Good morning, everyone, welcome to day three of the JP Morgan Healthcare Conference. My name is Anne Samuel, I'm the healthcare technology and distribution analyst here at JP Morgan. We're thrilled to have Omnicell with us this morning. CEO and Founder, Randy Lipps, is gonna give us a presentation, then we'll open it up to Q&A afterwards with the whole team. If you have a question, we'll have a mic runner, we can get your questions answered. With that, let me turn it over to Randy. Come on up. I'm gonna turn it over to Kathleen. Yes. Just very briefly. Good morning, everyone. It's great to be here with everyone this morning. Just very briefly, we will be making forward-looking statements during today's presentation. Please be sure to review our SEC filings for a full list of risks and uncertainties. I do wanna point out that we are in our quiet period, so we will be focused on the long term and our long-term strategy. Thank you. Thank you, Kathleen, and thank you, Annie, for having us at the world premiere place to be for a Healthcare Conference. Well, we at Omnicell, our vision has not changed, despite the challenges we outlined in our last call. We recognize the need to slim down parts of our business as a result of getting ahead of ourselves, and we are pausing until we reach the next significant growth cycle. We'll manage conservatively as we move forward until we get there. We, every day, are improving our operations and implementing better forecasting tools. We are continuing to invest in the future. Most importantly, throughout this time, we continue to partner with our healthcare systems, and they continue to rely on us to deliver improvements in patient care and better ROI. We also are very excited about our integration. We're gonna take this time to integrate the company to make sure that we can leverage better as we scale and move forward and strengthen our business operations. I really appreciate being here. I see a lot of long-time shareholders or people who I've known over the past, but there may be some new people here, so I'd like to just make a little introduction to Omnicell if this is your first time. You know, we're out to raise the importance and influence of the pharmacist in our healthcare world. Today, much of what a pharmacist does is not clinical work but administrative work. Our job and our vision is to take that administrative work and remove it. Do what naturally makes sense. Let robotics do the picking, let robotics do the calculating, let tech-enabled systems help create an intelligent network for pharmacies to run. We want pharmacies to run at near perfection. Not almost there, but near perfection. We're taking on this big goal because it needs to be taken on. I think, frankly, we're the only company out there who's aggressively going after this broad platform for both inpatient and outpatient. You know, the problem with medication management in healthcare, it's a huge beta in the results of the outcome of healthcare, but it's actually practiced very differently in different silos of healthcare. When you go to different venues, medication management, even the names that you call certain drugs are different in inpatient than they are on outpatient. Because of each of these silos are trying to optimize their own functionality, it doesn't always coincide with the rationalization of medication management the way it should be. The patient's confused. It's our job to actually change that. We want the patient to have a rationalized view of all their medications no matter what venue they're in, as well as clinicians. Because of this, I don't know, multifaceted venue approach that healthcare has developed, it's created a very large market opportunity for us. Many of you know us as being very strong in the point of care market. It's a large market. Mostly mature, not totally saturated, probably about 70%-80% saturated in the U.S. There are new versions of technology and technological stacks that will empower these systems to do more for clinicians and allow them to spend less time doing administrative work and more work. It's just not about what we have today, but it's about what we'll have there tomorrow. A very big market that's greenfield is actually the central pharmacy. Here we see very low penetration. We have the most advanced solutions in this market for robotics, both in the IVCS area as well as in the single dose picking robotics area. It's not important to have just the robots, but it's also important to have the infrastructure to support all those. What we're finding as we move forward in our industry is that people want a single trusted partner to work with over the long term. It's very important. retail is a big market. As we disclosed in our last call, we have about a $90 million SaaS pro-business growing very well in the retail business. That's all cloud work that is a system that drops in next to the legacy system of retail pharmacy. We have products that work in independent pharmacies, what's called the middle tier and the big tier. We are very broad-based in the market, but most of our customers have only deployed one solution set. We have a huge opportunity to cross-sell in this market because we've already completed the integration to the legacy systems. pharmacy can use these solution sets to better the economics of pharmacy, to have pharmacy do other tasks other than dispense meds that generate revenue and reduce costs. very large opportunity there. One area that we just launched at our latest Illuminate conference was specialty pharmacy services for hospitals. We bought ReCept at the end of last year. This is a pharmacy outsourcing business where we will put an a specialty pharmacy inside a provider's pharmacy and run it for them. It's very complex to run a specialty pharmacy. Because of the Supreme Court decision to back the providers in not reducing the discount, they moved the discount back to where it was, it's even a bigger opportunity to exercise your own specialty pharmacy inside your pharmacy. We've seen a strong development of pipeline in this product. As we've seen, many of the customers who are in the pipeline and have already signed for this new service, you know, I ask, "Why are you going with us? I mean, we're not the biggest or the most experienced." He said, "Well, you're Omnicell. I buy everything else from Omnicell. I'm gonna buy this from you as well." The strong brand name is pulling this through. Large TAM for us to go after. You put on top of that our fantastic customer base. We have over 150 of the top 300 largest providers. Not just that they are customers, these aren't customers, they have signed long-term strategic relationships. They're not buying products, they're investing in a long-term strategy to work with us to get to the Autonomous Pharmacy. Many of these contracts are seven, 10, even a 15-year contract. These go beyond the useful life of a product. It's not a product sale. It's a strategic engagement. The significance there is that this allows us to work with them to deploy more of our products, which will automate more of their infrastructure. Just two weeks ago, we signed our next largest account, multi hospital, multi-solution set strategy. We'll be talking more about that on our call. Even in this environment, we are making competitive wins away from products to strategic relationships with very large customers. We also listed on this site, the retail. We have 80% of the retail in the U.S. buys at least one product from us. It's still small. As I said, it's $90 million and growing rapidly as a SaaS business, and we're also heavily connected to the post-acute. As you can see, we're in all of these pharmacy environments that are necessary to create a strategy that allows us to go after a complete solution. That's important. In order for us to be able to reach this ambitious goal, we have to be connected both to the inpatient and the outpatient. We have to provide solution sets that allow pharmacies to work efficiently and safely and bill appropriately based on the kind of venues that they're in. We call this the connected intelligent infrastructure. While we have used this infrastructure today primarily to support all the connectivity toward our connected devices, we see in the future that other outside products will be connecting to this network to provide solutions either we don't provide or maybe even a competitive product that is not ours, but will be connecting the data and closing the loop. This is very important as we move forward, and it's one of the reasons I believe that our customer base continues to grow because we're committed to this total solution. I think, I think we have a lot of opportunity as a company to grow. We have a lot of greenfield. We have large markets. We certainly have a need. I think we are moving to capitalize on the next generation of technology. What's important about that is recreating a single native app with supercharged edge technology using microservices to really allow us to do things nobody else can do. In particular, this single app construct will support all of our customers, whether they're retail, post-acute or acute care. This type of technology really allows us to move at speed and allows us to introduce new solution sets that we haven't even dreamed of without having to wait months and months or years to deploy them, just minutes. We are seeing a day when we can deploy new solutions and new problems on a daily basis. We can make updates to our software. We don't have to wait for a cycle, as we do today on most of our products, or six months. We continue to take market share gains. I think if there's anything that says that our strategy is working, why would a big institution go through all the heartache of ripping out one set of systems and deploying with us? They have to do new interfaces. They have to retrain their people. They have to move in new equipment. This has been in the DNA of Omnicell for years since we started, it continues. We believe that as our position with our platform only strengthens that thesis, only strengthens. The reason that we are moving into new territory that others won't, is not just that we have the tech stack, we have the products, but we have the experts who are working on site to make sure that we have the ultimate outcome of these systems. We're not relying on training key people on site. We're not relying on a few visits. We have people who live and run and manage the systems as a senior-level optimization specialist so that all the outcomes are at the highest. I believe that our vision is unique. I think most people wanna take a vision that gets them down the road a year or two. This is probably five or seven years to get to the Autonomous Pharmacy. I would just point to the Autonomous Pharmacy Advisory Board that we launched, which we no longer have control over because the industry has taken it over. They are defining what the Autonomous Pharmacy looks like. They've created new governance. They've created new positions. They've hired new residents in pharmacy to run different research studies on the Autonomous Pharmacy. This is something pharmacy wants. Naturally it makes sense to automate things that are currently done on spreadsheets or done manually. I think one of the things that we have done over our history is we've done a lot of M&A, but we've made strategic acquisitions that really enhance the value of our platform. I think certainly you can see that with the specialty pharmacy acquisition that we did, that we put it into the pipeline and filled it into the salesperson's bag, and that message got directly to our 152 really quickly and is driving a great pipeline. We see more opportunity out there for M&A. I think maybe this year, or at least the beginning of this year, we're gonna focus on integration. I think it really speaks to the point of a total solution that can meet the market's needs. So good solution, lots of TAM. As we change our business model from capital equipment to as a service business, we see opportunities to accelerate our business. Today, our point of care is virtually the only business that is a capital equipment. Our robots are all as a service. Our IVCS is as a service. These businesses, while they make up, we said in Q3, 13%-14% of our revenue, and that's grown from less than 4% three years before that. We see the big uptake in these because they have strong ROI. They don't come out of the capital budget. They come out of the operating budget. It's easy to deploy because we're the ones managing the project. Easy to run because again, we're the ones doing the major piece of the running these systems and getting the results. You know, we are buckled down here in where we are and with the macroeconomics we're seeing. We want to run a conservative business this year for 2023. We've seen a slight improvement in November with provider margins, but I don't think we've seen any change of behavior. It's, it's really still a very exciting time to be in healthcare, to change pharmacy, to improve healthcare for everyone. For everyone. With that, Annie, I'll turn it back over to you. Yeah, great. We can now open up to Q&A. If you have a question, please raise your hand. We can have someone bring you a mic, or you can also use the digital conference book, and we'll take your questions that way. You know, I'd like to start with, you know, you talked a little bit about, at the end of your presentation, about, you know, the macro backdrop, and I think that's, you know, kind of something that has been a theme we've heard all week. You know, we were expecting labor shortages to be, you know, a really big tailwind for automation. It seems like that's maybe something that's gonna be a little bit longer to take because from what we've heard from everyone, people are looking for near-term, you know, acute issues, fixing ROI, you know, that kind of thing. You know, hospitals, it sounds like just maybe had too much to overcome recently to really focus on automation. Can you discuss, you know, what pressure points your customers are facing and how are you helping them, you know, solve for those in the near term? Well, obviously the freezing capital budgets has slowed down the point of care, but we're working really closely with them on the installation. Typically, we have done most of the installation, but hospitals have to be part of that. For the first time, particularly in Q3, we saw where hospitals couldn't even provide enough people to do their small part of the installation. One of the steps we're taking is to actually do that for them. We're actually charging them for that, but. In that way, they can complete these installations that sometimes. It's only in a small number of people. We do see the robotics as the current economy as a tailwind. I think people understand it's either now or soon they need to replace people with capital. These robotics make a lot of sense because not only can they not get the people, they can't get the right people. Mm-hmm. in their institution to do some of these functions. One of the hardest labor pieces to get is a well-trained pharmacy technician. A well-trained pharmacy tech can do the compounding of fluids in the hood. If you can't get that person, you can't compound your fluids in your pharmacy. You have to go out and pay very expensive for outsourcing. If you have a robot and it can do it for you and can do a lot of them, then it makes sense to replace that job or at least supplement that job with the robot. I think that makes sense to everybody. It's just when am I going to get the funds to spend the money, right? Yeah. Maybe as, you know, a follow-up to that, I, you know, I think it's interesting, you talked about you kind of solving one of the problems. You, you know, on the, on the 3Q call, you talked about it was, you know, both a labor issue and a budget issue. Yeah. you know, if we think about magnitude, you know, how much did one contribute versus the other? It kinda sounds like you are maybe solving for one already. Yeah, I would say that definitely the budget issue was the biggest one. Mm-hmm. As even if you look out into this year, 2023, if you listen to what hospitals and even the Cowen are talking about, their number one issue is labor. Mm-hmm. The reason that's an issue is you can't get the revenue or the margin if you don't have enough people to execute all your lines of business. I think that needs to improve to really overall help the macro conditions for these healthcare systems to improve. I think they've got a handle on it. I think the temporary labor costs have come down a little bit. Yeah, right. Some of the things are not as acute as they were, but I think they're running in a cautious mode. I still believe that these advanced services, which have rather, you know, less than 12 months ROI, are things that they will deploy if they have the people to help deploy some of these things that obviously we can't do everything. You know. It's very disruptive to put a robot in. You have to go in and clear out space. Mm-hmm. add power and do a few things like that. There are some things that have to be done and different facilities have different, you know, energy for doing some of those things or not. Not everybody's stuck in the mud, just a few. Great. You know, maybe just one more question? Yeah. -on macro. you know, something that's come up a lot at the conference, and Jamie kind of talked a little bit about this on his keynote on Monday, is, you know, there's a lot of conversation, the market's pricing it to a certain extent of an upcoming recession, but we haven't necessarily really seen the indicators yet. Yeah. I would think that your business would be fairly recession-proof, but can you just talk to us about, you know, what might impact your business in the event of a recession? Well, actually, a light to medium recession would really help us because it would help hospitals. Because a lot of nurses, for instance, work part-time. When they get to a recession and they might be the only breadwinner in the family, they go back to work. full-time. Getting more of these clinicians involved in these institution, we've seen a snapback when a recession takes place. That would actually help us. Also, I think in a recession, you wanna spend your money very carefully and getting a good ROI, particularly for these advanced services or even specialty pharmacy service still makes a lot of sense. If we got into some really horrific deep recession or somehow the capital market's locked up and they can't get access to capital, you know, obviously, that would slow things down a lot. Great. you know, if anybody has a question in the room, please, you know, raise your hand. you know, I wanted to talk about the advanced services business. Yeah. We've been seeing really great demand there. It seems like that part of the business hasn't really been impacted by any of the things that you're seeing. Can you talk about your go-to-market strategy there and what's working so well? I, you know, I think, you know, healthcare in general has a really hard time adopting technology. The one thing that really helped us through the pandemic was that hospital pharmacies were sort of a closed area. They didn't really allow you to go in and run operations inside four walls of their pharmacy, so to speak, because that was a domain that they wanted to control and obviously has a lot of costs and safety issues. The pandemic really allowed us, for the first time, to suggest why don't you allow some of our people to come in and run the IV robot? Why don't you allow us to come in and run our pharmacy dispensing XR2 robot? We're not gonna do all the running up to the floor, but we're just gonna stand there and be the supervisors of these technologies, and then we're gonna connect them back, and we'll ring in all the rest of the robot workers and learn together and keep these systems running at the highest level, and do the same thing for IVCS. One, they can't get the labor. Also, you're gonna provide the labor and expertise to run it. Two, you don't need capital. It's just a, as a service sign-up for a long-term payment. Three, you know, you're committed to keeping me up-to-date on whatever needs to go. You, you can buy with confidence, and you don't have to wait for the organization to absorb new technology, get trained on it and keep them trained up on it. All of those issues are taken off the table. You know, everything we're doing as a service seems to just be easier to bring into the hospital or to the big providers and move fairly quickly on as well. We think those systems are gonna continue to grow really rapidly. You know, I think what Scott, we had six years ago, we had one advanced services. Three years ago we had one. One. Today we have six. Today we have six. I remember when we were launching the one, we're kinda like, "Well, we're gonna start impeding on their space. Will they allow us? What about the liability issues?" we're all past that. I mean, we feel really confident that we can walk in and deliver these services, and they're willing and ready to sign up for. The only thing I'd add to the advanced services is that, you know, the reason that we're seeing some positivity or buoyancy in those products versus the IVCs is they produce ROI. Mm-hmm. Positive NPV, quick paybacks. Even in this environment, that's what CFOs wanna have conversations about. They produce ROI. That makes sense. Can you talk about, you know, within your customer base, how penetrated are you in advanced services at this point? Like, how many of your hardware customers are using you for advanced services? How much opportunity is there to grow that? Yeah. I would say, sort of on XR2 base is less than, you know, less than 10%, and the IV is less than 5%. I would say from a strategic sign-up basis, it's greater than 50%. Everybody has signed up for it. They haven't implemented or they may not be implementing this year or next year, but they're committed to the strategy. A lot of greenfield, a lot of roadmap to go there, as you remember that TAM box was $30 billion-$32 billion, I believe, in the bottom there. A lot to growth to grow. It's the part that makes sense. Why I need to, you know, I wanna buy the whole thing and yes, I'll change out my point of care system. Really, I'm buying your vision, I'm buying your platform, because that's gonna help me get somewhere, not, you know. It's not the point of our cost of our point of care system. Our point of care system is actually more expensive than the competition. But you're gonna save more money if you can run a system effectively and not have as many shortages, deal with specialty pharma, have robots do the work more accurately, not have waste. Very. Maybe, yeah. Maybe to add to that as well. The, I would say the last two years, three years, the competitive wins in the, in the 152 long-term sole source partners. The, I'd say the majority there really choose the Omnicell platform and commit to signing up and implementing multiple advanced services. One, two, three, four at times as well. That's really the choice for Omnicell as a partner. Yeah. Maybe as a follow-up to that question. You know, something that we get a lot from investors is, if you are a hardware customer, do you need the advanced services? How much. Mm-hmm. overlap is there between those products? Well, you could buy a base system, but we don't see anybody doing that anymore. Right. I think that's particularly Omnicell One, which is the optimization engine that's looking at all these different pieces and gathering the data and then optimizing supply chain and pharmacy activity. I guess not all of our customers have Omnicell One yet, but I don't think I can think of a new customer that signed up in the last couple of years that hadn't signed up for at least one advanced service and usually multiple. Yes. Sometimes it just takes a while to get to the point where you're doing the upgrade and you're gonna do a bigger project and trying to understand what those beginning and end of that project might be. Yeah. You can't really separate the software. Mm-hmm. Particularly as you go into the future, it's not so much product that's laid on top of another product. It is the interaction with the product. It's the same. Mm-hmm. Yeah. I mean, look, fundamentally medication management is a continuum, right? It's all about getting... They talk about the five rights, getting the right drug to the right patient at the right location, the right dose, etc, et c. That's all logistics. That's about drugs coming from the wholesaler and how do I distribute them and manage them across all these settings of care, both inside the hospital and outside of the hospital. Fundamentally, that requires a platform to solve that problem set. Right? That's what we're providing, and that's why we're solving the problems in multiple continuums because that's the demand from the customer. That makes a lot of sense. I am gonna take, we have a couple questions in the digital conference book. Yeah. The first one is, have you heard any feedback from customers regarding system upgrades and costs in relation to competitors? I haven't. I don't know. System upgrades, you mean from competitors? What is the competitive situation? I think do you maybe have your customers giving you any feedback on, you know, system upgrades and, you know, maybe pricing versus your competitors? Yeah, maybe- Is sort of what they're asking. Yeah, maybe I can take that question. I think in general, customers choose us for the platform and see the added value there. I think Randall said earlier in the presentation that we generally price higher, we demand a premium for also our point of care systems, because we believe, you know, they create additional value by itself, product to product, but also the total value from the platform. Yeah, maybe the underlying other question might be on the pricing actions that we Mm-hmm ... talked about as well in the earnings calls and other meetings. Yeah, we see the acceptance of our price increases continue, and we see that coming through in bookings, in the backlog, and also in revenue. That's really an overall value proposition. We're happy with the adoption and acceptance of the premium pricing. Yeah. Maybe a follow-up to that. You know. Mm-hmm. Just on the topic of pricing, you know, that's something you implemented, you know, last year. I think it's something like 84% of your backlog drives revenue in the following year. It's, you know, takes a little bit of time for that pricing to come through. How can we measure as we kind of look at the income statement this year to see that, you know, pricing coming through the model? Exactly. Yeah. We, we've said, you know, two things both on inflation and pricing. We said on the last earnings call that we see inflation somewhat moderating on the semis, steel and freight cost categories, if you will. We believe that will continue. From a pricing perspective, we said that the impact of pricing as it flows through first with quotes, then in bookings and backlog and into revenue, we've also said, and we will still believe that of course. We see the momentum continuing there and also the impact of the P&L of pricing we see increasing as well over time. Yeah. Great. I'm gonna take one more from the conference book, and that is, you mentioned making improvements to forecasting abilities. Can you talk about what changes you're making? Well, probably the biggest change is we're looking at customers and who has to upgrade versus expansion projects which are lower or not on the priority list right now. As well as, you know, looking at our competitive layouts. Those are the two drivers of our point-of-care systems, is people who have to upgrade and people who are in line for a competitive swap. The expansions, we've de-risked the business out of those. We'll get some, but we'll probably assume that we won't. These are only the customers who have to buy. It gives a lot of confidence because we know that eventually they've either placed orders or they will place an order to replace the equipment that is out there. This is in reference to point of care, just to clarify. Yeah. Mm-hmm. Okay? Yeah. Yeah. Maybe just on the point of care market, you know, it's mature, but I think it was interesting in your comments, maybe not as mature as we thought. I think you said 70% penetrated there. Yeah. Can you talk about, you know, how you win new customers and grow in that business? Well, yeah, winning new customers. The expansion part there, the 70% is in our own customer base. Generally, a healthcare system will have our systems 70%, and then there'll be some outstretched areas where they may not have our product. When there's funding available, they will place these systems in these outer areas and move away from manual. Part of that goal is to get everything digitized in the workflow process. In these times, those kind of expansions, they just stick with what they have. They'll stick with a manual process and not eventually go through it. On a competitive front, I'll let Scott answer that since he's, that's his day-to-day life. Yeah. I mean, I think it actually ties back to your pricing conversation, right? Which is that the reason that we're winning competitive business is, look, our cabinet's better, et cetera, et cetera. It's not because of the point to care. It's because the conversation with the customer is all around the platform, right? You need to upgrade your cabinets, whether it's our competitors or ours. The conversation with the customers and what's driving real strategic differentiation and the competitive win is because what we're actually looking at is saying, "Look, central pharmacy needs to be automated. You need to coordinate medications across all your sites of care. You need OC1. You need to automate your IV compounding. That's IVCS. You need to really, either grow or expand or improve your specialty pharmacy. You need to engage patients to the home. You need Enliven," etc, right? What we're painting for that customer is a picture that looks at the total cost of ownership over X period of time. Now it's not a conversation about the ADCs. You need the ADCs, but it's about why don't you enter into a strategic long-term relationship with Omnicell, where we're going to fundamentally transform your pharmacy care delivery model and drive real ROI, and that's worth X dollars to you over Y time frame. Yeah. That's why it's so differentiated, and that's a very different conversation the competitors are having with the hospitals. That makes sense. Peter, maybe one more for you on the margins. You know, you talked on your recent call about taking some cost reduction actions. You made an announcement about a workforce reduction. Can you just talk about maybe what areas of opportunity we might see some of those cost reduction actions in? Yeah. After the earnings call, we issued an 8-K on the cost reduction, mostly focused on the reduction in force, it's really meant to optimize the cost structure and align the cost more with the trends that we see in revenue. Where we took cost out, the main areas are cost of revenues, mostly in the areas where we see some headwinds from a macroeconomic perspective. Mostly on the point of care side. We also have and will continue to look at cost reductions in SG&A specifically as well. I would say we are, while at the same time, we are protecting and investing in the innovation roadmap, specifically for the Advanced Services. Okay. Well, in the last couple minutes here, I was hoping you could talk about what you're most excited for in 2023? Well, I think, we know the growth is, probably not gonna come back in 2023. We don't know for sure, but we wanna get ready for it. We wanna integrate more. We wanna take costs out. We wanna leverage, be in a better position as growth comes back to leverage at a much more efficient rate. Exactly. We really wanna change the mindset of the company. When we've had this terrific growth from 2020 and 2021, you know, all your problems are growth. Now we wanna really make our problem, how do we do more with less? How do we get efficient? How do we consolidate organizations down to be more aligned and smaller and more nimble? I think it's all about getting ready for the next surge. I think people can get excited about that 'cause they saw some of the problems we had during the last surge and let's go and solve those. Great. Well, thank you so much to Omnicell for presenting today, and thank you all for joining us. Thank you. Thank you. Thanks.