Thank you for standing by. My name is Eric, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Second Quarter 2025 Financial Results Call. [Operator Instructions] I would now like to turn the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to the Omnicell Second Quarter 2025 Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; Nchacha Etta, Executive Vice President and Chief Financial Officer; and Nnamdi Njoku, Executive Vice President and Chief Operating Officer. The call today will contain forward-looking statements, including statements related to financial projections or performance and market or company outlook based on current expectations. These forward-looking statements speak only as of today on the date specified on the call. Actual results and other events may differ materially from those contemplated due to numerous factors that involve substantial risks and uncertainties. For more information, please refer to our press release issued today, Omnicell's annual report on Form 10-K filed with the SEC on February 27, 2025, and in other more recent reports filed with the SEC. Except as required by law, we do not assume any obligation to update any forward-looking statements. During this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press releases. Our results were released this morning, and our financial results press releases are posted in the Investor Relations section of our website at ir.omnicell.com. With that, I will turn the call over to Randall. Randall?

Good morning, everyone, and thank you for joining us today. We had a strong second quarter and first half of 2025, and I am pleased to announce today that we are reaffirming our full year 2025 outlook for product bookings and annual reoccurring revenue and modestly increasing our full year 2025 guidance for total revenues, non-GAAP EBITDA and non-GAAP earnings per share, which reflects our strong first half 2025 performance and greater visibility as we move through the back half of the year. I'm proud of the team's ability to deliver strong results despite the headwinds from tariffs and uncertainty in the macroeconomic environment. I'm also pleased to note that we are seeing that overall customer demand is tracking to our expectations, which we believe reflects the strength of our innovative portfolio of products and services. Customers appear to continue to see the value in our products and have been receptive of broader pricing increases and strategies we have recently started to implement. Also, we think it's important to remember that our installed base has grown significantly over the last several years. And as we continue to announce new innovations and capabilities, it should position us well as we move forward. I'm excited about the journey Omnicell is on, evolving from a device-centric medication and medical supplies management company to an end-to- end medication and medical supplies management technology platform company, combining both automation and intelligence that serves the entire continuum of care. This transformation is meant to allow us to serve our health system customers by providing high visibility of medications and medical supplies in every location and giving them accurate, actionable insights intended to enhance operational and clinical outcomes. Now let's review the second quarter 2025 financial results. Total revenue was $291 million, representing an increase of $14…

Thank you, Randall. I want to start with a big thank you to the entire team at Omnicell for delivering outstanding financial results for our second quarter of 2025. Your strategic thinking, resilience and ability to navigate through challenging tariff headwinds has been nothing short of exceptional. This quarter, I am pleased to report that we delivered strong results, exceeding the upper end of nearly all of our previously stated guidance ranges. Now I am going to walk you through some of the key drivers of our second quarter 2025 performance as well as share our third quarter and updated full year guidance. Looking at our second quarter 2025 results, total revenue was $291 million, representing an increase of $14 million or approximately 5% from the second quarter of 2024 and an increase of $21 million or nearly 8% compared to the previous quarter. Compared to the second quarter 2024, we saw year-over-year growth from all 4 of our major product categories, including connected devices, which benefited from XTExtend as well as key contributions from technical services, SaaS and expert services and consumables. Compared to our second quarter 2025 product revenue guidance, we saw stronger-than-expected revenues from connected devices, including contributions from lease renewals as well as consumables. Second quarter 2025 product revenue was $163 million, representing an increase of $7 million compared to the second quarter of 2024 and an increase of $18 million over the previous quarter. Service revenue for the second quarter 2025 was $127 million, which increased by $7 million from the second quarter of 2024 and represented an increase of $3 million over the previous quarter. Non- GAAP gross margin for the second quarter of 2025 was 44.7%, representing an increase of 50 basis points compared to the second quarter of 2024 and an increase…

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

Randall, I'm wondering if you can just describe the competitive landscape. It sounded like you guys were gaining momentum in the kind of top 300 hospital space. Are those hospitals still in the market, have macro headwinds or kind of the impending 2026 volatility in marketplace and Medicaid kind of scared some portion of your pipeline? Or is it still strong? And then just in terms of competitor behavior, obviously, we are aware of a competitive launch. Is Omnicell proactively approaching customers and prospects in light of that? Or is the launch just softer and less threatening than maybe we and investors have feared?

Sure. Good to hear from you, Jessica. I really believe that hospitals are talking slightly differently, but their buying behavior is -- has not changed. I think in the middle market, we tend to do very well as we do in all the markets, I think. But I think it's a little bit easier to swap. And I think we line up very competitively with -- in the competitive world against what's coming out and what we have out and what we're going to bring out. So that momentum has continued in that market. Their financials seem to be in line to continue to buy our products and make the swap. So we feel confident about that. And I think as we have done here in Austin, Texas, we've launched our innovation center. We are really moving away from just being a product company to a tech company. So it's more about an enterprise, high-tech solution that's cybersecure that can answer a lot of different problems throughout an institution's continuum of care. And it's probably less about one product here or there. So I think we have the strongest solution set in the marketplace, and that continues to resonate really well with customers that we currently have and the ones that we're going after.

The next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on the strong quarter. Maybe kind of an extension of the prior question. What are you hearing from customers regarding the Medicaid cuts and the impacts that they're facing on that side of the equation and its ability to purchase more products. Is it affecting the way that they're kind of lining up in queue? Or is it changing the way that they look at the services, maybe looking to adopt your services more broadly as a way to kind of reduce their overhead? Any color there would be great.

Yes. I think as they think about these new legislative things coming down, they just haven't arrived yet. They have to go through the federal government and through the state government. And so -- and I'm not sure that they really can assess the full impact yet. But we do see these systems, the big providers really thinking about can technology begin to really solve some of my bigger issues, not just fill the gap, but actually solve some of these problems. So it really puts us in a good position to help reduce cost and improve efficiencies and really make a better experience for the users, which is really critical, particularly nursing. So I just feel that we are so well positioned with what we have to offer from an enterprise standpoint that it just seems to be resonating with customers. And I feel like as we move forward, it's just going to get better even if the dollars get tight, which they haven't yet. So just to be clear, we haven't seen any customer change of behavior in our pipeline to push out things or slow things down. It's been steady.

Your next question comes from the line of Stan Berenshteyn with Wells Fargo.

I would love to maybe get some comments on the IV compounding product that you have. You just announced the inaugural Trust Summit that you just hosted. Can you just give us an update on the demand environment within compounding? And then also, I think previously, you've mentioned, Randy, that the compounding robot has been getting fixed up and upgraded. Do you have a time line of when that robot will graduate from being offered on a limited release basis?

Yes. We just released our fourth and final phase of completing the product substantially. And that was lined up with the timing of the IV Summit. So we have a product that's ready to go and has been gaining momentum, both in the pipeline, and we do have a backlog of customers that have begun to install. So that marketplace is picking up for us. We're pretty much the sole player in that market. And the new features and functions and productivity and safety features have been accepted really well. And we have -- I think another key indicator of the momentum of that product is the reprehensibility of all the customers now, pretty much all the customers are a good reference for us as we go forward. And I just -- I'm excited about it because this is a hard, difficult product to make and solves a hard problem for our customers. And that's where you get good value and good return for them and for us.

The next question comes from the line of David Larsen with BTIG.

Congratulations on the good quarter. Randy, can you talk a little bit more about software in the clinics? And any color around like your product road map, what are you doing for the docs and the offices at these hospital systems? And sort of what's your vision going forward?

Well, it's really critical as we move to a fully automated world, the autonomous pharmacy, as I look at it, that you have to have full visibility of all the meds and all the locations, which include clinics, which include doctors' offices that include outpatient surgery centers and the like. And in order to do that, you have to have solutions that fit those situations. And MedVision is a down payment on that. It really allows you to go anywhere that meds are. You can use hardware to manage and control those or you could just use open shelves. It doesn't matter. But the key is that it's an integrated system into our entire enterprise platform. So you don't have to buy separate platforms or separate systems or integrate them in later, it's already totally integrated. So it's an easy add-on for our customers to move from inpatient to outpatient without having to deploy new servers, new systems or even new training. And it works really well from smart devices or smart pads in order to deploy it very quickly. So the key to reaching the best systems you can on an enterprise level require you to get to 100% visibility of the product and the supply chain and location at all times. And that's what we're striving for.

Okay. So as volume shift towards outpatient settings, ASCs, doc offices, it sounds like you're meeting that demand and that need that hospital systems have. And then can you maybe just talk a little bit about your visibility into implementation schedules? We're here midway through the year. What is your visibility for 3Q and 4Q?

Well, we've really worked on this over the years and have really created a solid go-forward process. We almost have 95% to 100% visibility on the entire rest of the year as far as scheduled of installs required to meet our revenue commitment. And it even goes beyond just the end of the year, it goes into next year. So we have changed this process over the last few years, and we continue to yield great benefits from it. Not only for the customers and the predictability, but for employees who fly out to these customers to do the installs. They can schedule their lives around the known install dates and create a great experience for our customers.

Your next question comes from the line of Bill Sutherland with The Benchmark Company.

Just a 2-parter here on tariffs. Is the guidance assuming that the temporary -- the 30% tariff that was for the 90 days sticks? And are you -- and I'm curious about you last time talked about shifting subassembly work from China and really getting a lot of -- just a lot of the cost of sales here. Just curious how the outlook for that looks.

Thanks for the question, Bill. So I'll address the work we've been doing to build resiliency into our supply chain. With regards to the mitigation efforts that we talked about last time, I would say we're very well on our way to having most of that in place that allows us to move the allocations as needed. As we talked about, a big part of our exposure were components we were sourcing from particularly China. And we've put things in place that as we go into 2026, we feel pretty good about the resiliency that we've built into our process. So that's where we are right now. Good progress there.

Your next question comes from the line of Allen Lutz with Bank of America.

Really nice gross margins on the product side. And you talked in the prepared remarks about raising prices. I'm curious, did that impact gross margins in the quarter? Is raising prices specifically related to tariffs? Or is it broader than that around the value prop that you're providing? And then can you just talk about expectations for gross margins into the second half of the year?

Well under the pricing, we put a -- I'll answer the pricing question. We put pricing process in place a few years ago. And what -- and it's continued to pay off because as you put prices in, it takes a while for them to flow through. But what we have been doing of late is being able to range -- raise the range of pricing increases that we've had, maybe a little bit higher due to the higher rates of inflation that are permitted in our contracts, and that's beginning to flow through. And so -- but it wasn't specifically around tariffs per se, but it has been just about the increased cost overall that we have borne as a company, and those have kind of gone through without too much pressure. So we feel really good about that. And a lot of them continue to be implemented, and we'll continue to see the results of those price increases as we move forward.

With regards to gross margin expectations, we've been very pleased with the progress that we're making on gross margin. We've said this before. We're investing in our SaaS and expert services businesses. And as those businesses continue to scale, we expect to see them contributing to our gross margin going forward. Also, just speaking about our multiyear innovation program, XT Amplify has been getting very good reception from our customers. And as the business continues or start contributing to meaningful revenues going forward, we should see that have a positive impact on our gross margin.

Your next question comes from the line of Scott Schoenhaus with KeyBanc.

Congrats on the really good quarter. I have a 2-part question. So you clearly noted more visibility in your business. And I think Advanced Services and the recurring revenue nature there is clearly contributing. My question is that as we roll off the XT Series replacement cycle in addition to new software and service modules and offerings, should we see much more of a revenue mix shift? We only saw 100 basis points of mix shift this year per your expectations. How should we think about this mix shift going forward and the margin opportunities there as you build traction in Advanced Services? And then secondly, I think Nchacha mentioned strong lease renewals in the quarter supporting product revenues. Could you remind us what percentage of your customers pursue leases now versus CapEx payments? And is there a change in behavior in regarding advanced services purchasing decisions with these sort of lease renewal customers versus full CapEx?

Yes, most of our customers do purchase and some of those then execute a leaseback through their own banking relationships and some go through our leasing facilities. It's really a small portion of our business that really goes through our own facilities. And so it's not -- it's probably 10% of our business or something around that number. I think the customer -- I think the mix is growing slowly, but nicely on the more reoccurring, we're about 50-50 now, and we're growing a little bit more. But as we see customers beginning to renew with the Amplify, we know that, that's going to drive more product revenues through. And also our consumable business is continuing to grow nicely, which is also flows through the product line. So I think it will kind of go back and forth, but I think it's a lot better positioned than we have been historically, where maybe it's been 30% of our business has been reoccurring, 70% has been product. And this really allows us to weather storms when there are capital freezes. I don't really see any shift in behavior and wanting to buy one way or the other. It is a different environment from the years past when interest rates were 0% and so people had large lines of their own to execute on leasebacks of equipment. And now that interest rates are higher, perhaps we can do more leasing and lean in more into reoccurring revenue products, but it's a slow movement.

Operator, could you reopen the line for Bill Sutherland. Bill, I don't think we addressed your question on tariffs. We want to make sure to get to that.

Okay. Cool. Yes. The first part of it was about the rate assumed in the back half guide for tariffs. That was the 30% that's been in place, I guess, until August 12 or if that gets pushed. I'm just wondering what you guys assume.

Yes. We did assume 30% rate, which is based on the tariffs that we announced at the beginning of the second quarter. And that's what that's the assumption that we used for the full year projection.

Your last question comes from the line of Eugene Mannheimer with Freedom Capital Markets.

Congrats on a good -- I was wondering if you could elaborate a little more on OmniSphere in terms of what you're seeing with respect to customer adoption and rollout? And should we be thinking about this as a multiyear evolution? And how does it impact revenue and in particular, recurring revenue over time?

Yes, Eugene, and good to hear from you again. Yes, OmniSphere is a key platform as we move forward. And our entire customer base over several years will be moving to OmniSphere as it will be -- represent the enterprise solution engine to all of our products. I think it's one of the most exciting pieces when you sit down with customers and talk about because these customers are massive, they're large. And they want to deal with one single vendor that can provide everything they need through a cybersecure that has flexibility, both in compute power and storage power without having to buy any servers, without having to do anything in their IT room where it's all managed on the outside by us. And so you can see that, that kind of product is one that really lends itself to the ever-changing landscape of these providers as they add more outpatient facilities or they acquire an inpatient facility, it becomes really easy to deploy and use. And with that, we are going to drive additional revenues to get connected into that device into that back-end system. And yes, you'll start to see more reoccurring revenues as we move forward. Now we're just at the beginning of the deployment. We've been working on this product for, 5 years. We've had it in beta for 2 years, and we're now just rolling it out. So it is a hardened product, as we mentioned, HITRUST certified that we're going to connect everything, every device out there we have to it to collect the data and manage the system. And eventually, it will be the backbone to apply all of our AI engine pieces to, which are also great revenue generators for us as we solve really big complicated problems for our customer in a simple, elegant way.

That sounds exciting, Randy. And just my follow-up is on some of the new innovations you've been introducing, MedTrack, MedVision, MedChill going back to last -- earlier in the year. Are these products in response to solutions that your competitors already provide? Or are these unique and unmatched by your competitors today?

Well, we kind of try to go figure out where the customers' problems are and build out solutions. And we really think that these will meet our customers' needs. And most of these are fairly unique solution sets in the marketplace. And most importantly, these solutions are integrated into the platform. One of the feedbacks that we get from customers is they don't want to buy third-party products that integrate into our platform. They want to buy products from us that are totally integrated into the platform. And so it's really important that we continue to innovate and deliver new products that can be easily deployed and automatically connect into the network of the OmniSphere as we move forward. It makes it really easy to come out with new hardware platforms that automatically plug into our OmniSphere network are immediately identified, don't take a lot of time to configure and easy to deploy. So it's just -- I think, because we have this enterprise platform, it's easy to add on more solution sets quicker. That is our goal.

I will now turn the call back over to Randall Lipps for closing remarks. Please go ahead.

Well, thanks for joining us today. And as you can see, Omnicell does have momentum out there. A nice quarter to the team, nice delivering on the results, exciting times as we move from a product to a tech company, we deploy these new solutions, and it's just a privilege to work in the industry. So thanks for being with us, and we'll see you next time.

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