Thank you for standing by, and welcome to the Omnicell Fourth Quarter 2019 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 conference is being recorded. [Operator Instructions]. I’d now like to hand the conference over to your speaker today, Peter Kuipers, Chief Financial Officer. Thank you. Please go ahead.

Thank you. Good afternoon and welcome to the Omnicell fourth quarter and full year 2019 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 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, 2019, and 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 6, 2020. And all forward-looking statements made on this call are based on the beliefs of Omnicell as of this date only. Future events are 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 express written consent of Omnicell is prohibited. Randall will provide an update on our business. After Randall’s, I’ll cover our results for 2019 and our guidance for 2020. 2019 fourth quarter and full year financial results are included in our earnings announcements, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Including the fourth quarter, earnings are a few slides that I will speak to later in our prepared remarks. Our prepared remarks will also be posted in the same section. Let me now turn over the call to Randall.

Thanks, Peter. Good afternoon. 2019 was a record year for Omnicell. Key financial results for the year include record product bookings of $813 million up 14% from 2018. Record product backlog of $588 million up 23% from 2018 and record revenue of $897 million up 14% from 2018 and record non-GAAP EPS of $2.81 up 34% from 2018. We are very pleased with the strong results achieved in 2019. As discussed during our Investor Day at the American Society of Health System Pharmacists in December, and at the JPM conference in January, we believe that there are significant challenges in pharmacy that drive the demand for our solutions and that represent large market opportunities. We are committed to addressing and solving these challenges in pharmacy by investing in innovation and customer experience. The strong growth in our business over the last several quarters is a testament that the vision of autonomous pharmacy is resonating with the industry. Through the vision of the autonomous pharmacy, a combination of automation, intelligence, and expert services powered by a cloud data platform Omnicell supports more efficient ways to manage medications across all care settings. We want to be the most compelling medication management automation and service company by accelerating pharmacy to perfection. We are making significant strides to advance medication management through this vision. As evidenced in the solutions we debuted at ASHP we have launched new innovations, service offerings and partnerships that are driving greater value for our customers. The continuing expansion of our business from a single solution to a platform of products and services is driving larger deal size across multiple products and we believe more comprehensive, valuable and enduring relationships with our customers. We are pleased to highlight a number of our newest customer wins, including Minnesota based Fairview Health…

Thank you Randall. Our fourth quarter 2019 revenue of $248 million was up 17% over the fourth quarter of 2018 and up 9% from the third quarter 2019. Our full year 2019 revenue of $897 million was up 14% from 2018. The year of a year increase in revenue were largely due to an increase in XT Series, XR2 and IP implementation, growth in annual service and maintenance revenue from a large install base of equipment, as well as increased population health solutions revenue. As discussed in the past, the population health solutions include medication synchronization, patient messaging, and certain other adherent solutions. The fourth quarter earnings per share in accordance with GAAP is $0.51 per share up from $0.36 cents per share in the fourth quarter of 2018, an increase of 42%. Our full year 2019 earnings per share in accordance with GAAP was $1.42, up from $0.91 per share in 2018, representing an increase of 54%. The year over year increases in earnings per share is largely due to higher revenue. In addition to GAAP financial results, we report our results on a non GAAP basis which excludes stock compensation expense amortization of the tangible assets associated with acquisitions, acquisition and restructuring related expenses, tax reform and restructuring income tax benefits and expenses, certain cost contingent gains and amortization of debt issuance costs. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand the effects of amortization of acquisition related costs, and non-cash stock compensation expenses that are a component of our reported results as well as certain events and acquisition and restructuring related expenses which are unrelated to our ongoing operations. A full reconciliation of a GAAP to non-GAAP results is included in our fourth quarter…

[Operator Instructions]. Your first question comes from Mat Hewitt with Craig Hallum Capital. Your line is open.

Hi, guys. Thanks for taking the questions. This is Lucas on for Matt Hewitt here at Craig Hallum. And I guess, I think, our first question here is just could you provide some color on the traction you're seeing for some of the new service based offerings that you've launched recently?

Yes, sure. I think that as we have begun to focus on the central pharmacy and really focusing on these products, more services, not products, we're providing the technology, but to really to get them to be implemented to the most efficient and highest level of results for the institution, we're embedding people as part of the service into that process. And so that particularly is seeing good results, particularly on the booking side, and especially on the IV side. I think that with the reduction of 507 B facilities that are providing quality and supplies of IV compounding. This is the exact kind of service that people are certainly engaged with us on in a more fruitful way than we've seen in just recent quarters.

Okay, excellent. And then how should we be thinking about the impact of these new service offerings on your gross margins?

Yes, it will be a gradual over time. And I think initially there are of course investments in supporting infrastructure and training and process. Over time what we’ve said in the past is that remains challenge going forward. We said the same thing at the investor day. We expect the gross margin gradually and total to increase overtime modestly. As we talked about earlier today as well in the operating margin leverage overtime. So we definitely see that but I think initially for the kind of the service offerings that will be the slight decrease to gross margin just by itself, looking at that fact only as we wrap it up.

Okay, thank you very much. That's all we had.

Thank you.

Your next question comes from Steve Halper with Cantor. Your line is open.

Hi, two questions. First, can you just talk about the overall hospital environment? And then looking at the three segments their competitive positioning and how you feel about that right now?

Well I haven't seen any change in the hospital market. But I do think as hospitals have consolidated, they continue to want to invest strategically. And which means putting products on a standard making a standard choice and not having multiple products as well as finding ways to operate those at optimal levels. And so to do that, they want to gain more services from us than what we traditionally have done. So you see, professional services being added. You see the Omnicell 1 service being added, which is the old performance center. And these our ways of taking big investments that they make, and extracting better values out of them. And so it's great return for them and a great return for everybody. And on -- and I'd say that most places we are engage within are engaged in the broader platform, not just a single product. You don't see that much anymore. And that's because they're trying to get their hands around all of the pharmacy, not just certain pieces and parts of it. And I think we're seeing strength there. And we've seen additional strength PHS from the pharmacy side as we continue to sign up pharmacies for that service. It is still, not a big portion of our revenues yet, but it's good to see traction from signing up more pharmacies to find more ways to grow revenues in a very competitive environment to be safe.

And the other thing I would refer back to is that we have a record number of multimillion dollar deals of bookings in the fourth quarter, it's an all-time record, if you will. And so we do believe that we have strong customer relations and the customer sees value in our own platform offerings. The vast majority of that record number of multimillion dollar deals were multi product or platform related. So, definitely that's right.

Thank you.

Your next question comes from Gene Mannheimer with Dougherty & Co. Your line is open.

Thanks, guys. Great quarter. I was hoping the question on this on the services offerings. You talked about expert services. How about from a revenue or growth perspective? How fast are those growing? And then your services line? How much of that is the expert services versus your traditional services contracts on your product? And then my other question would be, if you could just offer some color on the recent for medium closure? And if and how that can help drive business to your in-sourcing approach to IV compounding?

Thank you for the question Eugene. So on services, our P&L line is to be clear for services that we break out. The vast majority there is our maintenance services, right. And we do have within that total services line, growing revenue for the IV rights services and performance center, Omnicell 1 services. We see growth there over time, if you will. So those are our products and offerings that we've had for not a very long time but for a number of years. And then I would say professional services, that we announced in December last year, we are starting there with the bigger health systems that a number of them that have multiple different product line of product line implementations where we help manage, we're mostly focused there on change management the government health system. So that's last kind of cycle expert services, if you will, that we're starting there if you will, right. So believes that will grow over time as well. But it's not meaningful for 2020.

Okay, thanks, Peter.

So third party outsourcing services that follow the 507B which is third party compounding regulations set up by the FDA are limited. And as their median not being available anymore. That means there's fewer choices to go to. So you only have three choices. You can either manually mix on site at your hospital. You can use automation to mix on site, or you can buy off side through one of these 507Bs. And with that supply from median being removed from the marketplace then choices are more limited. And I think it's fair to say that pricing is also impacted because the amount of folks offering product from the 507B are even more limited now. So, therefore in order to maintain your budget and/or just to get to able to supply yourself with these critical compounding products, you have to bring it in house. And so that has started many more discussions that are really at the top of the funnel, we would say, well with customers about how best to do that. And that's either for us it's one of three choices. You either use our IV station, in which we would come in and run it for them on an onsite location, following 507A standards which are different than 507B. And or they could run their own robot which is we find most people don't want to do because it's all too complex Or they could use our IV workflow station, which still allows them to use their own people. But it's semi automated. It's capturing through cameras, and technology and cloud based services to make sure the manual process is done appropriately. So we think that that will emphasize the onsite IV Prep is going to become, I think, I believe more of a trend to bring it in house. And so you've got to really use automation in one form or another to achieve that.

Sure, makes sense. Thank you.

[Operator Instructions] Your next question comes from Jessica Tassan with Piper. Your line is open.

Hi, thanks for taking the question. I think sort of interested to know I think [indiscernible] announced this morning that new orders from shipments are going to be suspended for a while. So just interested to know what impact that might have on your business, specifically the IV compounding business.

My initial reaction when I saw that it wouldn't have much impact on us as we don't see that as a -- very rarely would we see a pump cabinet DLB related. So there might be a few more opportunities in 2019 that we wouldn't have because of that potential slowdown there. But we don't really feel like the pump by itself. And the automation decisions are usually made fairly separately. Particularly as you're kind of looking at our product as a platform versus a couple of different products combined together like that. Peter would you have anything to add to that?

Hey, Jessica. So that's more from a competitive standpoint, perspective is the part to the answer. It will impact to the question the other part of the question, I guess might be impact demand for our IV solutions. We don't really see a direct impact there, as Randall talked about earlier. The hospitals will need to have IV Prep and they're going to need to do that with robots semi-automated. And there's still some compounding available outside or they can do manual prep inside the hospital. But we don't see for that particular developments on [indiscernible] pump. We don't see an impact on our IV product line from a demand perspective.

Your next question comes from [Indiscernible] with Sidoti. Your line is open.

Hello Mitra?

Your next question comes from Bill Sutherland with Benchmark. Your line is open.

Hey, thank you. Peter, I think you said the bookings growth that you're looking for this year's 9% for product bookings?

That's the midpoint of the guidance range, correct. The [indiscernible] the exceeded the high points of the guidance range for 2019 by $23 million. And also means I would add if you look at a multiyear period, if you start at 2017, our CAGR for bookings is 16%. And we disclosed within our prepared remarks, because we feel it's important to really look at the longer term trends that might be from a bookings perspective might be timing between a fourth quarter and the first quarter. So if I kind of get guidance on how we seeing historical trend.

So that's a 16% CAGR from '17 through '20 to '20 estimate right?

Yeah. Midpoint of the 2020 guidance range. Yes.

Okay, that's good enough for that. I also was just curious the other thing I was wondering about you just talked about product expansions or introductions this year if any are planned and being shifted now?

Yeah. So as a practice, we do not announce ahead of time product launches. So we can refer back to the Investor Day and ASHP in December 2019, where announced Omnicell 1. We announced the partnership on diversion and we announced the professional services professional services are available since last quarter. And Omnicell 1 we expect to be available in the middle of the year is what we said in December.

And the Omnicell 1 is not meant to displace your prior offering.

That’s evolution. That’s an evolution. Yes, correct.

Yeah. Okay. Thanks, guys. Appreciate it.

Yeah. Thank you.

Your last question comes from Mitra Ramgopal with Sidoti. Your line is open.

Yes, hi. Good afternoon. Thanks for taking the questions. Just coming back to the five year guidance trying to get a sense of how you see the mix of the business changing? I think right now it is about 60% cap equipment and software and the rest recurring consumables and service if you see that changing much. And also on the international front base on what you're doing right now, I believe you're running at maybe low mid-teens on international. If you see that changing meaningfully also in terms of the mix?

So from a -- if you purely talk about as a service, so as a service components within in services if you will we expect that to go up and increase all the time, we’re not necessarily breaking that out. From an international perspective, so we expect roughly growth rate in line with the total business over time, over the five year period.

Okay. Thanks. And then, just from a competitive standpoint, clearly, you've commented a number of products and services over last couple of years and you have the leadership position. Are you seeing any potential competition at least if not in the near or medium to longer term?

From platform perspective.

Well, I think where we feel strong about, the strength of our platform is really hard to replicate. And there are certainly certain products that people may have in the marketplace with a combination of one or two, but I think the strength and what we come in and offer is a total platform to address as much as a pharmacy as possible with that critical viewpoint of how you address all the pin points in pharmacy. And so I think that really drives the decision making in the C suite to be much more strategic. And so I think that from that standpoint, we haven't seen really much of any competition that is taking on the goal of the autonomous pharmacy. I mean, we are trying to release pharmacists out of the basement. We are truly trying to get pharmacist from stop counting pills, and mixing stuff and manual stuff and let technology do that at a 99.9% accuracy and move the pharmacists to clinical work only. And so -- and it's got to happen because there just are enough resources to run pharmacies and the modalities that they're run today. And I think for the most of the people that we have conversations with, resonate with that and want to make pharmacy strategic and not a cost center.

Okay, thanks again for taking the questions.

You bet.

Now we don’t [ph] have questions for today, I turn the call back to Randall Lipps, for closing remarks.

Well, thank you. And 2019 was highly successful year for Omnicell. Our robust portfolio solutions delivered meaningful outcomes for our customers and patients. And these strong results provide a substantial basis for us to execute on our long-term strategy. As noted earlier and through discussion with our customers, we believe that there are significant challenges in pharmacy that drive the demand for our solutions, and present large market opportunities. And via investments in innovation, and by enhancing the customer experience, we continue to make advancements for division of autonomous pharmacy. And once again, let me just note, our remarkable Omnicell team, who is the true backbone of our success. Thank you for another great year. Executing on our winning strategy. And we look forward to another great year in 2020. Thanks, everyone.

This concludes today's conference call. You may now disconnect.