Good afternoon. My name is Hope, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell First Quarter Earnings Announcement. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session [Operator Instructions] Thank you. I would now like to turn the conference over to Peter Kuipers, Chief Financial Officer. Please go ahead sir.

Thank you. Good morning and welcome to the Omnicell first quarter 2017 results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a 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 28, 2017 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 May 04, 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 and then I will cover our results for the first quarter of 2017 and our guidance for the year. Following our prepared remarks, we will take your questions. Our first 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 this same section. Let me now turn over the call to Randall.

Good afternoon, everyone. We're excited to discuss our first quarter results as well as our progress on the XT Series introduction. Following the announcement at ASHP in December last year of the new XT Series we received great responses and have had good momentum among both existing and new customers. I want to summarize our progress in three specific areas: First, we are winning in the market place across Omnicell’s comprehensive medication management platform. Secondly, we have good traction on XT with strong customer interest, and the XT Series is received with enthusiasm by new customers and by existing customers looking to add XT to their medication management platform. And third, we made great progress on conversion of G4, our older series, and AcuDose quotes and backlog to XT. First, it’s clear that we are winning in the market place: During the first quarter, we had a strong New and Competitive conversions rate of 33% of bookings. This is a great indicator of the strength of the business. Around 75% of those were competitive conversions and the remainder were from Greenfield customers who had never automated before. We believe that these new account wins combined with our installed customer base gives us a robust platform for the future growth driven by expansion, replacement, and upgrade sales as well as cross selling opportunities across our product portfolio and also our first quarter bookings are ahead of our internal plan. Secondly, the XT Series is received with enthusiasm by new and existing customers. As of last week, we have delivered the XT Series product to approximately 175 sites, and the XT Series are live at over 50 sites. Both numbers are growing every day. Both our internal and external surveys show very strong positive customer feedback. One of the top benefits of…

Thank you, Randall. Our first quarter 2017 GAAP revenues of $151 million was down 12% from the same quarter last year and down 12.5% sequentially driven by the product transition and related ramp up of the XT Series product launch. As Randall referred to earlier in this call, the announcement of the Omnicell XT Series does result in some disruption for two quarters, which we see continuing through the second quarter. Earnings per share in accordance with GAAP were a loss of $0.29, which is down from a GAAP loss of $0.01 in the first quarter of 2016. GAAP gross margin was at 43% 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 deferred revenue, inventory fair value adjustments, and severance and other expenses related to restructuring. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand acquisition 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 first quarter earnings press release and is posted on our website. Our first quarter 2017 non-GAAP revenues of $151 million were down 13% from the same quarter last year and down 13.6% sequentially driven by the XT Series market introduction and revenue ramp up. On a non-GAAP basis, earnings per share were $0.06 in the first quarter of 2017 above consensus and above our guidance range and down $0.29 from the…

Thanks Peter. Just in quick summary, we continue to win in the market place. And I want to make it clear that we talk a lot about XT, but as we approach our customers, we’re not just talking about the difference that XT makes, we’re talking about our entire platform. And as we’ve seen, the cost of the pharmacy operations for providers make substantially over the last few years, and many of the years double-digit growth. In fact, the single growing item, line item in the provider network. We’ve seen pharmacy medication management move from more of a tactical concern to a strategic approach for these facilities. So, when we go in and discuss with either new or existing customer, we're talking about a strategy over the next four to five years to take that customer and digitize all of their manual processes and then be able to rationalize it our offerings like the Performance Center and also address areas of automation like IV, which are significant costs for the institution and of course XT is part of that -- a big part of the platform. But the conversations that we’re having are very strategic, they’re very long-term oriented, and they’re about optimizing the movement of drugs across a multiplicity of sites and the whole continuum of care with many of these provider networks having their own insurance program for their own employees as a test of population health, which dovetails right in with our medication adherence product offering. So, we have this total broad-based solution set that resonates with where these provider networks are and where they’re going and of course, the XT is the big financial piece that we talk a lot about, but the whole platform has become a strategic sale that impacts customers for the long term and we’re really excited as we bring this almost new broad platform with Aesynt and the XT series that we've been able to add has just changed the discussion. And then as we move forward, it is why we’re winning in the market place. So, with that, I'll finish our prepared remarks and turn it over for questions. Operator, can you help us out there?

[Operator instructions] Your first question comes from the line of Jamie Stockton with Wells Fargo.

Hey. Good morning. Thanks for taking my questions. I guess maybe the first one Randy, I assume the answer to this is going to be that it's negligible, but BD was talking about changes that they're making to the way that they account for Pyxis. They indicated that there wasn’t going to be a change in kind of the cash flow payment from their customers. So, I assume that there is not going to be any impact in the marketplace from what they're doing but can you confirm that?

Yeah, I think that the customers are picking us because we have the best product in the marketplace, the broadest platform. We have the best technology. We have the best customer experience, the best in-stall experience. We have the best integration experience. So, when you put all these things together, customers need to make choices that are going to take them to the place they need to go in order to be successful with medication management and cost and the way you finance the price for all these types of equipment is important, but I wouldn't say it is the issue that makes someone choose us or not choose us. We aren’t the cheapest, but we are the best and as I said in just my last remarks, people are choosing strategic ways making sure they can manage the future not a financing vehicle I guess and I would also say that most of the market has moved away from continuous payment. 10 years ago, 80% of the market was getting some kind of financial construct from their vendor. Today two thirds of the market either purchases their product direct or uses -- the financial institution uses their own banking or financing vehicle to buy equipment because they are so large, they have the leverage and they don't need financing from a vendor. So, I think it's counter to what the industry has moved to and I think that many of the things that we do have changed the marketplace. For instance, you pay for our service and you get consistent software upgrades for free, but it comes with the service. You don't have to -- you have to pay some big amount every year in order to get those. That's built into our business model. That's hard to compete with and that's because our systems are back to compatible and the software integrates and allows people to continuously improve the medication med platform without having a large amount of disruption. A long answer to your question, but yes, I don't see any slowdown in our momentum in the marketplace because of that.

Okay. That's great. And then maybe just two quick other ones, I'll get out both to you at the same time, services seem to be pretty stronger in the quarter. Any more color on what's going on there and then in the medication adherence business, it looks like OpEx was pretty high and it really hit the bottom line of that segment. Can you give us any more color on what's happening there?

So, Jamie, this is Peter. So, what you see there really from a sequential perspective is really the full quarter impact of the Ateb acquisition, the leading software provider that we required in December. Most of that revenue is service revenue and you see the OpEx falling back for the first quarter here in the segment. So that's mostly Ateb.

Both issues, both are stronger service revenue and also the impact on medication adherence profitability was…

Yes, that's included in that segment yes.

That's great. Thank you.

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

Thanks for taking my questions. Randy, going back to your booking comments, can you comment on your win rate? Has XT influencing your win rate so far for you guys?

Yeah, I would say that XT is -- as customers look at particularly whether it's a new competitive conversion, they want to get on the front end of the new cycle of technology that's the base technology for the entire platform. So, it's more of a compelling reason I think to go with us as well as new customers, I mean existing customers who are looking to make big strategic moves like St. Luke's. That was an existing customer I think it's over 12 hospitals. They had the AcuDose system. They didn't -- they weren’t required to upgrade all their AcuDose systems to XT, but they did. But they didn't just but XT, that wasn’t the driving force behind the transaction. It was the fact that they were going to take Performance Center. They were going to reduce some workflow processing in their pharmacy and put a whole strategy of deploying this over the next few years to make this a much more effective process and system and integrate it with their epic system in a lot deeper fashion. So those were the driving decision points that made a current customer retire current equipment that was aged, but still useful but moved to XT.

Got it. Got it. On the revenue guidance cut, just want to dig in a little bit there, is it the primary -- I guess the primary cause of that, is it that implementations that customers are getting delayed or getting elongated because customers want to extend, or why is the delay even though you have the inventory in hand right now?

Well we had three reasons for the delay previously. One was manufacturing constraint, paperwork had to be re-papered for the XT model numbers and as well that also included the configuration. Now we've gotten through most of that but as we got to the very end and even had -- we have no manufacturing constraints and we have some paperwork constraints. But the main issue is that hospitals that were taking G4 have agreed to take XT and have XT maybe even sitting at their sites are looking at reconfiguring XT and redeploying it in a different fashion because of the different options we offer with XT that G4 was not able to offer. Those additional loops if you will of consideration have caused us to push out some of the XT revenue from Q2 to the second half of the year, but as we get through June almost all of that is gone and by the end of the year, all we're shipping is XT and most of the orders that in the second half of the year they're coming out of our backlog more and more those orders will have originated as original XT orders and the customer would've been sold and configured originally in XT and not G4. So, we don't have those disruption issues are negligible as we get toward the end of June or very little as we move past June and your -- all your backlog that you have that you're installing is really just coming out of pure originated XT product.

Got you. One last question, on the revenue guidance for the second half of the year with 20% plus growth, how much visibility do you have on that I guess -- is that -- do you have enough visibility right now that you have enough XT coming in that you can do that growth right now?

Yes, so the 20% is bookings right and then the 12% is revenue. So, we have bottom of rollup from installation perspective that we feel confident in specifically the third quarter revenue build up and then we've got some good visibility in the fourth quarter as well, but then of course because of that as you move through the quarters, as far bookings we feel very confident. We noted, both Randall and I noticed that we're ahead for bookings for the first quarter for our internal plan. So, we do have the bookings, it's just a matter of the year, the final config and installation timing. So, we feel good about the total momentum of the business and we're winning in the marketplace.

We feel very confident about second half of the year and particularly the third quarter, just because we -- even if we had some issues, we now have enough to maneuvering room with enough customers to try to install on a regular more consistent basis to get back to our revenue that we should have flowing through the company on a consistent basis.

That's great. Thank you very much for taking my question.

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

Good morning, gentlemen and thank you for the update and congratulations on the progress with XT.

Thank you.

A couple questions, first I am trying to understand the delta in the adjusted earnings guidance this morning, so you just beat with Q1, you indicated in your prepared remarks that gross margins are expected to ramp over the course of the year, which I would think would offset some of the change in the revenue guidance. What's the delta that we're missing, or that I am missing with EPS?

Yes, let me walk you through. So, in the plan of course in the original guidance, we also assumed like you can see in the earlier earnings call, we assumed an increase or improvement to the gross margin as we scale and get efficiencies both from a cost reduction perspective and supply chain and overhead cost absorption. So that path that trend hasn't changed. Let me walk you high level from the guidance that we gave before, so the midpoint of the guidance that we gave before was $750 million of revenue and the midpoint of EPS was $1.37. We lowered the revenue guidance in the midpoint by $20 million, which equates to roughly $0.16 down. So, it will be at $1.21 but then we have additional cost actions of about $0.07 getting us to roughly a $1.28 midpoint.

Okay. Thank you. And then regarding the bookings growth, 20% or over 20% in the second half of the year, historically, on your conference calls you've talked about how bookings translates into revenues within a six to nine-month period and I'm curious as we look out to 2018 and I'm not asking for guidance necessarily, but historically you've talked about that trend in revenues. So, if you got over 20% bookings growth in the back half of this year, that would imply over 20% revenue growth in the second half of '18. Does that historical patterns still hold?

Well in general, it does because of the math as well right. So, if you look at our revenue guidance for the second half, you're looking at the $200 million revenue quarters there right. So, it means that we'll use some of the backlog that we've build up as well in the last couple of months and some of the bookings in the third quarter will turn into revenue in the last month of the third quarter and then also in the fourth quarter. So, it's not for one but definitely it's a growing trend.

Yeah 8 to 12 is historically where we've been and I think that's a good way to look at business even though we're not giving any specific guidance for next year and I think we also have some really cool products that are recognized ratably. They're not recognizable once like for performance center, the SaaS model. Some of the IV deployments that we're doing or the rise model are recognized ratably. So, good profitable growth, but it doesn't flow out of backlog as quick. So, I think the way we're looking, the way that we've traditionally looked at the business in a healthy format, the 8 to 12 is always a good way to look at the business as well as we do -- we are seeing a really nice pipeline growing of replacements. This is the new market we have not had. A lot of that's toward the back of the end of the year because we just introduced XT in December, but we've already had some nice sales that we would not had if we didn't have XT and that's only going to grow as we move forward and give time for customers to get into their budgets and their pipeline for the year. So, we should feel confident about the 8 to 12 over the long run.

Okay. Great. And one last one for me and then I'll hop back in the queue, can we get an update on the performance center, may be the number of customers that have implemented or contracted? Obviously, there was strong growth right out of the gates with the first quarter, but if we can get an update where you are today that would be helpful.

Well, I would just say that we had record bookings of performance center in Q1. It was a key piece of technology and service integrated into almost many of our large single orders that we had this quarter. We are progressing very quickly because it is becoming a key driver in the total platform sale. I know we're -- I don't know the exact number and I actually know the exact number of customer, but it's not single digits or anything but I think what's most exciting is that we thought that this would be more of an aftermarket sale after people had deployed their technology and its now part of the upfront sale in a major conversion or major new cycle of products.

Okay. Great. Thank you.

Your next question comes from the line of Sean Wieland with Piper Jaffray.

Thank you. Good morning. Can you give us some examples of how a customer is looking to redeploy XP in a different fashion than G4 and how many -- exactly how many customers are rethinking their deployment in this way?

Well, there's a couple of things. One is that when you reconfigure the XT you have a lot more options to more meds to more locations and when you move more meds to more locations you might move from 60% of the meds flowing through the systems and 40% flowing from the pharmacy to get a 100% flow up the floor. Now the expanded capacity without changing the footprint, you can move to 80% to 90% of the workflow up to what's called a cart less format and most of the hospitals that have not been in this format, have had physical constraints on the space of the product. And so, this is a big change in workflow because now nursing will spend more time getting the drugs out of the system instead of having it delivered to them the 40% delivered from the pharmacy on a per patient basis. So now when you move to 80% to 90%, you deploy different software features, different policies, you change the workflow of the pharmacy on how often it's delivered up to the floors and then you drive nursing to do more of their activity like anywhere we're in directly through the system to prep their orders coming out of the automated dispensing and using it as a single point of operation as opposed to just a 50% to 60% workflow.

So, would you characterize it as most of the G4 to XT conversions are going through this kind of workflow change or dial it into a number of percentage?

Well, that's probably the primary issue is just configuration because there isn’t a good one to one transfer or one drawer on the G4. It looks like one drawer on the XT. There is such significant difference that it does require some decision-making. There also some other XT issues in California. You have to have OSHPD recertified, your earthquake plate on some new construction. So, the G4 earthquake plate is already approved but the XT is approved from the Omnicell side but the hospital now has to go get its approval for the XT earthquake plate. So again, that's only because of XT, it's not because if it was a G4 kind of deal it would go through and wouldn't be a problem and even though there was extended time for the XT to get through some of these things, there's just enough of these things that have pushed enough of the installs into the second half of the year that we were hoping to getting done in Q2.

All right, that's super helpful. Just one more clarification. So that 25% in Q1 to 40% to 75% to 90% as you laid out, tell me again exactly what those numbers represent?

That's just the -- if you look at the ADC installations dispensing systems, C4 and XT, so in Q1 just of the ADC installations, 75% were G4, 25% were XT. As we move to the second quarter, 40% will be XT and 60% will be G4 and then we believe 75% and then first deal XT revenues essentially basically by the end of the year everything is pretty much XT.

Okay. One more. What percentage of XT shipments today so far have been to replace G4 versus replace AcuDose versus net new?

Well I think -- well I don't know about the shipments, but on the booking side, I would say we've built a very healthy line and I think that we see that customers are excited about moving forward with XT, the large customers especially are looking places to deploy XT, so they can get a good understanding of it, so that as they prepare the budgets in the following years, they know how they want to deploy it and how they want to change the configuration of those things. I haven't had any customer say well I'm not going to go to XT eventually or I don't want to go to XT eventually. It's just about matters of time and if you just look at the numbers, the numbers and the size of our installed base or take AcuDose, that's a third of our installed base. They probably had more of an urgency to switch to XT because they know that their AcuDose is going to be form factor is going to be sun setting there quickly and probably knew that since the acquisition a year ago.

Okay. But my question was what percentage of the bookings, XT bookings have been to replace to upgrade AcuDose versus upgrade G4 versus net new customers?

Okay. Didn't listen very well. I think that probably more than half have been AcuDose and that when I'm talking about replacements less on the Omnicell side and then 40% on Omnicell and then probably from this date going forward, there is very little new G4 orders. We still have that line going, but most of the G4 that's being installed has already been built and it's about to be shipped to customers for Q2 and Q3. So that product line is not very large on the manufacturing side.

Okay. Thank you for taking all my questions.

Your next question comes from the line of Raymond Myers with Benchmark.

Great. Thank you. And Randy I want to continue on previous questions enough savings that we're receiving with Performance Center. Can you discuss what that is and you have experienced what the recent trend has been.

I think there is a nice ROI if you look at it just from the ROI of the cost rational of that rationalization of medication inventories across many multi-site, we say a minimum of 2% of the entire pharmacy spend is continuing in that fashion, but there are other things that we are adding to the Performance Center that continue to help meet regulatory compliance and save cost along 340 B. This new pedigree thing from Pharmex is all about regulatory compliance and so there's -- by having the Performance Center platform not only help save rationalize cost, optimize the use and workflow of the system on a real-time basis, but the ability to meet the new regulatory regulations without massive amounts across the deploying complex systems and to continue to deploy 340 B, which is a huge cost saver for these institutions is another reason that people have gone with the Performance Center.

Okay. Sounds great. And then to be clear, the timing of your XT disruption I believe you're exiting now through June from April. So just two months. Is that the primary reason for the adjustment in full year revenue guidance or are there other factors as well?

That's the whole reason. It's just the XT launch because of the change in what additional requirements that some XT sites are requiring either through configuration or certification or different cycles of approval, even though it's the same software IT may want to have to go in a look at it again and verify Windows 10 because XT runs on Windows 10. So, there's just these extra additional steps that don't have anything to do with manufacturing constraints, don't have anything to do with paperwork constraints, but do have to do with it's a new model and its landing on site and before you can install it, we want to have some extra reviews of the product or actions.

So, to summarize, so we have the bookings. We had our internal plan for the first quarter on bookings. It's really a matter of timing that those bookings, which are non-cancelable commitments or further into revenue fee and installation and to summarize it Randy said, we see because it's a new product that customers want to make sure they optimize all the additional benefits that the XT series has and that takes a little bit more time than we initially had thought.

Okay. Understood. Last question is on the IV robots, can you discuss the customer adoption of that and has your view changed about the potential for the product over the next few years?

No, it's only getting more exciting. I think what we see in the IV robotics is still an emerging-market but the more we deploy, the more local markets go by and see somebody else's robot and then want to move toward that and I think we see big good success there. We've owned Aesynt for about a year, a little more than a longer in a year, that was a new product to add to our sales persons bag and now we're seeing the results of that product as the pipeline has been built up over the year and now it's coming out of the funnel as new sales. So that's a very exciting product and between Performance Center and IV those tend to be incorporated in all our new or larger sales in almost every case and we have a lot of individual hospitals making singular purchases of our IV system and that is resulting in first time business relationships with a lot of new customers that we've never had before.

That's great. Thanks Randy and Peter.

Because we're the market leader obviously.

Your final question comes from the line of Gene Mannheimer with Dougherty & Company.

Thanks, and good morning.

Hey Gene.

Question is I guess how long in the future will you be continuing to support assuming a long quarters you're still getting installed there and how much of the G3 phase of the folks that never migrated over to G4 are candidates to XT, some numbers around that would be great?

Yeah, I think just the matter of getting our gross margin back to where it needs to be will require us to consolidate to a single line of automated dispensing and as you see the XT getting to 90% by the end of the year, I think that points to a roadmap that says G4 and the AcuDose have pretty short fuses on it this year before that's all we ship for either customer base. And then I think in the G3 world, we're already addressing those sites as we've launched the XT, we are asking those sites to move quickly along and a lot of those most likely will move directly from the G3 to XT.

So, there are about 100 of those or give us a sense of maybe the magnitude of that?

It's not -- I don't think it's more than 10% of our -- a little bit I am guessing less than 10% of our installed base, but it is probably a significant number when you add up all the units we have out there, but as far as the percentage of our customer base it’s not that big.

Got you and secondly, Randy or Peter, what was the Ateb contribution in the quarter and would medication adherence have grown on an organic basis net of that?

It's about $30 million, we guided last year and when we did the acquisition, it was about a $30 million business. So, I think we said $28 million. So, we find that about $4 million, I think it's about $7 million for the quarter assuming it's a fairly -- it's a lot of service right, software. So, it's ratably over times about between $6 million and $7 million, I would say for this quarter if you carve that out, you can calculate the percentage.

Okay. Very good. Thanks guys and happy birthday Randy.

Oh. Thank you. Thank you, Gene and finally I just want to close and say that look this XT thing is we haven't done as good job of rolling thing out or predicting how we roll out as we thought, but we're coming to the end of these issues and that is the only issue that is disrupting any of our business that we have going on here. I think on the other side of the booking side of the business, we are winning major deals in every geographic market in the U.S. and every time you do want to that it just creates more momentum for the company. When you when WellStar in Georgia, every Georgia by the end wants to know why are people moving to WellStar and so why are they moving to Omnicell. So, the company has significant momentum in the marketplace. The XT series having the best products, the broadest product lines, these things continue to set us up for some fantastic growth and even to the point where we see these provider networks looking at med adherence and taking some of our med adherence products and bring that into the product offering for these folks as they try to improve the outcomes for patients. It's really satisfying to see the impact that we are making in the lives of patients and the way that providers can key into that success. Again, thanks for joining us and again just want to continue to shout out the employee base it's an acquisition XT rollout. Everybody is running pretty hard and I just want to thank you for your great efforts and great results. We'll see you guys next time.

Thank you. That concludes today's conference call. You may now disconnect.