Omnicell, Inc. (OMCL) Q1 2017 Earnings Report, Transcript and Summary

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 XT according to users was the increased speed of the XT Series, the reduction in time in the workflow is returning significant time to nurses. Of course, about 40% of nursing time is spent on medication management, so you can see why this time savings is significant. A leading medical center in the United States recently commented that XT is a night and day experience compared to our last system from another vendor. Everyone loves the extra capacity, the large screen, the intuitive design, the clean design, and the ability to authenticate users in and out of the system very quickly has created much better work flows for our users. Third, we are progressing well on our conversion of G4 and AcuDose-Rx quotes and backlog, and are ramping up the XT Series Revenue. Specifically, we've converted the vast majority of all G4 and AcuDose quotes and year-end backlog to XT Bookings and Backlog. There is a portion of the G4 and AcuDose backlog that won’t convert as those customers have chosen to complete their installations with G4 or AcuDose. Customers in our year-end backlog and pipeline were prepared for a G4 installation. While we have redirected these customers to the benefits of XT and removed supply chain and paperwork issues, we assumed that these customers would move through the process as quickly as they did with G4 frames. However, we have learned that customers want additional time to maximize their XT deployments, especially with respect to optimizing their use of XT’s additional capacity, configurations and feature benefits. As a result of our expected conversion of our G4 and AcuDose bookings in Backlog to XT bookings, the XT manufacturing and installation ramp up we have anticipated two quarters or six months of transition disruption starting from December last year through April. While the conversion has improved and continues to improve, we now do see some continued residual impact of these dynamics through the second quarter, i.e. through June. Out of the total ADC Frame revenue we are expecting the percentage of XT Series Frames revenue we expect to increase from around 25% in the first quarter, to over 40% of XT revenues in the second quarter then to around 75% -- around 75% in the third quarter, and over 90% in the fourth quarter. And we will report this metric during the quarterly earnings calls this year to demonstrate the execution of the XT Series roll out and adoption. For the first quarter, the non-GAAP revenue was $151 million within the guidance range provided in our fourth quarter results earnings call and essentially at consensus. Combined with good cost management and a tax favorability non-GAAP EPS was $0.06, and that was above our guidance range and above consensus. In the last number of years, we've successfully grown the business by implementing three scalable growth strategies. Growth through the differentiated Omnicell platform, growth in new markets growth and growth via acquisitions. Now for 11 consecutive years, we have received the top honors from KLAS, the prestigious third-party rating organization. For 12 consecutive years, we have increased our market share and gained new thought leader customers every quarter and in almost every significant geography. Together with our customers, we are consistently delivering state of the art medication management automation and workflow efficiency for caregivers and better healthcare outcomes for patients. Now in 2017, we continued to experience great wins and added notable customers to our Omnicell family under the first strategic pillar of Differentiated Platform. With several large competitive conversions we estimated that we gained further market share in the first quarter of 2017, a continuation of the market share gain trend and momentum we have experienced for many years. In the first quarter, we had some great wins with prominent new customers, as well as significant deals with existing customers including, Mercy Health Ohio, Saint Luke’s Health System and North Memorial Health. Now Mercy Health Ohio, a 23-hospital healthcare system serving Ohio and Kentucky, has selected the Company’s automated medication dispensing solutions, including the new XT Series, to be installed across their facilities. As one of the largest health systems in the U.S., serving approximately six million patients each year, Mercy is looking for a vendor partner with technology that would streamline workflows and increase integration between the facilities. Saint Luke’s Health System, a not-for-profit healthcare system based in Kansas City, Missouri, will incorporate the Omnicell Performance Center, an integrated software and services offering to drive improved pharmacy operations and reduce costs. Saint Luke’s Health System will incorporate Omnicell’s technology for its automated dispensing cabinets, anesthesia workstations, central pharmacy technologies and diversion detection software. Minneapolis-based North Memorial Health has selected multiple medication management and analytics solutions for both North Memorial Health Hospital and Maple Grove Hospital, reinforcing their commitment to patient safety, while enabling each hospital to more efficiently manage medications. North Memorial is implementing Omnicell solutions across its facilities. Products include automated carousels and controlled substance management system, Omnicell XT Automated Dispensing System with Anywhere RN, XT Anesthesia Workstation and Epic interoperability package. With a focus on improving safety, North Memorial also selected Omnicell Analytics to gain insights into potential drug diversion activity. These strategic wins in the market place are being driven by the strength of our overall portfolio and differentiated platform. Our second strategic pillar of expanding into new markets also fueled growth in the last several years and we believe sets us up well for growth in the coming years. Internationally, in the largest single deal for Omnicell’s IV robots outside of the United States, Invotek, our distributor for Turkey, has purchased a sizable number of Omnicell’s i.v.STATION ONCO and i.v.STATION robots. These robots are set to be installed in various hospitals providing safe, accurate and efficient IV preparation. CompleteRx, a leading independent provider of pharmacy management and consulting services to health systems across the country, has selected Omnicell XT Series solutions to support behavior health facilities in Massachusetts. Having previously implemented Omnicell’s adherence solutions, CompleteRx looked to Omnicell to provide the latest technology, quality service and long-term products for medication automation. Our third strategic pillar, of expanding our presence and relevance through Acquisitions, has also continued to deliver great results. The Aesynt integration is progressing well: The product portfolio integration is ahead of schedule with the market introduction of AcuDose on XT announced earlier this week, that means that current AcuDoseRx customers can add on XT equipment directly onto their system without making modifications. The cost synergies are as expected. Already we are seeing good cross-selling momentum within the total product portfolio and combined customer base specifically for our IV and Performance Center Solutions. In April, we completed the acquisition of InPharmics. InPharmics currently serves more than 150 hospitals with tools that analyze drug cost by patient diagnosis, thereby supporting the pharmacy’s clinical activities while helping to optimize supply chain performance and comply with drug pedigree regulations. The InPharmics solution adds clinical and compliance analytics to our Performance Center offering, positioning Omnicell as the partner of choice for health systems looking to drive improvement across all facets of the medication management. We believe our hard work over the years and the execution of our three-leg strategy laid the foundation for our success historically, and sets us up for continued future growth and scale. In today’s evolving healthcare environment, we remain focused on our mission to change the practice of healthcare with solutions that improve patient and provider outcomes. With that let, me turn it over to Peter for some financial updates.

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 same quarter last year and down $0.31 sequentially. Non-GAAP gross margin was 46.4% in the first quarter and we expect gross margin to steadily increase through the year as the XT Series rollout ramps up and we get scale efficiencies in manufacturing and installation cost. The first quarter gross margin was also impacted by cost to expedite shipments of XT products to customers. Non-GAAP adjusted EBITDA was $4.3 million for the first quarter of 2017. Our business is also reported in segments, consisting of Automation and Analytics and Medication Adherence. Automation and Analytics consists of our G4, AcuDose, earliergeneration, and XT Automated Dispensing Cabinets, Anesthesia Workstations, Central Pharmacy, Omnicell Supply, Omnicell Analytics and MACH4 robotic dispensing systems. Our acquisitions of Avantec, MACH4, and Aesynt are also included in this segment. The Medication Adherence segment consists of all adherence package consumables, which are now branded SureMed, and equipment used by pharmacists to create adherence packages. Our acquisitions of MTS Medication Technologies, Surgichem and Ateb Inc are included in the Medication Adherence segment. As a reminder, we report certain corporate expenses that cannot be easily applied to either segment separately. On a segment basis, our Automation and Analytics segment contributed $124 million in GAAP revenue in the first quarter of 2017, down from $149 million in the first quarter of 2016, driven by the start of the XT Series launch. $5 million of GAAP operating income this quarter compares to a $20 million GAAP operating income for the same quarter last year. $14 million of non-GAAP operating profit compares to $34 million last year. The Medication Adherence segment contributed $26 million of GAAP revenue to the quarter, compared to $22 million in the first quarter of 2016. The GAAP operating loss of $2 million compares to a $3 million GAAP operating profit a year ago. Non-GAAP operating income was $1 million in the first quarter compared to $4 million of non-GAAP operating income a year ago. The non-GAAP common expenses were $16 million compared to $17.6 million in the first quarter of 2016. The non-GAAP operating margin was around break even for the first quarter, including Aesynt and Ateb integration cost. Excluding the Aesynt and Ateb integration costs of approximately $2.7 million in the quarter, the Non-GAAP operating margin was around 1.3% for the first quarter. In the first quarter of 2017 our cash decreased from $54 million to $46 million after paying down our term loan and revolving debt by $40 million within the quarter. The first quarter 2017 cash flow from operations of $28 million was strong and driven by strong accounts receivable collections and an increase in AP, and deferred revenue, partially offset by an inventory build-up of XT for future quarter installs. As of March 31, 2017 we had $220 million of outstanding funded debt, and our loan leverage measured as outstanding total funded loan balance over the last 12 months of EBITDA was 2.5. Accounts receivable days sales outstanding were 82 for the first quarter, up one day from the fourth quarter despite the lower sequential sales. For context, our standard customer agreements specify that for equipment sales the company invoices 100% of the contract value at shipment date. We review the collectability of our receivables regularly and we do not believe that the fluctuations in DSO are indicative of a change in our rate of bad debt. Inventories at March 31, 2017 were $76 million and are up $7 million from last quarter, driven by an inventory build for future quarter installs. Our headcount was 2,361, down from 2,444 per year end driven by the reduction in force action we executed in the first quarter. During the first quarter, we executed well on a number of drivers underpinning the dynamics of the XT Series product introduction: We converted the vast majority of all G4 and AcuDose quotes and year-end backlog to XT quotes, bookings and backlog. We have ramped up manufacturing for the XT Series after adding a second shift. As Randall mentioned earlier, as of last week, we have delivered XT Series to approximately 175 sites and the XT Series is live at over 50 sites. Both numbers are growing every day. We executed on cost actions including a 100-position reduction in force and general hiring delays. The majority of the reduction in force over various locations was completed in the first quarter of 2017 and also enables the creation of the Centers of Excellence to achieve cost synergies contemplated in the acquisition of Aesynt. As part of the next phase of the integration of the acquisition of Aesynt, we are progressing well on the creation of the following Centers of Excellence, for product development, engineering and manufacturing: First the Point of Use Center of Excellence in California, the Robotics and Central Pharmacy COE in Pittsburgh, Pennsylvania and lastly the Medication Adherence Consumables COE in St. Petersburg Florida. The second through fourth quarter of 2017 dynamics are expected to be as follows; first, the AcuDose on XT launch, which we announced last week. This product launch allows the full Aesynt customer base to benefit from the XT Series product advantages while continuing to use their existing AcuDose software. Secondly, we expect to improve XT production cost, accelerating bookings growth and accelerating organic revenue growth. During the second through fourth quarters of 2017 we are taking the following actions. We're implementing XT cost of goods sold reductions as revenue ramps. We continued cost controls and we're implementing the COEs mentioned earlier. Although the first quarter bookings were ahead of our internal plan as Randall mentioned, we do see some continued disruption impact on revenue of the ramp up of the XT Series product introduction in the full second quarter. We do believe that there will be a partial catch up of these customer deployment and configuration installation timing delays on revenue in the second half of the year but not a full catch up. As a result, for the second quarter of 2017, we expect non-GAAP revenue to be between $172 million and $178 million. We expect the second quarter of 2017 non-GAAP earnings to be between $0.21 and $0.27 per share. As discussed in previous earnings calls, it’s important to note that from time to time installation completion timing on specifically bigger projects can impact revenue and earnings in a given quarter, but we don’t expect such quarterly fluctuations to impact the growth rate measured over multiple quarters. For the second half of 2017, we expect total non-GAAP revenue to be between $395 million and $415 million, representing an approximate12% organic revenue growth rate when using the midpoint. For the second half of 2017, we expect total non-GAAP earnings to be between $0.95 and $1.05 per share. This represents a $2 per share non-GAAP EPS run-rate when annualizing the second half of 2017 using the midpoint of the guidance range. Although the first quarter bookings were ahead of the internal plan at this time we are not updating our product bookings guidance, and we continue to expect the 2017 product bookings to be between $570 million and $590 million. We expect non-GAAP revenue to be between $720 million and $740 million for total 2017 and we expect 2017 non-GAAP earnings to be between $1.22 and $1.34 per share as we are offsetting part of the lower guided revenue range with cost actions and efficiencies. We expect non-GAAP operating margins for 2017 to be approximately 10%, including integration cost for Aesynt and Ateb. Excluding the integration cost for the Aesynt and Ateb, we expect non-GAAP operating margin for 2017 to be between 11% and 11.5%. Given the ramp up of the XT Series revenue and profitability through the year in 2017 described earlier in this call, we expect the non-GAAP margin for the fourth quarter in 2017 including integration cost for Aesynt and Ateb to be at approximately between 15% to 16%, in line with our long-term financial model. Excluding the integration cost for Aesynt and Ateb, we expect the non-GAAP operating margin for the fourth quarter in 2017 to be above 16%. When reviewing 2017, it's important to note a couple of items included in the 2017 guidance: First of all, for 2017, our non-GAAP expected results include approximately $12 million of integration costs for Aesynt and Ateb that we do not adjust for based on our non-GAAP policy. These integration costs directly impacting non-GAAP operating margins and non-GAAP EPS mostly consist of integration related IT expenses, integration team and project cost, cost related to the implementation of Sarbanes Oxley, cost related to tax restructuring and accelerated product development integration costs. In 2017, we are expecting second year cost synergies of around $10 million. As we have demonstrated in the past we are confident to achieve our 15% non-GAAP operating margin target over time after integrating the acquired business and getting full benefit of the scale of the combined business. Lastly, for 2017, we expect interest expense related to the senior secured credit facility used to finance the Aesynt and Ateb acquisitions to be around $7 million or equivalent to a non-GAAP EPS headwind of around $0.11. Finally, we're assuming an annual average effective tax rate of 35% on GAAP earnings on a combined basis. To round on our update, I'll hand the call back to Randall.

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.