Good afternoon, my name is Patsy and I will be your conference operator today. At this time I would like to welcome everyone to the Omnicell Third Quarter Earnings Call. 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]. I would now like to turn the call over to Peter Kuipers. Peter, you may begin your conference.

Yes, thank you. Good afternoon and welcome to the Omnicell’s third quarter results conference call. At this time, all participants are in a listening mode only. Later we will conduct a question-and-answer 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 annual Omnicell Annual Report on Form 10-K filed with the SEC on March 30, 2015, 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 October 29, 2015, 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, other duplication or rebroadcast without the expressed written consent of Omnicell, Inc. is prohibited. In light of the announcement of our pending acquisition of Aesynt today, we will discuss the acquisition and provide an abbreviated review of our third quarter business highlights and financial results. Our third quarter financial results are, as usual, included in our earnings announcements which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Let me turn the call over to Randall.

Thanks, Peter, and welcome. Good afternoon, everyone. We are very excited to share the news that we have reached a definitive agreement with the private equity firm, Francisco Partners to acquire Aesynt for $275 million as announced today. Aesynt, based in Cranberry Township, Pennsylvania is a leader in enterprise medication management with specific products in IV compounding, Central Pharmacy automation, point of care solutions and enterprise software products. We have prepared a brief summary of the transaction which has been posted to the Investor Relations section of our website, omnicell.com. I will be referring to this presentation during my remarks. Let me start by explaining our strategic rationale for this acquisition. And I’m on Page 3 of the transaction summary presentation. The transaction broadens our product portfolio for point of care and centralized medication management equipment and solutions. And the combination provides our customers with unparalleled flexibility with the addition of new innovative products that we feel integrate well with our existing portfolio of products. It expands our presence in the hospitals by adding world-leading IV solutions and provides Omnicell with an opportunity to enter new growth markets. It accelerates development of enterprise software and real-time analytics. It further strengthens our continued commitment to improve patient and clinical safety and improve outcomes for patients. The acquisition increases scale to better serve healthcare systems. We believe the acquisition will create significant value for our shareholders. Over the last 15 years, we have been very patient and diligent in our M&A approach, seeking transactions where we know the industry or adjacent space and the products well. Two, we believe the price is fair. And three, we have a strong conviction in our ability to deliver our required returns. This transaction satisfies all three of these parameters. The combination is expected to be…

Thank you. Let’s turn to Page 9 of the presentation that summarizes the terms of the transaction. The transition is subject to the satisfaction of certain closing conditions. Omnicell will purchase Aesynt for $275 million in an all-cash transaction. Aesynt reported unaudited revenue of $182 million and adjusted EBITDA of $20 million for the 12- month period ended June 30, 2015. To finance the transaction, Omnicell will use available cash on-hand, and in addition, Omnicell will enter into a new credit facility with Wells Fargo bank that allows the company to borrow up to $300 million. We expect the transaction to close in 2016 following customary closing conditions and regulatory approvals. If the transaction does not complete due to regulatory issues, Omnicell will owe reverse breakup fee of $15 million. Excluding transaction related expenses and other one-time purchase accounting adjustments, we expect this acquisition to be accretive to Omnicell’s non-GAAP EPS immediately. We also expect the transaction to be accretive to GAAP EPS within 18 months after closing the transaction. I will discuss the summary of our 3Q ‘15 financial results now and our guidance for the remainder of 2015. Our 3Q ‘15 revenues of $125.2 million were up 11.3% from the same quarter last year. Earnings per share in accordance with GAAP were $0.22 in 2Q ‘15 which is up from $0.20 in 2Q ‘14. Gross margin at 51% was unchanged from the previous quarter. In addition to GAAP financial results, we report our results on a non-GAAP basis which excludes stock compensation expense and amortization of tangible assets associated with acquisitions and one-time acquisition related expenses. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand acquisition and amortization related costs and non-cash stock compensation expenses and…

Thanks, Peter. We had a number of great wins in installs in the quarter. I’d like to highlight a couple focused on top pediatric hospitals from around the world. We are pleased to Alder Hey Children’s Hospital, a leading pediatric hospital in the U.K. as an Omnicell customer. There are only four children’s pediatric hospitals in the U.K. and Alder Hey is one of the busiest pediatric hospitals in Europe. This world leader recently moved to a new facility as we supported their transition from a centralized to decentralized distribution model. Alder Hey installed our medication automation solutions that not only promote patient safety but enable more efficient workflows for their care providers. On a related note, a local leading pediatric hospital, Lucile Packard Children’s Hospital Stanford has completed installing Omnicell in their existing hospital and plans to move forward with also installing Omnicell in their new hospital next year. Pediatric hospitals are rendering care in an environment that is increasingly complex which results in multiple opportunities to cause unintended harm. Worldwide awareness of patient safety risks have grown, leading healthcare providers to challenge and examine their practices and implement safety solutions. These new customers are taking efforts to eliminate avoidable harm at any setting in which medical care is rendered to children and we are pleased to support these facilities and their patients with our solutions. To wrap up, the business is doing well. And we expect to grow the business by 9% for 2015. The acquisition of Aesynt supports all three legs of our strategy, one, to differentiated products, two, expansion into new markets and, three, acquisitions and partnerships. We’re executing our growth strategy well, delivering state of the art medication, management and workflow efficiencies to our customers, results for our investors and better healthcare for patients and believe we have all the ingredients for continued long-term success and I look forward to the Aesynt team joining Omnicell in 2016. That concludes our prepared remarks. And operator, would you please open up the lines for questions?

[Operator Instructions] We’ll pause for just a moment to compile the Q&A roster. And our first question will be from Matt Hewitt with Craig-Hallum Capital.

Hey, Matt.

The big acquisition. I’ll just do two questions and I’ll hop back in the queue. First, regarding the Omnicell business, I mean I’m curious what you saw from the government. I’ve heard from several companies that there was definitely a softness in what is normally a budget flush period. Did you see that as well? And when do you anticipate that coming back on?

We had a very good quarter from the government. I think we’re actually up over last year or pretty commensurate with this. And this has been a good quarter for us in the government. We had a great quarter for the government.

Well, fantastic. All right. And then shifting to the acquisition, I’m wondering if you could maybe provide maybe what the growth rate was for Aesynt on the revenue line an then maybe what the margin profile for that business looks like and how that will compare with the core Omnicell business?

Yes. We don’t really have those numbers readily available. But we think that the combined company will meet our long-term goals of 15 and 15, 15 on the top line, obviously, over the next two years. Just the combination will be all that higher than that. But they are a growing business. And the earning should meld in nicely with our operating margins that we would expect from our business. They’re not a lot different from our own business.

All right, great. Thank you.

Yes.

Thanks, man.

Next question is from Sean Wieland with Piper. Sean.

Thanks. So picking up there, on the revenue model, Aesynt, so how does the company make money in terms of, you know, recurring revenue, services revenue? Just what can you tell us about the revenue model there?

Well, I think, probably the biggest thing, I think it’s - correct me if I’m wrong here, but half is service and half is products. So a big component of their revenue base is of service business that’s very recurrent.

Okay. And it looks like it’s running at about or it has been at about a 10% EBITDA margins. Where do you think target EBITDA margins for that business could be?

Yes. This is Peter. So overall, we think the acquisition will mostly align with our long-term goals both on the top line and the profitability. We are not at liberty to specifically disclose their historical growth right on profitability. But we feel really good that it is a nice fit.

Is it a dedicated sales or is it sold through resellers?

They have a dedicated sales.

Okay. And is the leadership of the company sticking around?

Some of the leadership is and some is not.

Okay. Let’s see, specifically, is the CEO staying?

No, not to our knowledge.

Okay. And how about customer overlap and maybe any, you know, who are their largest customers and do you have any significant customer overlap?

We do have some customer overlap. I would say that they have a lot of - you know, there’s probably almost 10% of the hospital beds or maybe more that are using the centralized model that they are. And so we have not been able to get into that marketplace because we don’t offer a product solution in that set. So University of Wisconsin, much of the VA, UPMC. There’s a lot of named brand account that Aesynt had for a long time and does very well with.

Yes. This is Peter. To step back, we think the acquisition is really complementary. And we’ll operate the businesses separately until closed. Okay next question.

Okay. Thank you.

Our next question is from Mohan Naidu with Oppenheimer. Mohan.

Mohan.

Thanks for taking my question. Peter, Randy, maybe on Aesynt, do you have any product overlaps that you need to sunset? I’m looking at, especially, our cabinets business. And do they have a product line that is equal into G4?

No. They’re separate products. We will continue both product lines and servicing support and development as we move forward. Their product lines are generally oriented toward the centralized market features and functions and workflows. And so there’s really not as big an overlap as you would think.

So it’s really complementary.

Okay. Okay, got it. Maybe on the bookings, you made some comments, Peter, on the bookings, weaker in Q3. Is there any relationship to your comments in earlier quarter about the implementation delay? So can you update us on where the implementations are going for the clients that we discussed in Q2?

Yes. So I think it’s relevant to Q2. I think the impact is smaller but still noticeable. I would also say between the third and the fourth quarter, some of the orders, we’re confident that that will be signed. They do go from signing dates from quarter to the other quarter. And they really look at us from a long-term perspective. If you look at the pipeline, we feel really good about our pipeline of bookings to come here in the quarter.

All right, but it -

But it also - go ahead.

Go ahead, sorry.

So we really look at it total year for you rather than just a quarter cut off for bookings if that helps.

Okay. And the recent news about the hospitals, at least the public hospitals not doing so well. Are you seeing any, you know, pause at the hospitals thinking about their cabinets or really trying to get into automation at this point?

Yes. I think our market segment is more a standard of care and we haven’t seen any impact of any hospital news around those items. And the biggest impact in the marketplace affecting us is just the consolidation which has changed the shape and the size and the type and the profile of our orders from larger institutions now at our groups and hospitals as well as being more new. And those are the biggest changes we see in the marketplace.

Got you. And maybe one last question. On the medication adherence segment, are there any delays due to the expectation of the M5000? You commented a lot on the demand on the consumables, a lower demand on consumables. But how are the machinery itself? Or is there an indication -

Yes. I think we were disappointed that we couldn’t get that product out this year. And it certainly impacted MA and its results. And we’re excited to get that product right and completed and out in the marketplace in the first half of 2016. And we know that there’s a demand for the product, the customers want the product, it solves a great problem. And we believe we’re the leaders with that product in the marketplace as far as having a solution that really works. But it is complex. And it is a different product, but it is a game changer for us. So we’re excited about getting that thing out into the marketplace because we feel a strong demand behind it.

All right, Randy. Any comments on why the delays? Is there are product or anything associated to that?

Well, I just think that the beta results have been good but there were more exceptions to the rule than we thought and it’s just getting those last pieces of initial software needed to complete the product. We are packaging, repackaging medications. So the tolerance for error is very low. And so we’ve got to do this with perfection. So once we have that running at that level, then we’ll be able to release the product.

All right. Thank you so much, guys.

Yes.

Our next question is from Jamie Stockton with Wells Fargo. Jamie.

Hey, good evening. Thanks for taking my questions. I guess maybe on Aesynt. McKesson sold this business a couple of years ago, right? And so one of the things that I’m wondering is what is different now versus two years ago that compelled you guys to pick it up this time around? Maybe specifically, can you touch on whether you realized that robot model is not necessarily going away? And also the importance of this IV business which I think they acquired after [indiscernible].

Yes, exactly. I think that we have gotten a good result in the marketplace as we move people away from centralized and decentralized. And it’s clear that in the marketplace that there are customers who, one, aren’t going to move away from centralized and even new customers are picking up on this centralized piece. And probably what’s driving that in many of the hospital locations, they see the centralized workflow is relieving the nurses from having to do a lot of picking out of dispensing systems, those the drugs can be delivered to them on a patient basis in a very almost a silver platter if you will. So they want that kind of customized approach. And it really releases the nurses to do more patient care and not be as focused on medication management. And it does probably come with some cost. You have to probably put a medication tech on the floor to deal with exceptions. But we’ve seen that in a couple of models and it is growing our market end. I wouldn’t say this was a compelling reason but we have seen this model also outside the U.S. And so that’s something for us to consider is to look at using this model outside the U.S. where you tend to see this particular application as well. The IV solutions robot is a big win for us. We do not, to this day without this product line, touch any of the fluids in the hospital. Really, we do touch the logistical end, we may all the meds until they’re - the IV fluids until they’re used. But there’s the whole preparation piece that comes before that. And the IV robot and the semi-automated software that goes along with it, in case you do do manual preparation in the hospital, you will always have to do some, is a very important safety and workflow piece that we have not been able to offer in the marketplace and just about all the competitors that we compete out, whether [ph] they have that - some type of solution in there. So it puts us on a better competitive front. And I think it allows us to really compete with hospitals that want a full set of solutions.

Okay. And just maybe one more, Randy. I think you said or maybe it’s in the slide that the IV opportunity is $900 million. Can you just give us a sense for - with a given facility, what the investment they might make in the IV solutions relative to what they might spend for the core medicine [ph] -

That’s probably a worldwide market that TAM is $1 billion, that SAM is about $100 million. And it’s probably at least $0.5 million in most facilities. But a lot of these hospitals are consolidating and they’re trying to centralize a lot of these things. And so it’s almost a facility that’s used for - in a network of hospitals, not just a single hospital, but probably at least $0.5 million and just depending on how many you buy. And I think the simplest version is around $0.25 million, but most people buy more than one to facilitate more automation.

Okay, thank you.

Thanks, Jamie.

Our next question is from Gene Mannheimer with Topeka Capital. Gene?

Thanks. Good afternoon and congrats on the Aesynt acquisition. It looks like a great deal. Can you tell us how many Aesynt, formerly McKesson, robot customers are out there, both in the U.S. as well as globally?

Well, I think in the Pharmacy Central product area which includes the robot and some other - the central [ph] is over 600 -

600, yes.

-- hospitals that have one of their products in the workflow process.

And then point of care solutions that there are over 850 facilities using the Aesynt point of care solutions.

Okay, great. Thanks. And with respect to the financing, can you share with us if you know yet the cost of financing you’re looking at with your credit facility with Wells?

Yes. It’s essentially a term loan A at market conditions. The commitment letter [indiscernible] are filed with the SEC, so you can take a look there. Essentially, it’s LIBOR plus. At the expected leverage, it will probably be LIBOR plus 175 basis points.

175 basis points?

Yes, 1.75% plus LIBOR, yes.

Great.

Yes.

Good deal. Thank you.

Okay, thank you. Next question, please.

[Operator Instructions] Our next question is from Mitra Ramgopal with Sidoti. Mitra?

Just a couple more questions on Aesynt. I was wondering when you look at the four product lines, maybe what percentage of the revenue is IV solutions and also maybe the mix between U.S. versus international.

Yes, the IV robotic solutions is the most international-intensive outside of North America. And it’s actually designed and some of the manufacturing is in Europe. And this still is an embryotic market. They probably, I think, have one of the most advanced robots. I believe they’re pretty close to being the market leader. And so I think it’s a great opportunity and it’s a swelling market. But I would still call it embryotic. But it’s had impressive growth over the last year. I just don’t know if we can or the bulks of the growth rate at this point is probably -

Yes.

-- not as until the transaction closes.

Yes.

Okay. No, sure, thanks. And just a quick question on the medication adherence business. Anything in particular dragged down margins this quarter?

Yes, so looking at the med adherence business, the - so we feel good about our pricing. Our pricing is stable. We do have some lower margin customers. So I think from a commercial perspective, we’d like to grow further but there’s no underlying issues there. We’re definitely working on the cost aspect and we’re looking to further increase volume as well that will help of course also our margin as we scale. So we’re building a path back to more historical margin rates over the next quarters.

Thanks. And then finally, again, in terms of the revision for the revenue guidance, it’s really more timing from your end as opposed to anything more fundamental or competitive.

Exactly.

Yes, we believe there’s not been a fundamental change in the market other than - because we’ve said the kind of the profile of the customers. We’re still running great deals in the marketplace, still growing as a company. The top of the funnel is good, still able to produce great earnings at the bottom and sets [ph] transitioning from the top of the funnel out to revenue. And I think this also sets us up well for 2016 as we - well, given our backlog guidance and our revenue, moving our revenue down will set us up well to give us better visibility as we move forward into 2016.

Okay. Thanks again.

Yes.

Yes.

Our last question will be from Matt Hewitt with Craig-Hallum Capital. Matt?

Just one follow-up from me. I’m just curious and I don’t know if you’ll have this handy, but how much business have you won from Aesynt, formerly McKesson, over the last few years when you were looking at those competitive conversions?

Well, I don’t have it at hand but we have won some accounts. And I think we - when McKesson first broke off - when Aesynt first broke off from McKesson, we thought there would be a real opportunity to kind of move the needle as they were going through a transition there. And we really weren’t able to acquire as many accounts as we thought we would have. And so I think it probably is just a fact of the way this market works where the stickiness of customers is pretty strong.

All right, thank you.

Next question, please.

There are no questions in the queue at this time. And this concludes the Q&A portion of the call. I would now like to turn the call back over to Randall Lipps for closing remarks.

Well, thank you for joining with us today and we’re really excited about the Aesynt opportunity to broaden our product line. And even kind of responding to that last question, I think we don’t compete very directly with McKesson and a lot of the product lines and so we’re just really so excited that we now can enter these new markets and offer such flexibility to the customer base out there, which is trying to lower the cost, improve safety, get more people through the healthcare system so that we can leave [ph] fewer people on the outside. And that’s our goal and our mission. Thank you for joining us today and we’ll see you next time.

And this concludes today’s conference call. You may now disconnect. Everyone have a nice afternoon.