Good afternoon. My name is Erica and I'll be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth Quarter Earnings Announcement. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you, Mr. Peter Kuipers, Chief Financial Officer, you may begin your conference.

Thank you. Good afternoon and welcome to the Omnicell fourth quarter 2017 results conference call. 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 February 1, 2018 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 expressed written consent of Omnicell, Inc. is prohibited. Randall will first provide an update on our business then I will cover our results for the fourth quarter of 2017, or full year 2017 and discuss our guidance for 2018. Our fourth quarter financial results are included in our earnings announcement which was released earlier today and is posted in the Investor Relations section at omnicell.com. Our prepared remarks will also be posted in the same section. Let me turn the call over to Randall.

Good afternoon, everyone. The fourth quarter of 2017 was a good quarter, rounding off a successful year for the company. Although this quarter's revenue was slightly below guidance, profitability came in above consensus. We have created a strong foundation for 2018 with a record number of multi-million dollar deals, significant market share gains, record year-end product backlog and considerable momentum and innovation positioning the company towards the $2 non-GAAP EPS mark. 2017 was an outstanding year for Innovation and customer acquisition. We are pleased with our progress and continuous innovation to build and expand the industry-leading medication management platform with the goal of achieving the fully automated pharmacy. We started production of our innovative XT Series in January last year, which received a great market response from customers and we experienced continued momentum from both existing and new customers. In April, we announced the launch of AcuDose software on XT hardware, which allows our existing Aesynt customer base to fully take advantage of the XT Series. In the second quarter, we launched the XT Series automated supply dispensing system and the controlled substance dispenser module providing innovative efficient and secure workflow for dispensing and administration of controlled successes. In December we announced the XR2 Automated Central Pharmacy System. The robotic XR2 is an innovative game changer and a significant step towards fully automating central pharmacy operations across the full range of customer environments. Beyond upgrades, the XR2 represents significant greenfield and competitive conversion opportunities. In December, we also announced the IVX Workflow powered by the IVX Cloud. IVX is a significant technological advancement for IV Workflow processes enabling pharmacies to safely and efficiency compound and prepare IV treatments. Last year, we also expanded Omnicell's medication inherent ecosystem with the addition of advanced automated packaging solutions to our platform that includes…

Thank you, Randall. The full year of 2017 was a company record for product bookings, product backlog and revenue. Our fourth quarter 2017 GAAP revenue of $198 million was up $11 million or up 6% sequentially. And 2017 GAAP revenue of $716 million was up $22 million or up 3% year-over-year, impacted by the product concession and related ramp-up of the XT series launch. The fourth quarter earnings per share in accordance with GAAP were $0.62 and includes $0.34 of a one-time tax benefit from the revaluation of the net deferred tax liability balances in the fourth quarter, as a result of the tax reform. The fourth quarter earnings per share in accordance with GAAP is up from a GAAP EPS of $0.00 in the fourth quarter of 2016. Earnings per share in accordance with GAAP for 2017 were $0.53, which is up from GAAP EPS of $0.02 for 2016. GAAP gross margin was 48% for the quarter or up 260 basis points from the third quarter this year, driven by margin expansion actions and increased volume and overhead cost absorption. In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes the stock compensation expense and amortization of intangible assets associated with acquisitions. One-time acquisition related expenses, the acquisition accounting impacts related to deferred revenue and inventory fair value adjustments, and tax reform benefit impact from the Tax Cuts and Jobs Act of 2017 also called Tax Reform. 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 cost and non-cash compensation expenses that are a component of our reported results, as well as one-time events and one-time acquisition and restructuring related expenses as well as one-time tax reform benefit impact.…

Thanks, Peter. 2017 was a successful year for Omnicell with fantastic innovation, record bookings, backlog and revenue setting Omnicell up for success most importantly in 2018 especially as new products including XR2 and IVX becomes generally available and installable for customers in the second half of 2018. We're proud of the company's financial performance and the execution of our strategy. We're seeing faster adoption of our latest revolutionary solutions and services, which leverage workflow automation on a cloud data platform. We're able to use artificial intelligence for our predictive analytics and performance dividend partnerships to help our customers achieve the highest level of success. And we're just feeling very well about 2018 as we're able to demonstrate more of our story, the more bigger our platform has to offer and really is another conversation that we're able to have with our customers at a totally different level. So with that, that concludes our prepared remarks. And now I'd like to open it up operator for calls.

[Operator Instructions] Your first question comes from Matt Hewitt from Craig-Hallum Capital.

Gentlemen, thank you for taking the questions and providing a full detailed update.

Hey, Matt.

First question, maybe you could give us an update on the implementation. It sounds like there have been a couple of sticking points here in the last couple of quarters. Obviously when you've got a new platform rollout such as XT that's the software as well as the hardware, you would expect maybe a couple of hiccups. But it seems to be these are dragging on a little bit. Maybe if you can provide an update on that front. Thank you.

Well, I think the couple of dynamics that are changing. But one of them is the orders are getting very large. And therefore the implementation pieces are getting very large. And so it's a little block here, which is - it's not a bad thing but when somebody slows it down, it slows down a larger block of implementations. And the team has gotten better and better every quarter at setting up the installations and moving those forward. And I think that certainly for 2018 we have built in a plan that allows for more of these last-minute changes if we get them just because the backlog has backed up even a little more. So there's no individual reason why some of these accounts get pushed off there always for different reasons, but it's just that the size of some of the single installations are at the size that it does can impact the revenue.

With some of those delays is it - it sounds like it's more on the customer side not necessarily with your teams running into some complications. Is that accurate and as you get more accustomed to these implementations is there a process that you're going through with the next large customer that can maybe make those a little more seamless?

I think we're trying to set down a little bit higher expectations and even putting in contractual content that really sets up the customer to meet certain deadlines. Because there aren't any reasons we can't install and it's generally driven by the customers' last-minute idea that something else changed not having to do with our systems or anything but they have another project in the hospital they decided to focus on. But I think that we are getting more I would just say acute at dealing with the larger installs and making sure we're committed as they follow through.

Okay, maybe one last one for me, more on the demand side. Has there been any changes that you've seen either from competitive dynamics where BD has maybe fixed some of the problems that they're having an interoperability or whatever or from the customer financial side that has may be impacted demand from your vintage point? Thank you.

Yes, thanks Matt, this is Peter. So we get this question every quarter. So also this quarter we haven't really seen any differences in kind of demand dynamics or patterns. In the script I think we pointed out that we had signed three sole-sourced agreements with leading nationwide full-profit hospital systems, which you definitely see a dynamic there that we're scaling up in the bigger accounts as well, because they need a consistent interoperable system. So also in that perspective it's a little bit of a new segment for us, but we are definitely winning in that part of the market also. So from a demand perspective, that maybe is a little bit different than it was in prior periods.

Great, thank you.

And your next question comes from Jamie Stockton with Wells Fargo.

Thanks for taking my questions. I guess maybe just on revenue with your Q1 guidance I was wondering if there was anything that's changed from a seasonality standpoint. Obviously last year we had the issues transitioning from G4 to XT that caused a fairly significant sequential dip from Q4 of 2016 to Q1 of 2017. Your guidance implies seasonality is going to pretty weak again sequentially this year. It feels like maybe it's the dip in seasonality is a little stronger than it used to be in prior years. I am just curious if you're sensing anything that's going on that would explain that may be especially if there were some business that got pushed out from Q4?

Yes, I mean, there is always some seasonality, I think we are a lot more confident this year and a steady ramp up of the revenue, because we essentially plan the year by quarter based on the committed implementation plans, we strengthen the relationships and contractual language with customers as well to make sure the implementations start on time and as best as possible to get finished as planned. So the first quarter is really based up and the other quarter as well, really based on those committed contracts that's kind of how the revenue falls for the quarter and built up the second half of the year had some revenue for XR2 and for IVX as well. So we see a little bit of cooling towards the back half. So it's all inclusive we would say.

Okay. And then my another question the SG&A ticked up a fair amount sequentially not materially above the levels that you saw in the first half of the, I assume that that was just a stronger commission quarter because you had some pretty good bookings?

Yes, and also some of the big marketing trade show days, it's the - is also in the fourth quarter. There is always a little uptick in the fourth quarter.

That's great, thank you.

And your next question comes from Sean Wieland with Piper Jaffray.

Hi, thank you. So these four profits that you mentioned that you are making some headwind, what kind of run way is left like with this the initial term of the contract, what percent penetration does that representation in that? Is there still room for additional penetration within those large accounts?

These are multiyear source contract. The estimated bookings and then some of our revenue are mostly in the first two to four years. I would say most of where we target besides going to be Automated Dispensing systems and also there is an opportunity for other systems from our platform like IT systems, Performance Center and also the XR2.

Substantially in most - I think it is just a question substantially most of the bookings are not - have not been booked we have the agreement signed. And some initial small bookings, most of the bookings for these three groups will be coming in 2018 some in 2019, 2018 and 2019.

Got it, that's exactly I was asking. Thank you. And the 820 sites I think you mentioned for that are now running XT, can you give us ballpark roughly what kind of penetration is that in your base, I know you talked about number of hospitals in UK, but you don't talk about number of sites?

Well, I would say that on the adoption curve, we're still very early on, on the front of that and I think we're going to see some nice growth from this year to last year, which will above the plan and XT replacements will be over double this year these are - and so I would say the pipeline and what we expect in the adoption curve over the next five years is right on the schedule and that maybe even some room for upside there.

Okay. So just to try to maybe nail it down a little bit more as 820 sites is that less than or greater 10% penetration?

It's probably a little bit higher than 10%. But in that 820 to be aware that 820 sites also includes add-ons or expansions of an existing customers for G4 and XT kind work side-by-side and over time will be upgraded.

Okay, that makes sense. And then one more quick one, what is the GA XR2 and IVX?

So XR2 it's general availability or GA date is July of 2018 and IVX, IVX Cloud, GA is April of this year. And I think we mentioned in our prepaid remarks that for both new product we're actually very pleased with the commercial momentum, we actually have received multiple commercial non-cancelable contracts for both new products. So even before GA, which is somewhat exceptional even in the past.

Most of these XR2 and even IVX in some cases are multiple product lines, people want to buy a bigger subsection of this platform right off of the bad. And so it may include upgrading to XTE and IVX and three or four things. Almost all these includes Performance Center, which we have contractual obligation hasn't been installed in over 200 hospitals. So that's been a very big success, the reason why a lot of customers obviously want to get into our platform. They want to gather the data and then execute on the data and the Performance Center is the enabling tool will let you do that.

Okay, thank you very much.

And your next question comes from Raymond Myers with Benchmark.

Thank you. Let me first ask you about the Centers of Excellence program. Can you describe how that's been progressing and whether the three cabinet lines have finished their integration into one?

Yes, so it's somewhat fairly straightforward right. So Center of Excellence for robotics, we set it in Pittsburgh, Pennsylvania. Essentially we have some people movements geographically and that is substantially complete. The Center on Excellence for point of care solutions is in California that move essentially also has been completed. And the Center of Excellence for Med Adherence consumables in St. Pittsburgh, Florida was already there, so that's also completed. And then on the second part of your question on the consolidation of assembly lines for Automated Dispensing systems essentially is also complete with the shutdown effectively of the ADC line for AcuDose in Pittsburgh, Pennsylvania and then in California in our plant we now move essentially to only the XT assembly line and we consolidate effectively the G4 and XT lines in the California plants to just the XT assembly line.

That's great. If we've been talking about Performance Center for about a year now, how do we measure the contribution of Performance Center to Omnicell and get a sense of how that's progressing?

Yes. so we don't break out the separate product lines I would say also that like Randall talked about earlier we're more and more selling a platform now where especially for the more strategic and bigger deals Performance Center is almost always included. Characteristics if you kind of carve it out the way we look at it is only kind of the standalone basis. Of course it's higher gross margin because it's a software solutions. And it's becoming increasingly profitable also specifically in this year and the years after that.

Okay, thank you. Can you talk a bit about the multimed strategy particularly the VBM 200 that was launched in Q3. How is the multimed program ramping?

Well I think just not only the hardware, but the combination of the software and the hardware and packaging is really striking a rhythm with the market. Because it's they want to be able to solve synching the medications once you have the faith and you want to package them in the way that you've synch the meds together. So while it's quite a unique solution set so you can find specialty pharma groups and different employee base groups that really want to go after some of their higher cost patients where Medication Adherence is still key. And so it takes both the software and a hardware and a packaging piece to put it all together and I would say we've succeeded our expectations as we've actually taken the Ateb web based products and laid it on top of the hardware and the packaging piece has presenting a really nice solution set. And so that momentum continues to gain quite a bit.

Just a couple of more, does guidance include acquisitions and what is your outlook for the acquisitions?

So this is Peter. So yes.

Okay. Great, that's all I had, thanks.

Thank you.

And your next question comes from Steve Halper from Cantor Fitzgerald.

Hi. One question just in terms of the outlook and then a couple of housekeeping items. So first we've seen two quarters in a row where you've had this issue with implementations. Understanding that it's difficult to sort to get the customer to move in the larger implications, but do you think relative to your guidance for 2018 you factored in some of these issues - do you think you adequately reflected some of these implementation if you want to call them challenges that you've had the last couple of quarters?

Definitely we have shifted both our strategy with our customers, the way we positioned particularly Q1 to make sure that we can be conservative in case something happened. I just think, I am like you, last two quarters I said that's enough of this. And so this year's plan is built on not doing that anymore.

So built on specific committed implementation start dates.

He said the official thing, but Steve you know what I am saying.

And then just turning to the margin for the housekeeping items, the - you mentioned that the guidance includes $0.20 of benefit from tax rate. So just moving up, up to the operating line, where do you think you came out relative to your guidance for your the costs structure or cost growth relative to where you might've been six months ago or three months ago before tax, did you decide that you could take some of the tax savings and invested. Because you - I would've thought the earnings number before the tax - with the tax rate would've been higher, right? But did something changed in the operating margin assumptions?

No, not really, we wanted to make sure that the plan is achievable from a profitability perspective on EPS. Yes, we do have some startup costs for XR2 and IVX, but we really built up the plan so it's executable and achievable.

Okay. And then what did you say the tax rate assumption was implied in the guidance?

21% of the federal tax rate.

21%

The GAAP to non-GAAP adjustments.

So is that your effective tax rate or is that just your federal tax rate?

That's the effective tax rate for GAAP to non-GAAP adjustments.

Okay 21%.

Yes.

Okay. And then you said you sold and I didn't hear it fully, how much stock did you sell in the ATM program?

About $40 million worth 194,000 shares roughly at $50 a share approximately.

Okay. So $40 million worth. Okay, thank you.

And there are no further questions at this time. Mr. Randall Lipps your closing remarks please.

Well, thanks you joining us for the call and we will be excited to continue to report back on our new innovations, new customers. And thanks again to the Omnicell employees for setting us up for such a great year in 2018. We'll see you guys next time.

Thank you. And this does conclude today's conference call. You may now disconnect.