Omnicell Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 12 speakers on the call.

Operator

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

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

Speaker 1

Good morning, and welcome to the Omnicell Second Quarter 2024 Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell's 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, products, services or solutions, results of our holistic review initiative, our ability to deliver more consistent performance and drive long term success, 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. 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 ks 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.

Speaker 1

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.omnicell.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 release posted on our IR website.

Speaker 1

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?

Speaker 2

Thank you, Kathleen. Good morning, and thank you all for joining us to discuss our financial results for the Q2 of 2024 and our outlook for the remainder of the year. We had a strong quarter and remain 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.

Speaker 2

Also, we have completed our holistic review initiative, 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. 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. We expect these actions to enable us to progress toward our goal of more consistent performance. Based on what we are seeing, the macroeconomic landscape is showing early signs of improvement and the demand for Omnicell's Medication Management XT point of care solutions and advanced service offerings is tracking in line with our initial expectations for the year. Accordingly, we are updating our previously provided 2024 annual guidance metrics based on our strong first half performance and our current visibility of the business.

Speaker 2

Next, turning to our 2nd quarter results. We delivered solid results that 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 team. Our Q2 2024 total revenues was 277,000,000 representing a sequential increase of $31,000,000 or 12 percent over the prior quarter and a decrease of $22,000,000 or 7% over Q2 2023. 2nd 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 Q2 of 2023. Our Q2 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.

Speaker 2

2nd quarter 2024 non GAAP EBITDA was 40,000,000 dollars an increase of $29,000,000 compared to the previous quarter, but a decrease of $7,000,000 when compared to the same period last year. Chacha 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 investing 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 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. In May to April, we announced XT Amplify, a multiyear innovation program that is intended to maximize value for hospitals, health systems and post acute facilities that have invested in Omnicell XT automated dispensing systems, while also seeking to drive enhanced clinical and operational outcomes at the point of care and within pharmacies.

Speaker 2

We are pleased to report that the XT Amplify appears to be resonating 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. 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. We are also seeing strong demand for our advanced services, which are designed to drive improved medication management outcomes across the full care continuum. Omnicell Advanced Services were 22% of our revenue for the 1st and second quarters of 2024, an increase from 18% of our revenue for the Q2 of 2023.

Speaker 2

We continue to anticipate that advanced services will represent 21% of our total revenue for the full year 2024. We anticipate total reoccurring revenue, which includes consumables and technical services, to represent approximately 50% of total revenue for the full year 2024. 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.

Speaker 2

This includes replacing competitive solutions as they merge new facilities into the health system and upgrade their existing fleet of Omnicell systems. An integrated health system spanning Iowa, Wisconsin and Illinois have selected Omnicell as their long term partner to seamlessly automate and manage medications across their 16 facilities. 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. XT Extend is an integrated component of the XT Amplify Innovation Program announced earlier this year. As well, we are excited about a new long term engagement with 1 of the largest providers of critical illness recovery hospitals, inpatient rehabilitation hospitals, outpatient rehabilitation centers and occupational health clinics in the U.

Speaker 2

S. Medication safety is a top priority for this company and our controlled substance dispensers within our XT automated dispensing product portfolio are expected to provide greater visibility to their controlled substances. This should also help identify narcotic discrepancies, enable them to better manage diversion events throughout the enterprise. 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. Advanced Services also delivered solid performance this quarter.

Speaker 2

One highlight is that a multi hospital system in Southeast at their 2 main facilities. Adopting the XR2 at their 2 main facilities. Adopting the XR2 robot within their Essentials 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. Our Enlivant 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 2

Later today, we'll be announcing that a strategic partner has selected Enlivant Health's scope of practice and reimbursement snapshot, a first of its kind solution 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 reimburse details for those services. We believe that providing this new service emphasizes our commitment to elevating pharmacies to the forefront of healthcare by contributing to the clinical service expansion and providing greater access to patient care through local independent pharmacies across the U. S. 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 twenty twenty four. 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 3rd party administrator solution.

Speaker 2

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. 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. I am very proud of the team's laser focus on outcome centric innovation, customer success and our purpose to be health care providers' most trusted partner to enable the autonomous pharmacy transformation. Our Omnicellians dedication is something that inspires me on a daily basis, and I look forward to continuing to see the positive impact we are striving to deliver for our customers and for our communities.

Speaker 2

Now let me turn it over to Chacha for the financial update. Chacha?

Speaker 3

Thank you, Randall. As Randall noted, we had a strong second quarter. I am going to walk you through some of the drivers for our Q2 2024 performance as well as our outlook for the remainder of the year. We are pleased to see that the demand environment is tracking in line with our initial expectations. The drivers for our Q2 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.

Speaker 3

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. The disciplined approach we took to managing our expenses help contribute to our strong bottom line results in the Q2 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. Their commitment is fundamental to delivering improved patient outcomes. Our Q2 2024 total revenue was $277,000,000 an increase of $31,000,000 or 12% over the prior quarter and a decrease of $22,000,000 or 7% over Q2 of 2023.

Speaker 3

The revenue decrease over the prior year reflects the impact of the macroeconomic environment and timing of the XT product lifecycle. While the macroeconomic landscape is showing early signs of health systems budgets improving, 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. Product revenues were $157,000,000 an increase of 17% over the previous quarter and down 17% compared to Q2 of 2023. Services revenue were $120,000,000 an increase of 7% over the previous quarter and an increase of 9% over the Q2 of 2023. Both technical services and advanced services contributed to the growth over the Q2 of 2023, reflecting the growing technical services installed base and the impact of our pricing actions as well as customer demand for our advanced services.

Speaker 3

Total revenues in the quarter were $17,000,000 above the top end of our previously disclosed Q2 2024 guidance range, with product revenues accounting for approximately $12,000,000 of the over achievement and services revenue accounting for the remaining 5,000,000 dollars Revenues in the quarter were aided by strong performance of Omnicell's medication management XT point of care solutions and advanced services offerings, particularly Omnicell specialty pharmacy services. Non GAAP gross margin for Q2 2020 4 was 44.2%, an increase of 4 40 basis points from the prior quarter, primarily due to higher volume leverage and what we believe is our continued prudent expense management. A full reconciliation of our GAAP to non GAAP results are included in each of our Q1 2024 and Q2 2024 earnings press releases, which are posted on our Investor Relations website. Our Q2 20 24 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 Q2 of 2023. As we have mentioned, it is management's goal to return to consistent GAAP profitability.

Speaker 3

Our Q2 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. 2nd quarter non GAAP EBITDA was $40,000,000 an increase of $29,000,000 compared to the previous quarter, but a decrease of $7,000,000 when compared to the same period last year. Q2 of 2024 non GAAP EBITDA and non GAAP earnings per share exceeded our expectations due to revenue execution and timing as well as strong cost and operating expense management as we continue to take what we believe is a prudent approach with our investment decisions. At the end of the Q2 of 2024, our cash and cash equivalents balance was 557,000,000 dollars up from $512,000,000 as of March 31, 2024. Non GAAP free cash flow during the Q2 of 2024 was $45,000,000 as we continue to see strong cash collections and working capital management.

Speaker 3

In terms of accounts receivable, the sales outstanding for the quarter was 81 days, a decrease of 13 days over the prior quarter. We are pleased with the strong collections in the quarter. Inventories as of June 30, 2024 were $93,000,000 a decrease of $10,000,000 from the prior quarter and a decrease of $37,000,000 from June 30, 2023. The $10,000,000 decrease in the Q2 2024 inventories includes approximately $6,000,000 on inventory write down related to the planned RDS restructuring we announced previously. Now turning to our guidance.

Speaker 3

1st, based on our strong results delivered in the Q2 of 2024 and our current visibility for the remainder of the year, we are updating our full year 2024 outlook. For the full year 2024, we anticipate bookings to be in the range of $775,000,000 to 875,000,000 dollars Total revenues are expected to be in the range of $1,070,100,000 to 1,110,000,000 dollars Non GAAP EBITDA is expected to increase to the range of $105,000,000 to 125,000,000 dollars Non GAAP EPS is expected to increase to a range of $1.20 to 1.50 dollars Regarding our outlook for the Q3 of 2024, we are providing the following guidance. We expect total Q3 2024 revenues to be between $275,000,000 $285,000,000 with product revenues to be between $159,000,000 $164,000,000 and services revenue between 100 $16,000,000 $121,000,000 Given our 2nd quarter performance and our expectations for the 3rd quarter, we expect the second half twenty twenty four revenues trend to confirm with historic seasonal patterns in which second half total revenues are slightly above first half total revenues. We expect the Q3 20 24 non GAAP EBITDA to be between $28,000,000 $34,000,000 We expect the Q3 20 24 non GAAP earnings per share to be between $0.34 per share and $0.44 per share.

Speaker 3

Non GAAP EBITDA and non GAAP EPS guidance for the Q3 2024 reflects employee salary merit increases issued in early Q3 2024, which would affect broad salary increases in 2 years as well as some seasonal expenses. 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. Before I conclude, I would like to note that beginning in 2025, we anticipate providing you with additional information on our annual bookings expectations. 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.

Speaker 3

And as we continue to pivot towards driving reoccurring revenue, we expect it to be an important internal metric as we manage our business. In summary, we are pleased with our results for the Q2 of 2024. And I would now like to open the call for questions.

Operator

Our first question comes from the line of Stan Barronshetin with Wells Fargo. Your line is live.

Speaker 4

Yes. Hi. Thanks for taking my questions. Maybe first on product revenue. It's nice to see the quarter you'd be by $14,000,000 But looking at full year guidance, it looks like midpoint of the guidance range actually came down by $7,000,000 Can you just walk us through what drove the beat in the quarter and what contributed to the guidance revision?

Speaker 4

Thanks.

Speaker 3

Yes, Stan, thanks for the question. So what contributed to our revenue was increased. We saw strong demand in point of care product portfolio as well as increased demand or strong performance from our specialty pharmacy services business. But in terms of the full year, we're very confident about our guidance because we do have good visibility today to 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.

Speaker 4

So for the Q2, was the B driven more of a timing issue where you got some business upfront? 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? Kind of how should we think about the puts and takes on that?

Speaker 3

So what we've provided from a guidance standpoint is primarily driven by what we believe will be a continuous strong demand for our specialty pharmacy services business. And the product revenues, we do believe, will continue to perform well through the second half of the year. But it's again primarily driven by the implementation schedule that we have visibility to in the second half. But the first half was clearly driven by our point of care strong performance from our point of care standpoint.

Speaker 4

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

Speaker 3

Yes. We're really looking at 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. We're really focused on prudence expense management, and we do expect that, that will continue through the end of the year.

Speaker 5

Okay. And then maybe just

Speaker 4

a quick one. I'm sorry, go ahead.

Speaker 1

No, no. Stan, it's Kathleen. I just want to go back to your product question, the initial one, and point out that, from where we sit today based on where we were at the beginning of the year, we're less reliant on, bookings to close the gap in product revenue. So the demand environment thus far has been good and so we have confidence in the second half of the year from the product revenue standpoint.

Speaker 4

Got it. Helpful. And then maybe just a very quick one. We just love to get an update on the demand environment for your compounding and central pharmacy robotic solutions? Thanks.

Speaker 2

Yes, I think there's a lot of interest in that area because there's a need to solve a lot of the problem. 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. And so we still continue to deploy those robots, but more slowly as we continue to build out feature set that will help meet those regulations. So a lot of interest. We're still getting bookings, but the deployment is slower.

Speaker 6

Thank you.

Speaker 1

Thank you, Stan, for those four questions. Next question?

Operator

Our next question is from the line of Scott Schonhaus with KeyBanc. Your line is live.

Speaker 7

Hey, guys. Thanks for taking my question and the good quarter. You talked about the XT Amplify a lot and you're seeing strong demand. Can I just 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?

Speaker 7

I guess maybe context of how much it is currently and then how much of it is embedded in your guidance for this year? And then, I have a follow-up question again on the IVX patient and compounding. But first, I wanted to just drill more into the XT Amplify.

Speaker 2

Yes. The XT Amplify is really about a statement about the investment in the XT fleet. 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 of examples in the call script. 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 probably will hit next year.

Speaker 2

But it also gives customers confidence today to go ahead and upgrade their older G Series to XT Series because they see the investment in the XD systems. So it's building XD Amplify is building in the backlog.

Speaker 7

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.

Speaker 2

Yes. I don't know if we have a stated number and maybe in callbacks we can dig that up for you. But 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. And so as we finish the end of the XD Series, it's there's it probably unwinds probably most of it over the next 24 months.

Operator

Our next question is from the line of Matt Hewitt with Craig Hallum Capital Group. Your line is live.

Speaker 8

Good morning and congratulations on the strong quarter. And 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 of the implementations of the XT Extend should be much faster allowing for faster revenue conversion. Is that correct?

Speaker 2

Yes, that is correct. Then the pipeline has built have been building quite rapidly since the announcement. And I think along with the macroeconomic environment, 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 Q2 where all the things that we had scheduled were as planned. There were no slowdowns or speed ups.

Speaker 2

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 particularly are not as much manpower to do. Now many at times we'll also upgrade the servers, which require us to get aligned with the IT department. And so that may be the only, takes a little bit of a time factor, but doesn't take much of a people factor.

Speaker 2

And that's usually included in the Amplify upgrade.

Speaker 1

And, I would also add that, Matt, that it does take time to get, into the capital approval process. So it is part of that process in addition to the IT, as Randy mentioned.

Speaker 8

Got it. And then my second question is regarding gross margins. Obviously, a nice pop in product gross margins here this quarter. Is that something that we should anticipate kind of building from here as your volumes continue to recover? Or was there anything one time in nature that hit in the Q2?

Speaker 8

Thank you.

Speaker 3

Yes, Matt. 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 during the prepared remarks, with our multiyear innovation strategy, we do expect that we will see some improvements in our margins as our business continues to grow. And then also we also Thank

Speaker 1

you. Great. Thanks, Matt. Next question?

Operator

Next question is from the line of David Larsen with BTIG. Your line is live.

Speaker 9

Hi. Randy, can you please talk a bit about Randy, can you please talk a bit about Advanced Services and just remind us what are the key products within Advanced Services? I mean, I think you highlight that on Page 2 of the press report. 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?

Speaker 9

Thanks very much.

Speaker 2

Thanks for the question, David. Yes, we have 3 major components in Advanced Services, specialty pharmacy, which is one of our fastest growing and building that we commented in the remarks. We're really pleased with that product line, which is setting up specialty pharmacies inside hospitals as well as helping them to execute their 340B program locally as well as using our 3rd party 340B services as kind of a combination that we use there. Secondly is our Enlivant Health, which is primarily focused at retail and outpatient pharmacies. We continue to see that grow.

Speaker 2

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. And then, and lastly is the advanced services portion of products that are robotic. So IV and robots that are placed and 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 3 major components of our advanced services.

Speaker 2

And we feel really good about both their growth and their scaling to get margin.

Speaker 9

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 described it as like, TES, 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 is like your total recurring revenue is the advanced services portion of that and what the EBITDA margin is of those pieces?

Speaker 9

Thank you.

Speaker 2

Yes. Just to be clear, those three services that I just articulated are the advanced service. We have tech services, which are break 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. 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 the form of a service.

Speaker 2

And the breakout of the EBITDA, I'll leave that up to the finance team to describe that.

Speaker 3

Yes. So the EBITDA today is growing and it's we do expect it to continue to grow as the business the Advanced Services business is continuing to scale.

Speaker 1

Yes. And just specifically, Dave, so advanced services, we expect this year to be about 21% of our revenue. 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%. 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 for 2024.

Speaker 9

Great. Thanks very much.

Operator

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

Speaker 5

Thank you. Randy, I'm curious this deal that you just mentioned with Select Medical, is that to introduce XT to their systems?

Speaker 2

Well, I guess it is.

Speaker 5

So what's the takeaway?

Speaker 3

Yes,

Speaker 2

that was a competitive swap. Yes, it was.

Speaker 5

Good for you. Okay. And then just one little housekeeping question, Chacha. At the midpoint on the EBITDA guidance, it implies that the second quarter will be the biggest EBITDA quarter in the year, just trying to understand the cadence. Thanks.

Speaker 3

Yes. Our Q2 EBITDA is primarily driven again by 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.

Speaker 2

Yes. In Q3, we have some extra expenses, right, and pay increases and some seasonal expenses, yes, all expenses second half of the year.

Speaker 5

Okay. I figured it was something like that. And then it looks like just doing the math at the midpoint for the year, Q4 EBITDA is kind of in line with Q3. So and anything I should think about relative to that?

Speaker 3

No. I mean, we do feel confident about our second half of the year, including our EBITDA.

Speaker 5

Okay. Thanks, everybody.

Speaker 6

Thanks, Steve.

Speaker 3

Thank you.

Operator

Our next question is from the line of Stephanie Davis with Barclays. Your line is live.

Speaker 6

Hi, guys. This is Anna Krasinski on for Stephanie. Thank you for taking our questions and congrats on the quarter. So 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 3

Yes. So again, as we've said in the prepared remarks, we're very comfortable about our full year guidance and especially in this case the second half of the year. And primarily it's driven by visibility to our plant implementations, number 1. And we do considering our strong first half, we're going into the second half with a very high quality backlog. And we do expect that our second half will definitely be in line with what we've seen from a historical parking standpoint.

Speaker 3

We do feel very confident that we will be able to deliver on the guidance that we've provided.

Speaker 2

Yes. If I could add one other component there is that because hospitals are not as constrained on the employee side and more residents and more ready to accept these installations. We have hardened schedules for the next 9 months that we believe we won't see any disruptions. And so 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.

Speaker 6

Got it. Thank you. That's super helpful. And actually kind of leads into my follow-up. I was wondering to what extent the improving industry labor trends such as lower contract labor mix did impact the higher revenue outlook?

Speaker 6

And just how are you thinking about the industry labor trends at your customers for the rest of the year?

Speaker 2

Yes. I kind of think of it on 2 different several different views. One is nursing is always a very sensitive area. And to the point that we can put features and functions and innovations that help nursing, it tends to be very key. And the XT Amplify does have feature sets and product profiles that really help nurses.

Speaker 2

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 with the implementation process, We've seen some relief there. And that gives pharmacies confidence that they can put these systems in place and get good results. And because we see that pressure lessening, we can get commitments with customers a lot further out on the kinds of things we want to do and can do. And you have to remember, in some of the cases, we're installing robots.

Speaker 2

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 robots do take some improvement. So seeing that they have the labor and time and money and willingness to do that is definitely changing.

Speaker 6

Got it. Thank you so much for all the color.

Operator

Our next question is from the line of Alan Lutz with Bank of America. Your line is live.

Speaker 10

Good morning. Thanks for taking the questions. One for Randy or ChaCha. As we think about the gross margin performance in the product segment, can you talk about the current pricing environment there on the product side? Has that changed at all over the past 6 months?

Speaker 10

And then is there any type of change to the competitive landscape that you've seen over the past 6 months or so? Thanks.

Speaker 2

No. There's I don't think there's been any major changes to our pricing or we haven't seen any impact of our services. I think we continue to be very disciplined in our approach there. And we feel like that customers are really interested in platform plays and platforms are less plays or less sensitive to pricing than product pricing, if you will. And to that extent, it's been very positive for us.

Speaker 10

Got it. And then 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,

Speaker 2

What do

Speaker 10

you think is more important as you think about the next maybe 1, 2 or 3 years? Is the macro going to be a more important driver here? Is it or is it going to be more around the pickup of that upgrade that you put out there? Thanks.

Speaker 2

Yes, 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. If you've seen in many of the public hospital reports that their outpatient is being driven as 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 the what our customer needs are, which are much, much broader market. So I think that's going to have the biggest impact on our growth profile.

Speaker 10

Thanks, Randy.

Operator

Thanks for your question. Our next question is from the line of Jessica Tassen with Piper Sandler. Your line is live.

Speaker 11

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

Speaker 2

Yes. 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 the XD Amplify is just not about a product upgrade, it's about really an enterprise rollout that allows you to access more solution sets and deliver more results. So the XT Amplify is really a spearhead and a great reason for every sales rep, for every customer to have a meeting with a customer.

Speaker 2

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

Operator

Thank you for your question. Our last question for today is from the line of Ann Stanfield with JPMorgan. Your line is live.

Speaker 11

Thanks so much for taking the question. You may have spoken a few times today about the improving macro environment.

Speaker 4

And

Speaker 11

I was hoping maybe you could just touch on what your conversations with your customers have been like around their financials and maybe what some of the key metrics that you're tracking are? And then finally, just how you're thinking about the rate of change of improvement in the macro as it relates to your pipeline?

Speaker 2

Yes. Usually, our one of the key indicators of macro improvements as we discuss customers is their expansions. All customers generally are having some kind of expansion through merger and acquisition, opening up new centers, opening up new clinics. And in that conversation, that means these health systems are investing in expanding their footprint. And that's a key indicator.

Speaker 2

When you see our health systems and our key customers that we walk into in the last 48 hours, ours and 3 of our largest ones, all of them are expanding their footprint, which means they are healthy. They have a strategic goals to not only improve efficiency, but to keep those patients in their system and make sure medication management is central to that engagement with the patient. When I go to a site and they're not expanding, they're kind of standalone ish, they're not moving out, it's harder for them to invest in our systems as if they're not investing in their footprint. And I would say that's a key indicator that we follow for the trend because usually all expansions require us to get engaged because they want to put our systems in where they're expanding.

Speaker 11

That's really helpful. Thank you.

Operator

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

Speaker 2

Well, thank you for joining us today, and it sure is nice to see the company return to a healthy position to which we can create a multiyear growth and expansion strategy. I really want to thank the Omnicell team for their focus over the last 6 to 9 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.

Operator

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.

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Earnings Conference Call
Omnicell Q2 2024
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