Good afternoon. My name is Deedra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth Quarter Earnings Announcement Conference 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] Thank you. I would now turn the call over to our host, Mr. Peter Kuipers, Chief Financial Officer. Sir, you may begin your conference.

Thank you. Good afternoon, and welcome to the Omnicell fourth quarter and year end 2018 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 27, 2018 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 7, 2019 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, any duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. Randall will first provide an update on our business. After Randall’s remarks, I will cover our results for 2018 and our guidance for 2019. Our fourth quarter financial results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Included in our fourth quarter earnings release are few slides that Randall will speak to in his section. Our prepared remarks will also be posted in the same section. Let me now turn over the call to Randall.

Thanks Peter. Good afternoon, everyone. We just concluded our Global Sales Field Meeting and 2018 was a record year for Omnicell. I’m very pleased with the execution of our strategy and the performance of the business as we continue to transition our business towards the vision for the Autonomous Pharmacy. Some of the key financial accomplishments during this year include, record bookings of $716 million, up 26% from 2017; record product backlog of $478 million, up 39% from 2017; record revenue of $787 million, up 10% from 2017; and record non-GAAP earnings per share of $2.09, up 48% from 2017. In addition to these financial results, I am also very proud of the Omnicell team for the work done to execute on our strategy. During 2018, we released several new products; the most notable additions to our product portfolio are the XR2 Central Pharmacy Robot and the IVX Workflow. These two products further expand our core capabilities in automating the flow of medications through the hospital. In addition, we expanded our population health product offerings by introducing new capabilities in our patient engagement platform and began to develop relationships with payers to use these solutions to provide improved patient care. We have also continued to make investments in our industry-leading medication dispensing technology. Earlier this week, our automated dispensing technology was awarded best in class for the 13th consecutive year and our IV automation was recognized as a category leader for IV Compounding Solutions. As a result of our continued innovation, we believe Omnicell has become an even greater strategic partner for health systems, but we still have a lot of work to do. Late last year at the ASHP Midyear Clinical Meeting, we announced our vision for the Autonomous Pharmacy. Earlier this year, we also presented our vision at…

Thank you, Randall. Our fourth quarter 2018 GAAP revenue of $212 million was up 8% year-over-year. Our full year 2018 GAAP revenue of $787 million was up 10% year-over-year. The increase in revenue were largely due to an increase in XT Series implementations, increase in annual service and maintenance revenue from a larger installed base of equipment and contributions from new product sales such as XR2 and IVX Workflow that are ramping since we launched the products during 2018. Fourth quarter earnings per share in accordance with GAAP was $0.36 per share, down from $0.79 per share in the fourth quarter of 2017. The decrease in earnings per share is largely due to a one-time tax benefit in the fourth quarter of 2017 which did not repeat in 2018. Our full year 2018 earnings per share in accordance with GAAP was $0.93, up from $0.79 per share in 2017. Growth in full year earnings per share was driven by the incremental profit contribution from increased sales as well as overall margin expansion. In addition to GAAP financial results, we report our results on a non-GAAP basis which excludes stock compensation expense, amortization of intangible assets associated with acquisitions, one-time acquisition and restructuring related expenses, the acquisition accounting impacts related to deferred revenue, fair value adjustments and the tax reform benefit impact from the Tax Cuts and Jobs Act of 2017. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand the amortization of acquisition related cost and non-cash stock compensation expenses that are component of our reported results as well as one-time events and one-time acquisition and restructuring related expenses. The full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our website. For the fourth quarter of 2018 non-GAAP revenue was $212 million, which is an 8% increase over the fourth quarter of 2017. Our full year 2018 non-GAAP revenue of $787 million was up 10% year-over-year. Fourth quarter 2018 non-GAAP EPS was $0.70 per share, up 27% from the same quarter last year. Full year 2018 non-GAAP EPS was $2.09 per share and is up 48% from 2017. The non-GAAP EPS favorability was mostly driven by higher revenues, gross margin expansion and improved… [Technical Difficulty] …technical difficulties at this time, please remain on the line.

And you’re now live.

We’re back again. We had some technical difficulties. So we’ll continue the call. In addition to strong revenue and profitability growth, there are additional indicators that demonstrate the momentum in our business. First, product bookings for the full year of 2018 increased approximately 26% to $716 million. This was a record for the business and exceeded the midpoint of our guidance range by approximately $59 million. Of the increase above the midpoint of our guidance range, approximately $20 million was driven by timing of orders that we expected to occur in 2019 and closed earlier in the fourth quarter of 2018. Another $20 million was the result of stronger momentum in the business. And finally $19 million was related to one specific platform customer deal. The second indicator is product backlog. Product backlog as of December 31, 2018 increased approximately 39% to $478 million. Third, non-GAAP gross margins exceeded 50% for the second consecutive quarter and expanded over 200 basis points to 49.3% for the full year of 2018. Fourth, our non-GAAP operating margin exceeded 16% in the fourth quarter and expanded 370 basis points to 12.9% for the full year of 2018. Lastly, during the fourth quarter, we again entered into a record number of multi-million dollar commercial agreements. Over 90% of these multi-million dollar product bookings are with customers adopting multiple products on the Omnicell platform. I’d like to take a moment and explain certain trends in our product backlog as it will be useful to investors in understanding some of the dynamics related to our platform sales approach. Historically our product backlog was largely consisted of capital equipment that would generally be installed in less than one year. But as our business has evolved to more platform-oriented sales, a larger portion of our product backlog is now…

First question please.

[Operator Instructions] And our first question comes from Jamie Stockton with Wells Fargo.

Hey Jamie.

Hey, good evening. Thanks for taking my questions. So I guess maybe just to start with on the bookings guidance for next year, I mean it sounds like Peter with your commentary that you guys do think maybe there’s a little more gas left in the tank as far as XT upgrade activity is concerned that could continue to elevate the bookings level. I guess maybe first, is that an accurate way to assess the environment?

Well absolutely. I mean on the XT upgrade cycle we’re really here in the second inning and we’re accelerating and there’s a lot more gas in the tank for many years.

Yes. And as we I think stated earlier in earlier calls, this year we’re expecting it double in the growth of XT from current customers who are doing replacements from a year here, we did accomplish pretty much that this year and we’re kind of expecting the same next year. So I think it’s continuing to grow as expected the strong growth and it certainly is contributing to the large bookings growth we had this year.

Randy when you say the same next year, do you mean another doubling or any core kind of level?

Yes, another double.

Not a double.

Not a double.

It is just an adoption curve that you kind of -- that we’ve seen in the adoption of the products and we’re in the early innings. So we’re not even close to the peak.

We’re not at the top of the bell curve yet.

Okay. And then fairly unrelated question here, but as far as M&A is concerned, can you just talk about are you guys seeing a lot of interesting opportunities now, is the valuation environment not that compelling and that’s maybe why it’s been a while since we’ve seen any transactions. Just any color there would be great?

Well I think we are really focused on delivering the autonomous platform to the point that it continues that we could find acquisitions that drive that platform to more completion, it does make sense. But I think we’re not looking for the substantial acquisitions that would change the face of the company. I think we’ve got our vision and our margin orders. And so, some of the things are going to be organic and there might be some innovation we might be able to buy out there. But I don’t think it’s quite as significant in our M&A strategy going forward as it has been in the past.

Okay. That’s great. Thank you.

And our next question comes from Bill Sutherland with Benchmark Company.

Hey Bill.

Hey thanks. Good afternoon, guys. Peter, I was looking at the growth rate in the first quarter for product revenue, the midpoint was around 10%. And then kind of looking at what the next three quarters would need to be to come to your annual product revenue guidance and of course it would be a higher level growth. So I’m kind of curious how we should think about the cadence of the quarters after Q1 in that regard?

Yes. It’s a great question. If you look at our seasonality or the tradition we have had, so the fourth quarter typically is the highest quarter as far as revenue for product. I would point to the prepared remarks in the script where we exceeded bookings in the fourth quarter by $59 million. A lot of that is not for implementation and installs in the first half of the year, so for the -- mostly for the second half of the year. So that’s also what helps that growth. And these are all non-cancellable agreements. Does that help?

Got it. Yes, that helps. And then on the bookings guidance for 2019, adjusted for timing I understand it is 13% not quite at the case of 2018, I mean nothing to be ashamed of, but what -- any color on kind of that differential?

Yes. I think the business historically has grown 8 to 12 and we’ve been kind of running at the top of that 12 is the CAGR for the last three years and I think the last two years it’s actually higher than that. But I don’t see anything in the environment either with hospital spend or product launches that would suggest there is any kind of slowdown in our momentum or change in our momentum. There are some large deals that could impact one year a little bit more than the other, but the momentum of the business continues to grow and it certainly shows in the bookings and the excitement about the platform and the Autonomous Pharmacy. So I just think that just first quarter we’re looking at what we got to do in next year and the 8 to 12 has been sort of where we’ve been and maybe we’re running a little higher than that and maybe it will go more, but I think with where we are today and the increased growth in revenue of 13% I think also speaks to the momentum of the book of the business. You can’t grow the business 13% and not have good momentum with bookings behind it.

Yes. It’s a good number. And last one from me on the patient engagement initiative. I was -- once it’s say kind of linking order of magnitude question as far as this year will it be something that it impacts the numbers and will that be into service for another revenue line when that occurs?

Yes. So we’re not giving specific guidance on that product specifically if you will, but what we will say is that we are now utilizing the network that we have of connected retail pharmacies that are connected to our platform which is very attractive for payers and we have multiple contracts with national payers and we’re definitely ramping up the number of patients covered into those programs, but it’s not significantly enough to break our revenues certainly.

Okay. Thanks for taking the questions.

And your next question comes from Mike Ott with Oppenheimer.

Good afternoon. Thanks for taking my question. I wondered if you could maybe give an update on the payer contract that you announced last quarter, just the status of it if wish to expect more like it around some of the engagement work you’re doing?

Yes. I think that was the prior question as well. So we’re ramping that up every single day and we’re getting more patients on those programs every single day and it becomes the layering of recurring revenue. I’d say from a product perspective and engagement perspective we’re happy and we keep innovating and offer additional services.

And it is embryonic, new kind of service, new kind of service. So I would say that we’re really pleased with the earlier results of what we’re getting and it has a great potential not just for payers, but also for provider network. So it’s a great offering to complete the autonomous platform.

Okay. Well thank you. And then also, Peter, I think we missed you gave the long-term backlog mix kind of number, I don’t know if you could just give that again?

Yes. So when you look at our product backlog so we gave two different numbers. So one number we broke out of the total product backlog number, the dollar amount as expected to be installed and recognizes within 12 months from the balance sheet date. And we also gave the dollar amounts for bookings and agreements that roll revenue over more than 12 months over multiple years. So that piece of the business is growing over time, so it’s important to understand if you do your modeling to look at kind of how that revenue flows in. So the backlog is definitely increasing, private bed very healthy and then we’re going to more recurring also as a result.

Great. Thanks very much.

And your next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Yes. This is Lucas Baranowski on for Matt Hewitt here at Craig-Hallum. And we’ve just got a couple of questions here today. I guess first off looking at the EPS guidance that looks to be above consensus and you’ve mentioned in the past about potentially allowing some more dollars to flow through to margins. I mean so should we take this to mean that fiscal 2019 this is a year where maybe you’re not going to spend as much on R&D given you’ve already done some of the heavy lifting in terms of the upgrades?

Well I think what’s really good to look out is the pages that we posted on the Autonomous Pharmacy and we presented at ASHP and at JPMorgan Healthcare Conference. So yes, we do have a lot of the building blocks for the Autonomous Pharmacy. The Autonomous Pharmacy is resonating really well with customers. And we’re market leader we definitely see a lot of growth opportunity there. So we’ll continue to invest. From an R&D perspective, what I would say though is if you do the math on the guidance we just provided and take the midpoint, you would see that expected operating margin non-GAAP will probably increase over 100 basis points from 2018 actual to 2019 guidance. So I would say we are increasing profitability here modestly in the next year.

Thank you. That’s very helpful. And then kind of turning to kind of individual product lines, I mean could you just kind of give us a sense even if you can’t give a specific number, but just give us a sense what percentage of revenue is coming from software right now?

Yes. Again, if you really take a look at the Autonomous Pharmacy, so software is actually a really important piece of the robots and the other equipment you see as well. I love the value prop and value add is coming from software. We do not pure software products as well, but we’re not breaking that out separately, but that is strongly growing that piece.

So I mean kind of I guess if we look at that software piece over the next three to five years, I guess you’re looking at double-digit growth there, just kind of generally what are you looking at there in terms of the growth break?

Yes. I think for sure you can say that as we move forward more value of the products whether it’s embedded on the upside of the actual systems themselves is software-centric and helps eventually drive higher margins because people want robots and automation to work obviously, but the value comes from the intelligence layer and that actually drives probably a higher value eventually than the hardware itself. So that’s what we believe and that’s what we’re focused on not just providing the systems, but how do you make those systems work seamlessly without any intervention and just try perfection. And we think we can get very close to perfection with the cloud and with the services we provide.

I remember in our prepared remarks we talked about the multi-million dollar deals and 90% of those are multi-product on the platform as you will that also includes software. So don’t think about it as a singular product or product line. The vast majority of the multi-million dollar deals, 90% plus they are buying the platform. We are becoming their strategic medication management automation partner throughout.

Okay. Thank you very much. I think that’s all I had.

Thank you.

And your next question comes from Gene Mannheimer with Dougherty & Company.

Hey Gene.

Thanks. Good afternoon. And congrats on a strong finish to 2018. Randy or Peter, as you develop out this vision for the Autonomous Pharmacy, how does that R&D effort look? Is it -- should we expect it to be inflated for several quarters or does this rollout is kind of a big bang or in phases, maybe any more color there will be great?

You should really assume in your modeling kind of a relatively flat percentage of revenue as you go through, I mean it’s relatively stable as a percentage.

Okay, all right. Good to hear. And with respect to some of your comments around the Medication Adherence division, you called out revenue was down year-on-year due to timing of implementations in some of your larger customers. Is that -- was that really the entirety of it? I’m just curious how retention is there and if you’re seeing any impact from consolidation across institutional pharmacies at all?

No, not really. Retention is really good. I think the one change that we are seeing is that in December we realigned our sales teams where we now have in North America. One sales team will be selling all products, so across both segments. All products will in the sales bag of our sales team and we see Medication Adherence now also getting traction at health systems as well. So we think that will definitely help and integrate the sales team there.

Okay, very Good. Thank you.

And your next question comes from Mitra Ramgopal with Sidoti.

Yes. Hi, good afternoon. I was wondering as you look at the guidance for 2019 how do you see international factoring into you expected to be a big contributor going forward?

Yes. So international we focus on a -- in a couple of markets where we see adoption of automation gaining momentum. So that’s the UK and the Middle East and Australia parts of Asia and then also Germany and France. I think overall, what we’re trying to do is grow along with the 13% as well that we just guided to on revenue. So definitely quite a bit of opportunity, but we try to be balanced of where we go direct and where we work with distributors and partners.

Okay, thanks. And then quickly just switching over the Medication Adherence as you look at the profitability of that segment, any initiatives you think you need to undertake in terms of accelerating that?

Yes. It was really a question of scale. So we’re investing in the patient engagement platform and some other areas as well and it will pass the billable scale and the management and shareholders will leverage and it will increase profitability.

Okay. Thanks again for taking the questions.

Thank you, Mitra.

And I will now turn the call over to Randall Lipps for closing remarks.

Well, 2018 was a year of strong growth, momentum and really more evolution for Omnicell. And as you can see from our 2019 guidance, the momentum and the strength of the business continues on as we continue to rollout our platform and the Autonomous Pharmacy which really the industry is really needs and patient care needs. And I particularly want to thank the Omnicell team for unbelievable 2018 and being the kind of teams that are dedicated beyond the numbers, but dedicated to improving healthcare for everyone. And lastly, I’d like to give a special thank you to Robin Seim for his 13 years of exemplary service to the company. As previously disclosed, Robin will retire and join us on the Board of Directors next month. So we wish him the best and look forward to having him continue as a thoughtful advisor and leader in this new capacity. Thanks for joining us.

This does conclude today’s conference call. Thank you for your participation. You may now disconnect.