Omnicell Q4 2024 Earnings Call Transcript

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February 6, 2025
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Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth Quarter and Full Year twenty twenty four Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. And now, I would like to turn the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Please go ahead.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Good morning, and welcome to the Omnicell fourth quarter and full year twenty twenty four 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, strategies, objectives, goals, expectations, planned investments, opportunities, expense management, product, services or solutions, ability to drive long term growth and consistent GAAP profitability 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 today in the Omnicell annual report on Form 10 K filed with the SEC on 02/28/2024, 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.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

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.omnisil.com. Additionally, we would like to remind you that during this call, we will discuss some non GAAP financial measures. Reconciliation 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.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

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. As we announced on our last earnings call, starting in 2025, we are changing the bookings metrics that we provide. Going forward, we will be providing a product bookings metric, which will consist of connected devices and software licenses. We will also be providing a new metric, annual recurring revenue or ARR, which will consist of SaaS and expert services, which was formerly known as Advanced Services, technical services and consumables. In our earnings release issued earlier today, we provided a 2024 reconciliation utilizing the historic bookings metric as well as an illustrative example for comparative purposes using the new bookings, product bookings and ARR metrics.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

We will provide further detail on these metrics during today's call. And with that, I will now turn the call over to Randall. Randall?

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Thank you, Kathleen, and good morning. And thank you all for joining us to discuss our financial results for the fourth quarter and full year 2024 as well as our outlook for 2025. Before I begin, I'd like to wish everyone a healthy and happy new year. Here at Omnicell, we are entering 2025 with a renewed sense of vigor and a vast amount of gratitude for our customers who continue to place their trust in us and demonstrate their support of our vision to transform the pharmacy care delivery model across a wide array of care and distribution settings. Let's review a few highlights from our strong finish to 2024.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

We exceeded our bookings guidance for the year, driven by strength in connected devices. We solidified our product backlog, which assists with revenue planning and scheduling for 2025. We delivered consistent revenue performance throughout the year by aligning implementation plans with customers and continually improving processes to enable execution. We solidified our balance sheet at what we believe are favorable terms via the issuance of the new convertible senior notes and we're also able to repurchase a majority of the principal amount of our previously outstanding convertible senior notes that are nearing maturity. And importantly, we continue to see demand for products and services launched as part of the XT Amplify program.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Turning to the financials for the quarter, Omnicell delivered a solid fourth quarter and I am pleased to note that we returned to a year over year revenue growth for the quarter and are on our way to meeting our objective of delivering consistent GAAP profitability. Total revenues were $3.00 $7,000,000 an increase of $24,000,000,000 over the prior quarter and an increase of $48,000,000 over fourth quarter twenty twenty three. Product revenues were strong coming in at $182,000,000 which is an increase of $24,000,000 over the previous quarter and an increase of $37,000,000 compared to fourth quarter twenty twenty three. Service revenues were $125,000,000 an increase of $1,000,000 over the previous quarter and an increase of $11,000,000 over the fourth quarter twenty twenty three. Non GAAP gross margin for fourth quarter twenty twenty four was 47.4%, an increase of two ninety basis points from the prior quarter, boosted by our higher product revenue volumes and a favorable product and customer mix.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Our fourth quarter twenty twenty four earnings per share in accordance with GAAP was 0.34 per share compared to $0.19 per share in the prior quarter and a loss of $0.32 per share in the fourth quarter twenty twenty three. Our fourth quarter twenty twenty four non GAAP earnings per share were 0.6 compared with $0.56 per share in the prior quarter and $0.33 per share in the same period last year. Fourth quarter non GAAP EBITDA was $46,000,000 an increase of $8,000,000 compared to the previous quarter and an increase of $23,000,000 when compared to the same period last year. Now let's turn to a review of the macroeconomic landscape. We are pleased to note that we see signs of favorable conditions in many of our addressable markets.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Our focus on innovation and building customer awareness around our roadmap, which includes robotics and smart devices, intelligent software workflows and data analytics seems to be resonating with the market. I'll now highlight a few of the key customer wins in the fourth quarter. Our multiyear XT Amplify innovation that we announced in April 2024 continues to gain traction and we see exciting momentum across our portfolio. Here are a few recent highlights. NYC Health and Hospitals announced they selected Omnicell's outcome centric solutions in an effort to improve efficiency and patient safety for one of the nation's largest municipal healthcare delivery systems.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

According to the healthcare system leadership, this strategic initiative is expected to transform patient care and assist staff in support of their core mission in ways they did not think previously possible. In North Carolina, not for profit healthcare system selected Omnicell XT Automated Cabinets as it seeks to enhance patient care on nursing floors and in perioperative settings. With our inventory optimization services, this system is expected to increase inventory visibility, improve insights and optimize workflows across the system that should help to achieve optimal medication inventory outcomes. We are pleased to note this was a new market share win for Omnicell. Another East Coast healthcare organization will expand its pharmacy technology strategy with the addition of XT cabinet automation and the expansion of anesthesia dispensing automation and software in order to support care initiatives across the enterprise.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

We believe this is proof of the solid demand outlook for XT systems in areas such as expansion within current customers. This is an exciting win for Omnicell. One of the largest healthcare delivery systems in the nation will be implementing XT Extend, a core component of our XT FFI offering as they strive to future proof their cabinet footprint and enhance their security, user experience and value from their XT platform. 2024 was a busy year for IVCS as we increased our footprint of IVX station robot installations and expanded our early adopter customer base. We received positive feedback from our IVCS customers, particularly as the IV robot's stock solution capabilities have been instrumental to support these customers during the IV fluid shortage.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

The enhanced features delivered in our recent update enables a wider variety of drug vials that can now be used to compound IV bags and syringes in the IVX station robot, unlocking 60 additional NDCs that our customers have been requesting. Specialty pharmacy services continues to gain market traction. Our offering combines deep expertise and leading technology to help customers maximize their specialty pharmacy outcomes. We had several notable wins in the fourth quarter of twenty twenty four, including renewal and expansion of services with a large academic medical center, a contract for a new specialty pharmacy program with a health system in the Northeast and a new collaboration to optimize specialty pharmacy program for health system in the Southeast. The Fortune 25 health insurance provider has selected Enlivant Health as their primary reconciliation and medical billing partner in preparation of their 2025 strategy.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

We are committed to our multi year growth journey. I want to thank Omnicell employees for their steadfast commitment to our customer success and their embrace of our culture of innovation and fiscal discipline. Thank you for your support of Omnicell and we look forward to updating you on our progress through 2025. At this point, I'd like to turn the call over to our Chief Financial Officer, Chacha Edda, for a more detailed review of our fourth quarter and full year 2024 financial performance as well as our outlook for 2025. Chacha?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Thank you, Randall. We delivered solid fourth quarter and full year 2024 financial results with all guided metrics exceeding or landing in the upper end of our previously stated guidance ranges. I am very proud of the entire Omnicell team who continue to demonstrate their commitment to our promise and our guiding principles on a daily basis. We believe our solid fourth quarter results reflect an improving macroeconomic environment and our commitment to consistent execution and our fiscal discipline. Now I am going to walk you through some of the key drivers of our fourth quarter twenty twenty four and full year 2024 results as well as share our first quarter twenty twenty five and full year 2025 guidance.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Looking at our fourth quarter twenty twenty four results, as Randall noted, total revenues were $3.00 $7,000,000 an increase of $24,000,000 over the prior quarter and an increase of $48,000,000 over the fourth quarter of twenty twenty three. Revenues in the quarter were aided by the strong performance of connected devices as well as our SaaS and XpAD services, particularly specialty pharmacy services. Fourth quarter twenty twenty four product revenues were strong at $182,000,000 representing an increase of $24,000,000 over the previous quarter and an increase of $37,000,000 compared to the fourth quarter of twenty twenty three. Product revenues in the fourth quarter of twenty twenty four increased compared to the fourth quarter of twenty twenty three, primarily due to the improvement of the macroeconomic environment and the timing of XT CV systems implementation. Service revenues for the fourth quarter twenty twenty four were $125,000,000 an increase of $1,000,000 over the previous quarter and an increase of $11,000,000 over fourth quarter twenty twenty three.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Similar to last quarter, both SaaS and XpAD services as well as technical services contributed to services revenue growth compared to the fourth quarter of twenty twenty three, which we believe reflects a strong customer demand for our SaaS and expert services and continued growth and value capture of our technical services installed base. Non GAAP gross margin for the fourth quarter of twenty twenty four was 47.4, an increase of two ninety basis points from the prior quarter, boosted by higher product revenue volumes and a favorable product and customer mix. A full reconciliation of our GAAP to non GAAP results is included in each of our third and fourth quarter twenty twenty four quarterly earnings press releases, which are posted on our Investor Relations website. Our fourth quarter twenty twenty four earnings per share in accordance with GAAP were $0.34 per share compared to $0.19 per share in the prior quarter and a loss per share of $0.32 in the fourth quarter of twenty twenty three. As we have mentioned previously, it is management's goal to return to consistent GAAP profitability And we believe our fourth quarter results are continued evidence of our progress towards this goal.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Our fourth quarter twenty twenty four non GAAP earnings per share was $0.6 compared to $0.56 per share in the prior quarter and $0.33 per share in the same period last year. Fourth quarter non GAAP EBITDA was $46,000,000 an increase of $8,000,000 compared to the previous quarter and an increase of $23,000,000 when compared to the same period last year. At the end of the fourth quarter of twenty twenty four, our cash and cash equivalents balance was $369,000,000 down from $571,000,000 as of 09/30/2024, driven by the fourth quarter convertible senior notes transaction, including the repurchase of $400,000,000 aggregate principal amount of the outstanding convertible senior notes that are maturing in 2025. Non GAAP free cash flow during the fourth quarter of twenty twenty four was $43,000,000 Free cash flow was significantly higher in the fourth quarter compared to the prior quarter as we continue to make good progress on cash collections and ongoing focus on cost management as we work to drive consistent profitability. In terms of accounts receivable, these sales outstanding for the fourth quarter twenty twenty four was seventy seven days.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

We are pleased with our continued strong quarterly collections and working capital management. This is an area of significant positive progress over the last eighteen months. Inventories as of 12/31/2024 were $89,000,000 a decrease of $6,000,000 from the prior quarter and a decrease of $21,000,000 from 12/31/2023. Now turning to review our full year 2024 results. Bookings for the full year 2024 were $923,000,000 compared to our guidance of $800,000,000 to $875,000,000 an increase of $69,000,000 compared to full year 2023.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Our strong 2024 bookings performance was driven by XT upgrades as we near the end of the XT upgrade cycle as well as better than expected bookings of XT Xtend, which demonstrates to us strong customer interest in our innovation roadmap. Total backlog was $1,201,000,000 as of 12/31/2024 compared to $1,143,000,000 as of 12/31/2023. Product backlog which includes connected devices such as XT Series automated dispensing systems and the product portion of our central pharmacy dispensing services and IV compounding services as of 12/31/2024 was $647,000,000 of which $447,000,000 is short term backlog, which we expect to convert to revenue within twelve months. Product backlog increased by $36,000,000 over the prior year, driven by strength in our connected devices portfolio as well as our XT Extend offering. SaaS and expert services backlog as of 12/31/2024 was $555,000,000 of which $93,000,000 is short term SaaS and expert services backlog, which is expected to convert revenue within twelve months.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

SaaS and expert services backlog increased $23,000,000 up 4% over the prior year. Our full year 2024 revenues were MXN112 million, a decrease of MXN35 million or 3% from 2023. Our 2024 product revenues were $631,000,000 and our 2024 services revenues were $482,000,000 Within the full year 2024 services revenue, technical services revenue were $238,000,000 and SaaS and expat services revenues were $244,000,000 20 20 4 SART and XPAD services revenue increased 14% over the prior year. Our full year 2024 earnings per share in accordance with GAAP was $0.27 per share. Our full year 2024 non GAAP earnings per share was $1.71 per share, a decrease of $0.2 per share from 2023.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

For the full year 2024, non GAAP EBITDA was $136,000,000 which is above the high end of the revised full year 2024 guidance range we provided in the third quarter of twenty twenty four. Overall, we are very pleased with our 2024 execution, the customer interest we are seeing in the market and the overall incremental macroeconomic improvement. Now turning to guidance for 2025. As we announced during our last earnings call, beginning in 2025, we are changing the bookings metric that we provide. Our previous booking metric included connected devices and software licenses, SaaS and EXPAT services and consumables.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

As a reminder, beginning in 2025, Advanced Services will now be known as SaaS and Xpath Services. Beginning in 2025, we are providing product bookings which consist of connected devices and software licenses. We are also providing a new metric, annual recurring revenue or ARR, which includes SaaS and expert services, technical services and consumables. We believe these new metrics better reflect how we are managing the business internally and should be helpful in understanding and modeling our company going forward. For the full year 2025, we anticipate product bookings to be in the range of $500,000,000 to $550,000,000 For a bit of context, using the new definition, product bookings for full year 2024 were $558,000,000 The guidance implies 2025 product bookings will be flat to modestly down in 2025 compared to 2024.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

As we have said, we are successfully concluding the XT replacement cycle and this is reflected in our product bookings outlook. While we do expect XT Amplify bookings to partially offset the lower XT replacement bookings in 2025, it may not fully offset the decline in XT upgrades bookings. Remember, while XT bookings will likely be down in 2025 compared to 2024, we will continue to see demand for XT via expansions as well as potential new market share opportunities. Looking forward, we are very excited about the customer response to XT Amplify and our refreshed multi year innovation program. And we expect these new products to be a meaningful contributor to 2025 product bookings.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Our year end annual recurring revenue is expected to be in the range of $610,000,000 to $630,000,000 Again for context, using a new metric, annual recurring revenue at the end of twenty twenty four was $580,000,000 Within annual recurring revenue, technical services and consumables tend to grow in the low single digits, while SaaS and expert services is expected to grow at a stronger pace. Total revenue is expected to be in the range of $11.00 $5,000,000,000 to $1,155,000,000 dollars The midpoint of our total revenue guidance range reflects a growth rate of 2% compared to 2024, with product revenues expected to be roughly flat and services revenues growing at a faster rate driven primarily by growth in SaaS and export services. Non GAAP EBITDA is expected to be in the range of $140,000,000 to $155,000,000 At the midpoint, non GAAP EBITDA is expected to expand approximately 100 basis points. Non GAAP earnings per share is expected to be in the range of $1.65 to $1.85 Remember, we are facing an approximate $0.2 headwind to non GAAP earnings per share in 2025 compared to 2024 due to the reduction in interest income as a result of repurchasing a significant portion of the principal amount of our previously outstanding comparable senior notes.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

For full year 2025, we are assuming an effective blended tax rate of approximately 18% in our non GAAP earnings per share guidance. For the first quarter of twenty twenty five, we are providing the following guidance. We expect first quarter twenty twenty five total revenues to be between $255,000,000 and $265,000,000 with product revenues anticipated to be between $137,000,000 and $142,000,000 and services revenues expected to be between $118,000,000 and $123,000,000 The first quarter twenty twenty five revenue guidance reflects our typical seasonal product revenue pattern, in line with the historical trends we have seen in which product revenues tend to increase quarterly as the year progresses. We expect first quarter twenty twenty five non GAAP EBITDA to be between $19,000,000 and $25,000,000 We expect first quarter twenty twenty five non GAAP earnings per share to be between 0.15 and $0.25 per share. As a reminder, the first quarter normally includes some seasonal expenses including payroll taxes and benefits reset.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

We expect non GAAP EBITDA margin to expand as we progress through the year. With a strong 2024 in hand, I want to reiterate that we are very pleased with our solid results for both the fourth quarter and the full year and that we believe we are making solid progress towards consistent GAAP profitability. We are very excited about the long term outlook for Omnicell as we plan to deliver innovative solutions under our XT Amplify program that are designed to enhance pharmacy and nursing efficiencies, reduce medication errors and waste and ultimately maximize the value of our customers' XT automated dispensing system investments. I would also like to take a moment to thank the whole team here at Omnicell for their hard work, their commitment to improve execution and their relentless customer first focus. We would now like to open the call for questions.

Operator

Thank you. We will now begin the question and answer session. And your first question comes from the line of Alan Lutz of Bank of America. Your line is now open.

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

Good morning and thanks for taking the questions. Randall, one question on the end market demand. You mentioned seeing some green shoots. Can you expand on that a little bit? I think it's pretty clear that hospital performance has improved.

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

Do you think how do you think that that is translating into budget growth? And then as it relates to the product revenue ramp throughout the course of the year, it seems very similar to last year. Can you kind of speak to what's driving the product revenue ramp? Thanks.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes. Thanks Alan for the questions. Yes, I think the hospital financial conditions and providers have continued to improve. And that has really given us the opportunity and probably contributed to our fourth quarter exceeding in our bookings. And so I think that really sets us up well for 2025.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

In fact, those strong bookings turn into revenues in 2025 mostly. And because we have already prescheduled most of those, we're in line to grow quarter or the business is troughing out, so to speak. And so we'll see this quarter over quarter comparative growth that we hope grows and continues to grow into '26. So I think we're really well positioned with the strong end of the year. The improved financial position of our customers makes it the decision process I think a little bit easier to make and the excitement around Amplify frankly allows us to get in front of them and put these offerings and to get them to invest in now as opposed to later.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

I would add specialty as well to that.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes, specialty as well is also continuing to see good traction. We saw that in fourth quarter and we see some nice expansion there as well with current customers.

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

That's helpful. And then one for Gotcha around OpEx growth and gross margin in 2025. There's been really good operating expense management over the course of 2024. As we think about the growth drivers in your business into 2025, just trying to get a sense of how to think about the trajectory of gross margin on the consolidated level and how that compares to the outlook for operating expense growth in 2025? Thanks guys.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes, Alan. So as you saw in 2024, we did see an improvement in our gross margins quarter over quarter. And we do expect that to continue into 2025. The key drivers that we will look at from a gross margin standpoint, the gross margin improvements in 2025 is number one, we continue to manage our expenses very well. We do expect that with some favorable product and customer mix going to 2025, we should see an improvement in our gross margins.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Also, we put in place some operational improvements that we believe will continue to improve our overall financial results and performance. But our focus is primarily on improving our overall profitability. So you will see us continue to manage our P and L very prudently from a fiscal discipline standpoint that we believe will continue to help us improve our overall

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

profitability.

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

Great. Thank you.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Thanks, Alan. Next question please.

Operator

Your next question comes from the line of Jessica Dassen of Piper Sandler. Your line is now open.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Hi. Thank you guys so much for taking the question and congrats on the strong results. I wanted to understand the upside to bookings in 2024. We are backing into product bookings up about $100,000,000 year over year. And I'm just curious if that was all kind of XT Extend and the Amplify portfolio exceeding expectations?

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Or was there some, I guess, incremental or unanticipated strength in actual XT cabinet bookings, whether that's from competitive conversion or otherwise? Thanks. Thanks, Jeff.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes, Jess. We did see some significant strength in demand for connected devices as we close the year. And then we also had additional bookings from XT upgrades as we're ending the successful upgrade cycle, including some market share wins or gains that we saw. But also XT Xtend did contribute. We saw solid demand for XT Xtend, which contributed to our improved bookings performance for the year.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

That's really helpful. And then I wanted to just understand the sourcing or cost of goods situation. How do you think about just diversification of suppliers across countries or domestically sourced suppliers and tariff risk to the gross margin kind of framework you just put out there?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes. So we've been through this same situation in the past from a tariff standpoint. So we did put in place some processes that we believe will help us mitigate any potential tariffs impact. So we think there will be minimal to no impact to our business from tariffs have been put in place.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Got it. And sorry, just last one to clarify on that. Is that because you have pricing flexibility in your contracts or because you expect stability in your cost of goods?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

It's a combination of both. We do expect some price increases or inflation and so we did factor that into our pricing for 2025. But we do have some flexibility also to be able to manage and mitigate any potential COGS increases.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Awesome. Thank you.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Thanks, Jeff.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Thanks, Jeff.

Operator

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

Operator

Please go ahead.

Matthew Hewitt
Senior Research Analyst at Craig-Hallum

Good morning and congratulations on a strong finish to the year. I guess first one, what are your thoughts as far as the new administration? What they seem to be focused a lot more on technology innovation. I would think that that plays well with your targets and goals, but what are your thoughts on how the new administration could impact your business?

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Well, it's rather dynamic, but I think the overall theme as you suggested is efficiency and safety. And that is that's our core strength and that's our core driver in our innovation is to make our customers more efficient and safe, easy to use, easy to deploy so that they can get a better return. And so I feel like that positions us well. And particularly as we deploy more products and higher densities into our customer base, there's more data. And with that data, we're able to drive more outcomes and conclusions with analytics or AI to help customers really make tough decisions that can reduce costs just because they weren't visible before.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

So, but there's a lot of dynamics, there's some dynamics around 340B, a lot of discussions, nothing in play. But, we're like the rest of us or like the rest of everyone, I suppose we're all watching very closely and I think we're well positioned.

Matthew Hewitt
Senior Research Analyst at Craig-Hallum

That's great. And then maybe a separate question, but as far as it sounds like you get a really strong end of the year with the XT and XT Amplify, XT Extend and XT Amplify. What are those pipelines looking? And are you envisioning a similar bell shaped curve on the adoption of those? Or is there anything that would maybe cause that to be a little more front end loaded or back end loaded?

Matthew Hewitt
Senior Research Analyst at Craig-Hallum

Just a little bit of color on the pipeline. Thank you.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes, I think it's the traditional bell curve, but I do think that hospitals have been slow to purchase and move back into the capital equipment markets for expansions that seems to be clearing up. So that could give us a little more acceleration into the XT Amplify as we move forward. And that's what we kind of saw a little bit in fourth quarter. And it gave us a lot of enthusiasm for this year that we will continue that momentum as we go forward. So, I think most parts of our business are leaning forward and positively almost in every area.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

So, we're it's an exciting year for us to kind of put the last couple of years behind us and move forward to 25 and on to 26 growth. It's a good place to be.

Matthew Hewitt
Senior Research Analyst at Craig-Hallum

That's great. Thank you.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Thanks, Matt. Next question?

Operator

Your next question comes from the line of Scott Schonhaus with KeyBanc Capital Markets. Please go ahead.

Scott Schoenhaus
Scott Schoenhaus
Managing Director at KeyBanc Capital Markets

Hi, Scott. Hi, team. Thanks for the hi. Hi, team. So first question, the first quarter guidance, how much of that assumes the remaining XT within that product revenues growth?

Scott Schoenhaus
Scott Schoenhaus
Managing Director at KeyBanc Capital Markets

Maybe just walk through a little bit of what that new guidance growth assumes. And then also I was wondering as you're switching to more expansions throughout the rest of the year after you fully complete the XT series cycle with expansions and more modular solutions. Shouldn't that help on the gross margin side? Just kind of want to work applications on the gross margin side. Thanks.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Yes. Let me jump in first and then I'll hand it over to ChaCha. So just to be clear from the XT upgrade cycle, we're talking about bookings, right, largely through bookings. Throughout the revenue for 2025, you see that robust backlog that we have. So we're now busy scheduling customer implementations, etcetera, for XT.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

So you'll see a rich mix of XT revenue throughout 2025. So just to be clear on that relative to the first quarter. And then I'll have Chacha respond to the balance of your question.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes, Scott, as I mentioned earlier, as you know, we have been investing in our SaaS and Expert Services businesses. And as those businesses continue to scale, we should see an improvement in or they should contribute to overall gross margin for 2025. Added to that is XT Amplify. XT Amplify or XT Xtend does have even better margins. And so as XT Amplify starts or XT extends starts to contribute to meaningful revenues in 2025, we should see that help improve our margins as well.

Scott Schoenhaus
Scott Schoenhaus
Managing Director at KeyBanc Capital Markets

Great. Thanks.

Operator

And your next question comes from the line of Stan Beringstein of Wells Fargo. Please go ahead.

Stan Berenshteyn
Stan Berenshteyn
Equity Research Analyst at Wells Fargo

Hi. Thanks for taking my questions. Randy, it was nice to see that you're making progress on the robotic compounding capabilities that you called out in the prepared remarks. I guess, what needs to happen for the compounding robot to move beyond the early adopter stage into a more wide scale release? And is there a timeline for this happening?

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes, I think we fully expect by the end of this year we'll be part of at our next level of we just released the software, we have one more release this year, which would be sort of the completion of what we think is the near term profile of the robot that will be market ready in almost all the aspects. So, and that's coming to a very successful end of the trial period and moving forward to the rollout period. And we're rolling out quite a few new customers with the robot this quarter And we expect to continue to increase that fairly every quarter this year and on into 2026. So, I think we've got a good glide path to where we want to be. We've cured or completed all the key technical hurdles that we needed to do.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

So, it's now about getting the robots in place and getting the production out of them that customers expect.

Stan Berenshteyn
Stan Berenshteyn
Equity Research Analyst at Wells Fargo

Helpful. And then your competitor is expecting to release the new dispensary cabinets that it has this year. Are you seeing any increase in RFPs for your XT cabinets from health systems that perhaps you're not part of your installed base?

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Well, I think as new products come on the market, it does create opportunities for more FRPs and opportunities for us to get into discussion. And so I do feel like there are more opportunities in our pipeline as larger on our expansion outside of our current customer base.

Stan Berenshteyn
Stan Berenshteyn
Equity Research Analyst at Wells Fargo

Great. And then maybe one quick one from Chacha. Just any comments on capital deployment priorities over the next twelve months? Thanks.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes. So we continue to assess our capital deployment strategies and needs and we feel very comfortable with capital strategy that we've put in place today. So we continue to assess the working capital needs and the needs of our business and we will make the right decisions to make sure that we're fueling long term sustainable growth.

Stan Berenshteyn
Stan Berenshteyn
Equity Research Analyst at Wells Fargo

Great.

Stan Berenshteyn
Stan Berenshteyn
Equity Research Analyst at Wells Fargo

Thanks so much.

Kathleen Nemeth
Kathleen Nemeth
Senior Vice President, Investor Relations at Omnicell

Thanks Dan.

Operator

And your next question comes from the line of David Larsen of BTIG. Please go ahead.

David Larsen
Analyst, Managing Director at BTIG

Hi. Can you talk a bit about your annual recurring revenue? Like what percent of total revenue do you expect that to be in 2025? And what is your sort of longer term goal there? And then just any color around the Enlivant win?

David Larsen
Analyst, Managing Director at BTIG

I think you mentioned you sold this to a couple of health plans. Thanks very much.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes. I think our Livent business is really getting traction as we see the ramp up of competition and the need to do better data analysis and engagement with patients. And, we're proud that we can not only represent retailers and improving their efficiencies, but then also payers by helping them understand, what patients of theirs are using their products and how well they're using those products. As well as we see other pharmacies, particularly larger pharmacies or nationwide pharmacies or institutional pharmacies, looking for ways to employ their pharmacist in other activities other than dispensing meds. And so those activities would involve billing services to payers.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

And so, we're excited that this is a big new frontier, if you will, for having pharmacists operate at the top of their license and then getting additional revenues and margins in these larger pharmacies that have been mostly dedicated to dispensing and not using billing activities?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes. With regards to your question on ARR, we're very excited about our ARR outlook, especially for 2025. ARR today is about 53% of our total revenue. And we anticipate this ARR to continue to grow and contribute to our overall revenue. Again, specialty pharmacy services and live and health and our inventory optimization systems are key drivers of ARR growth for the EBIT.

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Specialty pharmacy is a key driver that's growing double digit and we expect that growth to continue.

David Larsen
Analyst, Managing Director at BTIG

Great. And then I've been hearing about like this XT series sort of runoff for a couple of years. Is 2025 going to be kind of your final year of sort of the runoff of these XT upgrades and then starting in 2026 will be kind of through all of that? Thanks very much. Obviously, I'm getting a product revenue growth expectations longer term.

David Larsen
Analyst, Managing Director at BTIG

Thank you.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes. The XT Amplify when we announced it, we said there was more innovation in the roadmap and that innovation wasn't just focused on inpatient, but in other locations where, med management has not been digitized. And so that's increasing both the addressable market and broadening our solution base and really getting at what our customers need, which is the ability to get 100% visibility of their medication flow. And so as we release and innovate these new connected devices, that will provide an opportunity to grow our business and particularly on the product line side. But we also know that with the speed of technology and the things that are going on, we're going to have to upgrade the technology within our systems and provide new platforms to meet those demands.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

So that is also in our roadmap and in the future, but it's just not one thing. I think it's a multiple levels of innovation And it depends on where customers are probably in their lifecycle with their product, which ones would appeal to them at the moment. But we will have a lot of offerings and opportunities to expand within our customer base and potentially those outside.

David Larsen
Analyst, Managing Director at BTIG

Great. Medication safety is so important for delivery of healthcare and you guys do a great job at it. So thanks very much. Appreciate it.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Thanks David.

Operator

And your next question comes from the line of Jean Mannheimer of Freedom Capital Markets. Your line is now open.

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

Thank you. Congrats on a great year and a good outlook. I wanted to drill down on the ARR a little bit further. Do you, Chacha, do you break the ARR out by those respective categories of services and consumables and SaaS?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Yes. So the new metric that we're providing, ARR is composed of our SaaS and Expat Services businesses, technical services as well as consumables. We do provide some details on the SaaS businesses, but again those are the three components of ARR.

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

Right. So is there a one to one correspondence between your ARR and your forward twelve month revenue? So said differently, $620,000,000 at the midpoint, how much of that will convert to revenue in the forward twelve months?

Nchacha Etta
Nchacha Etta
Executive VP & CFO at Omnicell

Most of it should convert to revenue in the next twelve months.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Yes, that's the ARR not the car. So it's already running and assumed to be continued to running. So it's kind of easy to understand the business and that there's not a lot of conversion there. That's ongoing running revenue is the best way to explain that I'd say.

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

Good, good. Okay, excellent. All right. And just on Omnisphere, great innovation there. And I'm just wondering within a customer site is the way that gets implemented, is it a big bang type implementation or a phased approach?

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

So like in case of if it's in phases, are you supporting kind of two redundant environments for a time like on prem and the cloud? And does that impact your cost structure at all?

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

No, it's not actually two systems. You could actually run the cloud system with our current legacy systems and then it's meant to be incremental without the double workload. So it actually allows us to put in the infrastructure first without having to move the connected devices over and you can move those over when you're ready. So one of the things that we have really focused on is minimizing disruption in our customers with new technologies and new approaches. And we took a long time to design this technology so that it's easy to deploy, easy to understand and really cause a minimal disruption.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

And so if you get the XT Amplify, you'll be able to move to the Omnisphere rather easily and then move the devices over when you're ready.

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

That's great. Thank you. Appreciate it.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

And welcome back, James.

Gene Mannheimer
Managing Director, Senior Research Analyst at Freedom Capital Markets

Good to be back.

Operator

And that concludes our Q and A session. I will now turn the conference back over to Randall Lipps for closing remarks.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

Well, I just want to reiterate how excited we are about 2025. As I said in my first question, we really have dropped out the business. We look forward to comparable growth over quarter to quarter. And this has really come about to the strong efforts of the success of Xt Amplify, our employees who have readjusted to deploying new cost efficient processes and reorganizing around customer success, which has led to our success. And just really looking for an exciting year with some new innovation, new types of accounts and just continued growth.

Randall Lipps
Randall Lipps
Founder, Chairman, President and CEO at Omnicell

And they're really setting us up again for a great 2026. Thanks for joining us today. Cheers.

Operator

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now

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Executives
    • Kathleen Nemeth
      Kathleen Nemeth
      Senior Vice President, Investor Relations
    • Randall Lipps
      Randall Lipps
      Founder, Chairman, President and CEO
    • Nchacha Etta
      Nchacha Etta
      Executive VP & CFO
Analysts
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Earnings Conference Call
Omnicell Q4 2024
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