, Bill, what you kind of see at Omnicell's relationships kind of benefiting MTS gaining new customers going forward.

And I think that's a great question. We have 2 segments, our core business is institutional pharmacies and the customer there is an institutional pharmacy. And their user of their pharmacy services -- consulting, clinical, packaging, et cetera, is typically a facility like a skilled nursing facility or assisted living or correctional facility. The value proposition there is a cost effective and regulatory compliant medication management process and we kind of solve for operating efficiencies by having the equipment and automation that kind of drive that to the pharmacy. A very, very important part of our strategy in the future is also in a segment that's related to the community market and this is this challenge of non-adherence. It's a universally held and recognized problem and there, you have essentially retail-type pharmacies that are serving a user who's a patient or somebody helping the patient at home. And that's a slightly different type of packaging, it's multi-dose. And that's a very exciting part of our business. It's one of the fastest-growing. And we see markets at varying levels of adoption for that approach. The U.K. is a very far down the road. Germany, Australia, these are countries that have a lot of that going on. And so I think that continual and the exciting thing from my perspective here is that Omnicell and MTS would be able to take a patient end-to-end through the continuum. And they certainly have relationships in with payers and providers and IDNs where we can get into a more fulsome discussion of this adherence opportunity out in the community because, after all, patients generally leave the hospital and head on to the community where this adherence problem is most recognized.

Your next question comes from the line of Caroline Macketta [ph] with Lazard Capital Markets.

I think Rob mentioned something about 4 new locations in Florida and Ohio and 2 in Europe. Are those part of the acquisition or you guys planning to build those?

No, those are the existing locations that MTS has today. Most of the 300 people at MTS are in St. Petersburg, Florida. They also have a small plant in Ohio and international operations in Leeds and in Frankfurt.

And then just turning back here on medication management core market. When you think about your existing hospital customers -- I'm just trying to think about kind of overall penetration, what kind of opportunity still exists within that base, within hospitals like what, on average, what number of cabinets are they buying up front and then how does that opportunity look over time?

Well the market, of course, is varied depending upon the size of the hospital. Overall, most hospitals, almost 90% of hospitals, have some medication management installations but most of them do not have them in all of the locations inside the hospitals but they eventually will. We find that most of our installations are in the kind of a 60% penetrated stage. Typically, when an installation is fully penetrated and the facility is running all of their drugs through our systems, you end up with one of our -- the cells of our cabinets and that's kind of 19-inch wide rack mount, as tall as a person segment. One of those for every 5 to 8 beds. You typically find in the hospitals more in the range of 10 to 15 beds now. So there's certainly much more penetration opportunity and we see that when, typically when customers get to a point where they're bringing on a remodel part of their facility or they're bringing on a new nursing area of the hospital. They'll relook at their whole installation and start putting more drugs on to the systems and get more efficiencies by doing that.

We have a follow-up question from the line of Matt Hewitt with Craig-Hallum Capital.

First, could we get an update on adoption with that Savvy mobile carts?

We don't typically breakout revenue by any one of our particular product lines but Savvy was introduced last year. We're pretty happy with the uptake on Savvy and the adoption so far. And we have several of our customers or what we call marquee customers that have adopted the system.

And then lastly, the competition that there's been some movement with your #1 competitor as far as getting out of some markets, has it changed anything from a focus or an effort that you've seen?

I think there are always tough competitors and especially when we're in a potential swap-out situation and I think we always will be. So we plan for them to be and we swing at a few fastballs and occasionally we hit one. So I think, we don't see a lot of different dynamics than in the market place than we've seen in the past.

There are no further questions at this time. I would now like to turn the floor back over to Randy Lipps for any closing remarks.

I just want to thank everybody for joining today, joining on the call today. It's certainly a watershed moment for the company. We have tried to be very prudent with the capital we had and use it for shareholders' best value. We were patient over the last few years to find the right kind of acquisition that would make the most sense. Strategically, what a great fit this is for the company. The core competencies that we can socialize between the 2 companies will really allow us to provide some new products and new avenues for revenue growth. And certainly, on the accretive side, it makes a lot of financial sense. So we felt like we took our time to find the right acquisition to put our hard-earned capital to work and to grow Omnicell into a faster-growing successful healthcare entity. So thanks for joining us today. We look forward to giving you updates later on.

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