Omnicell, Inc. (OMCL) Q4 2017 Earnings Report, Transcript and Summary

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 the market leading timeline medication synchronization cloud based software and the proprietary sure SureMed multimed blister cards. And lastly we expanded the performance centers core capabilities of operational improvements and to patient outcome and regulatory compliance through internal development and the acquisition of InPharmics. This positions Omnicell as the partner of choice for healthcare systems looking to strategically drive clinical compliance, safety and financial improvements across all areas of medical management. Health system leaders strongly affirm the value of the new Omnicell platform offerings in our strategic roadmap at the ASHP meeting in December. As the technology leader in medication management automation, we are committed to advancing our platforms with product introductions annually. We expect that this cadence of annual product introductions will drive multi-simultaneous product bookings and revenue ramp within a given year. 2017 was also a great year for customer acquisition. In summary, it is clear that we are winning in the marketplace. During the fourth quarter of 2017 we had another strong new and competitive conversion rate of 30% of bookings. This is a good indicator of the strength of the business around two-thirds of those were competitive conversions and remainder were from greenfield customers that never automate before. For 12 months ending December 31, 2017, our new and competitive conversion rate was 29%. Our industry leading platform and our go-to-market strategy of the solutions focused platforms strongly aligns with the trends we see in healthcare where hospitals systems are reducing the number of vendors and instead require strategic partnerships. In the last seven months, three major four profit nationwide hospital systems have chosen Omnicell as their strategic partner for medication management automation and signed multiyear sole source strategic agreements. These represent both XT swaps or upgrade opportunities and a market share gain. We believe that these three sole source agreements by themselves represent between 1% and 1.5% of U.S. market share gain. The unique enterprise features of the Omnicell platform allows these four profit nationwide hospital systems to operate at lower cost with consistent workflows and scalable processes. The XT Series is very well received and accepted by our customers. As of last week we have delivered XT to over 820 sites, which is up from 600 sites at the end of Q3. The XT Series is now live at over 470 sites from 330 sites at the end of Q3 2017. Both numbers are growing every day. We believe that these trends combined represent a great setup for the 2018 bookings growth followed by revenue growth. In the last number of years, we have successfully grown the business by implementing three scalable growth strategies, growth through the differentiated Omnicell platform, growth in new markets and growth via acquisitions. As announced yesterday for 12 consecutive years we received the top honors from class, for 13 consecutive years we've increased our market share and gained new though leader customers every quarter, increasingly we're demonstrating a strategic approach and value to our customers by jointly developing multi-year strategic plans to consistently deliver integrated solutions with industry leading Medication Management Automation across the Omnicell platform. In 2017, we continue to experience great wins and have added notable customers to our Omnicell family under our first strategic road pillar of differentiated platform. With numerous large competitive conversions we believe that we gained further market share in 2017, a continuation of the trend the market share gain the momentum we've experienced for many years. In the fourth quarter, we had some great wins with prominent new customers as well as significant strategic deals with existing customers. Beside the XT Series momentum discussed earlier, we are seeing market momentum valuing and validating the entire Omnicell platform as a strategic solution. Omnicell XR2 Automated Central Pharmacy System, which they viewed at the ASHP midyear meeting in December and will becoming generally available in mid-2018, is already gaining significant momentum in the market with a number of contractual booking in the fourth quarter of 2017. The XR2 is a significant step towards the fully automated pharmacy and leading healthcare systems including UPMC in Pittsburgh, Sentara Health in Virginia, St. Luke's University Health Network in Bethlehem, Pennsylvania, University Health in Georgia and Mercy Health in Rockford, Illinois we will be implementing this new revolutionary technology that more fully automates medication inventory management, align pharmacies to make a meaningful shift from operational demands, the clinical contributions that affect patient outcomes. We continue to see nice growth from our IV automation solutions as a number of hospitals and health systems across North America have chosen our robotic sterile compounding technology to help enhance safety, improve therapy, reduced cost and facilitate compliance in the IV operations. These include Penn State Health, UPMC in Pittsburgh, University Health System, Augusta, Georgia, Mass General in Boston, Brigham and Women's Boston, Oklahoma Heart Hospital and Vancouver Ireland Health Authority in British, Colombia. Dartmouth-Hitchcock Health, based in Lebanon, New Hampshire has chosen the Omnicell performance center to develop and centralize service center within the healthcare system supporting smarter pharmacy operations and helping to improve hospital financial performance by reducing the amount of waste and unnecessary resources kept on hand. UPMC, a leading Omnicell strategic partner is building on their existing investment in automated hardware and workflow software solutions with the addition of multiple XR2 Automated Central Pharmacy Systems, Omnicell's new IVX Workflow compounding, workflow technology powered by the IVX cloud and the IV station non-hazardous sterile compounding robotic automation. These solutions will help further enhance control, efficiency and safety for medication management at UPMC's flagship hospitals, the UPMC Presbyterian and UPMC Shadyside. As reported in the Augusta Chronicle new customer University Healthcare in Georgia has purchased Omnicell's XR2 and IV station solutions to increase pharmacy efficiency, improve medication costs and free up staff for more clinically focused activities. Current customer Mercy Health System is further implementing the Omnicell platform by selling XT Systems, Anesthesia Workstations and additional facilities, Mercy Health has also purchased the XR2 Robot to more fully automate their central pharmacy the health system chose Omnicell in order to operate on a single platform and leverage existing investments without sacrificing technological advancements. We are also very proud of the industry awards we received in 2017 the Omnicell IV Compounding Solution and XT Series Automated Dispensing Systems were awarded a 2017 Innovative Technology designations from Vizient. We are also excited that Frost and Sullivan recently named Omnicell as the 2017 Global Smart Hospitals' Pharmacy Automation Vendor Company of the Year. As I mentioned previously for 12 consecutive years, we have now received top honors from class. And our secondary pillar, we're expanding into new markets also fueled growth in the last several years and believe sets us up for the upcoming years. Internationally, we are excited to announce we have contracted with HCL HCA healthcare for both pharmacy and supply solutions for six hospitals in the UK. The agreement includes Automated Medication Dispensing Systems and a new software-based analytics tool called SupplyX. SupplyX is a web-based supply software on the unity platform that integrates with Omnicell dispensing systems providing supply management capabilities across their entire supply chain. HCA chose Omnicell in order to help them implement an inventory management system across all their patient wards and more effectively drive efficiencies, improve patient safety and increase time for clinicians, so they can spend it with patients. Our third strategic pillar of expanding our presence and relevance through acquisitions has also continued to deliver great results. We are seeing very good cross-selling momentum within the total product platform and combined customer base specifically for our IV and Performance Center solutions in both the pipeline and the bookings. We believe that the execution of our three leg strategy laid the foundation for our success historically and sets us up for continued future growth and scale. So with that I'll turn it back over to Peter for some numbers.

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. A full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our website. The 2017 financial results were characterized by two distinct phases, as revenue and profitability were impacted by the XT Series product introduction and manufacturing ramp up. The first half of 2017 covered the market introduction of the XT Series and the ramp up of manufacturing and included the following dynamics. First, conversion of the AcuDose and G4 product backlog and sales quotes for the XT Series, which we sold it in our commercial team spending time with customers to convert existing bookings. Secondly XT Series manufacturing ramp up; thirdly, implementation of the XT product at launch and first adoption customers and suboptimal cost absorption given the ramp up allows the strong cost management and cost actions. The second half of 2017 was characterized by the acceleration of XT implementations and conversions and include the following factors: First, improvement of overhead costs absorption as production ramps, trending towards returning to the 8% to 12% organic long-term growth range for bookings in revenue. Also XT Series costs of sales reduction as revenue ramps, implementation of R&D and manufacturing centers for excellence. And then finally the second half of 2017, we announced two customers the end of shipment of G4 and AcuDose by the end of the fourth quarter, which did allow us to consolidate and reduce the number of ADC Frame assembly lines from three to one. Full year 2017 product bookings were $568 million, up from $541 million for 2016. The fourth quarter product bookings represent a high double-digit organic and reported year-over-year growth rate and included a record number of multi-million dollar deals. The planned implementation of these multi-million dollar deals is more weighted towards the second half of 2018 versus the first half of 2018. Record product backlog at December 31, 2017 was $345 million or up 14% from December 31, 2016. For the fourth quarter, non-GAAP revenue was $198 million, which was slightly below the guidance range provided in our third quarter results earnings call. Driven by the timing of two specific large install accounts delays and is up double-digits year-over-year both on a reported and organic basis. Full year 2017 non-GAAP revenues of $770 million were up 2% from the prior year again with the difference in the dynamics between the first half and the second half of the year as described earlier. The scaling of the XT Series revenue is progressing well specifically the percentage of fourth quarter frame revenue that was from the XT Series came in at about 95% in line with our expectation. Despite the revenue timing headwind for the fourth quarter, the strong gross margin improvements to 50%, good operating expense control resulted in non-GAAP EPS for the fourth quarter of $0.54 after excluding the one-time tax benefit from the tax reform. This is at the high end of our guidance range and above consensus. Our business is also reported segments consisting of Automation & Analytics and Medication Adherence. Automation & Analytics consists of our XT and OmniRx Automated Dispensing Cabinets, Anesthesia Workstations, Central Pharmacy, Omnicell Supply, Omnicell Analytics, Performance Center and MACH4 robotic dispensing systems. Our acquisitions of Avantech, MACH4, Aesynt and InPharmics are also included in this segment. The Medication Adherence segment consists of all adherence packaged consumables which are now branded SureMed, an equipment used by pharmacists to create adherence packages as well as software solutions that address retail pharmacies in medication synchronization and other apartment-based software model solutions. Our acquisitions of MTS, Medication Technologies, SurgiChem Limited and Ateb are included in the Medication Adherence segment. We report certain corporate expenses that cannot be easily applied to either segment separately. On a segment basis Automation & Analytics segment contribution $163 million of GAAP revenue in the fourth quarter of 2017, up from $144 million in the fourth quarter of 2016. GAAP operating income of $37 million in the fourth quarter compares to $28 million of GAAP operating income in the third quarter of 2017 and $19 million of GAAP operating income for the same quarter last year. Non-GAAP operating income of $44 million for the fourth quarter compares to $32 million for the same period last year. On a yearly basis, GAAP revenue for the year 2017 was $590 million down from $940 million in the prior year, driven by the lower first-half 2017 revenue, related to the XT Series ramp up. GAAP operating income for 2017 was $88 million compared to $84 million in the prior year. The Medication Adherence segment contributed $35 million of GAAP revenue to the quarter compared to $28 million in the fourth quarter of 2016. GAAP operating income was $0.6 million compared to $0 million of profit for the third quarter and compared to $1 million of GAAP operating income a year ago. Non-GAAP operating income was $3.1 million in the fourth quarter compared to $2.8 million of non-GAAP operating income in the prior year. On a yearly basis, GAAP revenue for the year 2017 was $126 million, up $99 million from the prior year. GAAP operating loss for the year 2017 was $1.6 million compared to operating income of $6 million in the prior year. Non-GAAP common expenses were $90 million compared to $60 million in the fourth of 2016. Now moving to operating margin, non-GAAP operating margin, including Aesynt and Ateb integration cost was 14.2% in the fourth quarter, up from around 11.7% in the third quarter. Excluding the integration cost of approximately $1.5 million, the non-GAAP operating margin was around 15% for the fourth quarter and in line with our long-term stated target. Non-GAAP other income and expense for the fourth quarter was a net loss of approximately $1 million, mostly consisting of interest expense on the outstanding loan balance. Now moving on to the balance sheet and cash flow, in the fourth quarter 2017, our cash balance increased from $7 million to $32 million after paying down our outstanding debt by $2.5 million within the quarter. During the quarter we sold approximately 294,000 shares of common stock and they are at the market offering. The average price per share was approximately $50, resulting in approximately $14 million of proceeds received during the quarter. During the fourth quarter we also amended our debt facility, the amendments to our credit facility include changes to compliance covenants, specifically a change to increase the maximum permitted leverage ratio. In addition the amendment increased that revolving loan commitments with $200 million to $350 million. We believe that both the at the market offering under a universal shelf on Form S-3 and the amended loan facility give the company strategic flexibility to optimize the balance sheet for both organic growth and M&A. The total year 2017 cash flow from operations was $25 million, which included the use of cash for a build in inventory for current and future implementations. Inventories at December 31, 2017 were $96 million, up $4 million from last quarter, primarily driven by XT Series inventory build for future quarter installs as well as the first XR2 and IVX units for alpha [ph] customers. the accounts receivable day sales outstanding for the fourth quarter were 89 days, up three days from the third quarter the increase in accounts receivable day sales outstanding from prior quarter was mostly driven by inflow in shipments toward the end of the fourth quarter based on our customer agreements we largely enforce upon shipment. As of December 31, 2017, we had $270 million of outstanding funded debt and a low leverage measure of outstanding total loan balance over last 12 months of bank EBITDA was approximately 2.7. Our headcount was 2,347 at the end of the year compared down 97 from December 31, 2016. As discussed in previous earnings calls, it's important to note that from time to time installation completion timing a larger project 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 rolling quarters. Now let's move to total year 2018 guidance. As part of our long-term financial framework, we target organic revenue growth between 8% and 12% per year. Where we are in this organic revenue growth range, depends on where we are in the product lifecycles and new product introduction bell curves. With the market introductions of the XT Series, the XR2 pharmacy robot in the IVX powered by IVX cloud, we now have three concurrent product introductions that we see ramping over the years. First in bookings, then in backlog and then converting to revenue. In contract to 2017, that had the XT Series introduction, we expect the general availability and first implementations of the XR2 and IVX in the second half of 2018 to not be disruptors during the year, given that these products largely are generating greenfield revenue, which we expect will not impact credit existing revenue streams. We expect 2018 product bookings to be between $625 million and $660 million, representing a 13% organic growth rate when taken the midpoints of the guidance range. This is in line with the preliminary guidance we gave in October last year. For 2018 we will adopt ASU 2014-9 revenue from contact with customers also called ASC606, which impact the timing of revenue recognition and requires the presentation of certain cost previously reported as selling expenses as a reduction of revenue both of which for the company are not anticipated to be material. The reclassification of the selling costs specifically TPL [ph] fees in the P&L will result in a reduction of revenue, but has no impact from operating income or net earnings. We expect 2018 non-GAAP revenue to be between $780 million and $800 million. This represent a slightly greater than 10% organic growth rate when taken the midpoint of the guidance range. Excluding impact of the reclassification of GPO selling cost, the midpoint of revenue guidance range would have been slightly above 11%. Both are also in line with preliminary guidance we gave in October last year. We expect 2018 non-GAAP EPS to be between $1.85 and $2.05 per share, including the favorable ongoing net impact of tax reform of approximately $0.20. This is up 47% from 2017 when using the midpoint of non-GAAP EPS guidance. This non-GAAP EPS range includes the launch related and startup cost of the XR2 and IVX product introductions. The specific guidance for the first quarter of 2018 is as follow. We expect 1Q 2018 non-GAAP revenue to be between $174 million and $179 million, which includes the impact of reclassification of selling cost as a reduction on revenue. This represents a 17% organic growth rate when taken the midpoint of their guidance range. Based on the committed implementation schedules of bookings in the December 31, 2017 backlog, including the record number of multi-million dollar fourth quarter deals and to a lesser extent the new products revenue from XO2 and IVX, we anticipate a steady quarterly revenue ramp throughout the year 2018. It's important to note that the fourth quarter revenue any given year typically includes some seasonality. We expect first quarter 2018 non-GAAP EPS to be between $0.22 and $0.28, representing a significant increase from the $0.06 of non-GAAP EPS in the first quarter of 2017, which was negatively impacted by the XT backlog conversion and product rollout. When we are hearing 2017 actuals and 2018 guidance it's important to note a couple of items that are included. First, for 2017 our non-GAAP results include approximately $6 million of integration expenses for Aesynt and Ateb that we do not adjust for based on our non-GAAP policy. These integration costs directly impacting the non-GAAP operating margin and non-GAAP EPS mostly consists of integration related IT expenses, integration team and project costs, costs related to the implementation Sarbanes-Oxley and accelerated product development integration costs. For 2018, we expect these integration expenses to be approximately $4 million, consisting mostly of IT expenses for CRM, ERP and HR systems consolidations. In 2017, we delivered around $10 million of second year cost synergies from these acquisitions. As we have demonstrated in the past, we're confident that we will achieve a 15% non-GAAP operating margin target overtime after integrating the acquired businesses, again the full benefit of the scale of the combined business. Lastly for 2018 we expect interest expense related to the senior secured credit facility used to finance the Aesynt and Ateb acquisitions to be around $6 million or equivalent to a non-GAAP EPS headwind of around $0.15. Finally for 2018, we're assuming an annual average tax rate of 21% to adjust GAAP tax expenses to non-GAAP tax expenses. To round out our update, I will hand the call back to Rand.

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.