Omnicell's (OMCL) CEO Randall Lipps on Q4 2015 Results - Earnings Call Transcript

| About: Omnicell, Inc. (OMCL)

Omnicell, Inc. (NASDAQ:OMCL)

Q4 2015 Earnings Conference Call

February 4, 2016 5:30 PM ET

Executives

Peter Kuipers - EVP and Chief Financial Officer

Randall Lipps - Chairman, President, and Chief Executive Officer

Analysts

Matt Hewitt - Craig-Hallum

Jamie Stockton - Wells Fargo Securities

Steve Halper - FBR Capital Markets

Raymond Myers - The Benchmark Company

Gene Mannheimer - Topeka Capital Markets

Sean Wieland - Piper Jaffray

Mohan Naidu - Oppenheimer & Co.

Operator

Good afternoon. My name is Sherilyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth and Total Year 2015 Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions].

I would now like to turn the conference over to Peter Kuipers. Please go ahead.

Peter Kuipers

Thank you. Good afternoon and welcome to the Omnicell’s fourth quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Joining me today is Randall Lipps, Omnicell Founder, Chairman, President and CEO.

This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today, in the Omnicell Annual Report on Form 10-K filed with the SEC on March 30, 2015, and in other more recent reports filed with the SEC.

Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is February 4, 2016, and all forward-looking statements 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 a property of Omnicell, Inc. and any taping, other duplication or rebroadcast without the expressed written consent of Omnicell, Inc. is prohibited.

Randy will – Randall will first cover an update on our business today then I’ll cover our results for 2015 and our guidance for 2016. Following our prepared remarks, we will take your questions. Our fourth quarter and total year 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 www.omnicell.com.

Let me turn over the call to Randall.

Randall Lipps

Good afternoon, everyone. We’re excited to discuss our fourth quarter and total year results, as well as our expectations for 2016, including the Aesynt business that we acquired on January 5 this year. I’m proud of our performance in the fourth quarter and 2015 overall and our consistent track record over the past several years.

The full-year of 2015 was a company record for bookings, the annualized new and competitive conversion rate, revenues and earnings. For the fourth quarter, we exceeded our revenue guidance with record quarterly revenue of $130 million. Together with good cost execution, this revenue strength resulted in record non-GAAP EPS of $0.40, above analyst expectations.

Total fiscal year bookings ended at $392.3 million, slightly below our bookings guidance. We saw very strong momentum in bookings at the end of the quarter continuing into first quarter 2016. We finished 2015 with the highest ever annualized new and competitive conversion rate of 41% of bookings. This is a great indicator of the strength of the business. Over three quarters of these were competitive conversions and the remainder were from Greenfield customers who have never automated before.

For 10 consecutive years now we have received the top honors from KLAS, the prestigious third-party rating organization. For 11 consecutive years, we have increased our market share and gained new thought leader customers every quarter.

Together with our customers, we are consistently delivering state-of-the-art medication management and workflow efficiency for caregivers and better health care for patients. On January 5 of this year, we closed the acquisition of Aesynt. The Aesynt business based in Cranberry Township, Pennsylvania is a leader in enterprise medication management with specific products in IV compounding, Central Pharmacy automation, point of care solutions, and enterprise software products.

We had previously prepared a brief summary of the transaction, which has been posted to the Investor Relations section of our website, omnicell.com, and have since been updated to reflect the closing of the transaction.

As a refresher, let me start by explaining our strategic rationale for this acquisition. The acquisition broadens our product portfolio for the point-of-care and centralized medication management equipment and solutions and the combination provides our customers with unparalleled flexibility with the addition of new innovative products that we feel integrate well with our existing portfolio of products. It expands our presence in hospitals by adding world leading IV solutions and provides Omnicell with an opportunity to enter new growth markets. It accelerates development of enterprise software and real-time analytics.

It further strengthens our continued commitment to improve patient and clinical safety and improve outcomes for patients. The acquisition scaled to better serve healthcare systems. The combination is expected to be accretive to non-GAAP earnings in 2016. We have started our planned integration activities in all functional areas led by a dedicated integration management team onsite in Cranberry. We are functionally integrating all teams with the exception of the IV robotics business unit, which is FDA governed.

We have visited a significant number of Aesynt customers, and the customer response for the combination has been very positive, welcoming the broader product portfolio that healthcare systems want to put in place, because they are much more scalable and customizable.

Of our three growth strategies, our first strategy of differentiated products, continues to attract new customers. We continue to experience great wins and add notable customers to our Omnicell family. In the fourth quarter, we had a strong momentum and some of our notable first-time customer wins were the University of Kansas Medical Center and the Tripler Army Medical Center.

University of Kansas Medical Center, the region’s premier academic medical center is a 750-bed hospital, serving more than 31,000 end patients annually. Following an extensive internal review by KU involving nursing, pharmacy and informatics the health system will be replacing their current products with a full range of Omnicell solutions throughout their multicenter health system. KU’s decision to convert to Omnicell was based on our Unity platform benefits, as well as our interoperability with their Epic electronic healthcare record system.

I’m also very pleased with another important fourth quarter win in the government segment. Omnicell was recently awarded the point-of-use medical system for Tripler Army Medical Center located in Hawaii. Tripler is the largest Army Health Readiness Platform in the Pacific basin. We are proud to be a partner to this medical center, which today supports 264,000 local active-duty and retired military personnel, their families and veteran beneficiaries. And already early in the quarter, we signed new agreements with Penn Medicine, a competitive conversion and the University of Wisconsin Health.

Penn Medicine, part of the University of Pennsylvania Health System will initially convert three hospitals; Hospital of the University of Pennsylvania-Penn Presbyterian and Pennsylvania hospital, as well as four specialty locations to Omnicell solutions.

The Hospitals of the University of Pennsylvania-Penn Presbyterian are ranked among the top hospitals in the United States by U.S. News & World Report 2015/2016. Penn Medicine will be using our Unity platform throughout the entire health system, and we’ll be implementing epic interoperability system wide.

Also, in January, we signed a multi-year agreement with another leading academic institution, the University of Wisconsin. University of Wisconsin Health has been a historic leader in patient safety initiatives and pharmacy automation. They continue this leadership role by recommitting to their safe and efficient hybrid dispensing model, using AcuDose ROBOTIC-Rx enterprise medication manager and IV ONCO.

The agreement encompass replacement of their automated dispensing cabinets with new AcuDose machines, a rebuild of their ROBOT-Rx and investment in IV ONCO to improve safety and accuracy in the compounding of hazardous IVs. This is a landmark win as University of Wisconsin Health is now the first major health system to commit to the full line of Omnicell’s recently acquired Aesynt solutions. Penn Medicine and the University of Wisconsin are generally recognized as leading hospital pharmacy medication management schools where the future pharmacists moving into hospital medication management are educated.

Our second strategy of expanding into new markets also feel growth in 2015, and we believe sets this up well for 2016 and beyond. Internationally, Omnicell was strolling its first month for robotic dispensing system in the Middle East after winning a contract and expanding our current relationship with Hamad Medical Cooperation, Qatar’s premier nonprofit healthcare provider. Hamad Medical Cooperation and Omnicell expect the Omnicell robotic dispensing system to be fully operational at The General Hospital, the country’s main hospital, next month.

Our third strategy of spending our presence and relevance through acquisition has also delivered great results for the acquisitions of Mach4 Robotic Dispensing Equipment business, the super business of Avantec in the United Kingdom and the acquisition of Aesynt business that was announced in 2015, enclosed in the first week of January this year.

We believe our hard work over the years and the execution of our three-legged strategy laid the foundation for success in 2015, it sets this up for continued future growth and scale. In today’s evolving healthcare environment, we remain focused on our mission to change the practice of healthcare, the solutions that improve patient and provider outcomes.

I will now turn the call back over to Peter to discuss our Q4 results and our 2016 guidance.

Peter Kuipers

Thank you, Randall. I’ll discuss the summary of our 4Q 2015 and total year 2015 financial results and our guidance for 2016. Our 4Q 2015 revenues of $130.3 million were up 7.2% from the same quarter last year, and up 4% sequentially.

Strong demand was driven by both expansion and upgrades at existing customers, as well as by new and competitive conversion customers. Revenue strengths in the fourth quarter resulted in records revenue for an $85 million for total year 2015, an increase of 10% year-over-year.

Non-GAAP EPS of $1.33 per share for 2015 was also a record. Earnings per share in accordance with GAAP were $0.21 in the fourth quarter of 2015, which is down from $0.25 in 4Q 2014.

GAAP gross margin was at 50% 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 and one-time acquisition-related expenses.

We use non-GAAP financial statements in addition to GAAP financial statements, because we believe it is useful for investors to understand acquisition amortization related costs and non-cash stock compensation expenses that are a component of our reported results, as well as one-time events such as the gain on the Avantec investments in 2Q 2015, and one-time acquisition related expenses.

A full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our corporate website. On a non-GAAP basis, earnings per share were $0.40 in 4Q 2015, up $0.01 from the same quarter last year. The acquisitions of Mach4 and Avantec contributed approximately $9 million of revenue and were neutral to non-GAAP EPS in the fourth quarter.

Among the factors positively affecting both our GAAP and non-GAAP results is the U.S. government permanent extension of the research and development tax credit in December 2015. This credit was not in our guidance that provided a $0.03 benefit to EPS in 4Q 2015. This benefit to the tax rate is partially offset by domestic and international income tax mix.

Adjusted earnings before interest, taxes depreciation and amortization, which also excludes stock compensation amortization and the amortization of acquisition-related cost was $25 million for the fourth quarter of 2015, up from $23.2 million a year ago.

Our business has also reported in segments, consisting of Automation and Analytics and Medication Adherence. Automation and Analytics consist of our OmniRx automated dispensing cabinets, Anesthesia Workstations, Central Pharmacy, Omnicell supply Pandora Analytics and Mach4 Robotic Dispensing Systems. Our acquisition of Avantec is also included in this segment. The Medication Adherence segment consist of all adherence practice consumables, which are now a branded at SureMed and equipment used by pharmacists to create adherence packages.

Our acquisitions of MTS and Surgichem are included in the Med Adherence segment. As a reminder, we now report certain corporate expenses that cannot be easily applied to either segment separately. On a segment basis, our Automation and Analytics segment contributed $105.9 million in revenue in 4Q 2015, up from $98.3 million in 4Q 2014, or an increase of 8%. $29 million of GAAP operating income this quarter was flat versus same quarter last year. $31.3 million of non-GAAP operating income in 4Q 2015, compared to $30.8 million last year.

The Medication Adherence segments contributed $24.4 million of revenue to the quarter compared to $23.2 million in 4Q 2014. GAAP operating income for this segment of $1.3 million, compared to $1.1 million a year ago. $2.6 million of non-GAAP operating income for this segment, compares to $2.4 million of non-GAAP operating income in 4Q a year ago. Non-GAAP common expenses were $30.4 million compared to $40.3 million in the fourth quarter of 2014.

Turning to cash flow. In 4Q 2015, our cash increased from $57.8 million to $82.2 million, primarily due to strong operating cash flow performance. Accounts receivable days sales outstanding or DSO were 76 days, down nine days from last quarter. The decrease in DSO this quarter is a result of stronger collections, as we completed implementations and increased revenue.

As expected, the DSO start to normalize after the unusually high DSO in the first-half of 2015. We review the collectibility of our receivables regularly, and we do not believe that fluctuations in DSO are indicative of any change in our bad debt rate. Inventories were $46.6 million, down $3 million from last quarter, as a result of good inventory management. Our headcount was 1,451, up 7 from last quarter.

Let me now move to guidance for 2016. We recently completed the acquisition of the Aesynt business on January 5 of this year. And we are providing guidance on a combined basis inclusive of the acquired Aesynt business. Overall, we view 2016 as a transitional and transformative year, as we integrate the Aesynt business, including realignment of the field and sales teams.

Now, with the combined customer base, we have the opportunity for significant revenue and earnings growth for the coming years. For 2016, we expect product bookings to be between $540 million and $560 million. We expect revenue to be between $695 million to $750 million in 2016. We expect 2016 non-GAAP EPS to be between $1.50 and $1.60. We expect non-GAAP operating margins for 2016 to be approximately 13%.

When comparing 2016 to 2015, it is important to note the couple of items that are new for 2016. First, for 2016, our non-GAAP expected results include around $10 million of integration expenses that we do not adjust for based on our non-GAAP policy. These integration expenses directly impacting non-GAAP operating margins and non-GAAP EPS mostly consist of retention cost, integration-related IT cost, costs related to the implementation of Sarbanes-Oxley, costs related to tax restructuring, costs related to accelerated product development integration cost, and integration team and project cost.

The second new item for 2016 is cost synergies. In 2016, we’re expecting modest first-year of cost synergies between $5 million and $10 million. As we have demonstrated in the past, we’re confident to achieve a 15% non-GAAP operating margin target over time after integrating the acquired business and getting full benefit of the scale of the combined business.

A third new item for 2016 is interest expense. For 2016, we expect interest expense related to the senior secured credit facility used to finance the Aesynt acquisition to be around $6 million. Compared to 2015 actuals, this is a headwind to non-GAAP EPS of around $0.10.

Finally, we are assuming an annual average tax rate of 38% on GAAP earnings on a combined basis. This does include the benefit of the R&D tax credit impact, as it has been permanently approved by the government.

For the first quarter of 2016, we expect revenue to be between $165 million and $170 million, and expected non-GAAP EPS is between $0.25 and $0.28 per share.

To round up our update, I will hand the call back to Randall.

Randall Lipps

Thanks, Peter. We had a great number of great new wins that installs in 2015, and we are off to a terrific start in 2016. We are looking forward to a very strong 2016 with mid double-digit bookings growth organically for the combined business. Expected reported 2016 non-GAAP EPS growth is strong as well.

Revenue growth is more muted in this transitional and transformative year, as we integrate the Aesynt business, and expect modest adjustments related to sales force alignment and other integration activities.

Revenue growth in this transitional year is impacted modestly as well from an initial pause by Aesynt customers, who are waiting to see the acquisition close. Some of these Aesynt customers are repapering their bookings, as they now have a choice of a broader product portfolio, resulting in modest booking to revenue conversion timing delays.

We do see a great opportunity over the mid-term for the existing customer base to refresh their existing equipment with products from the combined broadened product portfolio. And we are executing our growth strategy well, delivering state-of-the-art medication management, and workflow efficiency to our customers, results for investors and better healthcare for patients, I believe we have all the ingredients for continued long-term success.

With that operator, I’d like to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Matt Hewitt with Craig-Hallum Capital.

Matt Hewitt

Good morning, gentlemen, congratulations on closing the transaction early and obviously the great performance in Q4?

Randall Lipps

Thank you.

Peter Kuipers

Thanks, Matt.

Randall Lipps

Thank you, Matt.

Matt Hewitt

A couple of questions regarding Aesynt. How should we be modeling for the combined company?Will yoube adding a new bucket for Aesynt or will be that – will that product portfolio be filtered into one of the two existing buckets and how should we be thinking about that?

Peter Kuipers

Yes, for me – thanks for the question. The way to look at it on a second reporting perspective, essentially we have determined that the Aesynt products fit into the A&A segments, and effectively it’s an integrated business, as of the day of close. As a matter of fact, we have seen some customers already be paid for in bookings actually switch products within that same cycle. And so we are not providing separate breakouts of the Aesynt business, as it is essentially now a merged business with common customers and customers actually buying products from both kind of legacy entities, if you will.

Operator

Your next question comes from Jamie Stockton with Wells Fargo.

Jamie Stockton

Yes, good evening. Thanks for taking my questions. I guess, maybe, Peter, could you give us some feel for what the 2015 bookings would have been, product bookings for the Aesynt business? I know, Randy mentioned that you guys are expecting mid, do we say double-digit or single-digit, I can’t remember organic wise?

Peter Kuipers

Strong mid double-digit. So if you – you should take kind of the midrange of our bookings guidance and then back into the number.

Jamie Stockton

Okay. Is there a number for what Aesynt did in bookings? It sounds like from your commentary that that the Aesynt bookings could actually be down some in 2016, just because of the transition, but is there a 2015 number do you have on hand?

Peter Kuipers

That’s only for – what I can tell you is that on a combined basis, we’re expecting to be roughly up 15% organically, 2016 versus combined 2015.

Jamie Stockton

Okay. So does that imply that the strong mid double-digit growth if you’re actually [pro-forming] [ph], when you say that you’re actually [pro-forming] [ph] a 2015 number for the two businesses combined, or when you say organic, are you just looking at the legacy Omnicell business?

Randall Lipps

Yes, both businesses combined off of that number.

Peter Kuipers

Up 15%.

Randall Lipps

Up 15%. And actually after we’ve combined the business, it’s difficult to track if an Aesynt customer now buys an Omnicell product who switches over to an Omnicell product or vice versa, you can’t – it’s hard to track, which products people are buying based on which customers, because they may just – they may be originally an Aesynt customer ad now they’re buying Omnicell products and vice versa. But overall, it’s a strong growth profile for next year.

Jamie Stockton

Okay, that’s great. And then maybe just one more Randy. Could you touch on what Greenfield opportunity really remains at this point maybe especially in the U.S.? And you obviously had a very good year in 2015 signing either competitive conversion or Greenfield deals. Do you think 2016 will shape up in a similar manner, or might we see a kind of a shift back toward the existing customer base driving higher percentage of bookings? I’ll leave it there. Thanks.

Randall Lipps

Well, yes, that’s a great question. Actually, we see consistently strong competitive conversions and more Greenfield, probably less on the Greenfield side because of just less of it. We also count on the A&A side Greenfield accounts on the international side, which is contributing to that number mostly. But inside the U.S., it’s mostly competitive conversion.

Now that – since we’ve combined with Aesynt, we used to convert them as a competitor and now obviously they are inside the family. So the competitive conversion rate and actually we believe will drop around 25% that’s not because we were less competitive, it’s that the competitive conversions are now internal, if you will.

Operator

Your next question comes from Steve Halper with FBR.

Steve Halper

Questions, first, when you look at the Aesynt business, obviously on a segment basis, right, it’s all going to go into automation, right, and not the other, the adherence sector, is that correct?

Randall Lipps

Correct.

Steve Halper

Okay. So then when you look at the Aesynt revenue, what was the mix between your traditional segments on the income statement product versus service?

Peter Kuipers

For 2015 or looking forward to 2016?

Steve Halper

Just for 2015, just to give us some flavor as to what it’s going to look like in 2016?

Peter Kuipers

Yes. I think [indiscernible] back on that as well. So the way to think about it number wise is that, the Omnicell legacy business had about 30% or has about 35% pure recurring revenue between maintenance service and the consumables. If you add on the Aesynt business, that’s a – that business is 50-50 between product and recurring revenue from services, so…

Steve Halper

Right. So it’s got a higher level, right, it’s got a higher level of service attached to it because of the robot staffing right?

Randall Lipps

Exactly, correct.

Peter Kuipers

Correct.

Steve Halper

Okay. So then what was the – do you have an estimate yet for what the amortization expense will be relating to the Aesynt acquisition?

Peter Kuipers

Yes, we do. We’ll disclose of in actuals, but you should – we’re still of course doing the purchase price accounting and making sure we got a good estimate there. But initial indications on intangible amortization about $12 million for the acquisition for the year.

Steve Halper

And I guess the only other – when you look at the last disclosure, this is my last question, when you indicated that the latest 12 months for Aesynt would be $190 million?

Peter Kuipers

Right.

Steve Halper

I’m assuming, it came in at 190 from whatever point of time you are measuring it. But and understanding that it’s hard to measure with any exact – in an exact form but based on some of those delays that you talked about, would that number be down the $190 million, or it’s too difficult to…?

Peter Kuipers

No. So we’re – no, it’s a fair question. So we are finalizing the audit for Aesynt for calendar 2015, if you will, but it’s roughly in that ballpark, the LTM that we disclosed earlier it should be roughly in line with $190 million mark for calendar 2015.

Steve Halper

But would that number decline because of some of those delays, or we are not going to be able to see any of that sort of breakdown?

Peter Kuipers

Yes. So, like we commented on earlier, we really see it as one business now. We have some customers switching bookings actually between products, and so we are not measuring it kind of separately from that perspective.

Randall Lipps

We are not disclosing exact numbers. But there’s some assumption that most of the delays in the revenue conversion rate are from former Aesynt customer.

Peter Kuipers

Yes.

Randall Lipps

So that’s the fact, right. So we are not losing the business, we’re just moving the product choices around, yes.

Operator

Your next question comes from Raymond Myers with Benchmark & Co.

Raymond Myers

Thanks for taking the question. We haven’t touched on the M5000. Can we get an update on that product development and when we expect that to launch?

Randall Lipps

Yes, I think, as I said publicly recently that the data completes this quarter and then is available Q2, and we feel like things are on schedule for that and getting good feedback.

Raymond Myers

Okay, great. And did you give a number for the percentage of G4 conversions?

Peter Kuipers

We are at the end of the year at 78%, the 77.7%, I believe.

Raymond Myers

Was it 77% or 78%?

Peter Kuipers

77.7%.

Raymond Myers

77.7%, very good.

Peter Kuipers

Yes, go ahead.

Raymond Myers

Just the – given the overall color or tenure of your comments during this call, it sounds like the signings your ability excited about the changes of signings particularly in January entering this year? Can you give us a sense? Is that particularly high, usually high, or as this within the general positive trends that Omnicell has been experiencing?

Randall Lipps

Well, I think we are definitely finishing the year at high of 41% of annualized conversion rate is a record. And we’ve been very pleased with that kind of result in the marketplace. And I would just say that we continue to see that kind of success, and our pipeline is indicating that and gives us the confidence about 2016.

Operator

Your next question comes from Gene Mannheimer with Topeka Capital.

Gene Mannheimer

Thanks. Good afternoon, and congrats on a good finish and closing the Aesynt deal. So I wanted to go back to the prior question on the Aesynt contribution. So if we use that $190 million number, let’s talk about, then your combined guidance implies that core business be about 5%, 10% this year, up around 6%. So that’s below the high single-digit growth that your customer is seeing. Can you help reconcile that for us, am I looking at that the right way?

Randall Lipps

Well, you are and I think we said it was a transitional year. And what we mean by that, the bookings is still strong, continuing on. But we see a delay in some of the customers moving from bookings to revenue mainly out of the former Aesynt customer base that – not contribute get through this year to get through some of these transition. So it’s muting the revenue slightly for the year.

Operator

Your next question comes from [indiscernible] with Fidelity.

Unidentified Analyst

Hi. I just was hoping if you can give me a sense as to the $10 million of integration expenses. How we should look for that to flow through 2016? Is most of it going to be in the first quarter, or is it bit a much spread out?

Peter Kuipers

It’s a fairly clear spread over the quarters.

Unidentified Analyst

Okay. And, again, if we had to look back in terms of this last quarter on the gross margin coming in little. Again it’s pretty much the issues you addressed already or was there anything else in the quarter?

Peter Kuipers

No not specifically they’re little bit less over half cost absorption. We do have an upward trends in gross margin in medication adherence if I look at the different months and so October, November, December to the quarter so yes so we feel good about margins going forward.

Operator

[Operator Instructions] Your next question comes from Sean Wieland with Piper Jaffray.

Sean Wieland

Hi thanks you mentioned the sales force realignment, that you’re going to be going through. Can you just expand on what you’re doing there?

Randall Lipps

Yes I think we definitely today we for the first 90 days we get the sales force structure in place so that the former Aesynt employees could focus on closing their deals for the quarter obviously all could close focus on closing their stuff for Q1. And then beginning of April we’re going to rationalize the sales force into single face to the customer that’s more territory realignment so we don’t have overlaps like we have today.

Sean Wieland

And so can you give me a sense of what percentage of territories will be impacted from that?

Randall Lipps

I think it’s going to allow us to actually expand I don’t think we’re going to disrupt the geographic territories at the corporate levels, but we are going to expand sort of our name to count executives, which allows us to give dedicated accounts to key account that we haven’t had in the past. So I don’t think the disruption is going to be as big. But we will still make sure that people team up on former accounts to work together to have some overlapping commissions to pay up for both groups for the end of year make sure we don’t lose focus or lose contact with key accounts.

Sean Wieland

Okay and then just one more quick one on M5000 so you said I think to begin and complete this quarter and shifts in Q2 have you achieved customer acceptance on the product yes?

Randall Lipps

No but we’ve got several demarcation points and we’re on the last and we done two and got one left and we feel confident about getting that before the end of the quarter.

Sean Wieland

Okay fine. Thank you very much.

Randall Lipps

Okay.

Operator

Your next question is a follow-up from Matt Hewitt with Craig-Hallum Capital.

Matt Hewitt

Hi, thanks I guess just a question about the general health. There was questions in Q3 I think there were some early in January regarding the health of the customer hospitals purchasing patterns maybe an update on what you’re seeing, what you’re hearing from the customers as far as spending expectations for 2016. Thank you.

Randall Lipps

No I think IT budgets are strong I think we see a lot of continued consolidation and the execution of rationalization of groups of hospital and IDNs providers, and patient, outpatient coming together and all of that activity, which is a really a macro trend is driving people to standardize on medication management strategies to reduce costs and put in best practices, which is historically is just been hospital by hospital, but now they’re trying to put incorporate best practices and they’re more and more engaging us to do that for them not just figure out the work flow, but how to institute those best practices.

And so we really feel like there hasn’t been a slowdown in either engagement or funds allocated toward a specific area of growth in hospital spending.

Matt Hewitt

Good. Thank you.

Operator

Your next question comes from Mohan Naidu with Oppenheimer.

Mohan Naidu

Randy, Peter, thanks for taking my questions. I apologize if this has been asked already. I’m just joining late. With the new guidance, Randy, you had a long-term target of 15% growth and 15% margin. How should we look at coming back to those levels like how are you thinking about with this new acquisition?

Randall Lipps

Well, obviously this year was the additional burden of the integration costs and to mobilize some people as we work through the synergies. We’re around 13% this year and obviously next year we’re going to do better than that. We are not committing to what those are, but we should expect improvement. And as we – we’re committed to those targets, it’s very important to us. And as we look to get closer to 2017, we’ll have a better understanding of that, but especially we know for sure, it’s going to be an improvement over.

Mohan Naidu

Got it.

Randall Lipps

13%, 14%, yes.

Mohan Naidu

Yes. Maybe one question around the bookings commentary you made, Randy. You said you had some weakness in the beginning of the quarter, but it picked up towards the end. Is that the same weakness, I mean, should we think about this as you saw continued weakness from Q3 into Q4, but at the end of the Q4, it picked backup, and is it back to levels that it was in the beginning of 2015?

Randall Lipps

Yes, I think that, yes, we’ve had a really strong closeout to Q4, which has just continued to ride on into Q1, obviously, with the two announcements that we made on University of Wisconsin and Penn University closed almost first week or two of the quarter there is just a good sign of momentum that we have- we have strong pipeline. So we feel good about pretty our guidance in place and executing to the plan that we’ve now got before us.

Mohan Naidu

Got it. Peter, maybe one quick question around backlog. Did you give out a year-end backlog number?

Peter Kuipers

No, we don’t.

Mohan Naidu

Okay. And I’m presuming somebody asked about the booking split into 2016 guidance between your core and Aesynt, I’ll check the transcript back.

Peter Kuipers

We’re not providing that. It’s A&A business is one combined business.

Mohan Naidu

All right. Thank you very much for taking my questions.

Randall Lipps

You bet.

Operator

At this time there are no further questions. I’ll turn the call back over to Randy Lipps for any closing remarks.

Randall Lipps

Thanks, everybody, joining the call. We’re really excited about the Aesynt acquisition, it’s already been 30 days, and we’ve already seen some just great results, spending time with customers, and employees, and all the things that we have before us. It’s just an exciting time to be at Omnicell, and being able to drive growth and really deliver on solutions for what customers need in order to get through the next phase in healthcare. Thanks for joining us today and see you next time.

Operator

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

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