Omnicell, Inc.

Good morning, and welcome to the OmniCell Third Quarter 2024 Financial Results Conference Call. On the call with me today are Randall Lipps, OmniCell Chairman, President, CEO, and Founder, and Chacha Etta, Executive Vice President and Chief Financial Officer. 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 initiatives, the new chief operating officer appointment, products, services, or solutions, our ability to deliver more consistent performance and drive long-term success or market or company outlook that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, Please refer to the information in our press release issued this morning, 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. 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. 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.omnisales.com. 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 releases posted on our Investor Relations website. 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. With that, I will turn the call over to Randall. Randall?

Thank you, Kathleen. Good morning and thank you all for joining us to discuss our financial results for the third quarter of 2024 and our updated outlook for the remainder of the year. OmniSell delivered another solid quarter. We remain focused on consistent execution, driving our business to generate more recurring and predictable revenues, investing in and delivering outcome-centric innovation, and empowering our people to support our customers not only where they are today, but where they will be in the future. We firmly believe that transforming the pharmacy care delivery model will result in positive customer experiences and improved patient outcomes. Now, before I get into the industry trends we are seeing in our third quarter financials, I would like to formally welcome Nnamdi Joku to OmniCell. During the quarter, we announced the appointment of Nnamdi to the newly created role of Chief Operating Officer. As I've shared with you, Over the last several quarters, we are working diligently to strengthen the company's financial performance and operational excellence while taking a customer-first approach to our strategy and business transformation. As we scale our business, we believe that having NAMDI in this role to lead and drive our operational change management initiatives and the evolution of our culture of care will be vital in delivering enhanced shareholder returns. Whether it be supporting our objective to deliver consistent GAAP profitability or helping shift our company further towards a service and solutions-based model, we believe a clear commitment to operational excellence will be essential to our long-term success. I know I speak for everyone here at OmniCell in welcoming Nandi to our team. Now, let's turn to a review of the macroeconomic landscape. We are pleased to note that we are seeing signs of continuous stabilization in our end markets. Coupled with improving provider fundamentals, these market conditions are generally favorable for creating increased demand for capital projects and system modernization through automation, software, and analytics. We are continuing to invest in next-generation upgrades and outcomes-based solutions for our XT fleet of automated medication dispensing systems as well as making investments in specialty pharmacy services. We remain excited as we move forward on our multi-year journey here at Omnicel. And we believe a refreshed product portfolio, including XT Amplify, is resonating well with our customers and is addressing our customers' focus on the future of healthcare, whether in an acute or an outpatient setting. Now turning to our quarterly financials. We are pleased to revise our full year outlook for 2024 as part of which we are raising our profitability guidance ranges as our global team continues to take what we believe are deliberate and disciplined actions on expense management while embracing our objective to streamline our internal processes and systems. And while it is early, This appears to be bearing fruit in terms of improved forecasting and business planning. Turning to our third quarter results, we delivered solid results that were generally in line with or exceeded the upper end of our guidance ranges, which we believe reflects strong demand for OmniCell's products and services and sound execution by our global team. Our third quarter 2024 total revenue was $282 million, representing a sequential increase of $6 million over the prior quarter and a decrease of $16 million over third quarter 2023. Third quarter 2024 earnings per share in accordance with GAAP were a profit of $0.19 per share compared to a profit of $0.08 per share in the prior quarter and profit of $0.12 per share in the third quarter 2023. Our third quarter 2024 non-GAAP earnings per share were $0.56 compared with $0.51 per share in the prior quarter and $0.62 per share in the same period last year. Third quarter 2024 non-GAAP EBITDA was $39 million, a decrease of $1 million compared to the previous quarter. and a decrease of 2 million when compared to the same period last year. ChaCha will provide more details of the drivers for this quarter's performance, as well as further details regarding our outlook for the remainder of the year. I'll now highlight a few of the key customer wins in the third quarter. I'm pleased with the team's achievements this quarter. We are successfully positioning our full portfolio of solutions to address our customers' medication management needs across the care continuum. We are also seeing continued momentum from the XD Amplify program, and we are seeing some positive signs that this is resonating with the market. We are embracing an agile and innovative approach to foster more flexible and responsive engagement, which we believe will result in better customer experiences. Our multi-year XT Amplify innovation program that we announced earlier this year appears to be gaining market momentum with several new customers choosing these offerings in an effort to maximize value across their health systems. A Minnesota-based nonprofit health system selected Omnicel as its long-term partner to standardize medication management across 12 hospital campuses by upgrading their fleet of point-of-care solutions. Through XT and XT Extend, which is an integral part of our XT Amplify Innovation Program, they seek to enhance the clinician experience, as well as safety and security. You may have seen in some of the reporting on the recent weather events that a production shutdown due to hurricanes has resulted in instances of IV fluid shortages, shining a light on the need for health systems to have greater control of their IV supply chain and strategies to mitigate the potential impact of shortages. A nonprofit health system in Ohio signed a five-year IV compounding service agreement in an effort to help optimize IV compounding accuracy, safety, and, importantly, supply chain control. The health system also upgraded their existing point-of-care solutions across nine hospitals as it looks to enhance safety and security, benefiting from innovations delivered through our XT Amplify program. While automated dispensing cabinets are the standard of care on nursing floors, adoption of automation in the operating room setting has often lagged. A leading academic medical center in Boston chose to extend its partnership with Omnicel, expanding its automation footprint to all operating rooms across the system with our anesthesia workstation. This is in addition to the XT automated dispensing cabinet upgrades and XT amplified products they purchased. Our anesthesia workstation with an integrated label printer is intended to help the medical center enhance patient safety and medication security in perioperative settings. Advanced services delivered another quarter of solid performance. One highlight is a large health system in the southeast that selected OmniCell's central pharmacy dispensing service in an effort to enable improved medication dispensing operations. Adopting the XR2 robot within its central pharmacy as a standard of care should help to streamline medication storing, picking, and dispensing. It is also intended to optimize inventory management, which should drive enhanced clinical and operational outcomes. OmniSales Specialty Services continues to help enable customers to enhance their in-house specialty pharmacy programs to serve more patients, optimize care, and improve performance. In the third quarter, we opened two new specialty pharmacies for health system customers. Our enlivened health brand, part of our advanced services portfolio, continues to deliver SaaS solutions designed to help retail pharmacies and health systems optimize patient care, and drive improved performance. Several of our health system customers, including large health systems in Georgia and Michigan, have selected Enliven's patient engagement and clinical solutions as they seek to enhance medication management outcomes across the continuum of care. We believe these health systems are recognizing the need for comprehensive solutions that extend beyond the four walls of the hospital and are choosing OmniCell to support a better patient experience everywhere patients receive care. In summary, OmniCell delivered a strong third quarter. The team is stepping up and taking actions that are intended to improve our financial performance and operational excellence and deliver consistent results. I'm very proud of our team's enthusiasm and focus on outcome-centric innovation customer success, and our purpose to be the health provider's most trusted partner to enable the autonomous pharmacy transformation. Every day, I see OmniCell employees showing up for each other, for our customers, and for our communities. And it is this commitment and focus that is driving more consistent financial performance. We have work to do, but I'm confident we are on our way toward delivering long-term consistent results as we progress along our multi-year growth journey. Thank you for your support of Omnicil as we work diligently to modernize and transform the pharmacy care delivery model. At this point, I'd like to turn the call over to our Chief Financial Officer, Chacha Etta, for a more detailed review of our third quarter financial performance and revised guidance. Chacha?

Thank you, Rondell. We delivered solid third quarter financial results generally in line with or higher than our previously stated guidance. We believe this reflects the stabilizing macroeconomic environment as well as our commitment to consistent executions and our focus on expense control and process improvements. I am going to walk you through some of the drivers for our third quarter 2024 performance as well as our updated 2024 full-year guidance. Total revenue came in at the upper end of our previously issued guidance range, while non-GAAP earnings per share and non-GAAP eDITA exceeded our previously provided third quarter guidance. I am proud of the OmniCell team who continue to demonstrate their commitment to our promise and our guiding principles on a daily basis. Our third quarter 2024 total revenues were $282 million, an increase of $6 million over the prior quarter, and a decrease of $16 million over the third quarter of 2023. Revenues in the third quarter were aided by the strong performance of our advanced services, including Enliven Health and specialty pharmacy services. Product revenues were $158 million, an increase of 2 million over the previous quarter, and down 30 million compared to the third quarter of 2023. Product revenues in the third quarter of 2024 decreased compared to the third quarter of 2023, primarily due to lower volumes from our automated dispensing systems business. Service revenues were 124 million, an increase of 4 million over the previous quarter, and an increase of 14 million over the third quarter of 2023. Similar to last quarter, both technical services and advanced services contributed to the growth compared to the third quarter of 2023, reflecting the growing technical services install base and the impact of our pricing actions. as well as strong customer demand for our advanced services. Non-GAAP growth margin for the third quarter 2024 was 44.5%, an increase of 30 basis points from the prior quarter. A full reconciliation of our GAAP to non-GAAP results are included in each of our second and third quarter 2024 quarterly earnings press releases. which are posted on our investor relations website. Our third quarter 2024 earnings per share in accordance with GAAP were a profit of 19 cents per share compared to a profit of 8 cents per share in the prior quarter and a profit of 12 cents per share in the third quarter of 2023. As we have mentioned previously, It is management's goal to return to consistent GAAP profitability, and we believe this is evidence of that progress. Our third quarter 2024 non-GAAP earnings per share were 56 cents compared to 51 cents per share in the prior quarter and 62 cents per share in the same period last year. Third quarter non-GAAP EBITDA was 39 million, a decrease of 1 million compared to the previous quarter, and a decrease of 2 million when compared to the same period last year. Third quarter 2024 non-GAAP EBITDA and non-GAAP earnings per share reflect our strong cost and operating expense management. At the end of the third quarter of 2024, Our cash and cash equivalent balance was $571 million, up from $557 million as of June 30, 2024. Non-GAAP free cash flow during the third quarter of 2024 was $9 million. Free cash flow was lower in the third quarter compared to the prior quarter as a result of the timing of employee compensation and annual merit increase. In terms of accounts receivable, these sales outstanding for third quarter 2024 were 83 days. We are pleased with our continued strong quarterly collections and working capital management. Inventories as of September 30, 2024 were 95 million, an increase of 2 million from the prior quarter and a decrease of 21 million. from September 30th, 2023. Now turning to guidance. Based on our third quarter 2024 results and our current visibility for the remainder of the year, we are updating our full year 2024 outlook, including increasing the bottom end of the guidance ranges for bookings and total revenues. and increasing both the top and bottom end of the ranges for non-GAAP earnings per share and non-GAAP EBITDA. For full year 2024, we anticipate bookings to be in the range of $800 million to $875 million. Total revenues are expected to be in the range of $1.1 billion to $1.1 billion. Non-GAAP EBITDA is now expected to be in the range of $129 million to $134 million. Non-GAAP earnings per share is now expected to be in the range of $1.65 to $1.72. We believe these increases in our full year 2024 guidance ranges reflect strength in the commercial momentum and the strong cost management culture of our organization. For the fourth quarter of 2024, we are providing the following guidance. We expect total fourth quarter 2024 revenue to be between 295 million and 305 million, with product revenues to be between 177 million and 182 million, and services revenues to be between 118 million and 123 million. The fourth quarter product revenue guidance reflects strong visibility to scheduled implementations and the overall strength we are seeing in the commercial business. We expect our fourth quarter 2024 non-GAAP EBITDA to be between 40 million and 45 million. We expect the fourth quarter 2024 non-GAAP earnings per share to be between 55 cents per share and 62 cents per share. Non-GAAP EBITDA and non-GAAP earnings per share for the fourth quarter includes seasonal expenses and continued investment in innovation. For the full year 2024, we are continuing to assume an effective blended tax rate of approximately 19% in our non-GAAP earnings per share guidance. As we announced on our last earnings call, Beginning in 2025, we plan to change the bookings metrics that we provide. As a reminder, our bookings currently include connected devices and software licenses, advanced services and consumables. Beginning with our 2025 guidance, we plan to provide product bookings, which consist of connected devices and software licenses. We also plan to provide a new metric, annual recurring revenue, which will consist of advanced services, technical services, and consumables. We are planning to provide a 2024 reconciliation utilizing the historic booking metrics as well as the new product bookings and ARR metrics so you have a corresponding apples-to-apples comparison for 2025. We believe these new metrics will better reflect how we manage the business internally, particularly given our focus on growing recurring revenue and should be helpful to you in understanding and modeling our company going forward. As we wrap up, I want to reiterate that we are pleased with our solid results for the third quarter of 2024 and the stronger outlook we have provided in the form of updated guidance for the full year of 2024. I would also like to take a moment to thank the entire Omnicell team for their commitment to improve execution and their customer-first focus. We would now like to open the call for questions.