Q4 2020 Omnicell Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Omnicell fourth quarter earnings Conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Ms. Kathleen Nemeth. Thank you. Please go ahead.

Thank you operator.

Good afternoon, and welcome to the Omnicell fourth quarter and full year 2020 financial results call on me.

Call with me today are Randall Lipps, Omnicell, founder Chairman, President and CEO Scott.

Scott Sidell named Executive Vice President and Chief Commercial Officer, and Peter <unk>, Executive Vice President and Chief Financial Officer.

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 on our press release today in the Omnicell annual report on form 10-K filed with the SEC on February 26, 2020 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 for 2021, and all forward looking statements made on this call are 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 and we undertake no obligation to update these forward looking statements.

Finally, this conference call is the property of Omnicell, Inc, and any taping other duplication or rebroadcast without expressed written consent of Omnicell is prohibited.

Randall will provide an update on our business. After Randall remarks, Scott will provide perspective on the health care industry, our market momentum and key customer wins.

Peter where cub will cover our results for 2020, and our guidance for 2021, our 2024th quarter and full year financial results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at Omnicell Dot com.

Our prepared remarks will also be posted in the same section. Additionally, we'd like to remind you that during this call. We will discuss some non-GAAP financial measures reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement, let me now turn the call over to <unk>.

Rental.

Good afternoon, and thank you for joining us today.

2020 was an outstanding year for Omnicell as we continued to drive growth in our business.

Execute well on our strategy.

And deliver tremendous value to our health system partners for patients and our shareholders.

I am so proud of.

Of all of our employees.

Who consistently put on a health system partners first.

During this unprecedented here.

Our fiscal 2020 results are at the high end or above the prelim results, we announced in mid January.

We are very pleased with our performance, which exceeded our pre pandemic bookings guidance and the guidance. We provided in October 2020 across all key metrics.

<unk> revenues total product bookings and.

And non-GAAP EPS.

I'm, especially pleased to note that we ended the year with record product bookings of more than $1 billion.

We achieved substantial increases in new customer wins.

Underscoring the robust and growing demand for our solutions.

At year end, well over half of the top 300 health systems in the U S for Omnicell customers.

And we had long term sole source contracts with 145 of them.

<unk> to new customers added in.

In the fourth quarter.

Despite the ongoing pandemic and the disruption that caused across the health care industry.

On the first half of the year. We also made strong progress advancing our long term strategic priorities priorities, notably we expanded.

Pharmacy portfolio.

With the strategic and accretive acquisition of Psg's $3 40 be linked business.

Now called Omnicell $3 40 day.

We also accelerated our shift to cloud based solutions and tech enabled services through the launches of Omnicell one.

And central Pharmacy dispensing services.

The Omnicell one is a cloud based platform that connects nearly all of our devices and is a compelling differentiator for omnicell.

This is underscored by the rapid growth, we saw in 2020 and our SaaS.

Subscription software and tech enabled services bookings, which we significantly exceeded plan for the year.

Now with a robust portfolio of tech enabled services that complement and enhance our core hardware products, we continue to leverage our market leading position and our large installed base to further drive reoccurring revenue growth in advanced services.

The rapid growth in this important category is positioned to continue for years to come and in fact, we are forecasting 50% CAGR and advanced services from 2020 through 2025.

Most importantly, the pandemic has shown a spotlight on the importance of pharmacy management.

Highlighting the need for increased Digitization and virtualization.

Processes throughout the health care system, and underscoring the strategic relevance of Omnicell solutions.

There is widespread and growing acknowledgment that more sophisticated automation and digitization capabilities enable health care providers to focus more on patient care and reduce costly air and we are in a unique position to enable our customers to do just that.

GAAP.

We believe that we are indeed, a category creator in that respect.

The pandemic made it clear to providers that they need and then tire category of solutions to effectively manage the pharmacy supply chain.

We expect to continue to see demand for autonomous pharmacy solutions.

Now I also want to briefly touch on our approach to ESG matters and the actions we are taking on this flow.

But first let me emphasize that we view omnicell as a company with a social mission.

Our focus on reinventing the pharmacy care delivery model is designed to dramatically improve health outcomes and lower health care costs for everyone.

Our teams are motivated by knowing that our work to improve medication management has a tangible real world impact on health care workers for patients and communities.

And that these are not just numbers. These are our friends or colleagues and our dear families.

We also recognize that we are accountable not only to our customers and our shareholders, but also to the global commodity.

With this in line in December we published initial ESG disclosure and performance information aligned to S. A S. S B G.

Tcf D and <unk> guidelines among.

Among other things we are focused on innovating to drive sustainability across our business.

Ethically and responsibly sourced materials by adhering to internationally recognized OECD guidance.

And elevating our diversity and inclusion initiatives.

We believe there is a better way to do business. We're excited about the journey, we are beginning and look for sharing more in the spring when we released our inaugural corporate responsibility report.

Now looking ahead I'm confident we are very well positioned to continue to drive growth in our business center deliver value for our shareholders as we support our health care partners on their journey to the autonomous pharmacy.

We are excited to continue building on our momentum in 2021 and beyond.

While Peter will review the 2020 results from the 'twenty and 'twenty one outlook in more detail I wanted to highlight that we are reaffirming the 2021 guidance and long term targets, we provided last month.

In terms of our 2025 financial roadmap, we are targeting a 14% to 15% compounded total annual revenue growth rate from 2021.

For 2025.

Over the same period of time, we are also targeting an expansion of our non-GAAP EBITDA margin from 21% in 2021.

225% by 2025 reps.

Representing a margin expansion of approximately for approximately 400 bps.

Our strong position in the market growing customer base and focus on innovation.

US confidence that we will be able to achieve these goals.

Now I'd like to turn it over to Scott to discuss the one for the industry and.

For the key customer engagements Scott.

Thank you Randy.

To start I'd like to take a step back and highlight omnicell a significant market opportunity.

And our uniquely differentiated solution and position pharmacy is one of the largest portions of the U S health care system and delivers unquestioned health care value, but like other areas in health care. The pharmacy care delivery model has significant problems with decreased quality increased cost and increased provider burnout.

Reason for this is that while these are really good people doing really good work, they're doing it in a very manual way.

Several pharmacy leaders validated the need for greater automation in 2019, and published a framework that not only quantified the opportunity for pharmacy to increase health care value.

For the established for the majority of providers today for early on in this evolution.

Because of this significant need we launched a new category of solutions called the autonomous pharmacy that will automate many other workflows that prevent pharmacists nurses and other caregivers to focus on solving the really big clinical problems.

The atomic pharmacy is a new category that combines hardware software and services to enable providers to improve quality reduce cost and increase human efficiency.

The autonomous pharmacy built on our market leading position in automated dispensing systems with the delivery of a portfolio of true technology enabled services.

Not only create real health care value for our customers, but also significantly increases our market size and adds material recurring revenue streams.

Today, we have over 25 years of experience, helping providers salt medication management problems and as such we believe we have an unparalleled channel not only into our core growth market health systems in hospitals, but also the post acute and retail portion for the market.

Cause of our comprehensive product portfolio, our brand and our unquestioned channel leadership, we are extremely well differentiated and well positioned to realize the full potential of the autonomous pharmacy.

Now turning to key customer engagements. This quarter, we are very proud of the substantial increases in new customer wins and bookings achieved during the first fourth quarter and throughout 2020.

As we noted in our preliminary results announcement, we signed two new long term sole source agreements with top 300 U S health systems during the quarter, bringing the total to 145.

Solution now has signed a 10 year sole source agreement to expand omnicell footprint across the southern New Hampshire network interoperability and enhanced visibility across the supply chain were key to solution shouldn't health decision.

Another newly signed long term sole source customer is a large west Virginia based academic medical center that has strengthened its partnership with Omnicell to optimize safety and improved workflow workflow efficiency through a new five year agreement that will extend omnicell solutions throughout its for hospital system.

A large Midwestern health system and current Omnicell customer has selected Omnicell to point of care solutions to support safety and efficiency across their nine hospital locations and multiple cancer centers throughout Indiana.

This was a significant competitive conversion.

Other customer wins during the quarter include a major Georgia based academic health care system and longtime Omnicell partner that has signed a 10 year sole source extension to leverage Omnicell integrated platform of solutions to enhance pharmacy supply chain management across their integrated health network.

Now a few comments on our progress internationally first we announced during the quarter that the South East London integrated care system will expand the deployment of Omnicell automation systems across six acute hospital sites.

This also includes collaboration for Omnicell and the trust to launch a European based technology enabled intelligence center to deliver advanced analytics managed supplies and medications. This.

This is very exciting and we believe will strengthen our market position in both the UK and across Europe.

Internationally. We are also continuing to gain momentum in Asia with recent medication management automation customer agreements in Singapore and Japan.

In addition to those customer wins, we are pleased with the continued momentum within our advanced services portfolio, which is a key component of our strategy.

Let's walk through some of the highlights.

On the sell one we have made good progress in the market and signed several agreements with numerous large health systems Omnicell, one is emerging as a significant competitive differentiator.

Central Pharmacy dispensing services also known as C. P. D. S combines our XR to robot with experts and software to help health systems central pharmacies reduce errors and reduce cost for oral drug distribution.

We are very pleased with the positive customer feedback we are receiving on this recently launched solution and look forward to continuing to update you on our progress.

In life and health is a service that combines software analytics and experts to help retail pharmacies provide value added services to patients and also helps retail pharmacists and payers manage medication issues for complex patient populations.

We are very proud of the important contribution and life and health is making to support the COVID-19 vaccine rollout.

In line and launched care scheduler and exclusive digital solution that automates, the scheduling patient outreach and reporting for administering the vaccine.

We have already signed up numerous pharmacy customers for care scheduler and are conducting advanced conversations with other partners to purchase the new sales technology.

To date care surge scheduler has been deployed by over 2000, and retail pharmacy and stand up vaccine clinics.

Previously, we announced that Walgreens popular save a trip refills with powered by our life and health medication synchronization technology.

In fact that program is so successful that Walgreens recently launched a national TV AD campaign to promote the surface.

Finally, our health plan business continued to grow during Q4 as in life and health expanded its member adherence and value based programs with existing industry partners.

Now, let's turn to Omnicell $3 40 day customer reception to our 340 B offering has been quite strong the $3 40, B team closed multiple new opportunities in queue for these new wins include one of the largest not for profit health care systems in Texas and one of the largest in the United States. We are pleased.

With the strong momentum we are seeing in this business.

The broad adoption of these new technology enabled services represents a significant milestone along this journey to transform the pharmacy care delivery model.

Overall, we are incredibly excited about our leading position within the health care ecosystem, the autonomous pharmacy and the launch of our new technology enabled services has created a meaningful new addressable market along with significant recurring revenue streams.

This strengthens our growing leadership position across a 10 year $70 billion total addressable market as we continue to be a leading strategic partner to those health systems that we focus on.

We believe we have tremendous potential to transform the pharmacy care delivery model in turn generating significant value for omnicell and our shareholders.

Now I'd like to turn the call over to Peter to discuss our fourth quarter and full year financial results and our 'twenty one guidance Peter Thanks.

Thank you Scott 2020 demonstrated the strength of our strategy on our business model.

Our customers are clearly embracing decision on the autonomous pharmacy.

Which is reflected in the growing percentage of high visibility.

On high predictability with recurring revenue.

Customer seeded failure normally sales platform and solutions.

Partnering with us as they advance their pharmacy automation roadmaps.

Turning now to our financial results.

Our fourth quarter 2020 revenue.

Revenues were $249 million, an increase of $36 million over the prior quarter and up.

4% over the prior year.

Our full year 2020 revenues for $892 million, a decrease of $5 million 2019.

Our fourth quarter earnings per share on our quarters with GAAP for 37 per share.

Compared to 51 cents per share in the fourth quarter of 2019.

Full year 2020 earnings per share in accordance with GAAP was <unk>.

74 per share down from $1.43 per share for 2019 for.

A full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our website.

Full year, non-GAAP EBITDA was $159 million for <unk>.

The decrease of 4% compared to full year non-GAAP EBITDA of $167 million in 2019.

Fourth quarter, non-GAAP, EBITDA was $52 million, an increase of 13%.

Compared to $46 million in the fourth quarter of 2019.

Fourth quarter non-GAAP earnings per share was <unk> 91 per share compared to 77 per share in the same period last year, representing an 18% increase for.

For year, 2020, and non-GAAP earnings per share was $2 54 per share compared to $2 from 81 cents per share in 2019, representing a 10% decrease.

Product bookings for full year, 2020 were 1 billion a $2 million compared.

Compared to $830 million for the full year of 2019.

This represents an increase of 23% despite the impact of COVID-19.

Total product backlog at the end of 2020 was $924 million compared.

Compared to $588 million at the end of 2019, representing a significant increase of 57% year over year.

This was a record year for product bookings, which exceeded even our pre COVID-19 bookings guidance by over $100 million.

Our guidance vs in product bookings was driven by the increased strategic importance of our medication management automation solutions, resulting in greater than expected product bookings from the 145 long term sole source agreements.

And from increased momentum in a sense surfaces.

Of the $924 million ending product backlog $307 million or 33% is considered long term.

This percentage is up from 20% at the end of 2019.

The year for year percentage increase reflects the expected timing of implementations from a strong second half bookings.

And represents also the growth in defense services.

Non-GAAP gross margin for the fourth quarter was 51, 5% an increase from 47, 1% in the third quarter driven by strong volume leverage from product mix.

Non-GAAP EBITDA margin for the fourth quarter of 2020 was 27 per cent.

Up from 19, 3% on a prior quarter.

I would like to quickly touch on our cash flow on liquidity and capital structure.

Which positions us very well for future growth.

As of December 31, 2020, our.

Our cash balance was $486 million cash flow from operations during the fourth quarter was 76.

And it was $186 million for the year ended December 31, 2020, representing increases.

From $35 million on $145 million critical parable periods.

In the prior year.

Free cash flow generated in the fourth quarter and year ended December 31, 2020 was $65 million and $131 million respectively.

Compare favorably to $21 million $82 million for the comparable periods in the prior year.

In terms of accounts receivables day sales outstanding for the fourth quarter were 71 days compared to 81 days for the fourth quarter of 2019.

Inventories at December 31, 2020, we were $96 million compared to one on a $3 million on the previous quarter and $108 million as of December 31, 2019.

Before turning to guidance I would like to work for the long term financial framework, we presented previously and our preliminary results press release and at the Jpmorgan Healthcare Conference on January 13th earlier this year.

We included a slide deck in our fourth quarter earnings release, summarizing our long term financial framework.

I will walk you through the highlights.

Slide three highlights our revenue basis resilience and highly visible in nature and is differentiated by <unk>.

First.

Ferry robust product backlog share.

Our long term sole source agreements with 145 of the top 300 U S health systems thirdly customers clearly failure offerings as evidenced by our strong customer retention rate of 99% for.

We have strong insights in annual service and maintenance revenue from our large installed base of connected devices, which is in the early stages of its upgrade cycles and lasting while nearly all of our revenue is highly visible roughly 40% of our revenue base is recurring in nature and we are focused on growth.

Percentage overtime.

Now moving to slide four.

An area of our business, which is driving substantial growth in high visibility revenue SaaS subscription software and tech enabled services revenue on.

Also called offence surfaces.

With strong upside for our 2020 bookings was primarily driven by two factors.

One general momentum for from our long term sole source partnership agreements and then to advance services significantly exceeding our total plants.

This revenue type of seeing great momentum in pipeline and bookings and we expect the revenue CAGR, while for approximately 50% five zero from 2022 2025 for these defense surfaces.

Net services revenues expected to reach 20% to 30% of total omnicell revenues by 2025.

This is subscription based recurring revenue with high margin unit economics.

There are several key factors that enabled us to grow our expense services revenue share rapidly.

First of all Covid, clearly increased urgency to digitize and automate processes.

Sure on health systems, including the Digitization and automation of the pharmacy to reduce manual touches of medications and to enable health care providers to focus more on patient care against the backdrop of the pandemic our solutions are more strategically relevant than ever.

The increased need from health system for outcome based solutions also is driving defense services growth and then lastly are strong and in parallel channel an installed base of connected devices is also driving defense services growth.

Slide five underscores our commitment to drive profitable growth.

Disciplined execution.

We are now targeting a 14% to 15% compound compounded total annual growth rate from 2021 through 2025, reaching $1 9 billion to.

$2 billion in 2025.

Of course, if you measure that CAGR started for 2020, it will be materially higher.

On an organic base basis, we're targeting an 11% to 12% CAGR revenue CAGR from 2021 for 2025.

Reaching 165 buildings for $1 75 billion in 2025.

The main organic revenue growth drivers are grow and expand within the existing customer base.

Upgrade cycles.

<unk> market share gains.

And growth from innovation as we continue to deliver on the next level for <unk> pharmacy.

But from an inorganic perspective, youre targeting a 3% CAGR from 2021 through 2025, we have a team focused on this and we are actively evaluating potential opportunities that will fit into our market leading platform. We also believe that we can leverage a strong channel to drive value from potential.

Acquisitions.

On slide six details on our path towards continued margin expansion.

We're targeting a non-GAAP operating margin of 21%.

On a non-GAAP EBITDA margin of 25% for 2025.

This represents a non-GAAP operating margin and a non-GAAP EBITDA margin expansion of approximately 400 basis points from 2021.

We have build a company that is able to scale very well and believe we are well positioned to deliver for this margin expansion in the coming years, driven by a number of factors, including improved business mix.

The long term customer partnerships economies of scale manufacturing savings and process efficiencies.

As we continue to scale the business, we expect to redeploy some of these savings into failure, creating growth and innovation initiatives.

Now moving on to our full year 2021 guidance.

As we look for the rest of the year.

Expect to continue our strong momentum, particularly as the health care operating environment normalizes.

Since the third quarter of 2020, we generally have seen and continue to see our health care partners manage their strategic system implementations well during a pandemic search.

Two debt ends we expect 2021 product bookings to be between $1 billion on $90 million and $1 billion $150 million.

We expect total revenues to be between $1 billion on $85 million on $1 billion and $105 million, we expect product revenue to range between $770 million from $785 million.

We expect service revenue to be between $315 million to $320 million we.

We expect total year, non-GAAP EBITDA to be between $228 million to $240 million.

We expect 2021 non-GAAP earnings to be between $3 40, and $3 60.

Per share.

For the first quarter of 2021 of you are providing the following guidance.

As we noted last quarter, we continue to invest for scaling our business.

To support the expected increase in revenue on the timing of customer implementations.

We expect total revenues in the first quarter to be between $243 million for $248 million debt.

Product revenues between $171 million and one on that $74 million.

Service revenues to be between $70 million to $74 million.

We expect non-GAAP EBITDA for the first quarter to be between 40% and $43 million and we expect first quarter non-GAAP earnings for.

For share to be between 64 to 69 per share.

This is above the typical first quarter seasonal pattern as a result of our very strong exiting year end backlog.

In summary, we are very pleased with our financial and operational results for the fourth quarter and for full year 2020, and combined with the fact that we're still in the early stages of our journey towards your thought on the pharmacy for.

<unk> on the that Omnicell has a very bright future ahead.

With that we would like to open the call for your questions.

Yes, as a reminder, if you'd like to ask a question you will need to press star one on your telephone that is star one on your telephone if you like to ask a question.

Your first question comes from the line of Iris long with bearing Baron capital.

I think thanks for taking my question.

So for it.

Firstly, it's great to know that you guys have a 145 total source agreements with these top 300 health system I'm. Just curious if you can kind of talk about.

What details are included in the agreement.

The agreement and then from these agreements do you kind of have a sense.

What product offering deep hospital systems are interested in purchasing and also I'm wondering like what percentage of these customers have expressed an interest in buying things like our central pharmacy dispensing system like the IV compounding system or even like the only sell software platform that you guys have.

Yes.

That's across the credit set of questions there.

So almost without exception the new long from sole source agreement. These partnerships with 10 and at times, even 15 years Theyre really led by access services Defense services really bringing your volume is pharmacy for life.

And most of the cases there are included.

Some of these are also market share gains.

And they make up a large percentage of our bookings from these long term agreements make up a large percentage of our total company bookings.

Eric This is Scott sight on it I would just add to that I think that's all completely correct I think you've got to remember that a significant reason why these health systems are entering into these long for long term sole source agreements with us is because of the complete portfolio of their interest lies in.

One or multiple of Oc omnicell, one CPD assets IV and as you can imagine from what we've disclosed about those service lines on the penetration is quite small and so so I think it should give you a really great indication of where the opportunity is in terms of our ability to upsell those customers.

Why they are entering into the agreement.

Okay. That's very helpful. And then a follow up question you guys talked about you're targeting 50% keesler for does that subscription revenue and attack enable share that this was just wondering Mike likes to call. You have mentioned there are so many moving pieces here can you kind of.

I mean, a few products for sure that that you expect to have the highest growth in the near term maybe by 12 to 18 line and then I'm also wondering is that 50% growth organic or have you kind of bake in the assumption of acquisition.

So.

I think taking those questions in reverse order the second one it's easier for that that that growth rate is organic we're not anticipating or essentially not factoring in the upside of acquisitions to accelerate those product lines.

Your first question on breaking it down obviously, we don't disclose the individual growth rates, what I would say is that.

We feel that that growth that each one of those products or services has that opportunity for pretty substantial growth. So I don't think.

We won't go into the details what I would say is that there isn't one that is in the near term or even in the medium term significantly outperforming the others. It's not a weighted average calculation. It simply debt. We believe this portfolio as a whole is growing like this.

Okay got it that's helpful. Thanks for taking my questions.

Thank you.

Yes.

Your next question comes from the line of Scott shown on the house with Stephens.

Hey, Scott.

Randall Peter and team how are you guys.

Good.

Good Mike.

My first question revolves around your expanding in life and health and $3 40 D link.

For our platforms on.

On the life and health side I believe you mentioned you now have over 2000 pharmacy stores signed up which if I look back at your press releases is a nice increase from mid January when you noted it was around 1000 can you talk about the ramp there given what we're seeing with <unk>.

Vaccine distribution I believe the total market opportunity you guys have outlined in the past is currently around 60000 stores in your network is that right and can you talk about what youre seeing with the <unk>.

Current state of the vaccination distribution.

Yeah. So so Kerr scheduler, which you have to think of as a modular module on the in life and health platform and the platform as a whole is sold to retail pharmacies and does several things right med synchronization communication care schedule, Arizona is a module that they can.

Subscribe to as an enhancement to the core platform and so I think to your point.

2000, and that's growing rapidly, but you've got to remember that the way that the vaccine rollout has progressed is that retail pharmacies are really sort of a late channel for the vaccine deployment and so I think that what I would infer from that is that we will continue to see a significant increase in those number of.

Facilities is as retailers as the channel has leaned on more and more to help vaccinate. The population certainly we get out of that the frontline health care workers and beyond the the folks in nursing homes and L tax to you and I were going to rely more heavily on those retail pharmacies and we would expect continued growth there.

Great.

Thanks, Scott and then.

On the 340 B linked side I think you mentioned in your prepared comments, you're seeing success in signing up clients in penetrating this market, which is great I think that speaks to your services.

The strong services guidance that you provided.

Can you just talk more about how where you are in the cross selling.

Capabilities on top of your installed base I think.

The questions I get from investors is how quickly can they ramp up this cross selling of the software business all onto there pretty large installed base. So can you talk about the opportunities in the $3 40 day lead market, specifically and your opportunities for the year. Thanks.

Sure.

Look I think that if we step back the thesis for the acquisition of $3 40 day. It was twofold, one of which is that our vision is to help providers solve.

Many of the complex problems that exist in pharmacy, one such problem is B L.

Ever important they're financially important and rapidly growing $3 40, B program. It's just a very complex program to administer let alone optimize.

The 340 <unk> solution was a technology enabled service that very much.

Engages and helps providers to do that with a technology architecture, and frankly, a business model that was very.

Sort of synchronous with the way that we were approaching our advanced services portfolio. The second part of the thesis is that.

Given the breadth and depth of our channel and the strength of our sole source arrangement with the top 300 health systems that we could accelerate the growth of that business. Now we're early on in that that integration process of the story et cetera, but what I can say is that we're increasingly very bullish about.

Our channel's ability to scale that product and we see a lot of greenfield opportunity in the channel.

Great. Thanks, guys I'll hop back in the queue.

Yes.

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

Congratulations on a strong finish to the year and thanks for taking the questions maybe the first one up.

Where do we sit in the <unk> upgrade cycle, obviously, there was a little bit of disruption last year, but obviously and then you finished the year. So strong where are we and how many years left do we have of that upgrade.

Yes, so we I think as posted in the in the <unk>.

Our debt as well on our website.

Upgrade cycle for just ex fee is a 36%.

If you measure it over the installed base for December <unk> of course, we've grown the installed base significantly since then.

6% net.

Okay. That's helpful. Thank you and then.

Question for you on the software side.

If youll have this handy, but maybe just an approximation would be helpful. But what percentage of your installed base today is running omnicell, one and as you look out over the next couple of years I think on the someone's primarily related to the medication side is there an opportunity to rollout something comparable for the supply side, we've seen that there is.

A lot of interest for that particularly in Europe, where they are.

Managing the supplies as well and I think our software platform might be beneficial there.

Yes, so the so remember Omnicell one is a service that combines workflow analytics and experts to help health systems in the U S. Today really do three things, which is one manage their inventory, so literally which drugs should they buy deploy where should they put them utilize them for.

Debt et cetera, too is to take their pharmacy labor, which is one of the largest expense categories for hospital.

And really optimize that where should their pharmacy techs go when should they go there et cetera, and so it just gives them a tool to really help manage that more efficiently and three is really start to avoid compliance risk and for most notably.

Diversion, so avoiding diversion events and so.

So we are very early on in the penetration of this product in the market what I will say is that.

It has become a part of almost every of the vast majority of even ex T conversations with customers on the sell one not because you could imagine it's kind of like Microsoft office for running a pharmacy, it's become a significant portion of the conversation, but we are early on in that process in terms of the penetration of that is to your point on.

Regarding so in the U S drugs are obviously, the significant expense and supplies for a smaller extent outside of the U S that slipped right.

You noted that supplies are a much larger portion of the expense on drugs are much much smaller. So we certainly have heard that need and revision there could be an opportunity to build something similar to Oc one internationally to help manage supply and where and I think we highlighted in the script that one of our UK Trust, we've actually part.

Entered with on an exploratory way to look into doing exactly that.

That's great all right I'll hop back into queue. Thank you.

Thank you for sure.

Your next question comes from the line of Sean Wieland with Piper Sandler.

Hi, Thanks for taking the question that's on it's actually Jeff on for Shaun.

So congrats on the quarter on that the end of the year.

And I think our question just interested to know for you guys could kind of describe the lifecycle of a sole source customers, though from cabinets to maybe IV compounding our centralized autonomous pharmacy, and how long does that installation.

<unk> taken what is kind of net revenue progression of assault on the other.

Typical sales <unk> customer.

So maybe we have posted on our IR deck on our website for real.

Sample off one of the other 42.

Local sole source agreements I think that example of that particular customer as <unk>.

12 locations on the on the left side you see implementation for point of care Central Pharmacy software Robotics every single year. If you will advise on the Kpis on the right. So.

The vast majority of them on the 45 logs on sole source agreements. We have these multiyear co developed medication management automation plan, so and of course, there for survive by customer, but by and large for the for the large ones. They are implementation for every single year. It kind of depends on what their kpis are on what their what their role as I said, we can follow up with.

On.

And I would add to that debt I think when you. When you look at the so called journey of a sole source customer I would really break it into two phases phase. One is they haven't entered into sole source agreement with us yet maybe they were at G series customer and they are ready to do it.

Ex the upgrade they become very interested in it is very clear to them that the strength of the portfolio that they know at some point in the future. They want to explore IV. They maybe want to explore analytics, but it's because of that strength of that portfolio that they enter into the sole source at which point to enter into that maybe that comes along with the booking for cabinets, maybe that's a bookings for Oc one is <unk>.

The second phase of that journey, which you can imagine is every one of these products that health care. The lifecycle of the sales cycle is long. It's 12 months 18 months et cetera, the challenge with most with selling anything into a health system and certainly in this case.

It's really working with that customer to develop a strategic plan to rollout over X number of years and so what the sole source agreement affords us is really a commitment on both sides to partner to understand not if youre going to buy IV or if youre going to buy OCC, one, but really to work with that customer almost in a.

Almost on the same side of the table for the first time that as a vendor, but a true partner to identify hey, when does this make the most sense, whether it's in your capital budgeting cycle or whether or not that's the change management, whether or not that.

You're changing your strategy and so that second phase is very but it really does allow us almost on a.

A unique way to develop almost a sense of you know.

Frankly, a recurring revenue stream over the next five years with these partners certainly high for stability.

And Sir.

Really helpful.

Yeah.

Yeah, and I, just want to add to that and certainly as you add on products that one plus one we need obviously is a network effect of all of the products that come together.

And the value delivered and produced is much higher so.

Your line is actually get higher so it is a.

Motivation to get through the platform.

And a reasonable fee.

That's very helpful. Thank you and just a follow up and I think you guys mentioned that the advanced services portfolio with recurring revenue much higher margin and it's obviously going to grow pretty quickly over the next day.

Two years and is there another driver on the Opex side that we should looking at be looking at for and to contribute to the EBITDA margin expansion or is it primarily coming from.

Gross margin.

Yes, most of it is for gross margins you can expect a little below average on the SG&A and kind of the outer years, if you will.

Got it thank you again Martha.

Hey, Greg.

There are no further questions.

Sorry, you have one last question on from the line of Mitra.

Ram Gopal with Sidoti.

Yes.

Thank you Sarah.

Yes.

Mitra on your line may be muted.

Okay.

Yeah.

Okay why don't we move on maybe two closing statement here as well.

Great well this is Randy Lipps, obviously.

Extremely pleased this year with the strong financial and operational performance in 2020.

Albeit early in the year the pandemic year debt.

We understood what COVID-19.

Didn't mean to the health care system.

And but most importantly, it really elevated the needs.

Pharmacy supply chain digitize solutions to help us.

For a very difficult problems.

And it's really launch the company into this next phase of momentum, it's very exciting to go in in and connect with customers just not about some product replacement, but about a vision to get their pharmacy management up two places they never imagine they can get it before and that's exciting for me and drives me every day.

Hey.

Including the first day I was driven by this 30 years ago Sarah Lips.

With for.

And started this company.

So happy birthday Sara.

See you next time.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Yes.

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Ladies and gentlemen, thank you for standing by and welcome to the Omnicell fourth quarter earnings Conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session here on each press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Ms. Kathleen Nemeth. Thank you. Please go ahead.

Thank you operator, good afternoon, and welcome to the Omnicell fourth quarter and full year 2020 financial results call on.

On the call with me today are Randall Lipps, Omnicell founder Chairman President and CEO.

Scott Sidell named Executive Vice President and Chief Commercial Officer, and Peter Kuipers, Executive Vice President and Chief Financial Officer.

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.

For a more detailed description of the risks that impact. These forward looking statements. Please refer to the information on our press release today in the Omnicell annual report on form 10-K filed with the SEC on February 26, 2020 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 1st one for 'twenty, one and all forward looking statements made on this call are 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 and we undertake no obligation to update these forward looking statements.

Finally, this conference call is the property of Omnicell, Inc, and any taping other duplication or rebroadcast without expressed written consent of Omnicell is prohibited.

Randall will provide an update on our business. After Randall remarks, Scott will provide perspective on the health care industry, our market momentum and key customer wins.

Peter work hub will cover our results for 2020, and our guidance for 'twenty 'twenty one or.

'twenty 'twenty fourth quarter and full year financial results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at Omnicell Dot com.

Our prepared remarks will also be posted in the same foot section. Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement.

Let me now turn the call over to Randall.

Good afternoon.

And thank you for joining us today.

2020 was an outstanding year for Omnicell as we continued to drive growth in our business ex.

<unk> well on our strategy.

And deliver tremendous value to our health system partners their patients and our shareholders.

I am so proud.

Of all of our employees.

Who consistently put on our health system partners first.

During this unprecedented here.

Our fiscal 2020 results are at the high end or above the free land results, we announced in mid January.

We're very pleased with our performance, which exceeded our pre pandemic bookings guidance and the guidance. We provided in October 2020 across all key metrics, including revenue total.

Product bookings and.

And non-GAAP EPS.

I'm, especially pleased to note that we ended the year with record product bookings of more than $1 billion.

We achieved substantial increases in new customer wins.

Underscoring the robust and growing demand for our solutions.

At year end, well over half of the top 300 health systems in the U S for Omnicell customers.

And we had long term sole source contracts with 145 of them <unk>.

Including two new customers added.

In the fourth quarter.

Despite the ongoing pandemic and the disruption that caused across the health care industry.

On the first half of the year. We also made strong progress advancing our long term strategic priorities priorities, notably we expanded.

<unk> pharmacy portfolio.

With the strategic and accretive acquisition of PSG is $3 40 be linked business.

Now called Omnicell $3 40 day.

We also accelerated our shift to cloud based solutions and tech enabled services through the launches of Omnicell one.

And central Pharmacy dispensing services.

The Omnicell one is a cloud based platform that connects nearly all of our devices and is a compelling differentiator for omnicell.

This is underscored by the rapid growth, we saw in 2020 and our SaaS.

Subscription software and tech enabled services bookings, which we significantly exceeded plan for the year.

Now with a robust portfolio of tech enabled services that complement and enhance our core hardware products, we continue to leverage our market leading position and our large installed base to further drive reoccurring revenue growth in advanced services.

The rapid growth in this important category is positioned to continue for years to come in fact, we are forecasting 50% CAGR and advanced services from 2020 through 2025.

Most importantly, the pandemic has shown a spotlight on the importance of pharmacy management.

Highlighting the need for increased Digitization and virtualization.

Processes throughout the health care system, and underscoring the strategic relevance of Omnicell solutions.

There is widespread and growing acknowledgment that more sophisticated automation and digitization capabilities enable health care providers to focus more on patient care and reduce costly air and we are in a unique position to enable our customers to do just that.

Net.

We believe that we are indeed, a category creator in that respect.

The pandemic made it clear to providers that they need and then tire category of solutions to effectively manage the pharmacy supply chain.

We expect to continue to see demand for autonomous pharmacy solutions.

Now I also want to briefly touch on our approach to ESG matters and the actions we are taking on this front.

But first let me emphasize that we view omnicell as a company with a social mission.

Our focus on reinventing the pharmacy care delivery model is designed to dramatically improve health outcomes and lower healthcare costs for everyone.

Our teams are motivated by knowing that our work to improve medication management has a tangible real world impact on health care workers for patients and communities.

And that these are not just numbers. These are our friends or colleagues and our dear families.

We also recognize that we are accountable not only to our customers and our shareholders, but also to the global commodity.

With this in line in December we published initial ESG disclosure and performance information aligned to S. A S. S B G.

Tcf D and <unk> guidelines.

On other things, we are focused on innovating to drive sustainability across our business.

Ethically and responsibly sourced materials by adhering to internationally recognized OECD guidance.

And elevating our diversity and inclusion initiatives.

We believe there is a better way to do business. We're excited about the journey, we are beginning and look for sharing more in the spring when we release our inaugural corporate responsibility report.

Now looking ahead I'm confident we are very well positioned to continue to drive growth in our business and to deliver value for our shareholders as we support our health care partners on their journey to the autonomous pharmacy.

We're excited to continue building on our momentum in 2021 and beyond.

While Peter will review the 2020 results from the 'twenty and 'twenty one outlook in more detail I wanted to highlight that we are reaffirming the 2021 guidance and long term targets, we provided last month.

In terms of our 2025 financial roadmap, we are targeting a 14% to 15% compounded total annual revenue growth rate from 2021 through 2025.

Over the same period of time, we are also targeting an expansion of our non-GAAP EBITDA margin from 21% in 2021% to 25% by 2025.

Presenting on margin expansion of approximately for approximately 400 bps.

Our strong position in the market growing customer base and focus on innovation.

US confidence that we will be able to achieve these goals.

Now I'd like to turn it over to Scott to discuss the industry and.

From a key customer engagements Scott.

Thank you Randy.

To start I'd like to take a step back and highlight omnicell a significant market opportunity.

And our uniquely differentiated solution and position pharmacy is one of the largest portions of the U S health care system and delivers unquestioned health care value like.

Like other areas in health care, the pharmacy care delivery model has significant problems with decreased quality increased cost and increased provider burnout. The reason for this is that well. These are really good people doing really good work, they're doing it in a very manual way several pharmacy leaders validated the need for greater Automd.

<unk> in 2019, and published a framework, but not only quantified the opportunity for pharmacy to increased health care value.

But established for the majority of providers today, where early on in this evolution.

Because of this significant need we launched a new category of solutions called the autonomous pharmacy that will automate many other workflows that prevent pharmacists nurses and other caregivers to focus on solving the really big clinical problems.

The autonomous pharmacy is a new category that combines hardware software and services to enable providers to improve quality reduce cost and increase human efficiency there.

The autonomous pharmacy built on our market leading position in automated dispensing systems with the delivery of a portfolio of true technology enabled services.

Not only create real health care value for our customers, but also significantly increases our market size and adds material recurring revenue streams.

Today, we have over 25 years of experience, helping provider self medication management problems.

And as such we believe we have an unparalleled channel not only into our core growth market health systems in hospitals, but also the post acute and retail portions of the market.

Because of our comprehensive product portfolio, our brand and our unquestioned channel leadership, we are extremely well differentiated and well positioned to realize the full potential of the autonomous pharmacy.

Now turning to key customer engagements. This quarter. We are very proud of this as debt substantial increases in new customer wins and bookings achieved during the first fourth quarter and throughout 2020.

As we noted in our preliminary results announcement, we signed two new long term sole source agreements with top 300 U S health systems during the quarter, bringing the total to 145.

Solution now has signed a 10 year sole source agreement to expand omnicell footprint across the southern New Hampshire network.

Interoperability and enhanced visibility across the supply chain were key to solution shouldn't health decision.

Another newly signed long term sole source customer is a large west Virginia based academic medical center that has strengthened its partnership with Omnicell to optimize safety and improved workflow workflow efficiency through a new five year agreement that will extend the omnicell solutions throughout its for hospital system.

A large Midwestern health system and current Omnicell customer has selected Omnicell point of care solutions to support safety and efficiency across their nine hospital locations and multiple cancer centers throughout Indiana. This was a significant competitive conversion.

Other customer wins during the quarter include a major Georgia based academic health care system and longtime Omnicell partner that has signed a 10 year sole source extension to leverage Omnicell integrated platform of solutions to enhance pharmacy supply chain management across their integrated health network.

Now a few comments on our progress internationally first we announced during the quarter that the South East London integrated care system will expand the deployment of Omnicell automation systems across six acute hospital sites.

This also includes collaboration for Omnicell and the trust to launch a European based technology enabled intelligence center to deliver advanced analytics managed supplies and medications. This.

This is very exciting and we believe will strengthen our market position in both the UK and across Europe.

Internationally. We are also continuing to gain momentum in Asia with recent medication management automation customer agreements in Singapore and Japan.

In addition to those customer wins, we are pleased with the continued momentum within our advanced services portfolio, which is a key component of our strategy.

Just walk through some of the highlights.

On the cell line, we have made good progress in the market and signed several agreements with numerous large health systems Omnicell, one is emerging as a significant competitive differentiator.

Central Pharmacy dispensing services also known as <unk> <unk>.

<unk>, our <unk> robot with experts and software to help health systems central pharmacies reduce errors and reduce cost for oral drug distribution.

We are very pleased with the positive customer feedback we are receiving on this recently launched solution and look forward to continuing to update you on our progress.

In life and health is a service that combines software analytics and experts to help retail pharmacies provide value added services to patients and also helps retail pharmacists and payers manage medication issues for complex patient populations.

We are very proud of the important contribution and life and health is making to support the COVID-19 vaccine rollout.

In line and launched care scheduler and exclusive digital solution that automates, the scheduling patient outreach and reporting for administering the vaccine.

We have already signed up numerous pharmacy customers for care scheduler and are conducting advanced conversations with other partners to purchase the new sales technology to date care scheduler has been deployed by over 2000, and retail pharmacy and standup vaccine clinics per.

Previously, we announced that Walgreens popular save a trip refills was powered by our life and health medication synchronization technology. In fact that program is so successful that Walgreens recently launched a national TV AD campaign to promote the surface finally, our health plan business continued to grow.

During Q4 as in life and health expanded its member adherence and value based programs with existing industry partners.

Now, let's turn to Omnicell $3 40 day customer reception to our 340 B offering has been quite strong for $3 40, B team closed multiple new opportunities in queue for these new wins include one of the largest not for profit health care systems in Texas and one of the largest in the United States. We are pleased with this.

Strong momentum we are seeing in this business.

The broad adoption of these new technology enabled services represents a significant milestone along this journey to transform the pharmacy care delivery model.

Overall, we are incredibly excited about our leading position within the health care ecosystem.

The autonomous pharmacy, and the launch of our new technology enabled services has created a meaningful new addressable market along with significant recurring revenue streams.

This strengthens our growing leadership position across a 10 year $70 billion total addressable market as we continue to be a leading strategic partner to those health systems that we focus on.

We believe we have tremendous potential to transform the pharmacy care delivery model in turn generating significant value for Omnicell and our shareholders now I'd like to turn the call over to Peter to discuss our fourth quarter and full year financial results and our 'twenty one guidance Peter.

Thank you Scott 2020 demonstrated the strength of our strategy and our business model.

Our customers are clearly embracing decision on these items pharmacy.

As reflected in the growing percentage of high visibility and high predictability with recurring revenue on <unk>.

Customer seeded failures on the sales platform and solutions and are partnering with us as they are.

The pharmacy automation roadmaps.

Turning now to our financial results.

Our fourth quarter 2020 revenue rec.

<unk> with $249 million, an increase of $36 million over the prior quarter.

0.4% over the prior year.

Our full year 2020 revenues were $892 million, a decrease of $5 million for 2019.

Our fourth quarter earnings per share in accordance with GAAP were <unk> 37 per share compared to 51 per share on the fourth quarter for 2019.

Full year 2020 earnings per share in accordance with GAAP was share.

74 cents per share down from $1 43 per share in 2019 for.

A reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our website.

Full year, non-GAAP EBITDA was $159 million, a slight decrease of 4% compared to full year non-GAAP EBITDA.

$167 million in 2019.

Fourth quarter, non-GAAP, EBITDA was $52 million, an increase of 13%.

<unk> $246 million in the fourth quarter of 2019.

Fourth quarter non-GAAP earnings per share was 91 per share compared to 77 per share in the same period last year, representing an 18% increase.

Full year 2020, non-GAAP earnings per share was $2 54 per share compared to $2 from 81 cents per share in 2019, representing a 10% decrease.

Product bookings for full year, 2000, 21 billion a $2 million.

Compared to $830 million for the full year of 2019.

This represents an increase of 23% despite the impact of COVID-19.

Total product backlog at the end of 2020 was $924 million.

Compared to $588 million at the end of 2019, representing a significant increase of 57% year over year.

This was a record year for product bookings, which exceeded even our pre COVID-19 bookings guidance by over $100 million.

Our guidance beat in product bookings was driven by the increased strategic importance of our medication management automation solutions, we sold in greater than expected product bookings from the 145 long term sole source agreements and from increased momentum in a sense surfaces.

Of the $924 million ending product backlog $307 million or.

For a 33% is considered long term.

This percentage is up from 20% at the end of 2019.

The year over year percentage increase before.

Flex your expected timing of implementations from a strong second half bookings.

And represents also the growth in defense services.

Non-GAAP gross margin for the fourth quarter was 51, 5% an increase from 47, 1% in the third quarter driven by strong volume leverage from product mix.

Non-GAAP EBITDA margin for the fourth quarter of 2020 was 27%.

From 19, 3% in the prior quarter.

I would like to quickly touch on our cash flow liquidity and capital structure.

Which positions us very well for future growth.

As for December 31, 2020, our.

Our cash balance was $486 million cash flow from operations during the fourth quarter was 76.

Million.

$186 million for the year ended December 31, 2020, representing increases.

From $35 million from $145 million critical parable periods.

In the prior year.

Free cash flow generated in the fourth quarter and year ended December 31, 2020 was $65 million and $131 million respectively.

Compared favorably to $21 million $82 million for the comparable periods in the prior year.

In terms of accounts receivables day sales outstanding for the fourth quarter were 71 days compared to 81 days for the fourth quarter of 2019.

Inventories at December 31, 2020, where profit were $96 million compared to one on a $3 million from the previous quarter and $108 million as of December 31, 2019.

Before turning to guidance I would like to work for the long term financial framework, we presented previously and our preliminary results press release and at the Jpmorgan Healthcare Conference on January 13th earlier this year.

We included a slide deck on our fourth quarter earnings release, summarizing our long term financial framework.

I will walk you through the highlights.

Slide three highlights how our revenue base is resilient and highly visible in nature and is differentiated by.

First.

Ferry robust product backlog share.

Our long term sole source agreements with 145 of the top 300 U S health systems thirdly customers clearly failure offerings as evidenced by our strong customer retention rate of 99% for.

We are strong in size in annual service and maintenance revenue from our large installed base of connected devices, which is in the early stages of its upgrade cycles and lasting while nearly all of our revenue is highly visible roughly 40% of our revenue base is recurring in nature and we are focused on growth.

Percentage overtime.

Now moving to slide four.

An area of our business, which is driving substantial growth in high visibility revenue SaaS subscription software and tech enabled services revenue also calls offence surfaces.

The strong upside to our 2020 bookings was primarily driven by two factors.

One general momentum for from our long term sales force partnership agreements and then to the defense services significantly exceeding our internal plans.

This revenue type of seeing great momentum in pipeline and bookings and we expect the revenue CAGR, while for approximately 50% five zero from 2022 2025 for these events surfaces.

Services revenues expected to reach 20% to 30% of total omnicell revenues by 2025.

This is subscription based recurring revenue with high margin unit economics.

There are several key factors that enabled us to grow our defense services revenue so rapidly.

First of all Covid, clearly increased urgency to digitize and automate processes.

Throughout health systems, including the Digitization and automation of the pharmacy to reduce manual touches of medications and to enable health care providers to focus more on patient care and against the backdrop of the pandemic our solutions are more strategically relevant than ever.

The increased needs from health systems for outcome based solutions also is driving defense services growth and then lastly are strong and in parallel channel an installed base of connected devices is also driving defense services growth.

Slide five for underscores our commitment to drive profitable growth.

Through disciplined execution.

We are now targeting a 14% to 15% compound compounded total annual growth rate from 2021 through 2025, reaching $1 9 billion to <unk>.

$2 billion in 2025.

Of course, if you measure debt CAGR started for 2020, it will be materially higher.

On an organic base basis, we're targeting an 11% to 12% CAGR revenue CAGR from 2021 for 2025.

165 billion to $1 75 billion in 2025.

The main organic revenue growth drivers are grow and expand within your existing customer base.

Upgrade cycles.

On your market share gains.

And growth from innovation as we continue to deliver on the next level for the autonomous pharmacy.

But from an inorganic perspective, youre targeting a 3% CAGR from 2021 through 2025, we have a team focused on this and we are actively evaluating potential opportunities that will fit into our market leading platform. We also believe that we can leverage on strong channel to drive value from potential.

Acquisitions.

On slide six details our path towards continued margin expansion.

We are targeting a non-GAAP operating margin of 21%.

On a non-GAAP EBITDA margin of 25% for 2025.

This represents a non-GAAP operating margin and a non-GAAP EBITDA margin expansion of approximately 400 basis points from 2021.

We have build the company debt is able to scale very well and believe we are well positioned to deliver for this margin expansion in the coming years, driven by a number of factors, including improved business mix.

The long term customer partnerships economies of scale manufacturing savings and process efficiencies.

As we continue to scale the business, we expect to redeploy some of these savings into failure, creating growth and innovation initiatives.

Now moving onto our full year 2021 guidance.

As we look to the rest of the year.

<unk> for continuous strong momentum, particularly as the healthcare operating environment normalizes.

Since the third quarter of 2020, we generally have seen and continue to see our health care partners manage their strategic system implementations well during a pandemic search.

Two debt ends we expect 2021 product bookings to be between $1 billion on $90 million and $1 billion $150 million.

We expect total revenues to be between $1 billion and $85 million on $1 billion in.

$105 million, we expect product revenue to range between $770 million 7 million $85 million.

We expect service revenue to be between 315 and $320 million.

We expect total year non-GAAP EBITDA to be between 228 for $240 million.

We expect 2021 non-GAAP earnings to be between $3 40, and $2 60 per.

Per share.

For the first quarter of 2021 of you are providing the following guidance.

As we noted last quarter, we continue to invest in scaling our business to.

To support the expected increase in revenue on the timing of customer implementations.

We expect total revenues in the first quarter to be between $243 million for $248 million.

Product revenues between $171 million and $174 million.

Service revenues to be between $70 million to $74 million.

We expect non-GAAP EBITDA for the first quarter to be between 40% and $43 million and we expect first quarter non-GAAP earnings per.

Per share to be between 64 69 per share.

This is above the typical first quarter seasonal pattern as a result of our fairly strong exiting year end backlog.

In summary, we are very pleased with our financial and operational results for the fourth quarter and for full year 2020, and combined with the fact that we're still in the early stages of our journey towards your thought on this pharmacy for.

<unk> on the that Omnicell has a very bright future ahead.

With that we would like to open the call for your questions.

Okay.

Yes.

If you'd like to ask a question you need to press star one on your telephone that is star one on your telephone if you like to ask a question you're for.

First question comes from the line of Iris long with Baron capital.

Yes.

I think taking my question.

So first firstly, so it's great to know that you guys have a 145 sole source agreements with the top 300 health systems I'm. Just curious if you can kind of talk about.

What details are included in the agreement.

The agreement and then from these agreements do you kind of help us balance.

What product offering deep hospital systems are interested in purchasing and also I'm wondering like what percentage of these customers have expressed an interest in buying things like our central pharmacy dispensing system like the IV compound on at this time or even like the only sell software platform that you guys have.

Okay.

The credit says credit set of questions there.

So almost without exception the new long from sole source agreements. These partnerships are 10 times EBIT 15 years Theyre really led by advanced services Defense services really bringing you saw on them as pharmacy to life.

And most of the cases there are included.

Some of these are also market share gains.

And they make up a large percentage of our bookings from these long term agreements make up a large percentage of our total company bookings.

Eric This is Scott side on that I would just add to that I think thats all completely correct I think you've got to remember that a significant reason why these health systems are entering into these logs or long term sole source agreements with us is because of the complete portfolio of their interest lies in.

One or multiple of Oc omnicell, one CPD assets IV and as you can imagine from what we've disclosed about those service lines. The penetration is quite small and so so I think it should give you a really great indication of where the opportunity is in terms of our ability to upsell those customers.

Frankly, why they're entering into the agreements.

Okay.

Very helpful. And then a follow up question you guys talked about you're targeting 50% keesler for does that subscription revenue and the tech enabled service. We just wondering Mike likes to call. You have mentioned there are so many moving pieces here can you kind of name a few product or service that you expect.

You have the highest growth in the near term maybe by 12 to 18 line and then I'm also wondering is that 50% growth organic or have you kind of taken the assumption of acquisition.

So.

I think taking those questions in reverse order. The second one is the easiest that that that growth rate is organic we're not anticipating or essentially not factoring in the upside of acquisitions to accelerate those product lines.

Your first question on breaking it down obviously, we don't disclose the individual growth rates, what I would say is is that.

We feel that that growth that each one of those products or services has that opportunity for pretty substantial growth. So I don't think.

While we won't go into the details what I would say is that there isn't one that is in the near term or even in the medium term significantly outperforming the others. It's not a weighted average calculation. It's simply that we believe this portfolio as a whole is growing like this.

Okay got it that's helpful. Thanks for taking my questions.

Thank you.

Yes.

Your next question comes from the line of Scott shown on the house with Stephens.

Hey, Scott.

Randall Peter and team how are you guys.

Good.

Good.

My first question revolves around your expanding in life and health and $3 40 D link.

All four platforms.

On the in life and health side I believe you mentioned you now have over 2000 pharmacy stores signed up which if I look back at your press releases. It's a nice increase from mid January when you noted it was around 1000 can you talk about the ramp there given what we're seeing with.

Vaccine distribution I believe the total market opportunity you guys have outlined in the past is currently around 60000 stores in your network is that right and can you talk about what youre seeing with the.

Current state of the vaccination distribution.

Yeah. So so Kerr scheduler, which you have to think of as a module or a module on the in life and health platform and the platform as a whole is sold to retail pharmacies and does several things right med synchronization communication care scheduled areas is a module that they can.

Scribe to as an enhancement to the core platform and so I think to your point.

We have 2000 and thats grown rapidly, but you've got to remember that the way that the vaccine rollout has progressed is that retail pharmacies are really as sort of a late channel for the vaccine deployment and so I think that what I would infer from that is that we will continue to see a significant increase in those number of.

Facilities is as retailers as the channel has leaned on more and more to help vaccinate. The population is certainly we get out of that the frontline health care workers and beyond the the folks in nursing homes on El tax to you and I were going to rely more heavily on those retail pharmacies and we would expect continued growth there.

Great.

Thanks, Scott and then on the 340 <unk> link side I think you mentioned in your prepared comments you are seeing success in signing up clients.

On a trading this market, which is great I think that speaks to your services.

The strong services guidance that you provided.

Can you just talk more about how where you are in the cross selling.

Capabilities on top of your install base I think.

No.

The questions I get from investors is how quickly can they ramp up this cross selling of this software business all onto there pretty large installed base. So can you talk about the opportunities in the $3 40 day market, specifically and your opportunities for the year. Thanks.

Sure.

I think that if we step back the thesis for the acquisition of $3 40 billion was twofold, one of which is that our vision is to help providers solve.

Many of the complex problems that exist in pharmacy, one such problem is the <unk>.

Ever important they're financially important and rapidly growing $3 40, B program. It's just a very complex program to administer let alone optimized.

The 340 <unk> solution was a technology enabled service debt very much.

Engages and helps providers to do that with a technology architecture, and frankly, a business model that was very.

Sort of synchronous with the way that we were approaching our advanced services portfolio.

Second part of the thesis is that.

Given the breadth and depth of our channel and the strength of our sole source arrangement with the top 300 health systems that we could accelerate the growth of that business. Now we're early on in that that integration process of the story et cetera, but what I can say is that we're increasingly very bullish about.

Our channel's ability to scale that product and we see a lot of greenfield opportunity in the channel.

Okay.

Great. Thanks, guys I'll hop back in the queue.

Okay. Thanks.

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

Congratulations on a strong finish to the year and thanks for taking our questions.

Maybe the first one up.

Where do we sit in the ex T upgrade cycle, obviously, there was a little bit of disruption last year, but obviously and then you finished the year. So strong where are we and how many years left do we have of that upgrade.

Yes, so we I think as posted in the IR deck as well on our website.

Upgrade cycle for for just ex fee is a 36%.

If you measure it over the installed base for December <unk> of course, we've grown the installed base significantly since then.

6% net.

Okay. That's helpful. Thank you and then.

Question for you on the software side and I don't know if youll have this handy, but maybe just an approximation would be helpful. But what percentage of your installed base today is running omnicell, one and as you look out over the next couple of years I think on the someone's primarily related to the medication side is there an opportunity to rollout something comparable for the.

Supply side, we've seen that there's a lot of interest for that particularly in Europe, where they are.

Managing the suppliers as well and I think our software platform might be beneficial there.

Yes, so for silver member Omnicell, one is a service that combines workflow analytics and experts to help health systems in the U S. Today really do three things, which is one manage their inventory, so literally which drugs should day by deploy where should they put them utilized.

On predict et cetera, too is to take their pharmacy labor, which is one of the largest expense categories for hospital.

And really optimize that where should their pharmacy techs go when should they go there et cetera, and so it just gives them a tool that really helps manage that more efficiently and three.

Is really start to avoid compliance risk and for most notably.

Diversion, so avoiding diversion events and so.

So we are very early on in the penetration of this product in the market what I will say is that.

It has become a part of almost every of the vast majority of even ex T conversations with customers on the sell one not because you could imagine it's kind of like Microsoft office for running a pharmacy, it's become a significant portion of the conversation, but we are early on in that process in terms of the penetration of that as to your point on <unk>.

Regarding so in the U S drugs are obviously, the significant expense and supplies are a smaller expense outside of the U S that slipped right. As you as you noted that supplies are a much larger portion of the expense on drugs are much much smaller. So we certainly have heard that need and revision there could be an opportunity to build something similar to other.

OC one internationally to help manage supply and we're and I think we highlighted in the script that one of our UK Trust, we've actually partnered with on an exploratory way to look into doing exactly that.

Thats, great Alright, I'll hop back into queue. Thank you.

Thank you for you.

Your next question comes from the line of Sean Wieland with Piper Sandler.

Hi, Thanks for taking my question, it's on it's actually Jeff on for Shaun.

So congrats on the quarter on that the end of the year.

And I think our question just interested to know for you guys could kind of describe the lifecycle of a sole source customers, though from cabinets to maybe IV compounding our centralized autonomous pharmacy, and how long does that installation take.

<unk> taken what is kind of net revenue progression of assault on the other.

Typical cell source customer.

Okay.

So maybe we have posted on our IR deck on our website for real.

Sample off all of the other 42.

Local sole source agreements I think that example of that particular customer assets.

12 locations on the on the left side, you see implementations of point of care Central Pharmacy software.

Robotics every single year, if you will drive on the Kpis on the line so.

Vast majority of the other than the 45 long from sole source agreements.

Have these multiyear I couldnt follow medication management automation plan. So it of course is there for us by by customer, but by enlarge for for the large ones. They are implementations every single year it kind of depends on what their kpis are.

What they wrote a book that we can follow up for them.

And I would add to that that I think when you. When you look at the so called journey of a sole source customer I really break it into two phases phase. One is they haven't entered into sole source agreement with us yet maybe they were at G series customer and they are ready to do an.

On XT upgrade they've become very interested in it is very clear to them that the strength of the portfolio that they know at some point in the future. They want to explore IV. They maybe want to explore analytics, but it's because of that strength of that portfolio that they enter into the sole source at which point they enter into that maybe that comes along with the booking for cabinets, maybe thats the bookings for <unk>.

The second phase of that journey, which you can imagine is every one of these products that health care. The lifecycle of the sales cycle is long. It's 12 months 18 months et cetera, the challenge with most with selling anything into a health system and certainly in this case.

It's really working with that customer to develop a strategic plan to rollout over X number of years and so what the sole source agreement affords us is really a commitment on both sides to partner to understand not if youre going to buy IV or if youre going to buy OCC, one, but really to work with that customer almost in a.

Almost on the same side of the table for the first time that is the vendor, but a true partner to identify hey, when does this make the most sense, whether it's in your capital budgeting cycle or whether or not that's the change management, whether or not that.

You are changing your strategy and so that second phase it's varied, but it really does allow us almost in a in a unique way to develop almost a sense of.

Frankly, a recurring revenue stream over the next five years with these with these partners certainly high for stability.

And it.

Certainly helpful.

Yeah, and I guess just.

Want to add to that and certainly as you add on products that one plus one we need obviously is a network effect of all of the products that come together and the value delivered.

<unk> produces such higher so.

For concerns actually get higher so.

Yes.

Motivation to get through the platform.

And a reasonable fee.

Yes.

That's very helpful. Thank you and just a follow up and I think you guys mentioned that the advanced services portfolio with recurring revenue much higher margin and it's obviously going to grow pretty quickly over the next few years and is there another driver on the Opex side that we should looking at be looking at for and to contribute to the EBITDA margin.

Or is it primarily coming from.

Gross margin.

Yes, most of that for gross margin you can expect a little bit of leverage on the SG&A and kind of the outer years, if you will.

Got it thank you again.

Hey, Greg.

There are no further questions.

Sorry, you have one last question on from the line of Mitra.

Ram Gopal with Sidoti.

Yes.

Thank you.

Okay.

Yeah.

Mitra on your line may be muted.

Okay.

Yes.

Yeah.

Okay, why don't we move on moving to closing statement here as well.

Great well this is Randy Lipps, obviously.

Extremely pleased this year with the strong financial and operational performance in 2020.

<unk>.

Albeit early in the year the pandemic year debt.

We understood what COVID-19.

Didn't mean to the health care system.

And but most importantly, it really elevated the needs of pharmacy supply chain digitize solutions to help.

<unk> very difficult problems.

And it's really launch the company into this next phase of momentum, it's very exciting to go in in and connect with customers just not about some product replacement, but about a vision to get their pharmacy management up two places they never imagined they could get it before and that's exciting for me and advise me every day.

Including the first day I was driven by this three years ago.

Our lips.

With for.

And started this company.

So happy birthday, Sarah let's.

See you next time.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.