Good afternoon. My name is Holly, 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. [Operator Instructions] I would now like to turn today’s call over to Mr. Peter Kuipers, Chief Financial Officer. Mr. Kuipers, the floor is yours.

Thank you. Good morning and welcome to the Omnicell fourth quarter and fiscal year 2016 results conference call. At this time, all participants are in a listen-only mode. Later we will conduct the Q&A session, and instructions will follow at that time. 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 in our press release today in 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 day of this conference call is February 15, 2017, 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, audio duplication, or rebroadcast without the express written consent of Omnicell, Inc., is prohibited. Randall will first provide an update on our business. Then I will cover our results for the 2016 and our guidance for 2017. Following our prepared remarks, we will take your questions. Our fourth quarter and full year 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 now turn over the call to Randall.

Good afternoon, everyone. We’re excited to discuss our fourth quarter and full year results as well as our expectations for 2017. We had a great response to our announcement at ASHP in December last year on our new XT Series from both existing and potential new customers. Now consistent with our long-term successful go-to-market strategy that has helped us win in the marketplace, we’re continuing to be committed to deliver long-term value to our customers and we are allowing customers to upgrade their G4 products that they’ve already booked with us in backlog to the XT Series to get the full benefits of the product and this is really important and understanding Omnicell’s go-to-market and philosophy in the marketplace. It’s to allow for our customers to integrate next generation technologies with minimal disruption and so the conversion of our current G4 bookings to XT backlog does take some time as we offer this to our customers and then it takes time mostly in repapering IT reviews and hospitals and in some cases even C-Suite re-approvals. Our consultants need to explain the differences and the benefits of the XT series. It is not usually a long process but explanation and confirmation does take some time. Now as a result of our expected conversion of our G4 bookings and backlog to XT bookings. The XT manufacturing and installation ramp up, we anticipate two quarters of transition disruption which started earlier than we anticipated and we saw that actually in the month of December last year. Now we expect the backlog revenue conversion to be normalized in more historical levels starting in the second quarter of 2017. We are in the initial stages of the XT rollout, we are shipping and installing XT every day, in order to meet demand we are starting…

Thank you, Randall. I’ll discuss a summary of our fourth quarter and full year financial results and our guidance for 2017. As Randall mentioned earlier in this call, the 2016 product bookings were a record $541 million up 38% on a reported basis and up 10% in 2015 when including Aesynt for the full year in 2015. The resulting backlog of $301 million for December 31, 2016 is up from $205 million at December 31, 2015 which is a company record and represents a year-over-year increase of 47%. Our fourth quarter 2016 GAAP revenue of $172 million was up 32% from the same quarter last year and down 3% sequentially. As Randall referred to earlier in this call, the announcement of the Omnicell XT Series caught some delays in December and impacted our fourth quarter revenue modestly for new customers that wanted to switch to XT installs. The full year 2016 year-over-year strengthened 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 solutions portfolio that enabled strategic, tailored, [indiscernible] solutions for our customers. Earnings per share per in accordance with GAAP were $0.00, which is down from $0.21 in the fourth quarter of 2015. GAAP gross margin for the quarter was at 43.2%. In addition to GAAP financial results, we reported 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 deferred revenue and inventory fair value adjustments. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it’s useful for investors to understand acquisition amortization-related costs and non-cash stock compensation expenses that are components of our…

Well I think 2016 was a water shed year for Omnicell. We had the integration of Aesynt which really helped to drive record bookings backlog, revenue and earnings and it significantly broadened our solutions portfolio, strengthened our role as a strategic solutions provider to very large health systems which really positioned us totally different in the marketplace. I’m really also pleased with our integration of Aesynt which allows us to move forward with second phase of this integration which involves mostly systems and process implementation as well as joint product development and roadmaps and of course we couldn’t be more pleased with the response and the uptake on the XT Series which we’re shipping, installing every day and trying to figure out how to put more through the manufacturing process to get more out there. And we continue to believe with what we’re seeing in Health System with both existing in new customers are truly assessing their need for improving the efficiency and the safety around their medication processes and looking across the continuum and they’re evaluating a breadth of solutions sets and breadth of solution options out there and it sure feels good that they’re choosing Omnicell. So that ends our prepared remarks and now operator, we would like to open it up for questions please.

[Operator Instructions] and our first question is going to come from the line of Matt Hewitt with Craig-Hallum Capital.

Several questions from me. First, it sounds like you had a greater response from customers that were in queue to buy G4 that now want to switch over to XT, is that accurate and is that why you’re scrambling to ramp up production of the XT in adding that second shift?

Yes I think that we thought that G4 would wind down and more of - add a steady pace, floor pace and that XT would ramp up and then almost from the day we announced XT, everybody said wait you guys only put out a new platform every 10 years I want to really consider putting this in. So it really pushed off decisions that would have been G4 and they wanted to get into queue for XT and particularly this quarter we did not have enough supply, the XT systems to meet what would normally be our revenue goal. So it’s not a - and so I guess you’re right the reaction to XT lot of people, we thought would have stopped with the G4 just because they’ve, they already have a lot of G4 in hospital they did, maybe they wouldn’t want all of their systems to be the next XT system but most of the people we were surprised wanted to do that and that really sucked our sales force back into particularly Q1 and now to repapering this stuff and bringing in our consultants to reconfigure based on the XT system because it is slightly different than the G4, it’s not a direct translation over. So XT I’d have to say is a booming success.

Okay, secondly your guidance Peter and I think you touched on this a little bit. Your guidance in applying another step down in gross margin either GAAP or adjusted for the first quarter and then you would think you would start to ramp up, what are the key points that you mentioned at the Analysts Day back in December was that the XT will actually carry a higher gross margin than the G4. How long until we start to see some of the benefits of that, obviously this year as you get the transition period, but is that an 2018 event?

Towards the end of the year in 2017, we’ll see some benefit already - total cost XT versus G4. So I was going to say, of course dependent on volume when you repurchase more volume you can negotiate better rates, you can run the plants and more efficiently etc., so and that will flow through the gross margins towards the first parts of that towards the end of the year in 2017, so we don’t need to wait all the way through 2018.

Okay, maybe two more from me and then I hop back in the queue. Number one, if you could touch on performance center briefly, you did mention one win there but where are you from a customer standpoint, if you don’t mind and what is the adoption curve kind of been like for that product.

Well we’re getting great adoption and traction in the marketplace. I think we’re not on the exact numbers at least 10 to 15 customers we have going signed up for the product and given these contracts, these are multi-year contracts of very large institutions and we have a large pipeline of more customers lined up for, so we feel that this is - rings very true in the macro trends and healthcare and it’s just a natural combination of all the other things that we have to offer fits right in with it.

Okay, great. One last one from me and then I’ll hop back in the queue. I just want to make sure I heard you correctly. I think Peter you mentioned there was $12 million of integration expenses that were actually included or kept in your adjusted guidance, is that accurate?

That is correct.

Okay, great. Thank you.

Our next question will come from the line of Mohan Naidu with Oppenheimer.

Randy, I just want to go back to the bookings questions a bit again. The book in December, do you guys see delays in new bookings as well as the customers thought about getting into XT are - is just revenue conversion that got delayed.

Well I think the bookings were pretty steady through December, but as soon as we announced XT, we did see a few bookings it’s not very many that were impacted by XT and but most of the people already had the paperwork through the systems and just about signed, but there’s actually a little more disruption in Q1 where paperwork hadn’t been quite circulated all the way around and now we’re pulling it back and re-circulating it with XT as far as new bookings and then as well, we’re also working on old bookings in G4 several hundred millions of backlog we have that need to be converted to XT as well.

Okay, maybe a topical question around hospital spending environment that you’re looking at right now. Are you seeing any changes in the pace of deals closure or anything like that because hospitals are thinking about any upcoming changes from the new administration?

For our market segment we have not seen any slowdown in hospital. I think hospitals continue to be very strategic about acquiring our types of systems. They want standardization, they want cost control, they want safety, they want regulatory compliance and they want it uniform across all of their provider facilities and that’s why they’re acquiring provider facilities and they want to leverage those and then a key driver is, they want to integrate that into their enterprise technology systems that they have on the health record side and so we play extremely well into those aspects of what the market needs and wants in the macro trends to be successful. So we really just not have, not seen customer saying well, we don’t want to spend the money on this infrastructure right now or on this type of project, we have not seen that.

Okay, great. Peter one quick question for you. How much are you baking in for Ateb contribution for calendar 2017 guidance?

So we’re not breaking it out specifically, what we said before though is that on LTM basis per September 30, last year Ateb LTM revenue was about $28 million. Assume that roughly to be double-digit business, it’s in the fast growing segment specifically the med synchronization Time My Meds as offer, is really gaining [indiscernible] in the market.

Okay, does this going to the medication adherence segment when you report?

Yes it is included there.

Okay, all right. Thank you very much.

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

So, if I’m an existing G4 client, right now what is my sense of urgency to upgrade to the XT platform?

Well I think the issue is your next order that you’re going to get and the hospital. Right now, you’re in this window the next incremental one you want in 60% to 70% of our orders were all from current customers, you got to decide am I going to go with G4 or XT, so as I just said, most people are saying, the next incremental one I want is XT and then this set you up and I think most hospital networks and providers understand that this is the system of the future, to get the next generation of software you have to have a next generation of hardware first and so they’re trying to orient their investments overtime to make sure they get the platform eventually upgraded to XT. Now a lot of our customers, large percentage of our customers of more than half of the systems we have out in the market place are seven years or older, so their systems are old and we are eventually not going to service those just because that’s too old to service as we continue on, so it’s really a question of winding down those systems and taking them out of the market. So that would probably be the biggest driver as far as why customer is not [ph], eventually slow.

So give us the sense of the magnitude if you could of the upsell of the G4 to XT versus G3 to G4. Not on a per customer basis, but you know from your perspective from the company’s perspective.

So the difference between the G4 upgrade which is the brain or the G4 console only, that’s part of the total the automated dispensing cabinet, a full fray of XT’s 456X the revenue if you will for an upgrade.

And so G4 was, I think around $250 million to $300 million opportunity and this is close to $2 billion as we replace all of the equipment over the next seven-ish years because we have both the Aesynt installed base to replace and the Omnicell installed base to place. So it’s a huge opportunity for us.

Okay and so what - because it’s the full frame is what you’re saying is the greater opportunity.

Yes.

Okay and so what’s the visibility you got on the acceleration to 20% bookings growth starting in Q2?

We have a pipeline that we’re working, we feel pretty good about the feasibility there and the benefits of the new products. We’ve already talked about the aged equipments in the fields more than 50% older than seven years and particularly also in the Aesynt AcuDose installed base is actually ageing a little bit more, so we feel good about the opportunity there to for replacement.

Okay, thanks so much.

Our next question will come from the line of Steve Halper with Cantor Fitzgerald.

Two questions. The $12 million of integration expense that’s included in the numbers, what does that compared to in 2016?

So in 2016, we had about $10 million integration cost for Aesynt and then in 2017 planning roughly little bit less than $11 million for Aesynt and around $1 million for Ateb.

No go ahead Peter, [indiscernible].

I was going to say that we expect to substantially complete the integration projects for Aesynt by the end of the year in fiscal 2017, right so that will then falloff be significantly reduced fairly small amount in 2018.

And the cost that you called out for headcount reduction and facility leases, is that $8 million, is that also included in the adjusted earnings guidance?

Yes those will be GAAP only, we would adjust those out as one-time, as those cost would not be in the non-GAAP results.

Okay, so the $8 million are not in the non-GAAP results.

Correct.

Okay.

Our next question will come from the line of Raymond Myers with Benchmark.

Randall and Peter, maybe you can help me to kind of walk me through what happens when a customer decides they were going to upgrade to the G4 and now you’ve introduced the XT. Do they hold back on the G4? Are most of them simply holding their orders and not moving forward with anything for the time being while they make the determination or are many of them actually signing for the XT and when that is the case? My understanding is that purchase price is several multiples higher than the G4 conversion. So if you do the math, if a large proportion of customers make the conversion the revenue opportunity to Omnicell should be much higher in the second half of the year as you convert those customers to XT and yet your guidance doesn’t quite reflect that, can you help us understand?

Yes so we use the G4 console upgrade is different than the G4 frame, right? They’re both G4 versions of the product. So customer that’s expanding to adds a new hospital to their network would buy regular G4 frames and put an order within us because they’re adding this hospital to their network and so they would have an order for 20, G4 frames that’s not G4 console frame. Consoles, that’s the whole system. Those are the ones that are being converted, their whole systems that are being converted from G4 whole frames, the G to XT. There are not that many customers out there left that could use a G4 upgrade console only. So when we talk about converting the G4 in our backlog that’s the current full fledge model that we’re shipping up until the middle of January, middle of January we started shipping XT as well, so it’s a replacement of one full model for the other. It isn’t the upgrade of the G4 consoles that people are swapping out for the full frame. It’s full frame for full frame.

Okay, so in the case where it’s full frame for full frame the pricing I understand is more similar, but you would have the opportunity for an upgrade cycle for all the previous G4’s that you sold it in all year history, so that’s where that the million opportunity come.

That’s exactly right.

So the disconnect is, when does this great opportunity flow through to your income statement because it doesn’t seem like it’s happening quite yet?

This is Peter. The second through fourth quarter phase this year we’re expected to be back in the organic growth range of 8% to 12%, so you can see your start there and then the EPS if you take the non-GAAP EPS you take the midpoint of the range that we gave, if you’re looking at 70% year-over-year, so starting to fall through there as well.

Yes, so the big difference I think is that this conversion of current customer base to the new technology is somewhere between a five to 10-year process and which all the customers eventually swap out. It isn’t there - they don’t want to swap out in the 12-month frame or 24-month frame. It’s probably five to seven-ish type year timeframe and we’re just at the beginning of the cycle. In other words we just announced XT, so most of the customers who would be willing to swap out or could swap out older equipment are customers who have fiscal dollars in the second half of 2017, who we would target as replacing over equipment because it takes time to cycle the funds into the budgets and then of course as you keep moving on through the cycle 2018, 2019 it continues to build.

Okay, that helps. Thank you and on the performance center I think you previously said 10 to 15 at least customer installation so far, can you give us a sense of what revenue contribution that product might be this year?

Yes, so we’re not breaking out the product line specifically, but each of the contracts on average are multi-year, multi-million dollars but you have to be fired of course, the contract amount over the number of the years that the contract runs, right. So it’s kind of layering recurring revenue the model if you will, but we’re ramping fairly aggressively there.

Yes, we’ve 10 to 15 that have signed contracts, we don’t have 10 to 15 running yet and so we’re probably under 10 in the running and probably adding a few every quarter into the revenue line. But that’s recognized ratably over month-to-month, but its good margin obviously for us.

Okay, good and then maybe just clear up one final point. As we look at your guidance in December and in early January as compared to now, it seems to be a little different particularly as we look at Q1, was it the change in the last so many weeks that made your Q1 outlook a little different than it was before.

Yes, so what Randy talked about earlier in the call so we were expecting two quarters of sensation - we do actually see that already in - we saw that already in December, so looking at the month of December plus into first quarter and a little bit in the second quarter as well. So the six month kind of shifted a little bit forward in our minds if you will, so that’s the difference. We’ve got good visibility starting into the second quarter as well [indiscernible] so we feel actually a little bit more confident than we were before instead of first half, second half we feel that at first quarter versus last nine months distinction is actually, is more reasonable for dynamics that we’ve seen.

Okay, so most of the impact has been now accelerated into Q1, do you have visibility from customer purchase agreements that this delay in purchases is abetting and they’re actually moving forward with a XT purchase decision and that simply is weighing [ph] entirely.

Yes, the backlog was being converted to XT, so we have really good visibility and we’re of course lining up the XT conversions to line up with the installation expectation, that’s why we feel really confident about Q2 and moving forward is we have excellent visibility there, as we’ve gotten folks to sign up and sign on the line for XT, but that was too late to get it manufactured, shipped and installed in Q1 but obviously it sets us up well for Q2 and beyond.

Okay, thank you that’s a really important point. Thank you very much.

And our next question will come from the line of Gene Mannheimer with Dougherty. Gene your line is open. Okay and we’ll go to the next question and that question will be from the line of Mitra Ramgopal with Sidoti.

Just a couple of questions. First, in the past you’ve mentioned you expected the gain maybe 1%, 2% market share. With the success you’re having in terms of customer interest for the XT, you still hold to that or you think it could even be faster?

Well looking at 2016 reducing that we gained one or two points off additional market share as we’ve done in the last couple of years especially notable of course is WellStar which is about full point of market share in the US. So we’re expecting to continue to competitive wins in 2017 as well. I think for now maybe Randy comment as well, but for now we’ll continue to assume that we keep gaining one to two points of absolute market share this year as well, if it’s higher then we’ll adjust but for now we’re assuming that.

The XT really is a game changer for us, it’s an advantage and the thing that I was trying to explain in the beginning of the call, the way we’re introducing this technology, the way the options that we’re giving our customers even though it’s caused some disruption here is what really drives them to choose us because we’re allowing them to get the technology integrated into their current platform and take advantage of it, in a very meaningful way now without having to convert everything at once but start the conversion now, knowing that over the next few years they’ll fully convert. So this is grand promise that Omnicell has created in the marketplace and is what’s driven this 1% to 2% and this is just another clear commitment that Omnicell is making to their customer base that you’re going to be able to get long-term great return value with the best automation in the marketplace because we’re able to deliver the next generation of hardware and software with minimal disruption in the institution and that’s meaningful to people.

Okay, thanks. And just quickly on the cost side, obviously you’re closing Tennessee facility. I think the Slovakia facility etc.

Slovenia.

Slovenia sorry, should we expect pretty much 2017 all the closures to be completed or do you anticipate this?

All right, the group [ph] close to Tennessee office will be in the first quarter, the Slovenia plant will be closed by the end of the third quarter, this year.

And in terms of additional closures etc. I guess, it’s probably a little too early for that.

None plans at this time. None at this time.

Okay, thank you.

Thank you. I’ll now turn the conference call over to Randall Lipps for closing comments.

Well again, thank you for joining us today. I know we had a lot of numbers and assessments for you guys to go through, but the momentum in the business is strong and volume bases are excited. I want to thank them for their hard work and getting this XT launch and the Aesynt integration, it’s really changed the dynamics of our company and sets up for a continued success with a great platform to reap many benefits over the many years to come. So thanks for joining us today and we’ll see you next time.

Thank you.

Once again, we’d like to thank you for participating on today’s Omnicell fourth quarter earnings conference call. You may now disconnect.