Good afternoon. My name is Holly and I will be your conference operator today. At this time, we would like to welcome everyone to the Omnicell second quarter earnings announcement. [Operator Instructions] I would now like to turn today’s conference over to Peter Kuipers, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon and welcome to the Omnicell’s second quarter results conference call. [Operator Instructions] Joining me today is Randall Lipps, Omnicell Founder, Chairman, President and CEO. 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 on the press release today and the Omnicell Annual Report on Form 10-K filed with the SEC on February 26, 2016 and in other 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 July 28, 2016, and all forward-looking statements made on this call are made based on 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 or the duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. Randall will first cover an update on our business then I will call for our results for the second quarter of 2016. Following our prepared remarks, we will take your questions. Our second quarter financial results are as usual, included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Our prepared remarks will also be posted in the same section. Let me turn the call over to Randall.

Good afternoon, everyone. We are pleased to discuss our second quarter results. I’m very proud of our performance, which continues our consistent track record over the past several years. We exceeded our revenue guidance and analysts expectations with record quarterly non-GAAP revenue of $176 million in the second quarter. Together with good cost and integrated execution, this revenue strength resulted in non-GAAP EPS of $0.38, also above analysts’ expectations. Bookings momentum for new and competitive conversions continues to be strong, driven by our award winning differentiated products. As mentioned previously, with the acquisition of Aesynt, Omnicell has gained an additional 10% of the Automation & Analytics market. On a combined basis, new and competitive conversions accounted for approximately 30% of the second quarter Automation & Analytics bookings. Based on the year-to-date bookings strength, we believe that our combined customer base gives us a very strong platform for future growth. As previously discussed, we closed the acquisition of Aesynt on January 5, 2016. The Aesynt business, based in Cranberry Township, Pennsylvania is a leader in enterprise medication management with specific products in IV compounding, central pharmacy automation, point-of-care solutions and enterprise software products. Our integration of Aesynt has been progressing very well. Earlier in the quarter, we integrated the sales and field teams in North America to provide one face and one contact to the customer. And later in the quarter, we realigned all other functions. As part of this integration, we have had a modest reduction in headcount in early April. During the first quarter earnings call in 2016, we stated that we expected no significant impact on bookings and revenue in the second quarter from this sales and field integration. And I am pleased to report that to date we have had – have experienced minimal impact from the…

Thank you, Randall. I will discuss the summary of our second quarter financial results and our guidance for the third quarter in 2016. Our second quarter 2016 GAAP revenues of $173 million were up 53% from the same quarter last year and up 1% sequentially. Strong demands and revenue was driven by both expansion and upgrades at existing customers, as well as by new and competitive conversion customers. We continue to see particular strength of the combined product portfolio to enable strategic, tailored and scalable solutions for our customers. Earnings per share in accordance with GAAP were a net loss of $0.03, which is down from $0.24 of earnings per share in the second quarter of 2015. The second quarter 2015 GAAP net income included a $3.4 million gain on business combination of an equity investment. GAAP gross margin was at 45% for the quarter. In addition to GAAP financial results, we report our results on a non-GAAP basis which excludes stock compensation expense and amortization of intangible assets associated with acquisitions, one-time acquisition related expenses and the acquisition accounting impacts related to a number of items including deferred revenue, inventory fair value adjustments as well. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it’s useful for investors to understand acquisition and amortization related costs and non-cash stock compensation expenses that are a component of our reported results as well as one-time events such as the gain on Avantec investment in 2Q ‘15 and one-time acquisition related expenses. A full reconciliation of our GAAP to non-GAAP results is included in our second quarter earnings press release and is posted on our website. Our first quarter of 2016 non-GAAP revenues of $176 million were up 56% from the same quarter last year and up 1%…

Thanks Peter. Once again, Omnicell’s second quarter was marked by record revenues bolstered by the strength of our expanded portfolio that delivers our customers unmatched innovation and flexibility. Already in the last 180 days, we have completed the first phase of the Aesynt integration and all departments are now realigned with their respective organization. And this really allows us to move forward with the second phase of the Aesynt integration, which involves mostly systems and process implementations as well as joint product development. So I am pleased that we are seeing health systems, both existing and new customers, assessing their needs for improved efficiency and safety, evaluating the breadth of our solutions and then choosing us. And so it’s really been a lot of hard work by a lot of folks, so hats off to the Omnicell people for moving quickly through the integration allowing us to move forward with our customers to make a difference. With that, I will now open it up for calls. Operator, please help me out here.

[Operator Instructions] And our first question will come from the line of Mohan Naidu with Oppenheimer.

Thanks for taking my questions and congratulations on a great quarter here. Randy, maybe on the deal flow we are seeing great deal flow so far this year, plus can you update us on the competitive landscape and win rate you are seeing in the market especially now that you have a full suite of products with the Aesynt in there?

Well, I think our competitive conversion rates that we talk about are 30%, so it’s a little less because now we have taken one of the competitors in the – at least the NA market is now in our combined total, but it’s still 30%. Competitive conversion rate is strong and we are seeing that being helped out by the fact that we have products now that can go into almost any account, whether we have the core business or not, like IV, like our enterprise medication management products. These products can be kind of wedge products that start out a relation at a lot new organizations. And so I think the competitive landscape is very strong for us. Not only that we continue to take market share, but now that we can approach new markets with new market share in a different way by going to accounts where we don’t have core products and starting to deliver on some new products that are the best in the marketplace. So that’s very helpful.

That’s great. Maybe a quick one for Peter, how should we think about your exposure to the weakness in British pound as we go into the second half, if at all there is anything?

Yes. I would say the exposure from Brexit is fairly limited. So if you kind of dissect Brexit for our business, so our business in the UK and we are the market leader in Automation and Analytics and in Med Adherence. Most of our customers there are funded by the NHS when it comes to hospitals. Our understanding is that the NHS has fairly limited funding from the EU, so we expect the impact to be there very small, if any, from an FX perspective, exchange perspective, the rate is down I think about the 8%. But we also of course, do have costs in also the Great Britain pound. So the net-net impact is fairly small. We do intend to put a foreign exchange hedge in place on our P&L exposure there. So overall, it’s all included in our guidance and it’s a small impact, if any.

Okay. One quick question around gross margins, on the Automation segment, is it just the mix coming in from Aesynt that dropped them – sequential drop in gross margin?

Yes. It’s some mix. There was a one deal where we honored the commitments from prior to the acquisition. We do think that we will see an up-tick in the second half in gross margin and the A&A segment.

That’s great. Thank you very much for taking my questions.

And our next question will come from the line of Jamie Stockton with Wells Fargo.

Hi, good evening. Thanks for taking my questions. Randy, the international deals that you talked about, it sounded like maybe there was a little stronger central pharmacy automation component, maybe I was just making that up, I don’t know, but if there was, can you talk about whether you are getting traction with either the Aesynt solutions outside the U.S. which is something that I think you talked about as an opportunity when you did the deal or if maybe some of the solutions when you got MACH4, you are able to take in to other geographies internationally?

Yes. The MACH4 opportunity is the one that I referred to as a robotic dispensing opportunity, both with Saudi Arabia and South Africa. And there is a good worldwide market, particularly outside everywhere outside the U.S. for this product. And because we have a bigger platform to offer that on and that’s usually used in the outpatient setting and so many countries such as Saudi Arabia, you see that they have both an inpatient and outpatient provider mandate that they are working through. And so being able to offer both is important and I think it helps us in those cases. And then I think in South Africa where you still see the impact of AIDS and a lot of NGOs, they are trying to figure out how to solve the problem, which is medication availability and medication compliance, the two things that we are focused on. It’s refreshing to see our solutions impacting those areas there. So – and we believe there is a market for the same product in China and Australia, literally around the world. So we are picking our markets and taking that product strong to the market and it’s a great product. And we think it will help us expand our ability to automate medication management.

Okay. And then maybe just one follow-up on the same topic, when you think about the U.S., are you seeing many hospitals interested in sticking with the relatively robust medication dispensing cabinet, but then also at the same time wanting to kind of beef-up the central pharmacy automation such that you might be able to cross-sell some of the Aesynt solutions under your legacy base, specifically around central pharmacy or is this still a situation where hospitals are kind of going one path or the other?

Yes. I would say today that we don’t see any big uptake in that market. We don’t see any shrinkage ease at the hospitals that have decided to go with the ROBOT-Rx. They are looking for modifications and improvements to the product, which I think make a lot of sense. And as we focus on the future, we want to deliver the next generation of products that allows us to not just answer the solution set that exist today, but expand that solution set. And the best way to think about it is robotics is impacting every industry worldwide to improve efficiency. We know hospitals need a lot of efficiency and a lot it needs to take place in the central pharmacy. So as we come out and develop from that basic infrastructure that we acquired in the Aesynt acquisition, we will be able to modify and expand that platform to be more meaningful to more hospitals as we move forward. And so that part is a little more down the road than we are currently today. The current customers who have those products are upgrading them or if they may buy a hospital, they might expand on the same system or buy a new system. But we do believe there is a market for an expanded product line that really automates more of the pharmacy central in a broader application.

Okay, that’s great. Thank you.

Our next question will come from the line of Sean Wieland with Piper Jaffray.

Hi. Thanks so much. So can – can you get my headset on here. Could you talk at all about organic growth in your core business for – with Aesynt, if not, could you?

Yes. So you have seen – this is Peter. You have seen the 75-day 8-K that we have filed earlier this year. And you got to back up to the number, we don’t disclose it necessarily, separately. In the 10-Q, you will find a footnote. If you do the calculation there, you can see that our organic growth, apples-to-apples, including Aesynt, last year as well, is in the high single-digit around 8% year-over-year, so strong business performance.

I would add to that Sean, that in our guidance, if you look at that, we are forecasting double-digit growth in our bookings growth and very strong growth there. And the first two quarters we are on or above plan for that, so we are feeling confident about the year based on that.

Okay. How about the organic growth within the Aesynt business then?

Yes. So like we have discussed earlier, it’s really one business, right. So we have now the accounts are merged, the sales and field teams are merged, it is one business and we are selling both products, if you will, but the choice is to the customer. We have great wins on both the central product lines, if you will, but we are merging to and developing one consolidated product portfolio set.

Yes. So it’s hard to break out. But I would say the Aesynt customers are continuing to order the product whether it’s the legacy product of Aesynt or the Omnicell product, we are seeing good growth from them, that’s been expected. And we have – so I don’t see it. But we can’t really break it out by product line because we are indifferent to the product line.

Okay. Do you have an update on the M5000 product?

Yes. The update is there is no update until we release it.

And then do you have a scheduled timing to release it yet or is there any update on how the development work is going?

Like we said on the last call Sean, we will announce it when it’s ready and then we will announce it. We are still working on it.

We are still progressing.

Thank you so much.

You bet.

Our next question will come from the line of Matt Hewitt with Craig-Hallum Capital.

Hi guys. This is Charlie Eidson on for Matt. Just a couple of questions, first I guess, not to harp on it, but last quarter you guys delayed the launch of the M5000, is – from like a corporate strategy perspective, is there any – can you reveal any like, tendency to either focus on the product development or are you kind of waiting for the merger to progress through final stages before you kind of use both product development teams to work on the product?

Well, it’s a very big strong initiative to focus on the automation of the multi-dose solution set. So that’s core to where we want to go. We know there is a market for it. We think there are several ways to get to different types of solutions that we want to offer to the market. It’s important for us to figure that out. M5000 was one of those. We are not projecting when that project is going to be completed until we are finished. We are working on it. And – but automation, it’s very difficult thing to do to automate the multi-dose products, no one else in the world has really done it. And so we think we are still furthest ahead and plan on having a successful market when we are ready. But as I have said on the last call, we – it’s not much of an impact this year and it’s something we will probably be talking about next year.

Okay, that makes sense. And then just kind of from an international perspective, I know you said you have kind of merged the – you have integrated to two companies and they are kind of taking a joint approach as you go out to sell to clients, is that across all countries internationally or are your prioritizing the U.S. first and going from there or how does that work?

Well, most of the products that we acquired in Aesynt aren’t domestic or North American base and focused on North America. The one exception is the IV robotics, which is both a U.S. and non-U.S. worldwide product that we have rolled out. So we have particularly been focusing on the IV product line, taking that into some new markets or joining that with our platform where we are outside the U.S. but that’s primarily the outside U.S. product line that we acquired from Aesynt. Most of – all of the other products that we acquired are North American based.

Okay, well. Thank you.

You bet.

[Operator Instructions] Our next question comes from the line of Raymond Myers with Benchmark.

Yes. Thanks. Randy, my first question is related to your early discussion on the call were some really impressive competitive wins, Stanford, Rochester, Heritage, Saudi Arabia, etcetera, very impressive, but still only 30% of your revenue is from new and competitive conversions, which is generally in line with historical average, so can help us to understand the impact of those competitive wins, was that – would they just happen to be ones that you announced?

So I will take the question, Ray. If you look at the combined business, right, so the Aesynt business is mostly generating revenue from existing customers and half of that business is actually service revenue as well, right. So there is a good set of recurring revenue stream there. What we said on the last call is that we expect the competitive conversations on a combined basis, that is just how the math works, to be in the 30% range. And it continues to be strong, like we have said. We have taken market share as well in the second quarter. What we said in the past, if we do mention a competitive win, they are normally one of the larger ones, we don’t disclose the dollar amount, if you will. So hopefully, that helps.

Yes. So just to clarify, before the Aesynt integration, we would have probably has these same competitive wins that are within – and our competitive conversion rate probably would have been 40-plus percent, that would have been a lot higher, right. And now that we have a larger base of business and we don’t count the Aesynt accounts that we used to convert as competitive wins anymore, both those two factors make it look smaller. Actually, the activity of the business is just as vibrant and strong as it has ever been.

Okay. So I am right to take away from this list of wins that this is a greater proportion of wins in that business than you have had for the last several quarters?

No. The dollar amounts are roughly the same or a little bit bigger, but what Randy and I are saying is that, if you define that roughly, same dollar amount over a bigger total revenue base, you get a percentage that’s more on the 30% range.

Probably, the one other issue on the reporting basis is some hospitals will not allow us to publicly report it. So each one of these has to be improved by them and so we are going to have some great wins, but we can’t announce it on the call because the customer will not allow us to have it happen. This particular call, we got a lot of customers who agreed to allow us to announce it, so – and it was some great wins as well.

Okay, great, that helps. Thank you. Next question is regarding the consolidation that happened in the second quarter, the Aesynt business, does that affect the expense structure here in the second half?

Can you repeat the consolidation of what business?

You talked about – there is some consolidation in the Aesynt business in Q2, so I am trying to understand, if you look at Q2 P&L and you look forward to second half P&L, should we see some delta there for the consolidation?

Well, we combined the business on January 5 and we did the sales and field re-org and quota setting and regional setting and accounts assignment, if you will, we did that in the first to second week of April. And we did also have a modest reduction in force.

And that was at the beginning of the quarter.

Yes. At the beginning of the quarter…

And we really see a big difference in the expense in Q2 versus Q3. That would be the biggest difference.

Yes. So overall, we are on track for our cost synergies between $5 million and $10 million total year and we are trending to the higher end for that range.

Okay, great. So we already felt that in Q2, it’s not that there is incremental benefit in Q3?

There will be some, but not going to...

Okay, so that helped. And then when it is – did you say the proportion of customers that are currently converted to the G4?

We actually did not, I believe. It’s at 81% now.

81%. And then lastly, I just wanted to touch on – asking you generally what are the management’s growth priorities now that Aesynt is six months in and it seems to be progressing well, what are your priorities for the next 12 months or so?

Well, I think in the long-term and that’s the way I look at the business, long-term is 15% top line, 8% to 12% organic, 5% on average inorganic, of course Aesynt is a bigger piece of that. We don’t see anything slowing us down there. Aesynt is a big, big acquisition to take, probably we wouldn’t do something as big as that in the near-term, but we are always opportunistic. We think we have got a great platform and particularly now with the Aesynt product line, if there is something that’s available at the right price, we would probably look at that. But we think we are in a good spot to acquire great technologies and products to put on our platform and roll out. And yes, as you can see, we moved quickly with this integration, continuing the execution of company and we will finish the year strong. So it’s – we are not going to slowdown.

That sounds great. Thank you, gentlemen.

And our final question will come from the line of Mitra Ramgopal with Sidoti.

Yes. Hi, just one quick question. Randy, I know you talked about organic growth, about 8%, I was wondering if pretty much all of that is volume driven or are you getting some additional pricing now?

Well, it’s a combination of both. So this is Peter actually. So Mitra, if you look at our products right, so we have been winning for 10 years in a row now best products in Automation and Analytics. And customers see definitely the product differentiators, so we are able to get premium pricing, so we do have that. We have also of course have a portfolio component as we grow and grow every year, so I would say, it’s both.

Thanks. And then again and this is more longer term, based on the wins, for example and the business you are seeing more outside of the U.S., how do you see the mix changing over the next couple of years in terms of U.S. versus ex-U.S?

Yes. So international revenue as a percentage of total revenue in the second quarter was 15%, we have as a kind of a first step goal to get to 20% at the total. Now, as you can see from our prepared remarks and from the release that we issued, we are growing domestically also really well in total. So it’s a nice growth, especially to increase that share of the pie, but we are trying to get to 20% internationally.

Okay. Thanks for taking the questions.

Thank you. And that will conclude today’s question-and-answer session. I will turn the conference call over to Randall Lipps for closing comments.

Well, thanks again for joining us today. Another shout out for the Omnicell team has superbly executed the last 180 days to again put us in line for great results that we have had and then the great results, we believe we are going to have going forward. I know it’s been a lot of work by folks and a lot changes, but we have done it and we are off to the races. Thanks for joining us today.

Once again, we would like to thank you for your participation on today’s conference call. You may now disconnect.