Good morning, everyone. My name is John, and I will be your conference operator today. Please note that today's call is being recorded. I will now hand the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Please proceed.

Good morning, and welcome to the Omnicell First Quarter 2024 Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; and Nchacha Etta, Executive Vice President and Chief Financial Officer. This call will contain forward-looking statements, including statements related to financial projections or other statements regarding Omnicell's plans, strategy, objectives, goals, expectations, products or solutions, actions to streamline our international product line, holistic review of the business 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 February 28, 2024, and in other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. All forward-looking statements speak only as of the date hereof or of 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 first quarter 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. With respect to forward-looking non-GAAP measures, we do not provide a reconciliation of these measures to the comparable GAAP measures as these items are inherently uncertain and difficult to estimate and cannot be predicted on a GAAP basis without unreasonable effort. With that, I will turn the call over to Randall. Randall?

Thank you, Kathleen, and good morning, and thank you for joining us on the call today. I will walk through our solid financial performance for the first quarter of 2024 and provide an update on the current demand environment and our successful Illuminate 2024 customer event. Beginning with our results, our first quarter 2024 came in above our previously announced guidance on several key metrics. Total revenues were $246 million. Total revenues in the quarter were $4 million above the top end of our guidance range, primarily due to solid execution and timing within both Technical Services and our Advanced Services. Non-GAAP gross margin for the first quarter was 39.8%, a decrease of 380 basis points from the prior quarter, primarily due to lower revenue volume leverage. Our first quarter 2024 non-GAAP earnings per share were $0.03. First-quarter non-GAAP EBITDA was $11 million. First quarter 2024 non-GAAP EBITDA and non-GAAP earnings per share exceeded our outlook due to the better-than-expected revenue as well as strong cost and operating expense management. Since our last earnings update, we have retained an external management consultant to conduct a holistic review of our business with the aim of streamlining our operations and unlocking shareholder value. Today, we announced our intention to exit one international product line, which was not delivering sufficient returns on our investments. This action was already under active consideration prior to hiring the external consultant. While this was a first small step, we are indeed moving forward with determination and urgency. Now let's turn to the current macro environment and industry landscape. As we move into 2024, there are some reports pointing to encouraging signs that health system finances are beginning to stabilize. Hospital finances reflect a strong start to 2024 with calendar year-to-date operating margins approaching 5%, primarily due to accelerating outpatient revenues, lower contract labor spending, and lower average lengths of stay. At the same time, the interest rate environment remains challenging with forecasts for rate reductions unpredictable, and we continue to see areas of the customer base that are still facing budgetary constraints. Therefore, we are continuing to take what we believe is a prudent and cautious approach to our business planning and management. We have begun to see market traction for some of our initial XT Amplify program offerings. The 500-plus bed academic medical center in Massachusetts is a new customer for Omnicell and is converting its automated dispensing system footprint to XT Amplify cabinets. Our CarePlus solution, which is designed to improve solution adoption and provide data-driven performance optimization information supported by expert services, was identified by the customer as a pivotal differentiator that created unique value for their purchase decision. And as part of a 6-year extension of a sole source agreement, a Kansas-based health system is seeking to maximize the value of their XT technology through XTExtend, a comprehensive console swap designed to improve a high level of security while enhancing the user experience. Health systems across the country continue to recognize the value of Omnicell's Advanced Services offering that is designed to help transform pharmacy care. In addition to adopting our central pharmacy dispensing services, a large Southern California hospital plans to leverage our IV compounding service in an effort to provide more accurate, safe, and cost-effective sterile compounding. Our customer base for specialty pharmacy services now exceeds 400 hospitals and clinics. We're excited to announce the opening of a new location at Good Samaritan Hospital in Indiana, which cited Omnicell's experience and expertise in specialty pharmacy program management as key to their decision to partner with us. We expect our customer base to include an additional 7 pharmacies to open in the second quarter of 2024. We believe the combination of Omnicell's 340B TPA with our specialty pharmacy services program management offering is delivering growth opportunities for our customers. Our EnlivenHealth brand had a strong first quarter 2024 with a large buying cooperative choosing Enliven's analytics solution as it works to transform its complex pharmacy data into actionable insights and outcomes focused on patient care and operational efficiency. We had multiple other wins in the quarter as well. On April 16, we announced the XT Amplify innovative program intended to enhance pharmacy and nursing efficiency, reduce medication errors and waste, and ultimately maximize the value of the XT automated dispensing system investment. We introduced the first set of solutions in this multiyear program as part of our virtual Illuminate 2024 customer event, where health care and pharmacy leaders had the opportunity to learn about the potential benefits of XT Amplify. We were joined by Jennifer Hillman, Executive Director of Pharmacy at San Antonio-based University Health, who recently completed an XT conversion project and shared her successful experience with attendees. While it's early, we assure you that XT Amplify is intended to be just the beginning of our reinvigorated focus on new products and services, which we expect to bode well for long-term growth. I hope that you can see that we are taking the necessary steps that we believe will strengthen our financial and operational performance, accelerate profitable growth, and drive shareholder value. We remain confident in Omnicell's long-term opportunities and continue to believe the company is uniquely positioned to transform the pharmacy care delivery model and, ultimately, help enable our customers to drive better outcomes and increase their returns on investment. And now with that, I'd like to hand it over to Nchacha to discuss our results. Nchacha?

Thank you, Randall. I want to thank all of our employees for delivering the results this quarter. We exceeded our guidance across all key metrics, delivered strong cash flow, and managed our expenses carefully and responsibly. While we still have work to do to strengthen our financial and operational performance, we are off to a good start, and I am pleased with the level of commitment and engagement I see across our company. Turning to our financial results. Our first quarter 2024 total GAAP revenues were $246 million, a decrease of $13 million over the prior quarter and a decrease of $45 million compared to the first quarter of 2023. The year-over-year decrease reflects the impact of a continued challenging environment for some of our health system customers and the timing of our XT product life cycle. Services revenue was $113 million, an increase of 8% over the first quarter of 2023, which was primarily driven by growth in Technical Services as we continue to see the benefits from the growing installed base and pricing actions. Total revenues in the first quarter were $4 million above the top end of our previously disclosed first quarter 2024 guidance range, which was primarily due to solid execution and timing within both Technical Services and our Advanced Services. Non-GAAP gross margin for the first quarter of 2024 was 39.8%, a decrease of 380 basis points compared to the prior quarter, primarily due to lower revenue volume leverage. We expect our non-GAAP gross margin to expand in the second half of 2024 as we anticipate volume leverage from higher product revenue. A full reconciliation of our GAAP to non-GAAP results is included in each of our first quarter 2024 and fourth quarter 2023 earnings press releases, which are posted on our Investor Relations website. Our first quarter 2024 earnings per share in accordance with GAAP was a loss of $0.34 per share compared to a loss of $0.32 per share in the prior quarter and a loss of $0.33 per share in the first quarter of 2023. Our first quarter 2024 GAAP earnings per share includes the impact of $3 million for the potential wind down of the Medimat robotic dispensing system product line we announced today, subject to local law and statutory works council consultation requirements. If the wind down proceeds, the total nonrecurring costs we estimate to incur related to the wind down are approximately $15 million to $20 million, of which we have already incurred approximately $5 million. If the wind down is agreed to, the RDS restructuring plan is expected to increase our annualized net operating profit, and we plan to incorporate this expectation in our full year 2025 guidance. We do not expect the RDS restructuring plan to have a significant impact on our revenue, and we do not expect to achieve significant cost or operating expense savings related to the restructuring in 2024. Our first quarter 2024 non-GAAP earnings per share were $0.03 compared to $0.33 per share in the prior quarter and $0.39 per share in the same period last year. Third-quarter non-GAAP EBITDA was $11 million, a decrease of $13 million compared to the previous quarter and a decrease of $16 million when compared to the same period last year. First quarter 2024 non-GAAP EBITDA and non-GAAP earnings per share exceeded our expectations, primarily 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. The benefits from our higher revenue and lower expenses were partially offset by higher-than-expected income tax expense. The higher first quarter income tax expense was a result of timing within the year, and we continue to expect our 2024 non-GAAP effective blended tax rate to be approximately 19%. At the end of the first quarter of 2024, our cash and cash equivalent balance was $512 million, up from $468 million as of December 31, 2023. Non-GAAP free cash flow during the first quarter of 2024 was $38 million as we continue to see strong cash collections and working capital management. In terms of accounts receivable, day sales outstanding for the first quarter of 2024 was 94 days, an increase of 4 days over the prior quarter, primarily due to the modest decrease in revenues. Inventories as of March 31, 2024, were $103 million, a decrease of $7 million from the prior quarter and a decrease of $38 million from March 31, 2023. The decrease is primarily due to the strong efforts of our supply chain team as they continue to execute and make progress on our global supply chain process improvements and inventory management initiatives. For the second quarter of 2024, we are providing the following guidance. We expect total second quarter 2024 revenues to be between $250 million and $260 million with product revenue to be between $140 million and $145 million and service revenues to be between $110 million and $115 million. We expect second quarter 2024 non-GAAP EBITDA to be between $14 million and $20 million. And we expect second quarter 2024 non-GAAP earnings per share to be between $0.10 per share and $0.20 per share. In summary, we are working with a sense of urgency to strengthen our operational and financial performance. We are pleased to have delivered the first of many expected innovation and new capabilities for our fleet of XT medication dispensing systems. And we believe Omnicell is well positioned for the future.

Your first question comes from Stan Berenshteyn from Wells Fargo.

Just maybe a question on the XTExtend mid-cycle upgrade. Can you just walk us through how we should think about this? How much of the installed base is expected to be upgraded? What's the time frame expectation there? And then how many years of life does this upgrade expect to add to the cabinets?

Thanks, Stan. Well, we're really excited about the XT Amplify, and it's really more than just a console upgrade. There are a multitude of products and services we just announced that go with the Amplify platform. And as we stated before, we will continue this multiyear journey of expanding the XT Amplify to include more products and services that allow us to get into areas that we don't service today like ambulatory and surgery centers and other areas in the inpatient sector that don't have good visibility. So it is a multiyear program with multi-products and services that go beyond just a console upgrade. So I think we want to be really careful to manage our customers' expectations that this innovation will actually solve some problems that we haven't been able to address.

Okay. Can you maybe give us a quick update on the regulatory review of the IVX robots? Are you seeing any resolution on that front?

Definitely have. At the end of last year, there were some final resolutions on some of the regulations going forward. So we've now taken that information and incorporated it into our customer interactions and have a clearer determination on how to classify each of the robot locations and what set of regulations they are under as they deploy.

And maybe just to backtrack to the first question. For clients that are just doing the console upgrade, so once they do the upgrade, can you just share with us how many more years of life does the cabinet get once they do that upgrade?

Well, it's probably customer-dependent, but I think that the key is that in order to get the next versions of software and hardware, you eventually have to do the upgrade. Or to get access to the new product lines, you have to do the upgrade. And I think the future of Amplify includes both hardware and software changes, but it isn't really about overly focusing on those pieces; it’s about the solutions we're delivering to the market.

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

First off, regarding the health of the customers, Randy, it was encouraging to hear that you're starting to see some improvement. Are you noticing a shift in the conversations? Last year was particularly challenging. Are your customers expressing that they feel more confident in their financial situation and staffing levels? Are they ready to revisit the plans they may have postponed last year, or is it still a bit uncertain, with some hesitance in the discussions?

Well, I think it really depends on the account. There are some accounts that just seem to be doing well, but there are many that are not. And there seems to be a lot of sensitivity around capital equipment deployment at these institutions, particularly around inpatient. So I think we're having good discussions. People want these products. It's really about the timing of returning health to the capital equipment environment in these accounts. And I would just say that they're being pretty prudent and cautious about it. But for the long term, I think we're in a good position.

Got it. And then maybe a separate question regarding XT Amplify. How should we be thinking about, I guess, the adoption curve of the full XT Amplify platform? Does that change the traditional kind of model, if you will, the bell-shaped curve? Or I guess, another way to look at it is with these incremental capabilities with the services, how does that change the revenues from XT as we look out over the next few years? Because it seems, to me at least, that there's more of a services component to that. So does it change the revenue recognition as we look out over the lifetime of Amplify?

Well, the connected devices are generally still mostly capital. We do have some connected devices that are not. But yes, I think what's going to drive our customers to move to the Amplify platform, which we just launched, and it does take a while to get into the pipeline and move towards decisions, it won't be just to upgrade the console. It will be these other areas that they want to access through these new innovations. And we did say that we were going to have not only a multiyear roadmap of Amplify innovations but even this year, we're planning to announce more innovations by the end of the year.

The next question comes from the line of Scott Schoenhaus from KeyBanc.

I guess, first on the end markets, did you see any change in your behavior from your customer base during the Change Healthcare disruption? And then now post into April and May, have you seen any impact either operationally from a labor perspective as they had a focus on getting the billings and claims files? Did you see any impact from your customers on your business or forward demand?

We have not seen any impact on our business. But to be sure, we're cautiously monitoring it and looking for any impact. But to this point, we haven't seen any disruption in our business.

Okay. And then on the XT Amplify side, I think you noted last quarter that some of the bookings guidance for this year included this upsell. Given the traction that you've clearly seen so far, does this change the amount of bookings baked into your full year guidance for the XT Amplify?

I think we're comfortable with our position and on our outlook and in our guidance on product, which I believe was slightly higher this year than it was last year. And that did contemplate the launch of Amplify.

And then if I could just sneak one last one. Sorry, Randy. The RDS divestiture, does this signal to us that you're going to be divesting from international markets going forward? How should we read into the RDS divestiture?

Yes. This is Nchacha. I don't think this signals that we are exiting the international market. This action that we've taken or that we're considering taking is part of an ongoing plan to ensure that our investments generate the right level of returns for our shareholders. As you know, we did engage with an outside consultant. So this is part of the overall strategy to continue to improve our overall financial performance and ensure that we are unlocking sustainable long-term value for our shareholders.

The next question comes from the line of Jessica Tassan from Piper Sandler.

I was hoping you could help us understand what some of the offerings in the XT Amplify are. What are ServerScale, CarePlus, and XTExtend? Are all of these solutions available today?

Yes, all of them are available for order today. The Extend focuses on a console upgrade as its main hardware feature. CarePlus enables us to redesign workflows for our customers. ServerScale eliminates the need to wait for hospital budget approvals to acquire new servers, allowing expansion to meet the increased demand for connected devices. This service model means that the server components can be included as needed. MedChill is particularly exciting; we receive strong feedback indicating that customers prefer this product. It helps consolidate into a single SKU for refrigerated products while providing access and control. This increases pharmacy confidence in deploying refrigerated items, which can be expensive or hazardous, ensuring better management compared to a typical open refrigerator. We know there is substantial demand for these products, and we are already seeing a high level of engagement from customers eager to access them. I can't confirm that all items are bookable right now, but they will all be delivered this year.

Got it. I'm interested to know how your specialty pharmacy consulting business has helped kind of inform this product development pipeline, if at all.

Yes. I think the nice aspect of specialty pharmacy is that it really engages with a very high level of the C-suite and really, on a monthly basis, which then really allows us, the platform, to talk about other ways to improve both revenues and cost impacts of the pharmacy operation. And as we look at what our health systems are going through or what they need, it's a lot of solutions that are dependent on ambulatory or outpatient clinics. And so we're excited that Amplify in its roadmap has solutions that address those areas.

And my last question is just can you update us on trends in 340B, both on the contract pharmacy side and on the covered entity side? Maybe like year-over-year, quarter-over-quarter, just volumes would be helpful.

Well, I think 340B as pretty much a third-party administrator TPA is sort of in line with where we were last year, and it continues to be. It is also a good product to combine with our specialty pharmacy services. So that when a drug is available on the outpatient or through the third-party administrator side, it's an extra benefit that we can offer instead of having to run it through the specialty pharmacy on-site pharmacy. So we think it's a good product to have and to offer in combination with our specialty pharmacy service.

Jess, I'll just add to that, that I remember the last time we spoke, I think we said that 340B is generating about $30 million to $35 million annually for us, and we expect that to continue.

Got it. So no growth year-over-year in '24? Is that on the 340B contract pharmacy split billing side?

That's correct. We do expect it to be flat, but it remains part of our overall strategy, as Randall mentioned, and we look forward to combining it with our inventory optimization services.

The next question comes from David Larsen from BTIG.

This is Jenny Shen on for David Larsen. Congrats on the quarter. I think you've mentioned some focus on outcomes-based solutions and taking an outcome-centric approach. Can you just elaborate on what that means, what your focus is on there and highlight some of those key outcomes? Does that potentially mean that you could move to a model where, say, your clients recognize a certain amount of cost savings or reach a certain level of adherence, where you would receive a certain performance payment for that?

I believe that's a bit beyond our current thinking. However, medication management plays a significant role in patient outcomes and the financial aspects of patient-related events. It is essential for us to connect pharmacy activities with their eventual impact on both patients and the financial performance of the facility. These connections become clearer as we gain more access to data and visibility into patient transactions during their care episodes, which we are seeing more frequently. We particularly notice this in our retail cloud-based solutions, where our software helps inform pharmacies, doctors, and patients about how well they're adhering to medication management plans. Those are the types of outcomes we aim to assess, although we are not yet fully able to link them to actual scientific outcomes.

Anything else, Jenny?

A quick question on costs. You've taken some good cost-saving initiatives over the last few quarters. Just any additional levers you think you can pull there?

Yes, Jenny. We continue to evaluate and assess our overall cost structure as part of our ongoing strategy. We will make the decisions we believe are necessary to help us improve our financial performance and create value for our shareholders.

The next question comes from the line of Stephanie Davis from Barclays.

This is Anna Kruszenski on for Stephanie. My first is, I was curious if you could talk about how hospital buying is being impacted by the push-pull of the Change disruption and better utilization levels.

I think if you're referring to the Change impact, we're not seeing any impact in our business. But we're monitoring it carefully.

Got it. Okay. And then as a follow-up, just given the recent cadence of forward guidance conservatism, can you walk us through what your assumptions are in the 2Q guidance? And is this reflective of a pull forward in 1Q or the softer backdrop or just setting a lower bar?

Yes. We're very comfortable with our plan for the guidance that we provided. I know we had a good first quarter, and we are not changing our outlook at this point. We continue to track to what we provided. We have seen some headwinds with some of our customers, but we're maintaining our guidance for the year.

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

Nchacha, the cost initiatives, the cost takeouts that you planned, are they fully reflected now in the model that we're seeing for, I guess, 2Q?

Bill, I want to make sure I understand your question. Which cost takeout are you referring to?

The ones you implemented at year-end, correct? Am I remembering that correctly?

Yes.

Okay. And so there's been nothing incremental year-to-date?

Well, the majority of the benefit from the cost actions were realized at the beginning of the first quarter of this year. With a smaller portion, we anticipate a smaller portion to continue throughout the year, but the majority was realized in the first quarter.

Okay. Can you provide more details, Randy, about what contributed to the business and its outlook?

Yes, I think we're cautiously optimistic about the situation. We've seen a good start to the year with some notable successes, particularly in the contracting segment, which will contribute to our annual recurring revenue as we move forward. It's encouraging to see this area developing, likely due to a bit more stability among pharmacists and retail outlets. This creates a solid foundation for introducing new innovations. Overall, the business is performing well, and we believe it will experience steady growth in the long term.

Has it been more about new rooftops or adding services to current clients?

I think it's a little bit of both, but the most recent developments are related to rooftops.

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

Just wanted to quickly ask on your comments regarding the services revenue pull forward. Can you just give us some color as to what contributed to the timing impact in the quarter?

Yes. Stan, we saw the timing impact was primarily driven by the pull forward in demand in Advanced Services as well as our Technical Services. We do expect that to even out as we go throughout the course of the year. So that's why we're tracking or maintaining the guidance outlook that we provided.

As there are no further questions at the queue this time, this concludes our Q&A session. I would like to turn the call back over to Randall Lipps for closing remarks.

Well, thank you for joining us today. It's really an exciting time at Omnicell to see this new innovation multiyear roadmap. It's really allowing us to engage with our customers and solve problems that have been pain points, that haven't been addressed. And it really allows us to talk about the future with them, not only the future of inpatient but outpatient and having a more holistic platform and approach to really innovate automation and deliver on the autonomous pharmacy is what the industry needs. I also want to thank the Omnicell employees. Thanks for the hard work and going through Q4 and launching off a good refreshing year. And I look forward to seeing you next time. Cheers.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.