Ladies and gentlemen, thank you for standing by. And welcome to the Omnicell First Quarter Earnings Announcement. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Peter Kuipers, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the Omnicell first quarter 2020 earnings 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 26, 2020, 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 7, 2020, and all forward-looking statements made on this call are 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 and we undertake no obligation to update these forward-looking statements. Finally, this conference call is the property of Omnicell, Inc. and any taping, auto duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. Randall will provide an update on our business. After Randall's remarks, I will cover our results for the first quarter of 2020 and our guidance for 2020. Our 2020 first quarter results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our Web site at omnicell.com. Our prepared remarks will also be posted in the same section. Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable to GAAP financial measures are included in our earnings announcement. Let me now turn over the call to Randall.

Good afternoon and thank you for joining us today. I'd like to begin today by expressing our extreme gratitude to the health professionals on the front line of the COVID-19 pandemic. Your response to this crisis is nothing short of heroic and on behalf of the entire Omnicell team, we thank you for your courage, your bravery and your resilience. Our mission is to be the care provider's most trusted partner and that mission has never been more critical. As our partners navigate this challenging time, we continue to stay focused on our long-term strategy, which we believe is unchanged. We are committed to executing on the vision of the autonomous pharmacy by delivering automation, intelligence and services designed to transform the pharmacy-care delivery model hoping to dramatically improve outcomes and lower costs for our healthcare partners. We believe COVID-19 has made the industry more aware of the significant challenges in pharmacy that could make our solutions more relevant going forward. As a case in point, we believe our point-of-care solutions are important infrastructure that help systems to dispense medication safely during a pandemic. Our analytics and intelligence solutions can be key decision support tools for our customers to manage inventory more efficiently during patient volume surges. Our Central Pharmacy Automation Solutions are designed to help reduce the administrative burden on the pharmacy and allow clinicians to operate at the top of their license and focus on patient care in fast-changing clinical environments. Now I'd like to briefly outline our response to COVID-19 and discuss the actions we have taken to ensure the safety and well-being of our customers, employees, suppliers and communities. In order to operate in a safe manner, we are following the health and safety guidelines of the U.S. centers for disease control and local and state…

Thank you, Randall. We had a very strong start to 2020. Our first quarter of 2020 revenue of $230 million was up 13% over the first quarter of 2019. The increase in revenue from last year was largely due to an increase in XT Series implementations as well as annual service and maintenance revenue from a larger installed base of equipments. As of March 31, 2020, approximately 24% of our existing installed base of previous generations for automated dispensing cabinets have booked orders to upgrade to our new XT Series. At this time, last year, approximately 30% of installed base had booked orders to upgrade to XT. As we've mentioned in the past, we began shipping XT in 2017 and at that time, we estimated that the existing installed base of prior generation systems would be upgraded over a nine-year period. While we expect some near-term delays like we saw towards the end of the first quarter, we continue to believe that the upgrade cycle will take place over our original nine-year estimates. We will continue to monitor this and provide updates at a later time. As Randall said and as I will discuss in more detail later, COVID-19 has had a negative impact on new bookings and has delayed implementations. As our ability to access hospital systems in certain areas has become more restricted in many locations, we believe this trend will continue in the near to medium term. We believe that many hospital systems are in the process of evaluating their capacity, staffing, revenue, profitability and cash flow and as a result, visibility in their hospital systems, capital equipment buying behavior is limited at this time. Now moving to earnings. The first quarter earnings per share in accordance with GAAP was $0.26 per share up from $0.08 per…

[Operator Instructions] Your first question comes from Steve Halper of Cantor Fitzgerald.

So totally understand about the 2020 guidance, but could you where do you stand on those five-year targets or five-year guidance that you issued in December, do those still hold?

Well, if you look at the so what we believe and we stated in the script as well is that we believe the strategy stay unchanged. We're confident in the strategy, the long-term strategy. We believe the long-term drivers are unchanged. We believe the long-term assumptions are the same. And we'll continue to evaluate the overall framework.

And then just one follow-up question. In terms of sort of how should we think about implementation in light of recovery, let's just say, next year, okay, if that happens? Are you in a position to like implement more than what you would have implemented in sort of a normal quarter or year because you do have your resources and you slot people -- you slot hospital implementations in. Do you have an ability to sort of expand those resources in order to drive implementations faster than what you normally would have?

Yes. This is Randy. How you are doing Steve. No. I think we continue to do installations at the customers request and it's really driven by bookings. But generally, there is a significant time between when a deal is booked and when it actually gets scheduled for implementation. So there's always time to ramp up to meet those demands. But I have to remember that the country has a lot of different -- there are a lot of different places where they are on the apex of the COVID-19 curve. And so I don't think the country is going to come back kind of all at the same time. It will be at different levels in different places. So we think that the ramp, at least, is going to come back unevenly. So I think we'll have opportunity to respond to whatever customers need.

[Operator Instructions] Your next question is from Matt Hewitt of Craig-Hallum Capital.

This is Lucas on for Matt here at Craig-Hallum. Just a couple of questions here today. I guess the first one kind of continuing the implementation theme. Like as the news started to break about the virus, was there a rush toward the end of the quarter to get implementations done essentially pulling forward revenue from future quarters?

I would just say it was very provider dependent. Some suddenly wanted to install something they add maybe scheduled because they wanted to be more prepared for the impact of the curve. Others were more in the midst of the apex and said, let's hold off and so that stayed in backlog. So there wasn't any significant amount that was unduly pulled forward on the end of the curve. There was just a lot of ins and outs in the last couple of weeks but not what I would characterize as dramatic numbers.

Yes. So what I would say the impact is on 1Q revenue relatively small on the 13% really reflects the strength of the business and the scaling of the business.

Excellent. And then I guess as some of the states have started to relax their stay-at-home orders, is that giving you the access you need to get back in and to do implementations that had maybe been delayed because of those orders?

I'd say it's still pretty cautious. Most hospitals don't want additional personnel running around in their facilities creating more uncertainty about what might happen as you open up. So it's even though they are opening up more for elective surgery, they haven't, what I would say begun to open up and relax who can come in that's outside of really necessary needing to be in the facility. So I would say it's still pretty early in the process.

Your next question is from Bill Sutherland of Benchmark Company.

Just curious as you think about things opening up and assuming we don't get a serious COVID 2.0, do you think it's more likely that your booking activity, the normal course of getting stuff booked begins to come back to life sooner than implementation or vice versa or no difference?

I think it's pretty hard to tell. I think that in most cases, hospital personnel for implementation, we need to have certain people on site. And you would even think the Director of Pharmacy, for instance, might be at the hospitals right now, most of them are at home. The only people in a lot of these providers are the people who are actually doing the logistical task and are operating from home. So many of the project managers or key individuals required to drive implementation are still not going into these facilities. And so that has to first take place for some of the major installs to take place with, particularly central pharmacy equipment where you've got to make some facility changes and those kinds of things a lot of time. So those are going to be more challenged. And probably the cabinet ones are less challenging because we can do a lot of the installing virtually and then hospital personnel could actually move it into place as the last bit. It's really hard to tell on bookings. I think hospitals, even if their cash flow -- even if they have a lot of cash in the bank right now, they're not sure where their cash flow is going to end up on an ongoing basis. And a lot of it has to do with just not the elective surgery, but the ambulatory part of their business, which has dropped significantly because patients aren't coming in. Now some of that's made up by virtual visits, but until those things become clearer as to what their cash flow ramps are, they're not willing to commit big projects unless they've already been started or they have a building they're finishing. So I think it's still a little early for us to figure it out. I think on our next call, we'll have more information. And then I think that some of the fog pieces will begin to become more clear.

Yes. That makes sense. So it sounds I'm kind of reading between the lines. And Randy, it feels like as things as the activity in the hospitals kind of get back to the normal course and they're making money again, bookings and implementations, it doesn't seem like there's a lead lag particularly.

Not really. I think they kind of go together. Now none of the people who have implementations are not going to do them. That's for sure. It's just there's a delay until everyone says when it's coming on. I just want to make sure that we're clear on that.

Yes. And I think it's important to remember also that most states or bigger cities, they just went through the apex for COVID-19 about two weeks ago. So they're just getting back to "more normal" operating environment. So we're getting now just getting connected with customers again. So at this time, there's just limited visibility.

We track every single customer on a significant size of 10 to 15 individual metrics on trying to do the analysis of where they are in their implementation, thinking and their scheduling. And we're just getting to the post-apex stage for many people and so I think we'll have good intel. We've got good intel on that. And as those metrics change, we'll have a good feel for it going forward.

And just curious as you've had to realign some of your operational structure workarounds, et cetera. Have you found that there are things that you may keep doing differently that you've had to adopt in this crisis that didn't make sense?

We had some of these things were on the road map for the next 24 months. And a lot of the installations, we are now doing many pieces virtually so that systems can be almost ordered and shipped immediately and many of these cases for the XT Rapid Response Cabinet Program. And the order, the configuration, the shipment and installation was done in 14 days and now that was and two things enabled that. One, we had got our teams together to create those processes and the customers were willing to make some of those changes as well. Now that's a little bit of an extreme, but we think we can take a lot of the learnings from that and infuse that to really improve the customer experience and we think we're really far ahead on that.

How does 14 days compared with your normal?

Longer. Longer than 14 days.

Longer, much longer. And I'm not sure we're going to get everybody to go to 14 days. But when you get a mandate from your state governor to expand some beds in the current facility in 30 days, you want to work with somebody you can get you there. So it's been an amazing accomplishment by our teams coming together and recreating the process that allows that to happen. And what's more important is, it's just this new understanding among our customers and ourselves about how do we impact medication management more effectively by reducing the steps, putting intelligence into the process. They're really allowing us to do more work for them that they really that we couldn't do in the past because we weren't really allowed in the [indiscernible].

And then we also implemented virtual training, virtual sales processes including virtual 3D product demonstrations also, so we made that change also. It was on a road map, like Randy said where we accelerated the digital transformation, which we think is a positive.

Your final question is from Mitra Ramgopal of Sidoti.

I was just curious how COVID has impacted your OUS operations with Canada. Obviously, you were up and even in the Middle East. And also, if there are any sort of one-time expenses you think that were associated with complying, et cetera, improving safety, et cetera, might be easing for you going forward?

Yes. So it's kind of on a blended basis, international, kind of roughly the same dynamics, but it differs by country, right? So we definitely also have uptake of our Rapid Response offering in the U.K., in Spain, in France and the Middle East. But also there, we saw towards the latter half of March, a delay in new bookings. And then also, to some extent, a little bit on the implementation side. Governments are providing quite aggressive funding in some of the countries in international, like the U.K., where the U.K. government has rescinded or written-off £13 billion of loans to the NHS. So there's different dynamics, if you will. And then I think the last part of the question was on any cost related to COVID. We had some expediting additional cost for freight about $1 million, $1.5 million in the quarter. You might know that airfreight expenses have doubled or tripled because of the lower capacity because commercial airlines are not flying their planes and they're not, of course, providing additional freight capacity there. So it's about $1.5 million of cost impact in the quarter from airfreight.

I'd now like to turn the call over to Randall Lipps for any closing remarks.

Well, thank you, everybody, for joining the call today. And of course, the immense impact that the coronavirus has had on our personal and professional lives has just been staggering. And through these challenging times, we are honored to be a part of our customers' fight against the pandemic. We've done so much in the last 45, 60 days to mobilize our support teams, ensure business continuity for our customers, protecting the health and safety of our employees. Our manufacturing and implementation and service teams are fully meeting customer demand. And it's just and I would just say the adrenaline has been flowing at a very high level for us as a company in the last 60 days. And I just want to thank the Omnicell team for making it possible to impact so many people's lives directly by what they do. So thank you for joining us today. And we'll see you soon. Take care now. Cheers.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.