Q2 2024 Omnicell Inc Earnings Call

Aaron: Good morning and thank you for standing by. My name is Aaron and I will be your conference operator for today. At this time, I would like to welcome everyone to the Omnicell second quarter 2024 financial results call.

Operator: Operator for today. At this time, I would like to welcome everyone to the Omnicell second quarter 2024 financial results call. With that, I will turn the call over to Randall.

Aaron: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

Aaron: If you would like to withdraw your question, just press star followed by the number one again. Thank you.

Aaron: With that, I would like to turn the call over to Kathleen Nemeth, Senior Vice President,

Kathleen Nemeth: Good morning and welcome to the Omnicell second quarter 2024 financial results conference call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder, and Nchacha Etta, Executive Vice President and Chief Financial Officer.

Speaker Change: This call will contain forward-looking statements, including statements related to financial projections or performance, or other statements regarding Omnicell's plans, strategy, objectives, goals, expectations, planned investments, expense management, products, services, or solutions,

Speaker Change: Results of our holistic review initiative, our ability to deliver more consistent performance and drive long-term success.

Speaker Change: or marketing company outlook that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied.

Speaker Change: For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release issued today in the Omnicell Annual Report on Form 10-K filed with the SEC on February 28, 2024, and in other more recent reports filed with the SEC.

Speaker Change: Please be aware that you should not place undue reliance on any forward-looking statements made today. All forward-looking statements speak only as of the date hereof or the date specified on the call.

Speaker Change: Except as required by law, we do not assume any obligation to update or otherwise release publicly any revisions to our forward-looking statements. Our results were released this morning and are posted in the Investor Relations section of our website at ir.omnicell.com.

Speaker Change: Additionally, we would 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 financial results press release posted on our IR website.

Speaker Change: With respect to forward-looking non- GAAP measures , we do not provide a reconciliation of forward-looking non- GAAP measures to the comparable GAAP measures on a forward-looking basis, as these items are inherently uncertain and difficult to estimate and cannot be predicted without unreasonable effort.

Speaker Change: With that, I will turn the call over to Randall. Randall?

Randall Lipps: Thank you, Kathleen. Good morning, and thank you all for joining us to discuss our financial results for the second quarter of 2024 and our outlook for the remainder of the year.

Randall A. Lipps: We had a strong quarter and remained confident in our ability to position the company for continued long-term success. As I shared with you on our previous two earnings calls, we have been working to improve the company's financial performance while also investing in and releasing innovative medication management solutions for our XT point of care platform. Today, I'm pleased to share that we are progressing on both initiatives. At the same time, we have identified several areas of opportunity to take actions that are intended to further streamline our processes and that we believe will drive synergies across our businesses.

Randall Lipps: We had a strong quarter and remained confident in our ability to position the company for continued long-term success.

Randall Lipps: Also, we have completed our holistic review initiative.

Randall Lipps: which has validated our confidence in our refresh strategy, which focuses on innovations around our XT platform and offering services that are expected to increase our reoccurring revenue.

Randall Lipps: At the same time, we have identified several areas of opportunity to take actions that are intended to further streamline our processes and that we believe will drive synergies across our businesses.

Randall A. Lipps: We expect these actions to enable us to progress toward our goal of more consistent performance. Second quarter 2024 earnings per share, in accordance with GAAP, was a profit of $0.08 per share compared to a loss of $0.34 per share in the prior quarter and a profit of $0.08 per share in the second quarter of 2023. Our second quarter 2024 non-GAAP earnings per share were $0.51 compared with $0.03 per share in the prior quarter and $0.57 per share in the same period last year.

Randall Lipps: Our second quarter 2024 total revenues was $277 million.

Randall Lipps: Second quarter 2024 earnings per share in accordance with GAAP was a profit of $0.08 per share compared to a loss of $0.34 per share in the prior quarter and a profit of $0.08 per share in the second quarter of 2023.

Randall A. Lipps: Nchacha will provide more details of the drivers for this quarter's results, as well as further details regarding our outlook for the remainder of the year. We are pleased to report that XD Amplify appears to be responding well with the market and the program is demonstrating a strong next step forward for us in the journey to deliver outcome-centric innovations. We also have further announcements slated for the next several quarters and look forward to sharing these with our current and future customers, as well as all of you, on our total revenue for the full year 2024.

Chacha: Nchacha will provide more details of the drivers for this quarter's results, as well as further details regarding our outlook for the remainder of the year.

Speaker Change: We are enthusiastic about the multi-year journey we have embarked upon here at Omnicell, and are particularly pleased with the early customer feedback we are receiving.

Speaker Change: Health Systems

Nchacha Etta: and post-acute facilities that have invested in Omnicell's XT automated dispensing systems while also seeking to drive enhanced clinical and operational outcomes at the point of care and within pharmacies.

Speaker Change: We also have further announcements slated for the next several quarters and look forward to sharing these with our current and future customers as well as all of you.

Speaker Change: As we indicated last quarter, XT Amplify is just the beginning of our reinvigorated focus on new products and services, which we expect to drive long-term growth.

Speaker Change: We are also seeing strong demand for our advanced services, which are designed to drive improved medication management outcomes across the full care continuum.

Speaker Change: Omnicell Advanced Services were 22% of our revenue for the first and second quarters of 2024.

Speaker Change: of our total revenue for the full year 2024.

Speaker Change: We anticipate total reoccurring revenue, which includes consumables and technical services, to represent approximately 50% of total revenue for the full year 2024.

Randall A. Lipps: Now turning to a few selected highlights of our customer wins this quarter. As health systems continue to consolidate through mergers and acquisitions, we find the need to standardize medication management care across a growing enterprise is more important than ever. A nationally ranked academic medical center in Illinois and long-term customer has selected Omnicell point-of-care and infrastructure solutions to standardize and scale their medication management capabilities. An integrated health system spanning Iowa, Wisconsin, and Illinois has selected Omnicell as their long-term partner to seamlessly automate and manage medications across their 16 facilities.

Speaker Change: As health systems continue to consolidate through mergers and acquisitions, we find the need to standardize medication management care across a growing enterprise is more important than ever.

Speaker Change: This includes replacing competitive solutions as they merge new facilities into the health system and upgrade their existing fleet of Omnicell systems.

Randall A. Lipps: This includes replacing previous generation systems with XT automated dispensing systems, while also upgrading existing XT units with XT-Extend, a new console designed to provide high-level security and an enhanced nursing user experience. Advanced Services also delivered solid performance this quarter. One highlight is that a multi-hospital system in Southeast Pennsylvania selected Omnicell's Central Pharmacy Dispensing Service in an effort to enable streamlined medication dispensing operations at their two main

Speaker Change: Medication safety is a top priority for this company.

Speaker Change: This should also help identify narcotic discrepancies, enable them to better manage diversion events throughout the enterprise.

Speaker Change: Being able to provide the right medication at the right time should facilitate accurate and timely dispensing, providing complete audit trails, and save time for their pharmacists, nurses, and technicians.

Speaker Change: One highlight is that a multi-hospital system in Southeast Pennsylvania selected Omnicell's Central Pharmacy Dispensing Service in an effort to enable streamlined medication dispensing operations at their two main facilities.

Randall A. Lipps: Adopting the XR2 robot within their central pharmacy as a standard of care should help to streamline medication storing, picking, and dispensing. Omnicell's Specialty Pharmacy Services seeks to help customers expand their outpatient pharmacy programs, deliver high-quality patient care, and maximize pharmacy performance through technology and expert services, including 340B third-party administrator solutions. This is an area of investment for Omnicell, and we are encouraged by the growth and market potential. In summary, Omnicell delivered a strong second quarter.

Speaker Change: Our enlivened brand, part of our advanced service portfolio, continues to deliver solutions designed to help retail pharmacies and health systems optimize patient care and drive sustainable growth.

Speaker Change: Later today, we will be announcing that a strategic partner has selected Enliven Health's Scope of Practice and Reimbursement Snapshot, a first-of-its-kind solution

Speaker Change: that is designed to provide their independent pharmacy members with access to up-to-date information regarding the clinical services that can provide in-their-state and reimbursed details for those services.

Speaker Change: And finally, Omnicell's specialty pharmacy services grew by opening numerous new managed pharmacy locations and optimizing the performance at existing pharmacies in the first half of 2024.

Speaker Change: This is an area of investment for Omnicell, and we are encouraged by the growth and market potential.

Speaker Change: In summary, Omnicell delivered a strong second quarter. We recognize that there is more work to do as we take actions that are intended to improve our financial performance and deliver consistent results.

Randall A. Lipps: We recognize that there's more work to do as we take actions that are intended to improve our financial performance and deliver consistent results. However, we are pleased to see that the demand environment is tracking in line with our initial expectations, as well as strong demand for Omnicell specialty pharmacy services. We have taken and will continue to take what we believe is a prudent and cautious approach to expense management as we roll out our exciting innovation agenda.

Speaker Change: I am very proud of the team's laser focus on outcome-centric innovation, customer success, and our purpose to be healthcare providers' most trusted partner to enable the autonomous pharmacy transformation.

Speaker Change: Now let me turn it over to Nchacha for the financial update. Nchacha?

Nchacha Etta: Thank you, Randall.

Nchacha Etta: I am going to walk you through some of the drivers for our second quarter 2024 performance, as well as our outlook for the remainder of the year.

Nchacha Etta: The drivers for our second quarter results included a healthy number of installs for our point-of-care suite of products, as well as strong demand for Omnicell's specialty pharmacy services.

Nchacha Etta: We have taken, and will continue to take, what we believe is a prudent and cautious approach to expense management as we roll out our exciting innovation agenda.

Randall A. Lipps: The disciplined approach we took to managing our expenses helped contribute to our strong bottom-line results in the second quarter of 2024. I am so proud of our Omnicell team, who continue to demonstrate their commitment to our promise and our guiding principles on a daily basis.

Nchacha Etta: The disciplined approach we took to managing our expenses helped contribute to our strong bottom line results in the second quarter of 2024.

Nchacha Etta: I am so proud of our Omnicell team who continue to demonstrate their commitment to our promise and our guiding principles on a daily basis.

Nchacha Etta: Their commitment is fundamental to delivering improved patient outcomes.

Nchacha Etta: Our second quarter 2024 total revenue were $277 million, an increase of $31 million or 12% over the prior quarter, and a decrease of $22 million or 7% over second quarter of 2023.

Randall A. Lipps: The revenue decrease over the prior year reflects the impact of the macroeconomic environment and the timing of the XT product lifecycle, while the macroeconomic landscape is showing early signs of health system budgets improving. Services revenue was $120 million, an increase of 7% over the previous quarter and an increase of 9% over the second quarter of 2023, and the impact of our pricing actions. Revenues in the quarter were aided by strong performance of Omnicell's Medication Management XT point-of-care solution and Advanced Services Offerings, particularly Omnicell Specialty Pharmacy Services, which are posted on our investor relations website, and a profit of $0.08 per share in the second quarter of 2023. We are pleased with the strong collections in the quarter. Inventories as of June 30, 2024 were $93 million.

Nchacha Etta: While the macroeconomic landscape is showing early signs of health systems budgets improving.

Nchacha Etta: It would take some time to be reflected in our revenues as health systems customer budgets become available and are converted to bookings and ultimately revenues upon implementation.

Nchacha Etta: Product revenues were $157 million, an increase of 17% over the previous quarter, and down 17% compared to second quarter of 2023.

Nchacha Etta: Both technical services and advanced services contributed to the growth over the second quarter of 2023, reflecting the growing technical services in-store base and the impact of our pricing actions, as well as customer demand for our advanced services.

Nchacha Etta: Total revenues in the quarter were $17 million above the top end of our previously disclosed second quarter 2024 guidance range.

Nchacha Etta: with product revenues accounting for approximately $12 million of the overachievement and services revenue accounting for the remaining $5 million.

Nchacha Etta: Revenues in the quarter were aided by strong performance of Omnicell's Medication Management XT point-of-care solutions.

Nchacha Etta: and Advanced Services Offerings, particularly Omnicell Specialty Pharmacy Services.

Nchacha Etta: non-GAAP gross margin for second quarter 2024 was 44.2%, an increase of 440 basis points from the prior quarter, primarily due to higher volume leverage, and what we believe is our continued prudent expense management.

Nchacha Etta: A full reconciliation of our GAAP to non-GAAP results are included in each of our first quarter 2024 and second quarter 2024 Earnings Press releases, which are posted on our Investor Relations website.

Nchacha Etta: Our second quarter 2024 earnings per share in accordance with GAAP were a profit of $0.08 per share compared to a loss of $0.34 per share in the prior quarter and a profit of $0.08 per share in the second quarter of 2023.

Nchacha Etta: As we have mentioned, it is management's goal to return to consistent GAAP profitability.

Nchacha Etta: Our second quarter 2024 non-GAAP earnings per share was $0.51 compared with $0.03 per share in the prior quarter and $0.57 per share in the same period last year.

Nchacha Etta: A decrease of $10 million from the prior quarter and a decrease of $37 million from June 30, 2023.

Nchacha Etta: The $10 million decrease in the second quarter 2024 inventories includes approximately $6 million for an inventory write-down related to the planned RDS restructuring we announced previously.

Randall A. Lipps: A decrease of $10 million from the prior quarter and a decrease of $37 million from June 30, 2023. The $10 million decrease in second quarter 2024 inventories includes approximately $6 million for an inventory write-down related to the planned RDS restructuring we announced previously. Now turning to our guidance. For the full year 2024, we anticipate bookings to be in the range of $775 million to $875 million. Non-GAAP EBITDA is expected to increase in the range of $105 million to $125 million.

Nchacha Etta: Now turning to our guidance.

Nchacha Etta: First, based on our strong results delivered in the second quarter of 2024 and our current visibility for the remainder of the year, we are updating our full year 2024 outlook.

Nchacha Etta: non-GAAP EBITDA is expected to increase to the range of $105 million to $125 million.

Randall A. Lipps: Non-GAAP EPS is expected to increase to a range of $1.20 to $1.50. We expect total third-quarter 2024 revenues to be between $275 million and $285 million, with product revenues to be between $159 million and $164 million, and services revenue between $116 million and $121 million. Given our second quarter performance and our expectations for the third quarter, we expect the second half 2024 revenues trend to conform with historic seasonal patterns in which second half total revenues are slightly above first half total revenues. We expect the third quarter 2024 non-GAAP EBITDA to be between $28 million and $34 million.

Nchacha Etta: non-GAAP EPS is expected to increase to a range of $1.20 to $1.50.

Nchacha Etta: Regarding our outlook for the third quarter of 2024, we are providing the following guidance.

Nchacha Etta: with product revenues to be between $159 million and $164 million and services revenue between $116 million and $121 million.

Nchacha Etta: Given our second quarter performance and our expectations for the third quarter, we expect the second half 2024 revenues trend to conform with historic seasonal patterns in which second half total revenues are slightly above first half total revenues.

Nchacha Etta: We expect the third quarter 2024 non-GAAP EBITDA to be between $28 million and $34 million.

Nchacha Etta: We expect the third quarter 2024 norm gap earnings per share to be between $0.34 per share and $0.44 per share.

Randall A. Lipps: Non-GAAP EBITDA and Non-GAAP EPS guidance for the third quarter 2024 reflects employee salary merit increases issued in early third quarter 2024, which were the first broad salary increases in two years, as well as some seasonal expenses. Specifically, beginning in 2025, we plan to begin providing a breakout of our product bookings and an annual reoccurring revenue metric for our reoccurring services business. We believe this will assist in understanding and modeling our business, and as we continue to pivot towards driving recurring revenue, we expect it to be an important internal metric as we manage our business.

Nchacha Etta: non-GAAP EBITDA and non-GAAP EPS guidance for the third quarter 2024 reflects employee salary merit increases issued in early third quarter 2024, which were the first broad salary increases in two years, as well as some seasonal expenses.

Nchacha Etta: Before I conclude, I would like to note that, beginning in 2025, we anticipate providing you with additional information on our annual bookings expectations.

Nchacha Etta: We believe this will assist in understanding and modeling our business, and as we continue to pivot towards driving reoccurring revenue, we expect it to be an important internal metric as we manage our business.

Randall A. Lipps: In summary, we are pleased with our results for the second quarter of 2024, and I would now like to open the call for questions. Our first question comes from the line of Stan Berenshteyn with Wells Fargo. Your line is live.

Nchacha Etta: In summary, we are pleased with our results for the second quarter of 2024, and I would now like to open the call for questions.

Speaker Change: Thank you. Ladies and gentlemen, at this time I would like to remind everyone that in order to ask a question you just simply need to press star followed by the number one on your telephone keypad. We will pause for just a second to compile the Q&A roster.

Stanislav Berenshteyn: Yes, hi, thanks for taking my questions. Maybe first on product revenue. It's nice to see the quarter you beat by $14 million.

Speaker Change: Yes, hi, thanks for taking my questions. Maybe first on product revenue. It's nice to see the quarter, you beat by $14 million, but looking at four-year guidance, it looks like midpoint of the guidance range actually came down by $7 million. Can you just walk us through what drove the beat in the quarter and what contributed to the guidance revision? Thanks.

Randall A. Lipps: But looking at four-year guidance, it looks like the midpoint of the guidance range actually came down by $7 million. Can you just walk us through what drove the beat in the quarter and what contributed to the guidance revision? Yes, Stan, thanks for the question. So what contributed to our revenue increase was increased demand; we saw strong demand for our point of care product portfolio as well as increased demand or strong performance from our specialty pharmacy services business.

Speaker Change: Yes, Stan, thanks for the question. So, what contributed to our revenue was increased. We saw strong demand in our point-of-care product portfolio, as well as increased demand or strong performance for our specialty pharmacy services business.

Randall A. Lipps: In terms of the full year, we're very confident about our guidance because we do have good visibility today into our implementation plan, as well as what we consider to be a very healthy backlog. And so we do feel that we are in line to deliver our guidance for the full year.

Randall A. Lipps: So, for the second quarter, was the B driven more of a timing issue where you've got some business up front, and then for the guidance range, was the top end of the guidance range revised down just as a function of bookings that you expect it to burn that might not burn, kind of how should we think about the puts and, Now, what we what we've provided from a guidance standpoint is primarily driven by what we believe will be a And the product revenues, we do believe, will continue to perform well through the second half of the year.

Speaker Change: So, for the second quarter, was the B driven more of a timing issue, where you got some business up front? And then for the guidance range, was the top end of the guidance range revised down just as a function of bookings that you expected to burn that might not burn? How should we think about the puts and takes on that?

Speaker Change: So, what we've provided from a guidance standpoint is primarily driven by what we believe will be continuous strong demand for our specialty pharmacy services business.

Randall A. Lipps: But it's, again, primarily driven by the implementation schedule that we have visibility into the second half. Yeah, we're really looking at, you know, Yeah, I think there's a lot of interest in that area because there's a need to solve a lot of problems. With the new guidance that was given at the end of last year, we're finding ourselves having to continue to adjust some of the features and functions of our robot in order to help meet the efficiencies needed to get the ROI.

Speaker Change: Got it. Okay, and then on the holistic review, it seems like you found some opportunities to save some cost. Can you size for us what kind of opportunities you found and maybe what the timeline to capture those synergies would be?

Speaker Change: Yeah, we're really looking at, you know...

Speaker Change: We're continuing to improve the performance in the second half of the year, and so we do expect that the cost savings will continue to contribute to our overall performance. You know, we've really focused on prudence expense management, and we do expect that that will continue through the end of the year.

Speaker Change: Got it. Helpful. And then maybe just a very quick one, we'd just love to get an update on the demand environment for your compounding and central pharmacy robotic solutions. Thanks.

Speaker Change: Yeah, I think there's a lot of interest in that area because there's a need to solve a lot of the problem.

Speaker Change: With the new guidance that was given at the end of last year, we're finding ourselves having to continue to adjust some of the features and functions of our robot in order to help meet the efficiencies needed to get the ROI.

Randall A. Lipps: And so we still continue to deploy those robots, but more slowly as we continue to build out the feature set that will help meet those regulations. So a lot of interest. We're still getting bookings, but the deployment is slower. Thank you. Thank you, Stan, for those four questions.

Scott Anthony Schoenhaus: Next question. Our next question is from the line of Scott Schoenhaus with KeyBank. Your line is, Hey, guys. Thanks for taking my question and for the good quarter. You know, you talked about the XT Amplify a lot, and you're seeing strong demand. Can I just say that the app can provide more color there.

Speaker Change: Our next question is from the line of Scott Schoenhaus with KeyBank. Your line is live.

Scott Schoenhaus: Hey guys, thanks for taking my question and the good quarter. You know, you talked about the XP Amplify a lot and you're seeing strong demand. Can I just...

Unknown Executive: The healthy demand you're seeing, you know, how much of that on the product side is embedded in your guidance? I guess maybe the context of how much it is currently and then how much it is embedded in your guidance for this year, and then I'll have a follow-up question again on that. But first, I wanted to just drill in more on that.

Scott Schoenhaus: ask if you could provide more color there. The healthy demand you're seeing, how much of that on the product side is embedded in your guidance? I guess maybe context of how much it is currently and then how much of it

Speaker Change: and compounding. But first, I wanted to just drill in more to the XT-EMPFY.

Unknown Executive: Yeah, the XTA Amplify is. Yeah, I don't know if we have a stated number. And maybe the callbacks; we can dig that up for you. But, you know, we are at the end of the XT, but there are several customers that haven't upgraded their G-Series yet or all their G-Series yet. And so we're seeing that demand kind of come unlock. And so as we finish the end of the XT series, it's, you know, there's, it probably unwinds most of it over the next 24 months. There are two questions.

Speaker Change: Yeah, the XTA Amplify is...

Speaker Change: is really about a statement about the investment in the XD fleet.

Speaker Change: And so as we deploy that product, it gives customers confidence to not only upgrade their systems, but also expand, as we did in a couple examples in the call script.

Speaker Change: So the XT Amplify itself is not going to contribute a lot to the revenues this year, so most of those bookings that we're getting this year for the actual XT Amplify products.

Speaker Change: probably will hit next year, but it also gives customers confidence today

Speaker Change: So, so it's building, you know, it's building, XTMPI is building in the backlog.

Randy: Really helpful, Randy. So I guess the natural follow-up there is then where are you on your upgrade cycle for the XT series now versus last quarter? That would be helpful.

Randy: Yeah, I don't know if we have a stated number, and maybe the callbacks, we can dig that up for you. But, you know, we are at the end of the XT, but there are several customers that haven't upgraded their G-Series yet, or all their G-Series yet. And so we're seeing that demand kind of come unlocked.

Matthew Gregory Hewitt: Thanks, guys. Our next question is from the line of Matt Hewitt with Craig Halem Capital Group. Your line is live.

Speaker Change: There are two questions. Thanks, guys.

Speaker Change: Thank you for your question.

Randall A. Lipps: Good morning, and congratulations on the strong quarter. Maybe first up, if you could talk a little bit about the XT-XTEND pipeline, and I don't know if you're ready to talk a little bit about the backlog, but obviously, it seems like there's been a strong reception. And if I'm correct, the turnaround time, and the implementations of the XT-XTEND should be much faster, allowing for faster revenue conversion. Is that correct?

Speaker Change: Good morning and congratulations on the strong quarter. Maybe first up, if you could talk a little bit about the XT-XTEND pipeline, and I don't know if you're ready to talk a little bit about backlog, but obviously it seems like there's been a strong reception, and if I'm correct, the turnaround, the implementations of the XT-XTEND should be much faster, allowing for faster revenue conversion. Is that correct?

Randall A. Lipps: Yeah, that is correct, and the pipeline has been building quite rapidly since the announcement. And I think, along with the macroeconomic environment, it is slowly improving. And probably really important to us, not just the ability to purchase the products but hospitals having the available manpower to actually assist in doing their part with the installation. And that, particularly, we saw in the second quarter, where all the things that we had scheduled were as planned; there were no slowdowns or speed ups.

Speaker Change: And probably really important to us, not just the ability to purchase the products.

Randall A. Lipps: And so that really allows us to be more efficient and more predictable. And we think that environment will continue throughout the year. And you are correct, as you look at the XT console upgrades, those, in particular, are not as much manpower-intensive to do. Now, many times we'll also upgrade the servers, which require us to get aligned with the IT department. And so that may be the only factor that takes a little bit of a time factor but doesn't take much of a people factor.

Unknown Executive: And that's usually included in the Amplify upgrade. And I would also add that, Matt, it does take time to get into the capital approval process. So it is part of that process in addition to IT, as Randy mentioned. Yes, Pat, we do expect our gross margin to continue to improve over time, especially as our advanced services business continues to scale. But most importantly, as we said in our prepared remarks, with our multi-year innovation strategy, we do expect that, you know, we will see some improvement in our margins as our business continues to grow. And then I'll thank you also.

Speaker Change: Yes, Pat. We do expect our gross margin to continue to improve over time, especially as our advanced services business continues to scale.

Speaker Change: But most importantly, as we said during the prepared remarks, with our multi-year innovation strategy, we do expect that, you know, we will see some improvements in our margins as our business continues to grow.

Matthew Gregory Hewitt: Great, thanks, Matt. Next question. This next question is from the line of David Larsen with BTIG. Your line is live.

Speaker Change: Great, thanks Matt. Next question. Next question is from the line of David Larsen with BTIG. Your line is live.

David Larsen: Hi, Randy, can you please talk a bit about advanced services?

David Larsen: And just remind us, what are the key products within advanced services? I mean, I think you highlight that on page two of the press report.

David Larsen: I think you list a couple of them. And then what is the revenue contribution and the EBITDA margin for advanced services in totality, please? Thanks very much.

Speaker Change: setting up specialty pharmacies inside hospitals, as well as helping them to execute their 340B program locally, as well as using our third-party 340B services. It's kind of a combination that we use there.

Speaker Change: Secondly is our enlivened health which is

Speaker Change: primarily focused at retail and outpatient pharmacies. We continue to see that grow. We've signed up some nice customers and we believe that ARR is going to continue to grow and that's a more relatively high gross margin business.

David Michael Larsen: And then, and lastly, is the advanced services portion of products that are robotic. And so IVs and robots that are placed in pharmacies to run the XR2, those, as well, are growing as customers continue to buy these systems and place them and put them in place. So those are the three major components of our advanced services, and we feel really good about both their growth and their scaling to make margin. Great

Speaker Change: and in pharmacies to run the XR2.

Unknown Executive: And what percentage of revenue and what is the EBITDA margin for advanced services? And then, what are the components of? I think you describe it as like TEZ, tech-enabled services, and also consumables. So it seems like, in addition to advanced services, there is this other sort of piece of recurring revenue. I'm just trying to get a sense for what your total recurring revenue is the advanced services portion of that, and what the EBITDA margin is on those pieces.

Speaker Change: Great, and what percentage of revenue and what is the EBITDA margin for advanced services? And then, what are the components of, I think you describe it as like, TES, tech-enabled services and also consumable? So it seems like...

Speaker Change: In addition to advanced services, there is this other sort of piece of recurring revenue. I'm just trying to get a sense for what is like your total recurring revenue is the advanced services portion of that and what the EBITDA margin is of those pieces. Thank you.

Unknown Executive: Yeah, just to be clear, those three services that I just articulated are the advanced services. We have tech services, which are break and fix services, which is not part of the advanced service, but it is a service. We also sell consumables products, and that is not part of, it's a product, and so it's not part of the advanced services either.

Speaker Change: And that is not part of, it's a product, and so it's not part of the advanced services either. But the advanced services are the new lines that we've

Unknown Executive: But the advanced services are the new lines that we've built up over the last few years to create more solutions for our customers that enable us to solve problems that they can't solve without it being in the form of a service. And the breakout of the EBITDA, I'll leave that up to the finance team to describe that. Yeah, and just specifically, Dave, so advanced services, we expect this year to be about 21% of our revenue.

Unknown Executive: That's just for the advanced services part. The others that you mentioned, consumables, and then our tech services, which you can think about more like field service, bring the total recurring revenues to about 50%. So 21% or so for advanced services, with the remainder being consumables and technical services, bringing the total to 50% of revenue for the year 2024. Great.

Speaker Change: Yeah, and just.

Speaker Change: Specifically, Dave, so advanced services, we expect this year to be about 21% of our revenue.

Speaker Change: That's just for the advanced services part. The others that you mentioned, consumables, and then our tech services, which you can think about more like field service, brings the total recurring revenues to about 50%.

Speaker Change: 21% or so for advanced services, with the remainder being consumables and technical services, bringing the total to 50% of revenue for the year for 2024.

William Sutherland: Thanks very much for your questions. Our next question comes from the line of Bill Sutherland with The Benchmark Company. Your line is live.

Speaker Change: Thanks for your questions. Our next question comes from the line of Bill Sutherland with The Benchmark Company. Your line is live.

Unknown Executive: Thank you. The idea that you just mentioned with Select Medical is to introduce XT into their systems? Well, I guess it is.

Nchacha Etta: So, what's that? So, what's the takeaway? And then just one little housekeeping question. Nchacha, at the midpoint, on the EBITDA guidance. It implies that the second quarter will be the, Yes, our second quarter EBITDA is primarily driven again by, you know, the line of sight that we have today to our plan implementation. And so we do expect this to be in line with our historical pattern. Yeah, in Q3, we have some extra expenses, right?

Speaker Change: That's for you. Okay.

Bill Sutherland: And then just one little housekeeping question, Nchacha. At the midpoint...

Speaker Change: on the EBITDA guidance.

Nchacha Etta: Yes, our second quarter EBITDA is primarily driven again by, you know, the line of sight that we have today to our planned implementation. And so we do expect this to be in line with our historical patterns.

Nchacha Etta: Yeah. And pay increases and some seasonal expenses, yeah, all expenses hanging out here. You know, keep doing the math at the midpoint for the year. Fourth quarter EBITDA is kind of in line with, and anything I should think about relative to that. No. I mean, we do feel confident about our second half of the year, including our TB death.

Speaker Change: Okay, I figured it was something like that, and then it looks like just, you know, doing the math at the midpoint for the year.

Unknown Executive: Thanks, everybody. Thank you. Our next question is from the line of Stephanie Davis with Barclays. Your line is live. Hi guys, this is Anna Krasinski on behalf of Stephanie.

Stephanie July Davis: Thank you for taking our questions and congratulations on the quarter. I was hoping to talk a little bit about guidance and your visibility for the rest of the year and just what are the key swing factors that can get you to the high versus low end of the race? primarily driven by visibility into our plant implementations, number one. And considering our strong first half, we're going into the second half with a very high quality backlog.

Anna Krasinski: Hi guys, this is Anna Krasinski on for Stephanie. Thank you for taking our questions and congrats on the quarter. I was hoping to talk a little bit about guidance and your visibility for the rest of the year and just what are the key swing factors that could get you to the high versus low end of the range.

Speaker Change: Primarily is driven by visibility to our plant implementations, number one, and we do, considering our strong first half

Unknown Executive: And we do expect that, you know, our second half will definitely be in line with what we've seen from a historical patent standpoint. We do feel very confident that we will be able to deliver on the guidance that we've provided. Yeah, I think about it from two different, several different views. One is that nursing is always, a very sensitive area.

Speaker Change: Component there is that

Speaker Change: Because hospitals are not as constrained on the employee side and are more ready to accept these installations.

Speaker Change: We have hardened schedules for the next nine months that we believe we won't see any disruptions, and so...

Speaker Change: Probably the high end of the guidance is about keeping to those schedules that these healthcare systems have put in place and our new processes have really kicked in to allow us to give us this longer term view.

Unknown Executive: And to the point that we can put features and functions and innovations that help nursing, it tends to be very key. And XT Amplify does have feature sets and product profiles that really help nurses, and so that's one reason it resonates well with the market. But on the tech side and the pharmacy side, those who help implement the systems, those who are responsible for the implementation process, we've seen some relief there.

Speaker Change: A very sensitive area, and to the point that

Anna Krasinski: Weekend

Speaker Change: It tends to be very key and the XT Amplify does have feature sets and product profiles that really help nurses and so that's one reason it resonates well with the market. But on the tech side and the pharmacy side

Unknown Executive: And that gives pharmacists confidence that they can put these systems in place and get good results. And because we see that pressure is lessening, we can make commitments with customers a lot further out on the kinds of things we want to do and can do. And you've got to remember, in some cases, we're installing robots. Sometimes you have to prepare the floor, bring in extra electrical, do things that are just beyond basic things that ADCs don't require much improvement. But, you know, robots do take some improvement.

Unknown Executive: So seeing that they have the labor and time and money and willingness to do that is definitely changing. Our next question is from the line of Allen Lutz with Bank of America. Your line is live. Good morning. Thanks for taking the questions. One for Randy or Nchacha.

Speaker Change: Labor and time and money and willingness to do that is definitely changing.

Speaker Change: Our next question is from...

Speaker Change: Thank you. Our next question is from the line of Allen Lutz with Bank of America. Your line is live.

Allen Charles Lutz: As we think about gross margin performance in the product segment, can you can you talk about it? And we feel like customers are really interested in platform plays, and platforms, or less plays, are less sensitive to pricing than product pricing, if you will. And to that extent, it's been very, very positive for us. And as we think about the macro environment maybe becoming a little bit more accommodative and some of the green shoots starting to show, as you think about some of the macro factors and then where you are in terms of the XT upgrade cycle, you know, what do you think is more important, you know, as you think about the next maybe one, two, or three years? Is macro going to be a more important driver here?

Speaker Change: And we feel like that customers are really interested in platform plays, and platforms or less plays are less sensitive to pricing than product pricing, if you will. And to that extent, it's been very, very positive for us.

Allen Lutz: As you think about the next maybe one, two, or three years, is the macro going to be a more important driver here, or is it going to be more around the pickup of that upgrade that you put out there?

Randall A. Lipps: Is it, or is it going to be more around the pick-up of that upgrade that you put out there? Thanks. Yeah, I think it's important for us to continue to innovate because, at the end of the day, hospitals need systems that drive efficiency, meet the demands of pharmacy and nursing and meet the demands of other places than inpatient. They need products in outpatient.

Speaker Change: Yeah, I think it's important for us to continue to innovate because at the end of the day hospitals need systems that

Randall A. Lipps: You've seen in many of the public hospital reports that their outpatient business is driving a lot of profits and growth. And so as we innovate, we want to make sure that we have this holistic enterprise solution that really meets what our customer needs are, which are much broader markets. So I think that's going to have the biggest impact on our growth profile. Thanks, Randy.

Speaker Change: of other places than inpatient. They need products in outpatient. If you've seen in many of the...

Randy: Thanks, Randy.

Unknown Executive: Thank you very much. Thank you. Our next question is from the line of Jessica Tassan with Piper Sandler.

Jessica Elizabeth Tassan: Your line is live; your go-to-market will change as you kind of get deeper into the XT Amplify cycle. Have you changed the structure of your sales force or realigned the sales force? And I guess, can you give us any stats on the average tenure of a sales leader, just so that we can have confidence that, you know, these consultative and kind of long-term relationships exist that provide a fertile hunting ground for some of these XT Amplify products? Thanks.

Speaker Change: Thank you guys for taking the question. So I wanted to just ask, I'm curious if your go-to-market will change as you kind of get deeper into the XT Amplify cycle. Have you changed the structure of your sales force or realigned the sales force? And I guess...

Speaker Change: Can you give us any stats on the average tenure of a sales leader just so that we can get confidence that, you know, these consultative and kind of long-term relationships exist that provide a fertile hunting ground for some of these XT Amplify products? Thanks.

Unknown Executive: Yeah, I think it's. We have a great structure in our sales force, particularly for our larger customers. We have dedicated executives, as well as success managers focused on those accounts and realize that XD Amplify is just not about a product upgrade. It's really an enterprise rollout that allows you to access more solution sets and deliver more results. So the XD Amplify is really a spearhead and a great reason for every sales rep, for every customer, to have a meeting with a customer.

Speaker Change: You know, we have a great structure in our sales force, particularly for our larger customers. We have dedicated executives as well as success managers focused on those accounts. And realize the XD Amplify is just not about a product upgrade. It's about really an enterprise.

Unknown Executive: So that's why the pipeline is building very well because it's a great go-to-market conversation and will drive, you know, and will be the center of driving a lot of results for the next couple of years.

Speaker Change: So, that's why the pipeline is building very well, is because it's a great go-to-market conversation and will be the center of driving a lot of results for the next couple of years.

Anne Elizabeth Samuel: Thank you for your question. Our last question for today is from the line of Anne Samuel with J.P. Morgan. Thanks so much for taking the question. You know, you've spoken a few times today about the improving macro environment. And I was hoping maybe you could just touch on what your conversations with your customers have been like around their finances, and you know, maybe what some of the key metrics that you're tracking are. And then, finally, just how you think about the rate of change of improvement in the macro as it relates to your pipeline.

Speaker Change: Thank you for your question.

Speaker Change: These health systems are investing in expanding their footprint.

Speaker Change: In the last 48 hours, I was in three of our largest ones.

Speaker Change: They have a strategic...

Speaker Change: goals to not only improve efficiency, but to keep those patients in their system.

Speaker Change: and make sure medication management is central to that engagement with the patient.

Speaker Change: When I go to a site and they're not expanding, they're kind of standalone-ish, they're not moving out.

Speaker Change: That's really helpful. Thank you.

Unknown Executive: That's really helpful. Thank you. Thank you for your question. And ladies and gentlemen, that will conclude the Q&A portion of today's call. I would like to turn the call back over to Mr. Lipps for closing remarks.

Speaker Change: Thank you for your question. And ladies and gentlemen, that will conclude the Q&A portion of today's call. I would like to turn the call back over to Mr. Lipps for closing remarks.

Mr. Lipps: and Expansion Strategy.

Mr. Lipps: I really want to thank the Omnicell team for their focus over the last six to nine months to get us to this point, and it's just exciting to see all of these new products and new customers coming on board. Thanks very much.

Speaker Change: Thank you, and ladies and gentlemen, that will conclude today's call. Thank you for joining. We'll see you next time. Have a great day.

Speaker Change: Copyright © 2020, New Thinking Allowed Foundation

Speaker Change: [inaudible]