Ladies and gentlemen, thank you for standing by, and welcome to the Omnicell Q3 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kathleen Nemeth, Vice President of Investor Relations. Thank you. Please go ahead, ma'am.

Good morning and welcome to the Omnicell Third Quarter 2021 Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; Scott Seidelmann, Executive Vice President and Chief Commercial Officer; and Peter Kuipers, Executive Vice President and Chief Financial Officer. Also joining us today is Roxanne Turner, Vice President of Corporate Responsibility, who will share an update on our ESG initiative. This call will contain forward-looking statements, including statements related to financial projections or other statements regarding Omnicell's plans, objectives, expectations, targets or 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 February 24, 2021, and in other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is November 2, 2021, and all forward-looking statements made on this call are based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change and we undertake no obligation to update these forward-looking statements, except as may be required by law. Finally, this conference call is the property of Omnicell, and any taping, other duplication or rebroadcast without the expressly written consent of Omnicell is prohibited. Our results were released earlier this morning and are posted in the Investor Relations section of our website at Omnicell.com. Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press release. With respect to forward-looking non-GAAP measures, such as guidance and targets, 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. I will now turn the call over to Randall.

Good morning and thank you for joining us today. On today's call, I will walk through the drivers of our strong performance this quarter and our continued progress toward our 2025 growth targets. But also like to briefly discuss our corporate responsibility initiatives, before handing the call to Roxanne Turner, Vice President of Corporate Responsibility, to provide additional color on all the great work the team is doing in this important area. Beginning with our financials, we delivered strong third quarter results, reflecting the continued momentum in our business as well as solid execution. Overall, we exceeded the top-end of our guidance ranges for revenue, non-GAAP EBITDA and non-GAAP EPS. Our third quarter results included record revenues of $296 million, record non-GAAP EBITDA of $66 million and record non-GAAP earnings per share of $1.08. I'd also like to highlight that we closed the acquisition of FDS Amplicare in early September. This is a major milestone and I would like to extend a warm welcome to the employees of FDS. As a reminder of our previously stated 5-year outlook, we are targeting a revenue CAGR of 14% to 15% from 2021 to 2025, and expect to reach $1.9 billion to $2 billion of revenue in 2025. Additionally, we are targeting a non-GAAP operating margin of 21% and a non-GAAP EBITDA margin of 25% by 2025. We believe we are making good progress toward achieving these long-term objectives. But we are mindful that we are not immune to current inflationary pressures in the market. The underlying customer demand for our products and solutions continue to be robust. And we are confident in our ability to successfully navigate this economic cycle. I'd like to discuss a few of the current healthcare trends that we believe Omnicell is well-positioned to address, particularly with our…

Thank you, Randy. I'm happy to share our progress since we published our first corporate responsibility report in April of this year. As you may be aware, we began to implement our formal ESG program over the past 2 years. Even though, Omnicell has a longer history of contributing to the well-being of our communities, where we live and work. We recently completed our materiality assessment of issues that impact our business. The results indicate we have 4 categories of significance for our stakeholders: diversity, equity and inclusion; talent retention and recruiting; business ethics; and data privacy, with about a dozen areas of focus within each of those 4 categories. Our assessment process included interviews with both internal and external stakeholders, including our executive team and functional leaders, as well as customers and individuals who serve on boards of different companies including our own. We have also been actively soliciting input from the investment community each time we have the opportunity to talk about our ESG program. The executive steering committee, Randy mentioned consists of leaders in several operational areas, including supply chain, product, quality, HR, finance, risk management, and customer/sales, who are accountable for targeting strategies in the areas of focus for us. This will help ensure that the ESG program can be operationalized across the organization. We also have a cross-functional working group undergoing target setting exercises, referencing our materiality assessment with the [anticet] [ph] short, medium and long-term smart objectives for overall operational improvements. We expect this team to also set goals intended to contribute towards global efforts to reduce greenhouse gases, including reductions in Scope 1, 2 and 3 emissions by 2030. Corporate responsibility is a long-term focus for Omnicell, and we look forward to keeping you updated on our progress. I'll now hand it over to Scott Seidelmann to discuss our innovation pipeline and key customer highlights. Scott?

Thank you, Roxanne. Last quarter, I provided an overview of our progress toward our long-term strategy and some areas of opportunity for innovation. The pandemic has highlighted what Omnicell has recognized since our founding 29 years ago, pharmacy requires innovation. Now more than ever, healthcare system pharmacies need solutions that will enable them to safely and efficiently address complexity and medication management. In early October, we welcomed more than 1,100 pharmacy, nursing, IT executives, and C-suite leaders for our second Annual Omnicell Illuminate 2021 Digital Medication Management Event. This is the largest industry event of its kind, and we believe that the interest and participation that it attracts underscores the growing need for an entirely new digital medication management infrastructure. The 3-day virtual gathering featured more than 30 sessions and more than 50 speakers sharing insights and best practices for tackling the biggest challenges in medication management and healthcare more generally. Randall hosted an opening keynote discussion with representatives from leading health systems discussing their digital transformation experiences. They shared stories highlighting the benefits of digital infrastructure, and ways that it has positively impacted patient outcomes, improved the experience of the care team and lowered costs. Attendees had the opportunity to see our technology in action, and chat live with Omnicell experts in virtual chat rooms. New to the agenda this year were 2 sessions focused on specific industry challenges, including mental health support for healthcare workers, and women in healthcare leadership. We also specifically highlighted Omnicell's investment and commitment to improving the customer experience, a cloud infrastructure, and packaging technology is true services that deliver real customer outcomes. Overall, we are pleased by the industry respond to this event and look forward to continuing these important conversations and helping our customers realize the industry vision of the Autonomous Pharmacy.…

Thank you, Scott. I'm pleased with the strong third quarter momentum in our long-term sole source partnership strategy in our commercial pipeline, product bookings and revenue, which we feel demonstrates that our strategy's working, that our products and solutions are resonating with our customers. Our healthcare system and retail pharmacy customers continue to turn to Omnicell to realize the vision of the fully Autonomous Pharmacy, and the overall demand metrics for Omnicell remain strong. We are making good progress toward the 5-year outlook we provided earlier this year, and I'm proud of the solid execution that are over 3,000 Omnicell team members continue to consistently deliver. During the quarter, we welcomed over 200 FDS Amplicare employees to the Omnicell family, in addition to adding around 100 new employees mainly in the customer products and software engineering teams. Turning now to our financial results. Our third quarter 2021 GAAP and non-GAAP revenues were $296 million, an increase of $24 million over the prior quarter, up 39% over the third quarter of 2020 and above the top end of our guidance range. Our third quarter GAAP and non-GAAP revenue reflects the timing of certain customer implementations initially expected to occur in the fourth quarter of 2021, as well as GAAP and non-GAAP revenues from FDS Amplicare, the acquisition that we closed on September 9, 2021. The sequential revenue increase of $24 million reflects continued strong demand for Omnicell's medication management and adherence automation solutions. As a reminder, the year-over-year increase was partially attributed to the lower-than-typical third quarter GAAP and non-GAAP revenue levels in 2020 due to the COVID-19 pandemic. Our third quarter 2021 earnings per share in accordance with GAAP was $0.61 per share, compared to $0.43 per share in the second quarter of 2021, and $0.20 per share in the…

[Operator Instructions] Your first question comes from the line of Jessica Tassan with Piper Sandler. Please go ahead with your question.

Hi, thank you so much for taking my question and congratulations on a good quarter. So maybe, Randall, in your prepared remarks you mentioned some takeaways from the Autonomous Pharmacy Advisory Board. Can you just remind us of when and why you formed that Board and who it consists of and maybe just how it's contributing to your thought leadership and contract wins at existing and new acute-care customers? Thanks.

Yeah, the Autonomous Pharmacy Board is an industry-led board, led by Chief Pharmacy Officers interested in the future of pharmacy and raising the level of pharmacists out of the administrative work, the more clinical pieces of pharmacy disciplines that really are what pharmacists went into the career for. And so, as they are looking into the future, and what's driving the future, it's really cloud-based technologies. And particularly, these technologies in this last board meeting, we're really emphasizing the labor shortage component that we continue to see in a lot of industries, but particularly in the pharmacy technician area. But we're excited about it, because they are not only just helping to lead the industry to this next level of pharmacy, understanding of what's needed and how the technologies will enable the autonomous pharmacy, but maybe most importantly, what are the steps along the way to get there. So, it's a real privilege to be part of the Pharmacy Board as an industry movement.

Thanks. And maybe just a quick unrelated follow-up. Can you just help us understand the impact of supply-chain inflation and disruption on Q3 results and then on your guidance for Q4? Thanks again.

Hello, Jessica. This is Peter. Yeah, so we see increased inflationary costs, from the third to the fourth quarter. It's about $2 million to $3 million incremental quarter-over-quarter additional inflationary costs. That said, like in the prepared remarks as well, we have high confidence in the surety of supply for semiconductors. We've done prebuys. We have stocked semiconductor inventory as well as for the prepared remarks. That said, freight and steel are more of a spot market. And we expect some more volatility in that going forward.

Thank you.

Your next question will come from the line of Scott Schoenhaus with Stephens. Please go ahead with your question.

Hi, team. Congrats on the quarter. Can you hear me okay?

Yeah.

Yeah.

Okay. So my first question is around the third quarter and fourth quarter moving parts. It looks like you saw some nice demand culture this quarter, especially on the software side, service revenues grew over 32% that led to nice operating leverage. Peter, you mentioned some of the pull-forward from earlier customer implementations which you expected to actually hit in the fourth quarter. But can you give us a sense of how much of this pull-forward was on the product side versus software side? And then, just to confirm that all your software platforms, whether it'd be 340B cross-selling success you mentioned, the Omnicell One, the new FDS Amplicare, they're all recognized as recurring SaaS revenues off of this strong revenue increase that we saw in third quarter.

Thank you, Scott. I think you've packed in 3 or 4 questions there. But I'll answer the last one first. Yes, that's all recurring revenue. The timing, I would call it timing, not necessarily a blend, the timing of revenue between the fourth and the third quarter, it's about $6 million, so $6 million of revenue, mostly in product revenue occurred actually in the third quarter, and we had originally planned for that in the fourth quarter.

Okay, great. And then it's a follow-up to the margin question. But we talked about the gross margin pressures from additional semiconductor costs, freight, steel costs that you continue to expect throughout the remainder of the year. Anything on the operating expense side we should be aware of, obviously, labor costs are helping you probably on the demand side, but are you having to pay more for your specific labor at Omnicell?

Well, we think that we're a very attractive company to work at, given our mission and the innovation that we drive. Like we had on the prepared remarks as well, we hired over 100 very talented new employees, that we want them to Omnicell. I would say, maybe, we see some pressure from a cost perspective, but not significant at this point.

Okay, great. Congrats on the strong quarter.

Thank you.

Thank you, Scott.

Your next question will come from the line of Iris Long with Berenberg. Please go ahead with your question.

Hi, team. Thanks for taking my question. So, I guess, first one on Omnicell One. I'm wondering, if you can talk about how many customers are either using or have signed up for the platform? And then, can you also talk about the implementation process a little bit? What is the process like? And how much time does it take for you to implement the system?

Hey, Iris, it's Scott Seidelmann. The first question you asked, which was really how many Omnicell One customers we now have live. The good news is the demand is incredibly strong. And we're seeing that demand tied to really the entire portfolio, I'll say in other words, customers are interested not only in OC One, but certainly how that as it relates to point-of-care and some of our other products, so that's really good news. As far as number of live implementations, we now have several on our tracking wealth plan. I didn't hear the second part of your question, though, which I apologize for you.

Yeah, it's about implementation. I'm just wondering what that process is like, and roughly how much time does it take you to implement it?

Yeah, I mean, it's implementing a data-driven IT projects inside health systems, which is always complicated, because you have to find the data and connect the data, so that takes some time, but nothing unusual relative to implementing any other piece of software inside of a health system. As far as timing, the largest [hands in the pull] [ph] so to speak is simply the fact that, oftentimes OC One, if you think about it, it's really lighting up data that exists in other forms of automation. And so, huge implementation, it's not necessarily that OC One implementation takes time. It's simply that, there's really no point in implementing it until the large portion of the automation is done, because there's no data to be generated for OC One to optimize. And so, when we look at implementations for OC One, and as you should think about it in terms of the lag that might occur as it gets implemented, it's really just a function of, it's really well designed for large health systems that are all in an Omnicell products. And so that implementation, those systems just take a while to implement.

Okay, I appreciate that. Another question on the Tucson VA hospital deal, I believe that the press release said that this hospital is actually the first one deploying CPDS in amount of VA hospital. I'm just wondering, was it more difficult to settle into a VA hospital? And then, do they kind of make the purchase decision for these Advanced Services a little bit differently than the other hospitals? If you can talk about the dynamics there, would be helpful. Thank you.

The key points on the Tucson VA announcement, and frankly, the really exciting part of it is that, it's the first time that a VA at least from an Omnicell perspective has purchased a true service, where we're not only combining the hardware, but we're combining that with optimization, ongoing services, analytics, et cetera. So that was a really important milestone. And while no means is this - what - in terms of go forward with other VA. It's certainly, I think, selling into any large system, it's certainly helpful when one VA has made this decision to go in and reference that VA with other VA, so this by no means to any kind of large enterprise-wide VA deal.

Thank you so much. I appreciate it.

Your next question will come from the line of David Larsen with BTIG. Please go ahead with your question.

Hi, congratulations on a very good quarter. Can you talk a little bit about the pipeline for Omnicell One, Scott, please? And what is the difference between Enliven FDS Amplicare and maybe 340B? And how can all these different solutions sort of work together to gain share on the retail side? Thanks.

So pipeline for OC One, we're very bullish on, we're excited about. As I said, where OC One drives the most value, is really think about it, its large enterprises that are all in on Omnicell products. And so, when you're all in on the platform, Omnicell One ties it all together helps you optimize that data. And so, where we're seeing Omnicell One is a great differentiator for us as a company, as those large health systems and so it's not surprising that oftentimes in the 151 in those relationships, OC One is part of that. And so that's sort of your comments on the pipeline. I think your question which is around Enliven FDS, 340B, and how all these pieces parts might come together. Enliven FDS is a portfolio is really focused on the retail outpatient pharmacy, so not really the health system, but the large - the 60,000 retail pharmacies and really helping that community pharmacists deliver value add services beyond selling vials. Omnicell 340B and Omnicell One are really focused on the acute care, the health system sector and helping those health systems optimize inventory labor compliance events in the case of OC One, and then the 340B program in the case of OC 340B. The vision of how it all comes together, which is really exciting is that as health systems increasingly move from in-patient acute to managing and to treating patients in the ambulatory environment into the home. They're now going to need the same tools and capabilities that our retail pharmacists' have. And so, we're really excited about the prospects of pulling the whole platform together and really engaging those health systems to manage the entire continuum of care. And so, that's really how they'll ultimately all come together.

Congratulations. I think that's exactly the right strategy. And then, I guess, Peter, how much revenue came from FDS Amplicare in the quarter, and was that part of the 3Q guide - was FDS in the 3Q guide?

Yeah, so the third quarter FDS Amplicare revenue was about $1.5 million, it was not included in the guide.

Okay. So there was a huge beat there, even if we back out the FDS Amplicare. Okay, thanks very much.

Yeah, thank you.

Your next question will come from the line of Steve Halper with Cantor. Please go ahead with your question.

Hi, good morning. I appreciate the comments around the inflationary headwinds and some of the steps you're taking to offset that. But, on a go forward basis, does the company have any ability to pass that along to customers, in order to make up that margin that it's costing you?

Thank you, Steve. This is Peter. Like we said in our prepared remarks, we are refining pricing actions, and we have some ability to just price. So, what we said I think in the last call, that we have increased list prices. We've increased service price as well. We've increased margin deal, threshold approval levels. Also, good to point out for context, that was also in the prepared remarks is that, of course, these pricing actions, the impact of those will start to increase as we go through the quarters into next year as well. So looking at next year, preliminary look, the first-half next year, we can assume that the inflationary costs are greater than the impact of the pricing actions. And then, throughout the year, we believe at this point that it will catch up. Now, that said, semiconductors, we've done prebuys and we have taken inventory in a sense as well, as you can see in the balance sheet. We have high confidence there, surety of supply. That said, freight and steel are more of a spot market. So there is more expected volatility there and we manage it on a day-to-day basis.

Right. And you feel as though you have enough supply of chips for the foreseeable future, given the actions you've taken?

Yes, that's correct, throughout 2022 calendar year.

Okay. And then, just do me a favor and just walk me through the pull-forward commentary again, for that occurred in Q3, just reiterate. I just want to make sure, $6 million of product, that was accelerated?

Yes, yeah.

Yeah. So compared to the original guides, we got about $6 million of revenue that we initially anticipated to occur in the fourth quarter. Those implementations have actually completed early in the third quarter.

Great, thank you.

Thank you.

Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital. Please go ahead with your question.

Good morning, and congratulations on the strong quarter. First question, now that the FDS Amplicare transaction is closed, do you have any plans to add sales reps on the retail pharmacy side as you've kind of broadened your capacity and in your application set for that market?

Short answer is given the growth and the demand being so positive, I think we will continue to invest there on the sales side, for sure.

Okay. And then, maybe a follow-up question. You're seeing the challenges that some of your customers are having, hiring employees and getting up to full staff. As you start to add more and more services into these customers as they acquire those services from you, are you able to find the talent required to meet their needs? Or has that been a source of pressure? Thank you.

I think labor pressure is labor pressure and regardless of who the employer is. That said, I think that our services, Omnicell is a pretty compelling employer. And so, we're a really interesting place to work for a lot of those technology sometimes. And so, as of now, we feel there is a good strong pipeline of candidates. We're not seeing undue pressures there. And I think, frankly, the candidates, to that end, one of the things that we can offer is, is that training and certifications in advanced robotics. And so, I think that's a pretty exciting career prospect for pharmacy technology labor.

Understood. Thank you.

At this time, there are no further questions. I will now turn it back over to Mr. Lipps for any closing remarks.

Well, I want to thank everyone on the Omnicell team and including the over 300 new employees that we added this quarter. Welcome to Omnicell. Thank you for getting on the road with us to the autonomous pharmacy and making a difference in healthcare for everyone. See you next time. Cheers.

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