Omnicell, Inc. (OMCL) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Omnicell Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Peter Kuipers. Please go ahead.

Thank you. Good afternoon and welcome to the Omnicell third quarter 2020 financial results call. On the call with me today are Randall Lipps, Omnicell Founder, Chairman, President and CEO, and Kathleen Nemeth, who recently joined us as our new Vice President of Investor Relations. Kathleen brings over 20 years of Investor Relations experience and has been recognized by Institutional Investor Magazine for her achievements in Investor Relations. This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today, in the Omnicell annual report Form 10-K filed with the SEC on February 26, 2020 and in other more reason reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is October 27, 2020 and all forward-looking statements made on this call are made on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change and we undertake no obligation to update these forward-looking statements. Finally, this conference call is the property of Omnicell, Inc., and any taping, audio duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. Randall will provide an update on our business, after Randall's remarks, I will cover our results for the third quarter of 2020, our guidance for the fourth quarter 2020, and our preliminary revenue guidance for 2021. Our 2020 third quarter results are included in our earnings announcement, which was released earlier today and is posted in the investor relations section of our website at omnicell.com. Our prepared remarks will also be posted in the same section. Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement. Let me now turn the call over to Randall.

Good afternoon and thank you for joining us today, and welcome Kathleen. So glad to have you ...

Thank you.

…on the Omnicell team. Well, we delivered solid financial and operational performance in the third quarter, exceeding the high-end of our guidance ranges as our customers began to return to more normal business operations. This enabled us to resume those implementations that were delayed in the first half of the year, and maybe more importantly in the third quarter, we drove significant increases in new customer wins and bookings, particularly with the Top 300 U.S. health systems, as customers accelerate their focus on the critical pharmacy supply chain. Now against that backdrop, two things are now clear. First, as our customers continue to navigate the impact of COVID-19, the need for our medication management automation solutions is more strategically relevant than ever. Based on the bookings and implementations we saw in the third quarter, our partners are investing in their pharmacy supply chain, which is being recognized as critical to their ability to effectively manage in a post-COVID world. There is widespread and growing acknowledgment that more sophisticated automation and digitization capabilities enable healthcare providers to focus more on patient care and reduce costly errors. The second part of the backdrop, our customers have resumed their pre-COVID purchasing patterns. In other words, not only has the pause we saw in the first half of the year-ended, but our health partners are buying at levels consistent with strategic investment for the long-term. We believe this reflects their confidence in their financial position and forecast and in turn, it supports our confidence in our outlook for the remainder of the year and for 2021. And as a result, I am pleased to announce that we are reinstating our pre-pandemic product bookings guidance of $865 million to $900 million for the full year, 2020, which is unchanged from the initial guidance we provided in February. This includes bookings that were paused due to COVID in the first half, which either have been booked already in the third quarter or expected to book in the fourth quarter. Now, let me provide some more insight and commentary on our long-term sole source partnership strategy. Our go-to-market strategy to increase our long-term sole source partnerships continues to gain momentum. We have been implementing and expanding this strategy successfully for the last two years. And in 2018, we realigned our commercial structure to focus on the Top 300 health systems in the U.S. with dedicated customer success executives. And we believe that the Top 300 represent the vast majority of the available markets we target. That was a smart investment of resources for us as our recent announcements demonstrate. As at the end of the third quarter more than half of the top 300 health systems, as defined by definitive healthcare are current Omnicell customers. During this quarter, we added two new long-term sole source contracts and were honored to have these two leading health systems join us on the journey to the Autonomous Pharmacy. This brings the total number to 143 long-term sole source partners within the Top 300 U.S. health systems, most with a duration of 5 years to 10 years. As discussed on our prior call, with the majority of these sole source arrangements, we have a co-developed multi-year medication management automation plan to deliver improved accuracy, patient, and financial outcomes. In other words, a multi-year plan to move our platform in place so that we can hit the change – we can affect the changes to drive these outcomes. Now, turning to key customer engagements in this quarter, congratulations, I might say to the Omnicell team, on these significant wins, especially in the time of COVID. First, Lehigh Valley Health Network, based in Allentown PA is our 142nd long-term sole source customer. They've signed a seven-year agreement for XT systems and Anesthesia Workstations for their flagship hospital and network locations. Lehigh especially noted the value and opportunity of the Autonomous Pharmacy as a key driver of their purchasing decision. Our 143rd long-term sole source agreement is a new 10-year partnership with Allina Health Network in Pittsburgh, PA. They will be converting existing medication management systems across their health system network to Omnicell's platform, including Central Pharmacy, IV Compounding, the XT Series and technology-enabled services. Also Georgia-based Coastal Community Health, a current IV customer has signed a 10-year sole source agreement for our full portfolio of solutions, expanding Omnicell's footprint across the system. We won our first official Central Pharmacy Dispensing Service with Memorial at Gulfport in Mississippi. They are looking to leverage XR2 technology to expand their cartfill distribution model to now support automated systems filling. In our international market, we continue to expand our footprint in the Middle East with a new partnership with the Dubai Health Authority for our [indiscernible] software supply chain solution. We've also recently won our first robotic dispensing system deal with CHU Tangiers, a leading academic hospital within the government hospital system of Morocco. In addition to the customer wins I just spoke to, we also are expanding technology-enabled services, which are a key component of our strategy. To that end, we are building on EnlivenHealth, we have successfully launched Omnicell One and we recently completed our acquisition of 340B Link on October 1. Now EnlivenHealth division, formerly known as Population Health Solutions, provides patient engagement and communication SaaS solutions for retail pharmacies and health plans. We noted last quarter's conference call that we successfully launched our first location with Walmart as part of an enterprise wide rollout of our medication synchronization platform to all Walmart locations nationwide. Today, I am particularly pleased to note that the Walgreen's popular Save A Trip Refill program is powered by EnlivenHealth medication synchronization technology. We're proud to support these two leading providers in this important work that they do to measurably improve medication adherence and health outcome through EnlivenHealth's patient engagement and communication solutions. These systems are doing real work, they impact healthcare by ensuring patients get the meds they need as easily as possible and note, when they're not picking up their meds that they get engaged in their pharmacy solutions. Next, last quarter we announced another key milestone on the journey to the fully Autonomous Pharmacy, Omnicell One, which became available in August, leveraging cloud-based data and predictive analytics, Omnicell One provide pharmacy wide optimization through real-time visibility, as well as actionable insights and workflows to help pharmacies operate more efficiently. As a result of COVID-19, many of our customers have prioritized investments in supply chain optimization in order to provide critical care to patients and are increasingly turning to Omnicell One to help them understand where and how to make improvements. Omnicell One helps pharmacists and technicians focus on what matters most, so they can work at the highest level of their license and spend more time on direct patient care. Customer interest in Omnicell One is strong. We recently won Archbold Health [Phonetic] and they are anticipated to go live in the coming weeks along with other customers. Now similar to EnlivenHealth and Omnicell One, Omnicell 340B is a true technology-enabled service that combines analytics, workflow, and experts to drive significant value for our customers. Omnicell 340B's business accelerates the development of Omnicell's autonomous pharmacy and is a high-growth software-enabled reoccurring service revenue business. Omnicell's 340B capabilities are critical to health systems to enable them to manage their medications inventory for all their patients across all care settings. Omnicell 340B is a compelling, strategic and synergistic addition to our tech-enabled services portfolio and is an attractive growing market with cross-selling opportunities for Omnicell. This acquisition is immediately accretive to non-GAAP EPS and we are thrilled to partner with all of these great healthcare organizations as they seek to deliver safe, efficient, and high-quality patient care. Now, given the strong recovery in bookings from the first half of the year and a return to more normal business operations, we are accelerating hiring in the areas of cloud engineering and professional services. We are also ramping up implementation and customer success teams aligned with our customer’s installation timelines. I'd say in summary, we are very pleased with our strong financial and operational performance this quarter. It is clear, now more than ever that our customers recognize the criticality of Omnicell's medication management automation solutions and we are honored that they are joining us on the journey toward the autonomous pharmacy. Now, I'd like to turn it back over to Peter to give us an update on third quarter financials, fourth quarter guidance and a little prelim for 2021 revenue. Peter?

Thank you, Randall. As Randall noted, our customers are returning to more normal business operations and as a result, our feasibility has improved and continues to improve. We have observed hospital admission rates increasing. This is supported by a recent report by the Kaiser Family Foundation that noted that hospital admission rates are currently trending toward 90%. We understand from our customers and other industry participants and research firms that elective surgeries have increased as well from the second quarter to the third quarter and are expected to increase through the fourth quarter and into next year to more normalized levels. Now moving to third quarter results. Our third quarter 2020 revenue of $214 million increased sequentially by 7% over the prior quarter. Year-over-year revenue decreased by $50 million or 7% from the third quarter of 2019, largely due to delays in bookings and implementations related to COVID-19. The third quarter earnings per share in accordance with GAAP were $0.20 per share, this compares to earnings per share of $0.46 per share in the third quarter of 2019. The decrease in earnings per share is largely due to lower profit as a result of the decrease in revenue, partially offset by lower income tax expense. Full reconciliation of our GAAP to non-GAAP results is included in our third quarter earnings press release and is posted on our website. Third quarter non-GAAP gross margin increased by 210 basis points to 47.1%, mostly driven by volume leverage as our revenue increased sequentially, as well as tender cost reduction programs. Total third quarter non-GAAP operating expenses of $72 million decreased $3 million from the second quarter as a result of the cost actions we discussed on the prior call. Third quarter 2020 non-GAAP EPS was $0.60 per share, compared to $0.76 in the same period last year. The decrease in earnings per share is largely due to lower profit, due to a decrease in revenue, which was partially offset by lower operating expenses and lower income tax expense. Third quarter 2020 non-GAAP EPS increased by [$0.23] per share from the prior quarter driven primarily by higher revenue and lower operating expenses. Now, I would like to discuss our cash flow and liquidity and capital structure, as we believe it is the strength of our business and positions as well as we grow to address future market demand. At September 30, 2020, our cash balance was $629 million, up from $130 million at June 30, 2020, largely due to the cash received from the issuance of our convertible debt offering. During the quarter, we completed the issuance of a $575 million of 0.25% convertible senior notes due in 2025, which included a full exercise of the $75 million over-allotment option. In conjunction with the note issuance, we entered into call spread transactions and the effective conversion price from the company's perspective was increased to $141.56 per share, reflecting a 100% conversion premium. As part of the execution of the convertible offering, we repurchased $53 million worth of common stock from purchase of notes in privately negotiated transactions. The aggregate net proceeds from the issuance of notes net efficient costs were approximately $560 million or approximately $460 million net of the hedging transactions and stock repurchase. During the third quarter, we also entered into an amendment in our revolving credit facility to permit the issuance of the convertible senior notes. The purchase of the hedge transactions and issuance of the stock warrants, as well as to update certain confidence. The amended revolving credit facility along with the issuance of the convertible notes provides us with a tier capital structure, which we believe positions us well for potential merger and acquisition opportunities, as well as for general corporate purposes. Just to conclude the third quarter on October 1, 2020, we closed the Omnicell 340B Link acquisition and used approximately $225 million of cash of the cash balance for this purchase. Free cash flow of $27 million was strong during the quarter, driven by strong operating results and working capital efficiencies. Net cash provided by operating activities was $37 million in the third quarter, driven by net income and working capital efficiencies, mostly related to inventory reductions. Inventory levels decreased by $11 million from the prior quarter, mostly driven by supply chain efficiencies and timing of shipments. Accounts receivable days sales outstanding of 82 days for the third quarter declined by five days from the prior quarter and was flat from the third quarter in 2019. As we mentioned earlier in the call, we are pleased to see that our hospital health system customers are investing in a transformational strategic capability that Omnicell provides them. As we translate the momentum of the business and sales pipeline through bookings, through backlog and then through revenue, we are making investments to support future growth, improve customer experience, generate [general efficiencies] and scale the business and we're making these investments in a number of areas. First, we are increasing the momentum of the shift to cloud-based products and service development. Second, we're continuing to invest in our professional services capability that we announced in December last year. Third, as Randall discussed, we're hiring implementation and customer-facing teams. Fourth, we're speeding up the simplification speed and efficiencies of quota cash processes. And last, we are continuing to drive to virtualize and digitize commercial implementation and engineering processes. During the first half of the year, we took actions to manage cost and streamline the business to ensure that we were operating as efficiently as possible, as we accelerate a transformation towards the autonomous pharmacy. I'm pleased with the efforts of employees across the company to prudently manage expenses, which we saw in good operating expense management during the quarter. Last quarter, we shared with you our intention to manage full-year non-GAAP operating expenses through the $310 million to $350 million range. We are maintaining this range for 2020, which now includes the operating expenses for the Omnicell 340B acquisition, which we closed on October 1 this year. As we look forward, based on our current visibility and healthy demand metrics, we intend to modestly increase operating expenses in the fourth quarter to support market driven future growth. Now, moving to our guidance on revenue and non-GAAP EPS. Please note going forward our guidance for all periods will include results from Omnicell 340B. Also, please note that while we are aware of the recent increase in COVID cases in the United States, we believe in speaking with our customers that they are well prepared and believe they will continue to resume more normal business conditions. However, our bookings and revenue in future periods could be impacted if hospitals need to materially change their operations in order to address the continued increase in COVID-19 cases. We are providing the following guidance for the fourth quarter of 2020. We expect total revenue to be between $238 million and $244 million. We expect product revenue to be between $165 million and $170 million. We expect service revenue to be between $73 million and $74 million. We expect non-GAAP earnings per share to be between $0.72 per share and $0.77 per share. We are providing the following guidance for the full-year of 2020. A solid year-to-date company performance has enabled us to reinstate the product bookings guidance, which we expect to range between $865 million and $900 million. The year-over-year growth in the second half is largely driven due to the timing of expected bookings that moved from the first half to the second half as well as healthy demands as customers return to more normal business operations. We expect total revenue to be between $881 million and $887 million. We expect product revenue to be between $626 million and $631 million. We expect service revenue to be between $255 million and $256 million. And we expect non-GAAP earnings per share to be between $2.35 and $2.40. Please note that we are encouraged by the current strength in bookings and our ability to grow our backlog and at this point we are reconfirming our long-term objectives for the business, consisting of a 10% to 12% organic revenue CAGR, an 18% non-GAAP operating margin goal, and lastly a free cash flow conversion of 90% to110% as a percentage of GAAP net income. Given the dynamics for 2020 and the commercial momentum that we have discussed earlier, we have decided to accelerate our planning process for 2021. And as a result, we're now able to provide a preliminary full-year 2021 revenue guidance. It is earlier than we would have normally done in ordinary course of business, and reflects our assumption for more normalized business conditions to continue. We expect 2021 preliminary revenue to range between $1.015 billion to $1.045 billion, which is above our long-term guidance range of revenue CAGR of 10% to 12%. This is primarily a result of the COVID driven timing dynamics of bookings and revenue that we discussed earlier. In summary, I'm very, very pleased with our strong financial and operational result this quarter. We exceeded the high end of our guidance ranges. We executed well on our cost control initiatives. We delivered strong cash flow and strengthened our capital structure. With that, we would like to open the call for your questions.

Operator, before we get to the questions, I need to make a correction. Our 143rd long-term sole source contract is a 10-year partnership with Allegheny Health Network in Pittsburgh, Pennsylvania. So, I think I said Allina, which is already a customer of ours in Minnesota. So, we didn't need to re-announce that one. So, thank you for letting me put that end. So, operator, if we have questions we can start the questions please.

Certainly. [Operator Instructions] Our first question comes from Steve Halper with Cantor. Your line is open.

Yeah. So, congrats on a great quarter and for the revenue guidance for next year. So question on 340B Link acquisition, obviously it's in the guidance for Q4, could you tell us what you're assuming in that number and what the assumption is for your next year?

Yeah. For the fourth quarter approximately both in bookings and revenue, 340B is approximately $10 million. And then from a profitability perspective, after the occurrence of integration cost, it's a couple of pennies to EPS. And then you should think about roughly a 20%, 25% growth rate for next year on the revenue base. I think we gave the LTM of revenue per [6/30]. This year $35 million and they got 10 million in the fourth quarter. So, the math – you probably didn’t get to the math there for next year.

Will there be any deferred revenue adjustment off of from that acquisition?

No, there will not be Steve. Probably pretty minor, maybe $100,000 or $200,000, but very small.

And 10 million, is that in bookings also?

Yes.

Okay. So, it's 10 million in revenue in the fourth quarter, and implied in that bookings guidance is 10 million from 340B?

Yes.

Great. Thank you. That’s all I have.

Thank you. And our next question comes from Bill Sutherland with Benchmark. Your line is open.

Thank you. Hello guys. Great quarter. The 340B, curious what the overlap is with your core sole source client base?

Yes, the 340B is very strategic. We believe what we understand from our customer base, there is some overlap, but there's meaningful growth to be had. Specifically within 143 long-term sole source contracts that either have not a 340B program with supporting software, or do have a competitive 340B software.

And you said, I think Randall did that the 340B capability was a must have. So, you went out and you got one. What else would you guys put in that category at this point going forward?

Well, I think things connected and associated with supply chain in pharmacies is really key or key operational pieces of supply chain. And a lot of these solutions, if you will are probably bit more toward tech-enabled or software-enabled service of some sort, so it can plug off the platform and yield a – either a reduction in work or do the work for these institutions or pharmacies, and or it could be reporting of some sort that is to meet regulatory compliance. So, most, most of these, not all, but most are heavily software oriented that we're looking at.

Great, thanks. The bookings number has traditionally just been product. Does that? Is that changing a bit now with 340B Peter?

No. So this is – the product bookings are still product bookings, but for 340B the revenue in the quarter is also bookings in the same quarter. It turns within the quarter, if you will.

That's right. It is just a product bookings number Okay, okay. Thanks. And then, last one for me is on the Omnicell One, can you kind of characterize what an implementation kind of involves perhaps some sense of the size range? The takeaway from a revenue perspective and curious about the revenue rack for that software sale?

Oh, let Peter do the rev rack piece. You know, for us, it's really connecting into many of our systems off the platform and aggregating the data and then constantly optimizing it so that it's not like running a report at a single moment in time, it's constantly evaluating what are the best approaches to optimizing the inventory moving forward, and then it takes the further step of once it calculates a must do action. It flows a workflow task down to a technician who's given that on a particular app to actually go do it. So, there's minimal – there is some integration necessary. Of course, integrating your own systems is pretty easy, but sometimes there's some other additional steps necessary to integrate into the hospital systems, but I wouldn't call them major, but it does have to be set up, right to start out.

Okay.

And then on the on the revenue model, Bill, the revenue model is essentially a fee per month, [per bet], if you will, and that's covered Omnicell One, and that revenue is recognized as period revenue.

Okay, and these are, I assume multi-year agreements that you're signing?

Exactly, yes.

Okay.

[Collectible], recurring high visibility, tech enabled services. So, yeah.

Right. Excellent. Thanks. Thank you both.

Thank you. Next question please.

Certainly. Ladies and gentlemen, our next question comes from the line of Craig-Hallum - or pardon me. The next question comes from the line of Matt Hewitt with Craig-Hallum Capital. Your line is open.

Thanks for taking the questions and congratulations on the strong quarter. A couple for me. First off, regarding the hospital budgets, obviously, the headlines are pretty mixed right now as far as some hospitals faring better than others, you clearly have found a sweet spot, if you will, within that Top 300. What kind of visibility do they have given that we're now seeing another spike in cases and hospitals are talking about getting back to being near capacity yet? We're also hearing that they're going to continue to do elective procedures. What kind of visibility do they have into their budgets going out two quarters, four quarters from now?

Well, I think that we're very tied into all of our customers on a, almost a daily basis, particularly the Top 300 have just, if there's any kind of delays or concerns going forward, and I think the strong confidence coming back in Q3. You think that if people were a little bit skittish, they would have maybe not come back, maybe they come back at 80% of what they were looking at pre-COVID, but they've all come back very strong and very quickly and while I'm sure there are hotspots where that may develop, I feel like after we've gone through the first and technically the second wave is really, you know, after New York, and then this is really the third wave, people are really prepared on what they need, and what to do, and how to handle this? And so, I think they are very confident in understanding what they have and at different levels of COVID in their air, what to expect. And so, this morning, we did a double check on all of our installations for the quarter, and there wasn't one single wait a second, from any place across the country that we were involved in. So, it just was a reconfirmation that we don't see the slowdown.

Yeah, what I would have maybe Matt as well as that, it's important to remember that hospitals and health systems are set up to run their operations with a 90% plus occupation level. So, they need to be in a 90% plus range, if you will, right. So there's some articles in the press on that as well. So, that's good to know.

Understood there. And then as far as looking at next year, how should we be thinking about the cadence? Are you expecting it to, you know, continue to lift from here or, you know, even from a bookings perspective, normally Q2, Q4 are your big quarters, should we expect a return to a more normal pattern from that perspective?

Yeah, so – that's a great question Matt. Of course, Randall and I both talked to the dynamic within the year, right off the record of the first half bookings here and the second half, both in the third quarter and then expected in the fourth quarter, but really strong momentum, but it means that bookings are, you know, are coming in later, if you will, right. So that's kind of a total year revenue impact, but also isolation during the year were delayed. So, what I would say is that, not necessarily we would have the fourth quarter step down in reduction to the first quarter revenue and that might be, you know more flattish, or maybe down a tiny bit, instead of, you know, a big step down, but that's very preliminary. We're going through the backlog and timelines, if you will, and the ramp-up, but the dynamics – to your question, the dynamics are different this year going into next year, then the normal transition between calendar years if you will.

Okay. And then one last one for me. I think, Randy, or no, actually Peter, I think you mentioned that you are going to be bringing some expenses back as revenues are starting to come back as well. How should we be thinking about that through next year? I mean, are you – is – have you found efficiencies because of what has happened here the past couple of quarters so that when we're looking at December of 2021, maybe you haven't gotten back to the Q4 of 2019 levels or with the 340B acquisition, you kind of get back there, but you're back to that level versus being above it, if that makes sense?

Yeah. Well, what we said in the last call was that, you know, the cost reductions, right, versus the original guidance that about half of that we expect to come back next year, because a lot of that’s travel and marketing and hiring delays, right. And so some of that's coming back. We don't want at this point in October, commit to, you know highly feasible maybe OpEx numbers at this point, but we are hiring, we are testing on a modest basis from the third quarter to the fourth quarter. And I think I laid out in the perfect remarks, the areas where we are accessing. But, you know, the bookings pipeline, backlog, it's all very, very strong, and market position as well. So, we are being prudent, but we got to make sure that we scale as well and support our customers.

Got it. Great, thank you.

Thank you. And our next question comes from Gene Mannheimer with Colliers Securities. Your line is open.

Thanks. Good afternoon. Congrats on the great quarter, guys. I wanted to ask you about your Enliven offering, which I think you formerly called Population Health. Can you just refresh us, what is – what are the products that contribute to that? I know med-synchronization is one of them. How does that contribute to bookings or revenue? And how would – how should we think about Walgreens and Walmart contributing and ramping over time? Thank you.

Good question. This is a SaaS business that is still emerging. So – but it is a totally a cloud-based system that drops in next to the pharmacy system on the retail pharmacy and evaluates patients in their database that would fit in med-synchronization workflow and there's a lot of pieces to it, it’s just not a one-time thing. It's an ongoing fee that we have that manages these patients going forward, because we want to keep them synchronized and keep – make sure they're getting their meds. But that platform is been tested by our customers who are very concerned about security and how it works and we're expanding it to do more software activities that we're offering, particularly on the communication side getting linked-up with patient. What's the right time to call them, what's the right time to text them, what's their preferred mode of conversation? These are all additional services we want to build into that platform to build it into a much more substantial business. And so, we've done the first thing, which is get connected to very large customers who we can build a platform off of and build a really successful business going forward. So, I would say, we're still in the early days there, but it is making great progress and we hope that there might be even some functionality and parts for the COVID vaccine that if you have an off-site where you need to do some quick vaccinations that that platform makes a better approach than trying to use legacy systems in that case. So, a lot of opportunity there, still need to build out some more pieces of the platform to really make it into what I would call a significant business for Omnicell, but we love it, because that's where pharmacy is going. It’s going to the home and it's where healthcare is going and we need to be connected in there and it's a product we believe that more than retail will eventually use. We think maybe even institutional and even big providers will eventually be engaged in this kind of product.

That's really interesting. Thanks, Randy. And I just want to circle back on the – maybe some of the more tangible items around the XT product cycle and the XR2. Could you provide an update on where we stand in that evolution? Thanks.

Yeah, so for the XT upgrade cycle, we posted the update there, cumulative program in the Investor deck that we just posted. We are at 30% now so three-zero program today and we're kind of going in kind of the end of the third inning going into the fourth inning here for bookings, right, revenue follows, right, via backlog. So, it's going well there. So, we gained, I think 4 points of upgrade bookings of the installed base. So that's XT, and then we said on the prior call that from a Central Pharmacy perspective that proportionately kind of the delays, because of COVID, the central pharmacy was slightly heavier impacted than point of care and retail and we see that coming back, as well for us in bookings and in backlog and then in revenue as well. So, that's also trending up.

Thank you. And our next question comes from the line of Scott Schoenhaus from Stephens. Your line is now open.

Hey, Scott.

Hey, Scott.

Hey. Hi, Peter. Hi, Randy. Hi, team. How are you guys?

Great.

Again, congrats on the results and progress. I guess I want to follow-up, I know we've belabored 340B, but based on your guidance, you said 25% gross rate of the $35 million on the top-line. This kind of is a follow-up question to the other analyst about the Cadence, but as you grow those revenue streams, I'm assuming you get more and more momentum as you have these cross-selling opportunities on your install base. So that would go with your comments about being more back half-heavy, but also we've got to think about the margin accretion and EPS accretion, you know given the 75% or 80% gross margin profile and healthy EBITDA margins on this software service business, do you expect your earnings – in the cadence of earnings to be significantly accelerated throughout the course of fiscal 2021?

Well, I would say, of course, it's a high-gross margin business, high-feasibility, highly recurring, right? So, from a – your first point on cross-selling, so, we closed the transaction about two weeks ago now. So, we are aggressively starting to landscape and prepare for cross-selling opportunities, right. And again, that will take a little bit of time to close cross-selling deals and then you need to get them live and then there will be recurring SaaS revenue, right. And that probably the first instance that it's probably will be directionally in the second half of next year from a cross-selling perspective. That's probably what you would expect. The acquisition is immediately accretive from a non-GAAP EPS perspective for the fourth quarter and we are aggressively and in a very constructive manner integrating the acquisition as well from a systems people, the process perspective. So, there are some costs there. So, it will be accretive. We expect of course also to earnings in 2021. I think it's a little bit too early to tell, to kind of give direction of what impact that would be on operating margin or EBITDA.

Yeah. No. That...

Go ahead.

No, I understand. Appreciate that color, Peter, and I guess, Randy, you mentioned, but I guess this is a question for both of you Peter and Randy, but you mentioned you're going to be focusing on the M&A front on more services or software or tech businesses. Can you give us more color there on the pipeline? I mean you have very strong cash conversion and obviously these net proceeds from the recent convertible debt offering gives you a lot of dry powder. So, help us think about where your next near-term opportunities lie.

So, nothing really has changed to the comments we made on M&A strategy in the past. So, we have a dedicated M&A strategy team that throughout the year looks at a number of deals. Number of deals we take closer look at, number of deals we do the diligence at, and some we make a bid on, and some we close, right, if it fits in the strategy, if it fits in the growth profile, if it fits into the platform, and we also like it to be accretive from a non-GAAP EPS perspective. So, nothing really has changed there. I think the new – the tiered capital structure gives us more ability that is true, but from an M&A perspective nothing has changed. And of course there's nothing to announce at this point, while we are looking at M&A. But we look at it through the lens that I just discussed, right, so pretty rigorously.

No, great, thank you guys very much and congrats on the results.

Yeah.

Thanks, Scott.

Thank you. And our next question comes from the line of Sean Wieland with Piper Sandler. Your line is open.

Hi, guys. Thanks. And let me add my congrats on an impressive quarter. To be clear, I think what you're saying is that the revenue acceleration that you're guiding for in 2021 is primarily related to the timing of the 2020 bookings. And so my question is, we're back up – we're kind of back in business at the bookings level with your original guide, but still about $100 million short on revenue for the year. How much of that $100 million rolls forward to 2021 and how much of that is lost because of the passage of time?

Well, that’s what we said on the prior call, Sean, is that nothing is lost so by and large, we haven't lost any significant expected deals from that perspective. So there are – the revenue is coming, it's just going to be at a later point, if you will. Right?

I think what, Sean, is saying is not this year is lost this year. So...

Yes. Yeah.

So – and I think that, yeah, obviously, in our 10% to 12% long-term growth, next year will be above that. And so, I think, it's kind of like we were delayed six months this year.

Yeah.

And it takes...

Another six months.

Another six months to get that in. So, I think it will flow and one of the reasons we are hiring people is, we don't have enough people in place to do all the implementations and get them trained up for next year without the hiring. So that's part of the program.

Okay. So it sounds like 2021 is going to be a bit of a pig in the python year, if you will. And I'm sorry to ask you this, but for – are you saying that the 10% to 12% you think you can grow off of that 2021 number into 2022?

So, we talked about the 10% to 12% as an organic revenue CAGR, right? So by and large in the vast majority of the next number of years. Yeah.

Okay. And then separate topic, The 143 top clients that you have, what percent on average penetrated are you within each of those?

As far as that covers or ...

All of our products?

Like what's the – of those 143 clients like what's the whitespace remaining to sell into, in those – in that segment?

From a [indiscernible] perspective.

Well, it's probably less than 50% because most of them still have XT ahead and XT is just for – not only just replacing what they have, but for expansions. And so – and then you have the XR2 and our other product lines, the IV, workflow systems, and of course the other products on top of that. So, I think we feel like there is quite a bit left to go. Just because – we're probably on the early cycles with IV station and IV workflow and XR2 and XR2 is gaining momentum. We've had some good uptick in those product lines. And as the technology moves forward they become more plug and play on the platforms are easier to install, easier to put up and as well one feeds into the other. So ...

And for many of these, we had the vast majority of these. We have multi-year medication management automation plans that we're driving together and have [COVID fell offs] to go to the next levels of the autonomous pharmacy. So, it's probably the growth to be had.

Yeah.

Thank you. And our next question comes from the line of Mitra Ramgopal with Sidoti. Your line is open.

Yes, hi, good afternoon. Thanks for taking the questions. Just wanted to get a sense as to – as we look at the guidance and the commentary on the U.S. market, things are starting to normalize here and I was just curious from the international side, what you're seeing there and as we look out to the guidance for 2021, is it pretty much all going to be domestic?

Yeah, I think on the last call we also had a question on international growth. So, we passed the momentum in international from a platform perspective. We see demand for multi-product platform type of deals as well, multi-location, right? So, there is more to come there. But it looks like the adoption of the technology in medication management automation we started to pick up there as well. And international by and large is growing at a higher rate than domestic business from that perspective, on the longer-term.

Okay. Yeah and on the long-term, I think in the past, you've said you expect between point of care, central pharmacy and retail they should all be growing north at least double-digits. Should we expect any acceleration potentially coming out of COVID on that?

Not necessarily. I mean COVID is mostly timing, if you just look at it from a year perspective. What is different, though, is that what Randall said earlier in the script is that automation and also specifically medication management automation is absolutely critical. And that is what health systems have realized now and that is where they are investing in strategically. And that is why we're able to provide guidance for the full year. And that is also why we're confident in providing preliminary revenue guidance for next year, but that is a change because of COVID.

Okay. No, that's great. Thanks for taking the questions.

Thank you.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the conference back to Mr. Randall Lipps for any further remarks.

Well, thanks for joining us today and it's very satisfying to get through the last six months with a lot of change and get back to focusing on the long-term strategies that our customers need. And I want to thank again the Omnicell employees for just doing outstanding job and moving forward and hanging in there on all those Zoom calls and doing the work in a different way, but still achieving great results. So, thanks for joining us, we'll see you next time. Cheers.

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