Omnicell Inc (OMCL) 2017 Q1 法說會逐字稿

Good morning. My name is Hope, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell's first quarter earnings announcement. (Operator Instructions)

I would now like to turn the conference over to Peter Kuipers, Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning, and welcome to the Omnicell First Quarter 2017 Results Conference Call. (Operator Instructions) 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 in Form 10-K filed with the SEC on February 28, 2017, and in our other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is May 4, 2017, 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, [auto] duplication or rebroadcast without the expressed written consent of Omnicell Inc. is prohibited. Randall will first provide an update on our business, and then I will cover our results for the first quarter of 2017 and our guidance for the year. Following our prepared remarks, we will take your questions. Our first quarter financial results are, as usual, included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Our prepared remarks will also be posted in this same section.

Let me turn the call over to Randall.

Good morning, everyone. We are excited to discuss our first quarter results as well as our progress on the XT Series introduction. Following the announcement at ASHP in December last year of the new XT Series, we received great responses and then had good momentum among both existing and new customers.

I want to summarize our progress in 3 specific areas. First, we are winning in the marketplace across Omnicell's comprehensive medication management platform. Secondly, we have good traction on XT with strong customer interest, and the XT Series is received with enthusiasm by new customers and by existing customers looking to add XT to their medication management platform. And third, we made great progress on conversion of G4, our older series, and AcuDose quotes and backlog to XT.

First, it's clear we are winning in the marketplace. During the first quarter, we had a strong new and competitive conversion rate of 33% of bookings. This is a great indicator of the strength of the business. Around 75% of those were competitive conversions and the remainder were from greenfield customers who had never automated before. We believe that these new account wins, combined with our installed customer base gives us a robust platform for the future, growth driven by expansion, replacement and upgrade sale as well as cross-selling opportunities across our product portfolio. And also, our first quarter bookings are ahead of our internal plan.

Secondly, the XT Series is received with enthusiasm by new and existing customers. As of last week, we had delivered the XT Series products to approximately 175 sites, and XT Series are live at over 50 sites. Both numbers are growing every day. Both our internal and external survey show very strong positive customer feedback. One of the top benefits of XT, according to users, was the increased speed of the XT Series. A reduction in time in the workflow has returned significant time to nurses. Of course, about 40% of nursing time is spent on medication management, so you can see why this time-saving is significant. A leading medical center in the United States recently commented that "XT is a night-and-day experience compared to our last system from another vendor." Everyone loves the extra capacity, the large screen, the intuitive design, the clean design, and the ability to authenticate users in and out of the system very quickly has created much better workflows for our users.

Third, we are progressing well on our conversion of G4 and AcuDose quotes and backlog and are ramping up the XT Series revenue. Specifically, we have converted the vast majority of all G4 and AcuDose quotes and year-end backlog to XT bookings and backlog. There's a portion of the G4 and AcuDose backlog that won't convert, as those customers have chosen to complete their installations with G4 or AcuDose. Customers in our year-end backlog and pipeline were prepared for a G4 installation. While we have redirected these customers to the benefits of XT and removed supply chain and paperwork issues, we assume that these customers would move through the process as quickly as they did with G4 frames. However, we have learned that customers want additional time to maximize their XT deployments, especially with respect to optimizing their use of XT's additional capacity, configurations and future benefits. As a result of our expected conversion of our G4 and AcuDose bookings and backlog to XT bookings, the XT manufacturing and installation ramp-up, we have anticipated 2 quarters or 6 months of transition disruption starting from December last year through April. While the conversion has improved and continues to improve, we now do see some continued residual impact to these dynamics through the second quarter; i.e., through June.

Out of the total ADC frame revenue, we are expecting the percentage of XT Series frames revenue -- we expect to increase from around 25% in the first quarter to over 40% of XT revenues in the second quarter, then to 75% -- and then around 75% in the third quarter and over 90% in the fourth quarter. And we will report this metric during the quarterly earnings calls this year to demonstrate the execution of the XT Series rollout and adoption.

Now for the quarter. The non-GAAP revenue was $151 million with the guidance range provided in our fourth quarter results earnings call, essentially a consensus. Combined with good cost management and a tax favorable non-GAAP EPS was $0.06, and that was above our guidance range and above consensus. And the last year -- the last number of years, we've successfully grown the business by implementing 3 scalable growth strategies: growth through differentiated Omnicell platform, growth in new markets and growth via acquisitions. Now for 11 consecutive years, we have received the top honors from KLAS, the prestigious third-party rating organization. For 12 consecutive years, we have increased our market share and gained new thought leaders -- customers every quarter and in almost every significant geography. Together with our customers, we are consistently delivering state-of-the-art medication management automation and workflow efficiency for caregivers and better health care outcomes for patients.

Now in 2017, we continued to experience great winds and added notable customers to our Omnicell family under the first strategic pillar of differentiated platform. With several large competitive conversions, we estimated that we gained further market share in the first quarter of 2017, a continuation of the market share gain trend of momentum we have experienced for many years. In the first quarter, we had some great wins with prominent new customers as well as significant deals with existing customers including Mercy Health, Ohio, St. Luke's health system and North Memorial Health. Now Mercy Health, Ohio, a 23-hospital health care system serving Ohio and Kentucky, has selected the company's automation management dispensing solutions including the new XT Series to be installed across their facilities. As one of the largest health systems in the U.S. serving approximately 6 million patients each year, Mercy is looking for a vendor partner with technology that will streamline workflows and increase integration between facilities.

St. Luke's Health System, a nonprofit health care system based in Kansas City, Missouri will incorporate the Omnicell Performance Center, an integrated software and service offering to drive improved pharmacy operation and reduce cost. St. Luke's Health System will incorporate Omnicell's technology for its Automated Dispensing Cabinets, Anesthesia Workstations, central pharmacy technologies and the diversion detection software.

Minneapolis-based North Memorial Health has selected multiple medication management and analytic solutions for both North Memorial Health Hospital and Maple Grove Hospital, reinforcing their commitment to patient safety while enabling each hospital to more efficiently manage medications. North Memorial is implementing Omnicell solutions across its facilities, products including automated carousels and Controlled Substance Management systems, Omnicell's XT Automated Dispensing systems with Anywhere RN, XT Anesthesia Workstation and Epic interoperability package.

With the focus on improving safety, North Memorial also selected Omnicell Analytics to gain insight into potential drug diversion activity. These strategic wins in the marketplaces are being driven by a strength of our overall portfolio and differentiated platform.

Our second strategic pillar of expanding into new markets also fueled growth in the last several years and we believe sets us up for coming growth in the coming years. Internationally, in the largest single deal for Omnicell's IV robotics outside of the United States, Invotek, a distributor for Turkey, has purchased a sizable number of Omnicell i.v. STATION ONCO and i.v. STATION robots. These robots are set to be installed in various hospitals, providing safe, accurate and efficient IV preparation.

CompleteRx, a leading independent provider of pharmacy management and consulting services to health systems across the country, has selected Omnicell XT Series solutions to support behavior health facilities in Massachusetts. Having previously implemented Omnicell's adherence solutions, CompleteRx looked to Omnicell to provide the latest technology, quality service and long-term products for medication automation.

Our third strategic pillar of expanding our presence and relevance through acquisitions has also continued to deliver great results. The Aesynt integration is progressing well. The product portfolio integration is ahead of schedule with the market introduction of AcuDose on XT, announced earlier this week. That means that current AcuDose customers can add on XT equipment directly onto their system without making modifications. The cost synergies are also as expected. Already, we are seeing good cross-selling momentum within the total product portfolio and combined customer base, specifically for our IV and Performance Center solutions.

In April, we completed the acquisition of InPharmics. InPharmics currently serves more than 150 hospitals with tools that analyze drug cost by patient diagnosis, thereby supporting the pharmacy's clinical activities while helping to optimize supply chain performance and comply with drug pedigree regulations. The InPharmics solution adds clinical and compliance analytics through our Performance Center offering, positioning Omnicell as the partner of choice for health systems looking to drive improvements across all facets of the medication management. We believe our hard work for the years and the execution of our 3-leg strategy lay the foundation for our success historically and sets us up for continued future growth and scale. In today's evolving health care environment, we remain focused on our mission to change the process of health care, the solutions that improve patient and provider outcomes.

With that, let me turn it over to Peter for some financial updates.

Thank you, Randall. Our first quarter 2017 GAAP revenues of $151 million was down 12% from the same quarter last year and down 12.5% sequentially, driven by the product implementation and related ramp up of the XT Series product launch. As Randall referred to earlier in this call, the announcement of the Omnicell XT Series does result in some disruption for 2 quarters, which we see continuing through the second quarter. Earnings this year, in accordance with GAAP, were a loss of $0.29 which is down from the GAAP loss of $0.01 in the first quarter of 2016. GAAP gross margin was at 42% for the quarter.

In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense and amortization of intangible assets associated with acquisitions, onetime acquisition-related expenses and the acquisition accounting impacts related to deferred revenue and [inventory] fair value adjustments and severance and other expenses related to restructuring. We use non-GAAP financial statements in addition to GAAP financial statements, because we believe it is useful for investors to understand acquisitions, amortization-related cost and noncash stock compensation expenses that are a component of our reported results as well as onetime events such as the gain on a (inaudible) investment in 2Q '15 and onetime acquisition-related expenses. The full reconciliation of our GAAP to non-GAAP results is included in our first quarter earnings press release and is posted on our website.

Our first quarter 2017 non-GAAP revenues of $151 million was down 13% from the same quarter last year and down 13.6% sequentially, again driven by the XT Series market introduction and revenue ramp-up. On a non-GAAP basis, earnings per share were $0.06 in the first quarter of 2017, above consensus and above our guidance range and down $0.29 from the same quarter last year and down $0.31 sequentially.

Non-GAAP gross margin was 46.4% in the first quarter. And we expect gross margin to steadily increase through the year if the XT Series rollout ramps up and we get scale efficiencies in manufacturing and installation costs. The first quarter gross margin was also impacted by cost to expedite shipments of XT products to customers.

Non-GAAP adjusted EBITDA was $4.3 million for the first quarter of 2017. Our business is also reported in segments, consisting of Automation and Analytics, and Medication Adherence. Automation and Analytics consists of our G4, AcuDose, OmniRX and XT, Automated Dispensing Cabinets, Anesthesia Workstations, central pharmacy, Omnicell supply, Omnicell Analytics and MACH4 Robotic Dispensing Systems. Our acquisitions of Avantec, MACH4 and Aesynt are also included in this segment.

The Medication Adherence segment consists of all adherence packaged consumables, which are now branded SureMed and equipment used by pharmacists to create adherence packages. Our acquisitions of MTS Medication Technologies, SurgiChem and Ateb are included in the Medication Adherence segment. As a reminder, we report certain corporate expenses that cannot be easily applied to either segment separately.

On a segment basis, our Automation and Analytics segment contributed $124 million in GAAP revenue in the first quarter of 2017, down from $149 million in the first quarter of 2016 driven, again, by the start of the XT Series launch. $5 million of GAAP operating income this quarter compares to a $20 million GAAP operating income for the same quarter last year. $40 million of non-GAAP operating profit compares to $34 million last year.

The Medication Adherence segment contributed $26 million of GAAP revenue to the quarter compared to $22 million in the first quarter of 2016. The GAAP operating loss of $2 million compares to $3 million in GAAP operating profit a year ago. Non-GAAP operating income was $1 million in the first quarter compared to $4 million of non-GAAP operating income a year ago. The non-GAAP common expenses were $16 million compared to $17.6 million in the first quarter of 2016. The non-GAAP operating margins around breakeven for the first quarter including Aesynt and Ateb integration cost. Excluding the Aesynt and Ateb integration cost of approximately $2.7 million in the quarter, the non-GAAP operating margin was around 1.3% for the first quarter.

In the first quarter of 2017, our cash decreased from $54 million to $46 million after paying down our term loan and revolving debt by $40 million within the quarter. The first quarter 2017 cash flow for operations of $28 million was strong and driven by strong accounts receivable collections and an increase in AP and deferred revenue, partially offset by inventory buildup of XT products for future quarter installs. As of March 31, 2017, we have $220 million of outstanding funded debt, and our loan leverage measured as outstanding total funded loan balance over the last 12 months of EBITDA was 2.5. Accounts receivable, days sales outstanding were 82 for the first quarter, up 1 day from the fourth quarter despite the lower sequential sales. For context, our standard customer agreement specified that for equipment sales, the company [invoices] 100% of the [context value and] shipment days. We review the collectability of our receivables regularly and we do not believe that the fluctuation of DSO are indicative of a change in our rate of bad debt.

Inventories at March 31, 2017, were $76 million and are up $7 million from last quarter, driven by an inventory build for future quarter installs. Our headcount was 2,361, down from 2,444 [per] year-end, driven by the reduction in force action we executed in the first quarter.

During the first quarter, we executed well on the number of drivers underpinning the dynamics of the XT Series product introduction. We converted the vast majority of all G4 and AcuDose quotes and year-end backlog to XT quotes, bookings and backlog. We have ramped up manufacturing for the XT Series after -- adding in a second shift. As Randall mentioned earlier, as of last week we have delivered XT Series to approximately 175 sites and the XT series is live at over 50 sites. Both numbers are growing every day. We executed on cost actions including 100 position reduction in force and general hiring delays. The majority of the reduction in force over various locations was completed in the first quarter of 2017 and also enables the creation of the Centers of Excellence to achieve cost synergies contemplated in the acquisition of Aesynt.

As part of the next phase of the integration of the acquisition of Aesynt, we're progressing well in the creation of the following Centers of Excellence; for product development and engineering and manufacturing. First, the point of use, COE, or Center of Excellence, in California; the robotics and central pharmacy COE in Pittsburgh, Pennsylvania; and lastly, the Medication Adherence consumables COE in St. Petersburg, Florida.

The second to fourth quarter 2017 dynamics are expected to be as follows. First, the AcuDose and XT launch which we announced last week. This product launch allows the (inaudible) customer base to benefit from the XT Series product advantages while continuing to use their existing AcuDose offer. Secondly, we expect to improve XT production cost, accelerate bookings growth and accelerate organic revenue growth. During the second through the fourth quarter of 2017, we are taking the following actions. We're implementing XT cost of goods sold reductions as revenue ramps. We continue cost controls and we're implementing the COEs mentioned earlier.

Although the first quarter bookings were ahead of our internal plan, as Randall mentioned, we do see some continued disruption impact on revenue of the ramp-up of the XT Series product introduction in the full second quarter. We do believe that there will be a partial catch-up of this customer deployment and configuration, installation timing delays on revenue in the second half of the year but not a full concern. As a result, for the second quarter of 2017, we expect non-GAAP revenue to be between $172 million and $178 million. We expect the second quarter of 2017 non-GAAP earnings to be between $0.21 and $0.27 per share.

As discussed in previous earnings calls, it's important to note that from time to time, installation completion timing on specifically bigger projects can impact revenue and earnings in a different quarter, but we don't expect just quarterly fluctuations to impact the growth rate measured over multiple quarters.

For the second half of 2017, we expect total non-GAAP revenue to be between $395 million and $415 million, representing an approximate 12% organic revenue growth rate than using the midpoint. For the second half of 2017, we expect total non-GAAP earnings to be between $0.95 and $1.05 per share. This represents a $2 per share non-GAAP EPS run rate when annualizing the second half of 2017 using the midpoint of the guidance range.

Although the first quarter bookings were ahead of the internal plan, at this time we're not updating our product bookings guidance, and we continue to expect the 2017 product bookings to be between $570 million and $590 million. We expect non-GAAP revenue to be between $720 million and $740 million for total 2017. And we expect 2017 non-GAAP earnings to be between $1.22 and $1.34 per share as we are offsetting part of the lower guidance revenue range with cost actions and efficiencies. We expect non-GAAP operating margins for 2017 to be approximately 10% including integration cost for Aesynt and Ateb. Excluding the integration cost for Aesynt and Ateb, we expect non-GAAP operating margins for 2017 to be between 11% and 11.5%. Given the ramp-up of the XT Series revenue and profitability through the year in 2017 described earlier in this call, we expect non-GAAP margin for the fourth quarter 2017, including integration cost for Aesynt and Ateb, to be approximately between 15% to 16%, in line with our long-term financial model. Excluding integration cost for Aesynt and Ateb, we expect the non-GAAP operating margin for the fourth quarter in 2017 to be above 16%.

When reviewing 2017, it's important to note a couple of items included in the 2017 guidance. First of all, for 2017, our non-GAAP expected results include approximately $12 million of integration cost for Aesynt and Ateb that we do not adjust for based on our non-GAAP policy. These integration costs directly impacting non-GAAP operating margins and non-GAAP EPS mostly consist of integration-related IT expenses, integration team and project cost, cost related to implementation of Sarbanes-Oxley, cost related to tax restructuring and accelerated product development integration cost.

In 2017, we're expecting second year cost synergies of around $10 million. As we've demonstrated in the past, we're confident to achieve our 50% non-GAAP operating margin target over time after integrating the acquired businesses and getting full benefit of the scale of the combined business.

Lastly, for 2017 we expect interest expense related to the senior secured credit facility used to finance the Aesynt and Ateb acquisitions to be around $7 million or equivalent to a non-GAAP EPS headwind of around $0.11. Finally, we're assuming an annual average effective tax rate of 35% on GAAP earnings on a combined basis.

To round out our update, I'll hand the call back to Randall.

Thanks, Peter. Just a quick summary, yes, we continue to win in the marketplace. And I want to make it clear, we talk a lot about XT. But as we approach our customers, we are not just talking about the difference that XT makes, we're talking about our entire platform. And as we've seen, the cost of the pharmacy operation and providers makes substantial increases over the last few years and many of the year's double-digit growth, the fastest single growing item -- line item in the provider network. We've seen the pharmacy medication management move from more of a tactical to a strategic move for these facilities. So when we go in and discuss with either a new or an existing customer, we're talking about a strategy over the next 4 to 5 years to take the customer and digitize all of their manual processes and then be able to rationalize it through our offering like the Performance Center and also address areas of automation like IV, which are significant costs for the institution. And of course, XT is part of that -- a big part of that platform. But the conversations that we're having are very strategic, they're very long term oriented and they're about rationalizing of the movement of drugs across a multiplicity of sites and the whole continuum of care with many of these provider networks having their own insurance program for their own employees as a test on population health, which dovetails right in with our Med Adherence products offering.

So we have this total broad-based solution set that resonates with where these provider networks are and where they're going. And of course, the XT is the big financial piece that we talk a lot about on this call. But the whole process, the whole platform has become a strategic sale that impacts customers for the long term. And we're really excited as we bring this almost new broad platform with Aesynt and the XT Series that we've been able to add. It's just changed the discussions. And as we move forward, it is why we are winning in the marketplace.

So with that, I'll finish our prepared remarks and turn it over for questions. Operator, can you help us out there?

(Operator Instructions) Your first question comes from the line of Jamie Stockton with Wells Fargo.

I guess maybe the first one, Randy -- I assume the answer to this is going to be that it's negligible. But BD was talking about changes they're making to the way that they account for Pyxis. They indicated that there wasn't going to be a change in kind of the cash flow payments from their customers. So I assume that there's not going to be any impact in the marketplace from what they're doing. But can you confirm that?

Well, yes. I think that the customers we're picking up is because we have the best product in the marketplace, the broadest platform. We have the best technology. We have the best customer experience, the best install experience. We have the best integration experience. So when you put all these things together, customers need to make choices that are going to take them to the place they need to go in order to be successful in medication management. And cost and the way you finance the price for all these types of equipment is important, but I wouldn't say it is the issue that makes someone choose us or not choose us. We aren't the cheapest but we are the best. And as I said in just my last remarks, people are choosing strategic ways of making sure they can manage the future, not a financing vehicle, I guess. And I would also say that most of the market has moved away from continuous payment. 10 years ago, 80% of the market was getting some kind of financial construct from their vendor. Today, 2/3 of the market either purchases their product direct or uses -- the financial institution uses their own banking or financing vehicle to buy equipment because they're so large they have the leverage and they don't need financing from a vendor. So I think it's counter to what the industry has moved to. And I think that many of the things that we do have changed the marketplace. For instance, we -- you pay for our service and you get consistent software updates and free -- not for free, but it comes with the service. You don't have to -- you don't have to pay some big amount every year in order to get those. That's built into our business model. That's hard to compete with. And that's because our systems are [back-end]compatible and the software integrates and allows people to continuously improve the medication med platform without having a large amount of disruption. Anyway, long answer to your question. But yes, I don't see any slowdown in our momentum in the marketplace because of that.

Okay. That's great. And then maybe just 2 quick other ones. I'll give them both to you at the same time. Services seem to be pretty stronger during the quarter. Any more color on what's going on there?

And then in the Medication Adherence business, it looks like OpEx was pretty high and it really hit the bottom line of that segment. Can you give us any more clarity on what's happening there?

Jamie, this is Peter. So what you see there really from a sequential perspective is really the full quarter impact of the Ateb acquisition, the leading software provider that we acquired in December. Most of that revenue, service revenue (inaudible) OpEx falling back into -- for the full quarter and the Med Adherence segment. So that's mostly Ateb.

But both issues, both the stronger service revenue and also the impact on Medication Adherence profitability was --

Yes. That's it exactly.

Your next question comes from the line of Mohan Naidu with Oppenheimer.

Randy, going back to your bookings comments, can you comment on your win rate? Has XT influenced the -- your win rate so far for you guys?

Yes. I would say that XT, as customers look at particularly, whether it's a new competitive conversion, they want to get on the front end of the new cycle of technology that's the base technology for the entire platform. So it's more of a compelling reason I think to go with us as well as new customers -- I mean, existing customers who are looking to make big strategic moves like St. Luke's. That was an existing customer. I think it's over 12 hospitals. They have the AcuDose system. They weren't required to upgrade all their AcuDose systems to XT, but they did. But they just didn't buy XT. That wasn't the driving force behind the transaction. It was the fact that they were going to take Performance Center, they were going to do some workflow processing in the pharmacy and put a whole strategy of deploying this over the next few years to make this a much more effective process and system and integrate it with their -- I believe their Epic system in a lot deeper fashion. So those were the driving decision points that made a current customer retire current equipment that was aged but still useful but move to XT.

Got it, got it. On the revenue guidance cut, just want to dig in a little bit there. Is it the primary -- I guess the primary cause of that is that the implementations that customers are getting delayed are getting elongated because customers want to extend. Why is the delay, even though you have the inventory on hand right now?

Well, we had 3 reasons for the delay previously. One was manufacturing constraint. Paperwork had to be repapered for the XT model numbers and, as well that also included the configuration. Now we've gotten through most of that. But as we got through the very end and even had the -- we have no manufacturing constraints and we have some paperwork constraints. But the main issue is that hospitals that were taking G4, have agreed to take XT and have XT maybe even sitting at their sites are looking at reconfiguring XT and redeploying it in a different fashion because of the different options we offer with XT that G4 was not able to offer. Those additional loops, if you will, of consideration have caused us to push out some of the XT revenue from Q2 to the second half of the year. But as we get through June, almost all of that is gone. And by the end of the year, all we're shipping is XT. And most of the orders that in the second half of the year that are coming out of our backlog, more and more of those orders will have originated as original XT orders. And the customer would've been sold and configured originally in XT and not G4. So we don't have those disruption issues or negligible as we get towards the end of June or very little as we move past June. And all your backlog that you have that you're installing is really just coming out of pure originated XT product.

Got you. One last question on the revenue guidance for the second half of the year was 20%-plus growth. How much visibility do you have on that? I guess is that -- do you have enough visibility right now that you have enough XT coming in that you can do that growth right now?

Yes. So the -- for the 20 -- the greater 20% is bookings, right? And then the 12% is revenue. So we have a bottoms up rollup from an installation perspective that we feel confident in specifically the third quarter revenue buildup. And then we've got good visibility in the fourth quarter as well. And then of course, it goes a better as we move through the quarters. As far as bookings, we feel very confident. We know that both Randall and I know that we're ahead of book -- for bookings for the first quarter for our internal plans. We do have the bookings. It's just a matter of the final config and installation timing. So we feel good about the total momentum of the business and we are winning in the marketplace.

We feel very confident about the second half of the year and particularly the third quarter just because we -- even if we have some issues, we now have enough maneuvering room with enough customers to try to install on a regular, more consistent basis to get back to our revenue that we should have flowing through the company on a consistent basis.

Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital.

A couple of questions. First, I'm trying to understand the delta in the said earnings guidance this morning. So you just beat with Q1. You indicated in your prepared remarks that gross margins are expected to ramp over the course of the year, which I would think would offset some of the change in the revenue guidance. What's the delta that we're missing here, that I'm missing with the EPS?

Let me walk through some (inaudible). But you can see in the earlier earnings call, we assumed an increase or improvements in margin as we scale our efficiency, cost reduction perspective and supply chain and also better overhead cost absorption. So that path, that trend hasn't changed, kind of high level, from the guidance that we gave before. So the midpoint of the guidance that we gave before was $750 million of revenue and the midpoint of EPS was $1.37 below our -- the revenue guidance but in the midpoint, about $20 million, which equates to roughly $0.16 down. So it would be $1.21. But then we have additional cost actions of about $0.07 getting us to roughly $1.28 midpoint.

Okay. And then regarding the bookings growth, 20% -- or over 20% in the second half of the year. Historically, on your conference calls, you've talked about how bookings translates into revenues within a 6-to-9-month period. I'm curious, as we look out to 2018 -- and I'm not asking necessarily (inaudible) but historically, you've talked about bad trends [in revenues]. So if you've got over 20% bookings growth in the back half of this year, that would imply over 20% revenue growth in the second half of '18. Do historical patterns still hold?

Well, in general, as you go through the math as well, right, so if you look at our revenue guidance for the second half, [which you're] looking at the $200 million revenue quarters there, right? So that means that we'll use some of the backlog that we've built up as well in the last couple of months. And some of the bookings in the third quarter will turn into revenue and the last one in the third quarter and then also in the fourth quarter. So it's not a one-for-one, but definitely it's a growing trend.

[8 to 12] is historically where we've been. And it's a good way to look at business, even though we're (inaudible) for next year. And I think we still have some really cool (inaudible) are recognized ratably. They're not recognized all at once, like the Performance Center, the SaaS model. Some of The IV deployments that we're doing or the live model are recognized ratably. So good profitable growth but it doesn't flow out of backlog as quick. So I think the way we're looking is the way we traditionally looked at the business. And the healthy format, the 8 to 12 is always a good way to look at the business as well as we do -- we are seeing a really nice pipeline growing of replacements. This is the new market we have not had. A lot of that's sort of the back at the end of the year because we just introduced XT in December. But we've already had some nice sales that we would not have had if we didn't have XT. And that's only going to grow as we move forward and give time for customers to get it into their budgets in their pipeline for the year. So we should feel confident about the 8 to 12 over the long run.

Okay. Great. And one last one for me and then I'll hop back in the queue. Can we get an update on the Performance Center, maybe the number of customers that have implemented or contracted? Obviously, there was strong growth right out of the gates with the first quarter. But if we can get an update where you are today, that would be helpful.

Well, I would just say that we have record bookings in Performance Center in Q1. It was a key piece of technology and service integrated into almost many of our large single orders that we had this quarter. We are progressing very quickly because it is becoming a key driver in the total platform sale. I mean, I know we're -- I don't know the exact number. I don't actually know the exact number of customers, but it's not single digits or I think, but it's -- I think what's most exciting is that we thought that this would be more of an aftermarket (inaudible) people (inaudible) And that's all part of the upfront sale and a major conversion (inaudible).

Next question comes from Sean Wieland from Piper Jaffray.

Can you give us some examples of how a customer is looking to redeploy XT in a different fashion than G4? And how many -- exactly how many customers are rethinking their deployment in this way?

Well, there's a couple of things. One is that when you reconfigure the XT, you have a lot more options to move more meds to more locations. And when you move more meds to more locations, you might move from 60% of the meds from flowing it through the systems and 40% flowing from the pharmacy to get 100% flow up to the floor. Now with the expanded capacity, without changing the footprint, you can move to 80% to 90% of the workflow, up to -- go through what's called the cartless format. And most of the hospitals that have not been in this format have had physical constraints on the space of the product. And so this is a big change in workflow because now nursing will spend more time getting the drugs out of the system instead of having it delivered to them with 40% delivered from the pharmacy on a per-patient basis. So now when you move to 80% to 90%, you deploy different software features, different policies. You change the workflow of the pharmacy on how often it's delivered up to the floors, and then you drive nursing to do more of their activity like Anywhere RN directly to the system to prep their orders coming out of the automated dispensing and using at as a single point of operation as opposed to just a 50% to 60% of the workflow.

So would you characterize it as most of the G4 to XT conversions are going through this kind of workflow change or dial it into a number or percentage?

Well, that's probably the primary issue, is just configuration because, there isn't a good one-to-one transfer all -- only one drawer on the G4, even looks like one drawer on the XT. There's such significant difference that it does require some decision-making. There are also some other XT issues in California. You have to have OSHPD recertified, your earthquake plate on some new construction. So the G4 earthquake plate is already approved. But the XT has to -- it's approved from the Omnicell side. But the hospital now has to go get its approval from the XT earthquake plate. So again, that's only because of XT. It's not because -- if it was a G4 kind of deal, it would go through and wouldn't be a problem. And even though there was extended time for the XT to get through some of these things, there's just enough of these things that have pushed enough of the installs into the second half of the year that we were hoping to get it done in Q2.

That's super helpful. Just one more clarification. So the 25% in Q1 to 40% to 75% to 90%, as you laid out, tell me again exactly what those numbers represent.

That's just the-- if you looked at the ADC installations, dispensing systems, it's G4 and XT. So in Q1, just of the ADC installations, 75% were G4, 25% were XT. As we move to the second quarter, 40% will be XT and 60% will be G4, and then 75% --

75%.

For (inaudible) XT, ADC revenue essentially is -- basically by the end of the year, everything is pretty much XT.

One more. What percentage of XT shipments today so far have been to replace G4 versus replace AcuDose versus net new?

Well, I think -- well, I don't know about the shipments. But on the booking side, I would say that we've built a very healthy line. And I think that we see that customers are excited about moving forward with XT. The large customers especially are looking places to deploy XT so they can get a good understanding of it so that as they prepare their budgets in the following years, they know how they want to deploy it and how they want to change the configuration of those things. I haven't had any customers say, Well, I'm not going to go to XT eventually or I don't want to go to XT eventually. It's just about matters of time. And if you just look at the numbers, the numbers on the size of our installed base -- or take AcuDose, that's 1/3 of our installed base. They probably have more of an urgency to switch to XT because they know that their AcuDose is going to be -- form factor is going to be sunsetted real quickly and probably knew that since the acquisition a year ago.

Okay. But my question was, what percentage of the bookings -- of XT bookings have been to replace -- to upgrade AcuDose versus upgrade G4 versus net new customers?

Okay. I didn't listen very well. I think that probably more than half of an AcuDose, and that -- what I'm talking about replacements, less on the Omnicell side, and then maybe 40% on the Omni side. And then probably from this date going forward, there's very little new G4 orders. We still have that line going. But most of the G4 that's being installed has already been built and it's about to be shipped to customers for Q2 and Q3. So that product line is not very large on the manufacturing side.

Your next version comes from the line of Raymond Myers with Benchmark.

And Randy, I want to continue on previous questions (inaudible) that we're receiving with Performance Center. Can you discuss what that is and what the recent trend has been?

I think there's a nice ROI to -- if you look at it, just from the ROI of the cost rationalization of medication inventories across many multisites. We say a minimum of 2% of the entire pharmacy spend is continuing in that fashion. But there are other things that we are adding to the Performance Center that continue to help meet regulatory compliance and save costs along 340B. This new pedigree thing from Pharmex is all about regulatory compliance. And so by having the Performance Center platform, not only does it help to save and rationalize costs, optimize the use and workflow of the system on a real-time basis, but the ability to meet the new regulatory regulations without massive amounts of cost or deploying complex systems and to continue to deploy 340B, which is a huge cost saver for these institutions, is another reason that people have gone with the Performance Center.

Okay. Sounds great. And then to be clear, the timing of your XT disruption -- I believe you're extending now to June from April, so just 2 months. Is that the primary reason for the adjustment in full year revenue guidance? Or are there other factors as well?

That's the whole reason, it's just the XT launch, because of the change in what -- the additional requirements that some XT sites are requiring, either through configuration or certification or different cycles of approval, even though it's the same software, IT may want to have to go in and look at it again and verify Windows 10 because XT runs on Windows 10. So there's just these extra additional steps that don't have anything to do with manufacturing constraints, don't have anything to do with paperwork constraints but do have to do with it's a new model and it's landing on site. And before you can install it, we want to have some extra reviews on the product or actions --

So to summarize. We have the bookings. We're ahead of our internal plans for the first quarter on bookings. It's really a matter of timing that those bookings, which are noncancelable commitments convert to revenue fee and installation. And to summarize what Randy said, we see -- because it's a new product, the customers want to make sure they optimize all the additional benefits that the XT Series has. And that takes a little bit more time than we initially had thought.

Okay. Understood. Last question is on the IV robot. Can you discuss the customer adoption of that? And has your view changed about the potential for the product over the next few years?

No. It's only getting more exciting. I think what we see in IV robotics is that it's still an emerging market and -- but the more we deploy, the more local markets go by and see somebody else's robot and then want to move toward that. And I think we see big -- good success there. We've owned Aesynt for about a year, a little more than a longer than a year. That was a new product to add to our salesperson's bag. And now we're seeing the results of that product as the pipeline has been built up over the year and now it's coming out of the funnel as new sales. That's a very exciting product and it -- between Performance Center and IV, those tend to be incorporated in all our new -- our larger sales in almost every case. And we have a lot of individual hospitals making singular purchases of our IV system. And that is resulting in first time business relationships with a lot of new customers that we've never had before, because we're the market leader, obviously.

Your final question comes from the line of Gene Mannheimer with Dougherty & Company.

Question is, I guess how long in the future would you be continuing to support the (inaudible) assuming a long while of quarters that are still getting installed there. How much of the G3 base, the folks that never migrated over to G4, are candidates to convert to XT this year? Some numbers around that would be great.

Yes. I think it's just a matter of getting our gross margin back to where it needs to be, will require us to consolidate to a single line of automated dispensing. And as you see, the XT getting to 90% by the end of the year, I think that points to a road map that says, G4 and the AcuDose have pretty short fuses on it this year. Before, that's all we shipped for either customer base. And then I think in the G3 world, we're already addressing those sites. As we've launched the XT, we are asking those sites to move quickly along. And a lot of those most likely will move directly from the G3 to XT.

So there are about 100 of those? Or give us a sense of maybe the magnitude of that.

I don't think it's more than 10% of our -- I'm a little bit -- I'm guessing less than 10% of our installed base. But it is probably a significant number when you add up all the units we have out there. But as far as the percentage of our customer base, it's not that big.

Got you. Got you. And secondly, Randy or Peter, what was the Ateb contribution in the quarter? And would Medication Adherence have grown on an organic basis net of April?

It's about $30 million. We guided last year when we did the acquisition, and it was about $30 million business, right? So I think we said $28 million, so divide it by about 4. You get to about $7 million for the quarter, assuming -- it's a fairly -- it's a lot of service, right, software. So it's ratable over time. So about -- between $6 million and $7 million, I would say, for this quarter. If you carve that out, you can calculate the percentage.

And finally, I just want to close and say that, Hey, look, this XT thing is -- hey, we haven't done as good a job of rolling this thing out or predicting how we roll out as we thought. But we're coming to the end of these issues, and that is the only issue that is disrupting any of our business that we have going on here. I think on the other side, of the bookings side of the business, we are winning major deals in every geographic market in the U.S. And every time you do one of that, it just creates more momentum for the company. When you win WellStar in Georgia, every Georgia by the end wants to know why people are moving to WellStar, and so why are they moving to Omnicell. So the company has significant momentum in the marketplace. The XT series, having the best products, the broadest product lines, these things continue to set us up for some fantastic growth and even to the point where we see these provider networks looking at Med Adherence and taking some of our Med Adherence product and bringing that into the product offering for these folks as they try to improve the outcomes for patients. It's really satisfying to see the impact that we are making on the lives of patients and the way that providers can key into that success.

Again, thanks for joining us. And again, just want to continue to shout out to the employee base -- I said acquisition, XT rollout. Everybody is running pretty hard. And I just want to thank you for all your great efforts and great results.

We'll see you guys next time.

This does conclude today's conference call. You may now disconnect.