All ready? Everybody can hear me? Great. Well, welcome everybody. Today, we're gonna have Omnicell. And I wanna just, before we begin, I just wanna kick it over to Kathleen Nemeth, Director of IR, who will give us a harbor. Thank you very much, Stan. Welcome, everyone. I'd like to welcome everyone here in the room with us in Boston, as well as those who are joining us on the web. Before we get started, I would like to remind you that during the course of our chat with Stan, we may make forward-looking statements. There's always risk when you're talking about the future, so be sure and read our most recent filings with the SEC for a full description of those risks. Thank you, Stan. Great. Well, as Kathleen said, my name is Stan Berenshteyn. I'm the digital health analyst at Wells Fargo. Joining us today is CEO, Randy Lipps, and Omnicell's new CFO, Nchacha Etta. Welcome. Thank you. For those new to the story, I just want to give a quick intro. Omnicell offers pharmacy automation solutions, including dispensary and robotic systems, software and services, and has a deep reach into health systems and retail pharmacies as its clients. Before we begin with questions, Nchacha, since this is your first investor-facing venue with Omnicell, if I'm correct, would love for you to take this opportunity to introduce yourself, give us your background, maybe tell us what your goals are as CFO at Omnicell. Yeah. Thank you, Stan. I'm, I'm happy to be here. So my background, I've spent the last 20 years, 20+ years in multiple industries with the last seven in the medical devices slash healthcare industry. And the last seven years have been very rewarding to me personally and professionally because most of the decisions I've made have been geared towards improving positive patient outcomes. And so the reason why I'm attracted to Omnicell and why I'm here is because Omnicell has a very inspirational mission to really transform the pharmacy care delivery model. And with such a great customer base and just great value proposition of products and services, it's, you know, it was an easy decision for me to join the company. With regards to what I'm gonna focus most of my time is, number one, you know, is to partner with Randy and the leadership team and our colleagues around the world to really help enable the autonomous pharmacy transformation through innovative solutions. But most importantly, to continue to create sustainable long-term, sustainable value for our stakeholders. From an internal standpoint, there are a few areas where I'm gonna focus on. Number one is continuous fiscal discipline. You know, we have to really operate efficiently. Secondly, is to really drive operational excellence and invest in innovation. So really focus on how we deploy capital to optimize our return on investment for our shareholders. And finally, and most importantly, to focus on, you know, the organization. So people, we will have to continue to develop leaders and leader of leaders. And so I'm really gonna work with Randy and my colleagues on the leadership team to ensure that we are, you know, building the right bench of leadership in the company going forward. Great. Great. Well, Randy, before we dive into the nuances of your business, can you maybe just lay out the vision you have for the company? If we're having this conversation in 10 years, what, what has changed in that time? Well, 10 years is a long time, but, you know, it should probably take that long to transform healthcare and pharmacy. But really, if you think about medication management is so key to getting the answers correct and outcomes for patients. And we're spending $600 billion, is it, on medication? And are we getting the right med to the right patient on time? Is that executed well? And it's probably not. Just getting patients to get their meds and take their meds is a hurdle in itself. And so as medication management becomes a bigger beta in the outcome of a patient's well-being, how are we gonna get that right? How are we gonna make that successful? And that, and that starts with the pharmacy. It starts with reinventing the pharmacy for the future, and that's the autonomous pharmacy. We were instrumental in launching the Autonomous Pharmacy Advisory Board over about four years ago. That industry board has now taken on its own governance, has other corporate membership that's driving the vision of what is the autonomous pharmacy, what is the future of pharmacy? And what it really means is, how do we get pharmacists out from behind the counter or out of the basement of the hospital to make a clinical difference in the outcomes? It's not about running down shortages, it's not about running down compliance, and updates of generic brand-name drugs and databases. It's about the clinical interaction that counts the most. So how do we reinvent pharmacy to be in line with the industry's vision of the autonomous pharmacy? And that's what we're out to do. Over time, you know, that's looked more like, oh, let's sell products that automate portions of the process of the pharmacy and. But we're moving more toward a tech-enabled service. In order for pharmacy to transform where we need it to be, it really needs a lot of help with change management, and you can't just derive true change and true bending of the curve without adding daily advice and partnering with healthcare. So we are truly doing something different, and that is we are partnering with our customers to run their pharmacy day-to-day. We're not doing the work in the pharmacy, but we're doing the advisory work to improve the outcomes of both our systems and the outcomes that they are seeking. In other words, our KPIs are their KPIs, and we're doing that by not deploying products and software, but providing the people that are constantly directing them to optimize those outputs, to lower costs, maximize revenue, improve safety, do the things that pharmacy has struggled with for many years, not just in the inpatient world, but also in the outpatient world. It is an exciting place to be because it does have a lot of room to grow and improve. We've got an incredible franchise. We're about half of the largest 300 provider institutions. We're at about 60%-70% of all retail pharmacies with one solution. So we have great footprint, but we have a lot of ways to improve our footprint and our reach and changing these institutions to make them truly the next generation future pharmacy. One of the things that's really happening is: how do we engage different solution sets across the continuum to really take care of the patient? How do we resolve some of these critical pain points that, that we all know about, and, and particularly healthcare systems are struggling with in improving the management of healthcare? So in 10 years, what does a pharmacy look like? Well, we expect meds to be in the right place where they ought to be. The outcomes are to be closer to zero errors, 100% visibility, 100% compliance, and zero stockouts. So it's the zeros and the 100%s that need to come to life as we really depend on pharmacists to do the pharmacy work and supply chain and logistics to be managed in an elegant, beautiful way. That is the opportunity, and that is our mission. Great. And if we maybe pivot towards the macro environment, obviously presented a lot of challenges the last 18 months. It's outside of your control. We've had inflation, supply chain issues, health systems are tightening their budgets. More recently, there's a regulatory impact on the IVX robotic demand. A lot to unpack here, but maybe let's start with health systems. Can you just give us a sense of the demand environment as it stands today? How does that compare to where we were at the start of the year? Well, I would compare it just first of all, most hospitals, particularly nonprofits, have a July 1 start date, and most of those seem to put more capital in this year's cycle, 2023 and the first half of 2024, than they had last year. I mean, they started to have some, and then they just cut it. But so there's more leaning in to wanting to spend on capital projects than there were last year. So that is a positive. And hospitals are slightly better, and they slightly improve over time in both their margin and elective surgeries. But I still think most of them look like, to me, that they're only... They're using their capital in a tactical way. In other words, they're only spending money where they have to. They're not making big strategic investments in order to get the long-term value and return that they really need in order to move their institution forward. That's because I believe they just don't have the confidence yet that they're truly out of the water, that their cash flows are high enough to make these larger commitments. We've seen hospitals before the end of last year or even during the pandemic, really start to commit to these consolidated distribution centers or do this, do this build-out of a remote inventory location where they have a pharmacy, maybe an outpatient center. A lot of our equipment, particularly robots, were scheduled to go into these facilities. Some of these projects have been funded over the last year or so. We don't see as many of those projects being funded now, as I believe the tactical spending is overruling the strategic spending at the moment. And so people are still pretty sensitive. The pipeline is full. There's a lot of interest in these products, a lot of interest in moving beyond just products, but to a platform strategy and forward. I think the real question is: Are they going to spend the money? And if they spend the money, are they gonna allocate enough of system resources, IT, if they need a little construction done, are they gonna allocate enough of those resources to get these projects done, or are they gonna wait another six months? And I would say that in my career, this is one of the toughest times to read the tea leaves. I really think it's one of the reasons we got more cautious on our bookings outlook, and it's not the pipeline's there. We just don't know if they're... Even if you ask them, I'm not sure you're going to get a straight answer until they actually sign the paper. Got it. Maybe if we could just stick with bookings here. You pointed this out. Obviously, there has been some delays on the IVX robots. I think on the earnings call, you called out some regulatory impact at the state level, update level. Can you just. We've got a lot of questions on this, so I'd love to get a little bit of color. What is actually happening? Well, this is actually good news. The first, the first part is good news. The FDA said, "Look, we're starting to see these robots actually land inside hospitals. We need to set up some guidelines." And so the FDA set up some guidelines, mainly because we're leading the market. We were the ones that really provided the impetus to kick this off. And those guidelines came out, and it took a while to get them settled. And then the states individually want to look at those guidelines and maybe refine them for their state, because the overall, the state pharmacy board is the final makes the final call on how these systems operate within pharmacies in their state. And so in a way, it's a little bit of a bad news. Some people are ready to place their order, but they're not ready to place an order until they see how their state changes any of the conditions around the placement of those systems. We think some states don't have any issues, so it is a headwind. We do believe it will be resolved fairly shortly, but these things have to go through the pharmacy boards and get the proper approvals before they can be installed, so. But there is a lot of enthusiasm for the IV product, and it's simply because we come in, it's a small footprint robot. It goes in the clean room, and we can, we supply the technicians that actually run the robots, so they don't need any expertise. They don't need any major modifications to their facility to put these robots in. Generally, the robots produce IV compounds that are generally outsourced, so that instead of paying for the products that are outsourced, they produce them in-house, and there's significant savings with those. Those significant savings pay for the monthly service fee, which includes the use of the robot and the positioning of the people. They're paying for the outcomes of the robot instead of just paying for a device that they use. It's real easy to get a return on investment. In fact, first day it turns on, you're making your money back. It serves a need. Usually, if you don't have technicians, if you're not buying the product outsourcing, you have to use technicians to mix these compounds under hoods. These have to be really well-trained and some of the most senior people in your pharmacy in order to mix these very dangerous compounds. Because all IVs, except for a very few, are clear liquids, so it's pretty easy to make a mistake if you're not careful. And so moving to the robotic process has proven to be very advantageous. We also believe that eventually, not as we go through the first process with these robots, we'll be able to eliminate the review of the pharmacist on every product output. Today, just like in the pharmacy, manual compounded IVs have to be reviewed by a pharmacist as being correct. With the robotic process, we believe eventually that review process, which saves a lot of money and time, can be exempt if it's mixed by the robot. So an exciting area, this product has can be deployed worldwide. You know, U.S.-wide. We're starting out in the U.S., but we think it has a great market globally as well. We see some of these activities, for instance, in the U.K., where a lot of the compounding is done on floors by nursing. They decided that's not a good move. They wanna create centers where the centers do the compounding, take this task away from nursing because there's a 8,000 nursing shortage in the U.K. and saves 4,000 nurses. And obviously, if they set up these centers, we'll be vying for the business of the robotic compounding in each of these centers in the U.K. Now, this is, this is probably a year or two off, but it just shows you how the importance of safely compounding is becoming a key driver in getting the pharmacy done right, safely, and particularly on the finance side. We are the market leaders. We are leading this technology revolution. We are leading and driving the regulation market. We have the best experts in the world who understand this robotic area. It is embryonic, but I think it could be, you know, over the medium term, it'll be a big win for us. Can you give us a sense of what is the repertoire of compounding capabilities of this robot? Like, how much of what hospital outsources does it actually replace? From my understanding, that you don't do biosimilar, so what is the actual repertoire that the robot can handle? Well, the robot starts with simple things. One of the key robotic services that we provide is a catalog of drugs that are pre-approved to be mixed on the robot. That catalog gets expanded over time with additional features on the robot and additional validation of stabilization of the products once they've been mixed. And as those get approved, the robot capabilities continually improve over time. And so one of the things we have to do when we go in with a customer, look at their current robot capabilities, match it up with their needs, and really set up the production list. And over time, that production list changes. As you outsource, some of the compounders products become cheaper, and you don't want to do them in-house anymore. You wanna switch those. We feel that even with a small set of initial drugs that are compounded, you can get a really strong return. And we hope to have a new release edition of the catalog every six months. And eventually, if we're given the right kinds of tool sets, these can be crowdsourced from our own customers as they validate new drugs and put them on, and we can move very, very quickly. The key is to have these robots deployed and the processes in place to expand your catalog, either internally with our own folks, and then eventually, with the right proper tool set, externally at our customer sites. Okay, now you also have another robot, the XR2, which is your central pharmacy robot. Anecdotally, it seems like you're having more demand on the IV compounding side than the XR2 side. Any particular reason why that is? Is the XR2 sold as part of the same sales discussion? Is it a separate discussion? Yeah, we, we really try to put an ROI on every product that we sell, particularly as a service. And so the only product we don't sell as a service today is our point-of-care systems, and we think that eventually we'll be able to evolve that into a tech-enabled service as well. To get more out of the product, you need to have specialists and need to be connected into a network of experts that keep these things running at the highest return for the customers. But the XR2, one of the bigger issues with it, it's a fairly large robot. It doesn't fit in a lot of pharmacies. You need to have extra space, usually external space, to run these products in, so it's not quite as easy to implement, and so it may take additional capital expenditures, when you implement one of those. So it's... It It does have some facility hurdles. I've been in several hospitals that said, "Hey, I would buy your robot if I had the space. I don't have the space." And, so it does have those extra hurdles, but the problem is today is how do you - how do you manage these complex pharmacies with a lot of SKUs that are expiring on the shelf if you don't singulate everything down to a single dose, let the robot automatically make those choices for you without thinking? Because if you want to run a pharmacy near perfection, then your data ought to be perfect, and you need to have 100% visibility. When it's on a shelf or even on a carousel shelf combined with a bunch of other drugs, you don't have clarity about the visibility. And so I just think that we're already seeing robotics in a lot of industries. There's no reason robotics, either this type or different types, are not going to be all over pharmacy in the next five years. Got it. And, Nchacha, I want to bring you into the conversation. I want to address the cost because the company has had at the start of the year to right-size the cost structure with the revenue. Do you feel that you, you're where you—the company is where it wants to be in terms of the cost component? And if we think ahead, where do you think the incremental investments for the company will be? Yes, so from a cost action standpoint, the cost reductions that we've made have been very value-enhancing across the company, right? We will continue to optimize our cost structure. It's a key focus of mine. Like I said earlier, we will have to make sure that we're operating very efficiently. Where we want to be in the future, again, you know, from an overall resource standpoint, is to make sure that we are, you know, deploying resources where needed to fund our growth. So innovation is an area where we'll continue to make investments to support growth, and so that's why really, you know, looking at our overall capital structure is very important strategically going forward. Okay. I do want to address the point of care. Obviously, that's the bread and butter for your business. Your XT product line is, I think, 65% completed on the upgrade side, thereabout. If we go back to last year, obviously there was a haircut to bookings of about $350 million. I think that actually roughly aligns with the rest of your upgrade cycle. Do you have any expectations of when we could get that bookings that kind of fell off last year? When do we expect that to trickle in? Is it over the next couple of years? Is it more immediate? How do we think about that? Well, it's hard to classify it as one or the other, but I would say the $350 never left the pipeline. Some of it's already executed, and some of it's in sort of delay mode. "I'm not going to upgrade until I actually have to, and my current version expires." You know, the pandemic obviously kind of brought in more XT faster than I think if you'd have gone back to our five-year plan, you would have seen that it was kind of rolling out successively, and we'd have some more in this year and more next year. But some of that got pulled in, and I think that the $350 or whatever else we have out there is still in the pipeline. It's just, you know, the tendency is when you're not having positive cash flows, when you're not profitable enough, you're just not going to spend anything that you don't have to. But, you know, this is a critical piece of running your hospital. You can't run it without it. Standard operating and regulatory requirements are such, and you can't run on the old systems forever. They're, you know, chipsets go away, and product revisions require you really to get to the next stage. And the next stages have to be not just a new version of what's out there. They have to be incrementally better at driving better efficiencies in pharmacy and nursing, and particularly around safety as well. I think that we can... Are looking at innovation that's going to really drive better, safe and, better relief for nursing, especially. Okay. And, you know, I think at the start of the year, there's been conversations with you implementing inflation adjustments. I think on the pricing side to offset the inflation that you're seeing, the costs that you're seeing. How should we be thinking about those impacting revenue? Is it based on contract renewals, and when the renewal happens, you get a pricing adjustment to offset inflation? Does it happen on just a product-by-product sale? How should we think about the mix there? I mean, if we look at it from a, as we manage a business, you know, we will continue to look at pricing options and to help us, you know, cover some of our costs. And so, there's definitely gonna be inflationary pressures, and when we do experience that, we expect to take the right actions to help mitigate the increase or the risk. Okay. And actually, maybe we can swing back. I do wanna follow up quickly on the XT upgrade cycle. Yeah. and the robots, right? So on the one hand, you're reaching the end of the XT upgrade cycle. That has obviously been a tailwind for the company. On the other hand, you have an upswing in demand for your robots, but obviously, those two are interplaying with each other on the product revenue side. How should investors be thinking about the progression of product revenue over the next couple of years as these two forces kind of interact? Well, I think we'll always have product revenue, but one of the key demarcations for us is continuing to build our recurring services revenue. And if you look at all of our recurring revenues today, they're over 40%, and it's not gonna be too many years before we're over 50%. So we really wanna move to a tech-enabled, as-a-service model so that we're really not tied to product cycles. The best way I like to explain that is, today, we have customers that are deployed our previous version of the IV Robot 2 as a service. And so we have people on site, and we're running an older generation robot, IV 2, and we're collecting fees every month, and we're getting paid basically for the outcomes of this older generation robot. Those fees and those services don't stop until we get a next generation out. We continue to get those outcomes for our customers without having to go in and sell another robot. Now, at some point, we're going to probably bring in the robot to get better throughput, be able to raise our fees and the like, but we're not tied to a product cycle and therefore not tied to capital cycles, which we really wanna get out of. We really have really worked hard and really to reorient our business with our customers, not to be about just cabinets, but being about transforming the pharmacy, and that really starts with these other areas of the pharmacy that have been underserved. Those other areas are the ones we wanna optimize and make the gains on. And then as we come out with more point-of-care systems, we'll integrate those into the service packages and really allow us to continue to grow the business, not only on the sales of products, but now on the incremental services that we've never had before. So, this really expands our TAM for these markets because we're not just selling the products, but we're selling the products plus the services. And so we still get the margin that the products drive through the business, but now we're expanding our growth through the services, which then may not have the margin of the products, but it does expand our profit because it allows us to do more things than we've ever been able to do. Okay, I actually wanna touch on how these products are sold. You kind of touched on that right now. These robots are sold purely as a service subscription. There's no capital outlay- That's right. - to generate the sale. Now, you recognize the sale differently, and I'll get to that in a second. But first, Randy, have you found that selling the entire offering as a flat subscription, has that lowered, you know, friction or barriers to the sale? It certainly does, and I think that it's What we're likely to see as we offer more services and more packages and continue to do product development to continue to offer these as a service, 'cause we really wanna come in and partner with the cu- with the customer on just outcomes. Not really make it about the product, but make it about the outcomes. And those are the things that we believe generate more value for them, which then justify them paying more to us to drive those outcomes. We know it's there because many of the products, what we do is we extract a lot of data from our systems, and systems that are run by our customers and those that are run by us, have significantly different outcomes and different cost structures and revenue generation and safety, because we are in there optimizing them constantly while on site and in an enterprise fashion back in the bunker. So this is a really important piece of our go-to-market, is to really work with our customers to drive outcomes. Get away from talking about products because it the products in themselves, you don't wanna just be in there talking about, "Well, this one's run out of. You gotta upgrade this one 'cause all the parts are old." It's kind of not a fun conversation, but saying, "Let's move you from here to here, and here's all the outcomes we can derive," well, that's something customers want to be interested in, and they're willing to help you, help them get those results. Okay, now the product is sold as a subscription, so the hospital is paying a flat subscription over the life of the subscription. Yeah. Nchacha, I wanna ask you about how you recognize the revenue. So the revenue recognition is different. So the revenue recognition, you recognize the entire sale of the product, the robot, on the product side of your revenue. Right. And then the subscription is on your services side of the revenue. Correct. My question is, how long does it take for you, on a cash flow basis, to break even for the subscription that the hospital is paying to actually match the revenue that you're recognizing? Yes, as you know, Stan, there is a significant upfront investment that's made- Yep to fund, you know, the innovation of, to deploy these products out there. So it does take a while to start realizing the return on investment on some of these products. From a people standpoint, you know, you have to hire people two to three months in advance to train them to be able to deploy these products out in the marketplace. And so the return on investment does take some time, which is very similar to most medical devices or pharmaceutical products. Okay. And do hospitals think about these purchases differently when they're considering a subscription versus CapEx? Just anecdotally, I've heard that some hospitals wanna avoid putting the cost on the P&L versus some prefer CapEx. Have you encountered those types of conversations? I think it's each hospital has its own approach, and I think it's not that we won't sell the product or we won't break some of the product into capital or leasing. But the key is we always want to combine it with services. And it's to be seen, right? I think that we wanna be in a position where we can lock customers in for a long time because we keep adding value, and really, we take away the burden of having to worry about when is the next upgrade or when is the next, you know, when do I have to plan for that? I'm just paying a flat amount. And I think we see this in the competitive market, where people are paying flat amounts every month for all of their systems over a committed period of time. So we feel that that's already been established in the marketplace for our systems and that people will do that. And, you know, it's just a cost of capital for them or us, on how to apply it. But if it's easier to get it going, where we're, you know, having the cash burden, we'll get our money back, and I think that it'll be good for our business. You know, at some time, if we have a lot of growth of as a service for a lot of products, you know, we're gonna have to figure out how to finance those. We probably can't finance those out of our own cash. But it's exciting times, but it really makes... No one's gonna sign those agreements with us if they're really not committed with us over the long term. Same for us. Right, so. Makes sense. We're almost on time here. I maybe want to ask one final question. What would you say is the least appreciated or perhaps most misunderstood part of the Omnicell story? Well, just the changes that we're driving in pharmacy that don't have anything to do with cabinets are huge, and that customers are buying into our platform and our strategy because they realize they need all of these components to be successful in the future. So, we're working to talk a lot more with our customers and our shareholders and our employees about outcomes, not cabinets. Awesome. Well, with that, we're at time. Thank you, everybody, for joining. Thank you, Randy, Nchacha, Kathleen. Thank you. Thank you. Thanks so much.