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 services, has selected Omnicell's automation, and intelligent solutions to streamline nurse pharmacy workflow. Through this seven year full source agreement, Fairview will be leveraging Omnicell's intelligence solutions to gain visibility and insight to their pharmacy supply chain.

The health systems investment toward a fully autonomous pharmacy also includes adding XR2 automation central pharmacy system, and an IV station to central pharmacy operations, as well as implementing Omnicell's XT automated dispensing systems and XT anesthesia workstations across it's 13 hospital system in the Minneapolis metropolitan area. [Indiscernible] one of the nation's most innovative health services organizations, serving millions of patients in Pennsylvania and New Jersey has signed a six year sole source agreement to implement Omnicell XT automated dispensing systems across the health system.

This investment follows a recent upgrade to XT anesthesia workstations, and surgical suites. We're seeing significant traction for our point of care automation workflow technology with numerous healthcare systems including Duke University Hospital and Adrian Mel in North Carolina; Cooper University Health Care in New Jersey; Benefis Health System in Montana; and Renown Health in Nevada leveraging automation and data intelligence to support improved efficiency and patient care areas.

Allegheny General Hospital in Pittsburgh, PA part of the Allegheny Health Network, has selected our central pharmacy IV compounding service. Sterile compounding is one of the biggest challenges for hospital pharmacy.

They were impressed with our enforcing model which combines technology and trained resources to support a safer, more accurate operation. For Bordeaux' Central Hospital University or CHU, serving the Bordeaux metropolitan area, one of the top teaching hospitals in France, with over 3100 beds across three sites has selected Omnicell to provide a central pharmacy robotic dispensing system, the largest ever implemented by Omnicell in France, three large robots working in coordinated manner, utilizing Omnicell's market leading ULM software will store and retrieve medication upon demand via integration with a hospital pharmacy system for delivery to patients boards across the Bordeaux [ph] healthcare system.

With that, I'd like to turn it back over to Peter to discuss 2019 results and our five year financial framework as well as guidance for 2020. Peter?

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 earnings press release and is posted on our website. Fourth quarter 2019 non-GAAP EPS was $0.77 per share compared to $0.70 per share in the same period last year, representing a 10% increase.

Full year 2019 non-GAAP EPS was $2.81 per share compared to $2.09 per share in 2018, representing a 34% increase. Similar to the increase in our GAAP EPS, the increase in earnings per share on a non-GAAP basis is again largely due to growing revenue.

In addition to strong revenue and profitability growth, there are additional indicators that demonstrate the momentum and scaling of our business. First, product bookings for the full year 2019 increased by approximately 14% from 2018 to $813 million.

This is a record for the business and exceeded the high point of a guidance range by approximately $23 million. Second product backlog as of December 31, 2019 increased by approximately 23% from December 13, 2018 to $588 million.

Third non-GAAP gross margins exceeded 50%, five-zero for the full year 2019 and expanded by approximately 90 basis points from 2018. Forth our non-GAAP operating margin was 14.8% for total year 2019 and expanded by approximately 190 basis points from 2018.

Lastly, during the fourth quarter of 2019, we again entered into a record number of multimillion dollar commercial agreements. The vast majority of these multimillion dollar product bookings are with customers adopting multiple products on the Omnicell platform.

Our total product backlog as of December 31 2019, was $588 million up 23% from last year. Of this amount $471 million is considered short term in nature and $170 million is considered long term.

In comparison as of December 31, 2018, our total backlog was $478 million, of which $375 million is considered short term and $103 million is considered long term. Let's now move to the balance sheet, cash flow.

At December 31 2019, our cash flow balance was $127 million down from $137 million at September 30, 2019. During the fourth quarter of 2019, we repaid $30 million on our outstanding debt leaving the remaining outstanding funding debt balance of $50 million.

As of December 31 2019, the business was in a net cash position of $77 million up from $57 million at September 30, 2019. Cash flow from operations during the fourth quarter and year ended December 31, was $35 million and $145 million respectively, compared to $47 million and $104 million for the comparable periods last year.

The increase in operating cash flow for the full year is primarily driven by increased net income and improvements in working capital. Free cash flow generated in the fourth quarter and year ended December 31, 2019 was $20 million and $18 million respectively, compared to $35 million and $50 million for the comparable periods last year.

The increase in free cash flow for the full year is primarily due to the increases in cash flow mentioned earlier. Accounts receivable days sales outstanding for the fourth quarter were 81 days, down one day from the previous quarter and down four days from December 31, 2018.

The decrease in DSO from last quarter and the prior year's primarily due to higher sales and increased collections. Inventory at December 31, 2019, were approximately $108 million up $2 million for the previous quarter and up $7 million from December 31, 2018.

The increase is primarily driven by growth demand for the XT Series, XR2 and IV product lines. Our headcount was 2,698 at December 31, 2019, up 73 from the end of the previous quarter and up 222 from the same quarter last year.

The increase reflects continued investment in the business to deliver product innovation and new offerings, as well as increases for manufacturing, implementation and service personnel needed to support our business as it continues to expand. We expect this hiring trend to continue as we grow the business.

[Indiscernible] for the long term financial framework was presented at the Investor Day on December 10, 2019 at the ASHP conference and also at the JP Morgan conference on January 15th, earlier this year. Included in our fourth quarter earnings release are a few slides summarizing the long term financial framework.

Slide number three, shows a summary of our organic revenue drivers. We believe that there are significant challenges in pharmacy that we discussed earlier that drive the demand for our solutions and represent large market opportunities.

Looking at our market and growth assumptions in our longer financial model, we expect to continue to grow revenue organically over the next five years at a CAGR of approximately 10% to 12%. The key areas of growth are as follows; point of care, central pharmacy, retail institutional and payers.

For our point of care solutions, we expect future revenue growth from the following areas. First, its expansion with existing customers as they continue to increase the utilization of our dispensing systems in more areas within the hospitals.

Second is prior generation replacements or upgrades. Through the fourth quarter of 2019, we have received orders from customers representing approximately 23%, two-three of our legacy installed base of automated dispensing cabinets, which is up from 11% as of the end of 2018.

We expect to reprise an update on this metric every quarter. Third growth areas is [indiscernible] and market share gains.

Fourth growth area we is see innovation -- is growth from in services including professional services that we announced in December last year. Given these drivers we believe that this part of the business will grow at an organic CAGR of approximately 10% over the next five years.

Central pharmacies the next area of significant opportunity to digitize and automate pharmacy to help increase safety, reduce drug spend, and optimize labor. For our central pharmacy solutions, we expect future and continued revenue growth from upgrades of high generation robots in our install base, carousel to robot replacements, greenfield opportunities, and growth from innovation and new offerings.

Overall, we believe that this part of the business will grow at an organic CAGR of approximately 17% over the next five years. Finally, for our retail and institutional pharmacy and payer solutions, which we expect future and continued revenue growth on the following drivers.

First growth in population health solutions including software solutions, adherence packaging and automation, growth from expected new innovation service offerings. And overall we believe that this part of the business will grow at an organic CAGR of approximately 10% over the next five years.

The estimated organic revenue growth in these two areas is supported by estimated large 10 or so addressable markets, and is anchored by many sole source long term agreements with large health systems, retail pharmacy chains and payers in our customer base. Let’s now move to long term non-GAAP operating margin profitability.

Forward baseline in 2019 of approximately 15%, one-five, non-GAAP operating margin. We believe that we can increase non-GAAP operating margin to approximately 18%, one-eight by 2024.

Slide number 4 gives a summary of the drivers of non-GAAP operating margin. We expect the drivers of non-GAAP operating margin expansion to be follows and expect benefit from economies of scale, including supply chain procurement savings and operating expense leverage.

We expect benefits from long-term customer agreements. We expect benefits from manufacturing and design, savings.

And we also expect benefits from process improvements and efficiencies, including benefits from improved infrastructure and other investments. We expect these benefits to be partly offset by investments in innovation, to support the growth opportunities we discussed.

Investments in customer success and experience including professional services. And investments and infrastructure and IT investments to support the scaling of our business.

On Slide number 5, we have summarized our objectives. We're committed to strong long-term organic growth with a goal of $1.45 billion to $1.55 billion by 2024, representing a five year organic CAGR of approximately 10% to 12%.

We're driving operating leverage with a goal of about 18%, one-eight, non-GAAP operating margin by 2024. We expect the business to deliver between 90% and 110%.

Free cash flow prefers [ph] of GAAP net income through 2024 while we are investing in innovation, customer success, and supporting infrastructure. Lastly, we are continuously evaluating potential acquisition opportunities for the right strategic and financial fits.

Before we move to guidance, I want to acknowledge that you may have questions about the impact of the corona virus on our business. First and foremost, the safety and well-being of our people is our number one priority.

We are in close contact with our employees, customers and suppliers in China. And we are reviewing communications by government and healthcare organizations as we monitor the situation.

At this point, given that we have a small employee presence, and a small customer base in the regions -- in the region, and none of our suppliers are based in the Wuhan province or proximity, we do not expect nor have we factored into our guidance, any meaningful operational or financial impact. That said, the situation is uncertain and rapidly evolving.

So we will continue to monitor it closely. And we are evaluating potential scenario so we believe that we're well prepared.

Now moving to our full year 2020 guidance. We expect 2020 product bookings to be between $865 million and $900 million.

The midpoint of this range represents approximately 9% growth over 2019. Measures from 2017 we are using the midpoint of the guidance range for 2020.

This represents a CAGR of approximately 16%, one-six. We expect 2020 total revenues to be between $1 billion and $1.20 billion.

The midpoint of this range represents approximately 13% growth over 2019. These breaks down as follows.

We expect 2020 product revenue to be between $752 million and $768 million and we expect 2020 service revenue to be between $248 million and $252 million. Using the midpoints of the provider ranges, we expect non-GAAP operating margin for 2020 to be slightly below 16%, up from 14.8% in 2019.

We expect 2020 non-GAAP EPS to be between $2.96 per share and $3.16 per share. The midpoint of this range represents approximately 9% growth over 2019.

It is important to note that as we discussed in the first quarter of 2019 earnings call that we had a non-operational benefit of around $0.07 per share related to tax benefits realized from the exercise of employee and stock options. For 2020, we are assuming an average effective blended tax rate of approximately 14% in our non-GAAP EPS guidance range.

For the first quarter of 2020, we expect the fall -- we're seeing the following guidance. Based largely on the ending product backlog from the fourth quarter of 2019 and the recurring revenue from services and consumables, we expect total revenue to be between $221 million and $227 million.

This breaks down as follows. We expect product revenues to be between $163 million and $168 million.

And we expect service revenue to be between $58 million and $59 million. We expect non-GAAP EPS to be between $0.52 and $0.57 per share.

As Randall mentioned, we are very pleased with the strong results of 2019 and we look forward to continuing to deliver profitable results in 2020 as we continue to execute on the long-term strategy. With that we would like to open the call for your questions.

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.

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.

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.

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.

Hello Mitra?

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.

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.

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.