Omnicell, Inc. (NASDAQ:OMCL) Q1 2024 Earnings Call Transcript
Omnicell, Inc. (NASDAQ:OMCL) Q1 2024 Earnings Call Transcript May 2, 2024
Omnicell, Inc. beats earnings expectations. Reported EPS is $0.33, expectations were $-0.08. OMCL isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen my name is John and I’ll be you conference operator for today. Please note that today’s call is being recorded. All lines have been placed on mute to prevent any background noise [Operator Instructions] I will now turn the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Please go ahead.
Kathleen Nemeth: Good morning, and welcome to the Omnicell first quarter 2024 financial results conference call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; and Nchacha Etta, Executive Vice President and Chief Financial Officer. This call will contain forward-looking statements, including statements related to financial projections or other statements regarding Omnicell’s plans, strategy, objectives, goals, expectations, products or solutions actions to streamline our international product line holistic review of the business or market or company outlook that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied.
For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release issued today, and the Omnicell Annual Report on Form 10-K filed with the SEC on February 28, 2024, and in other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. All forward-looking statements speak only as of the date hereof or of the date specified on the call. Except as required by law, we do not assume any obligation to update or otherwise release publicly any revisions to our forward-looking statements. Our first quarter results were released this morning and are posted on the Investor Relations section of our website at ir.omnicell.com.
Additionally, we would like to remind you that during this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press release posted with respect to forward-looking non-GAAP measures, we do not provide a reconciliation of these measures to the comparable GAAP measures, as these items are inherently uncertain and difficult to estimate and cannot be predicted on a GAAP basis without unreasonable effort. With that I will turn the call over to Randall. Randall?
Randall Lipps: Thank you, Kathleen, and good morning, and thank you for joining us on the call today. I will walk through our solid financial performance for the first quarter of 2024 and provide an update on the current demand environment and our successful Illuminate 2024 customer event. Beginning with our results, our first quarter 2024 came in above our previously announced guidance on several key metrics. Total revenues were $246 million. Total revenues in the quarter were $4 million above the top end of our guidance range, primarily due to solid execution and timing within both Technical Services and our Advanced Services. Non-GAAP gross margin for first quarter was 39.8%, a decrease of 380 basis points from the prior quarter, primarily due to lower revenue volume leverage.
Our first quarter 2024 non-GAAP earnings per share were $0.03. First quarter non-GAAP EBITDA was $11 million. First quarter 2024 non-GAAP EBITDA and non-GAAP earnings per share exceeded our outlook due to the better-than-expected revenue as well as strong cost and operating expense management. Since our last earnings update, we have retained an external management consultant conduct a holistic review of our business with the aim of streamlining our operations and unlocking shareholder value. Today, we announce our intention to exit one international product line, which was not delivering sufficient returns on our investments. This action was already under active consideration prior to hiring the external consultant. While this was a first small step, we are indeed moving forward with determination and urgency.
Now, let’s turn to the current macro environment and industry landscape. As we move into 2024 there are some reports pointing to encouraging signs that health system finances are beginning to stabilize. Hospital finances reflect a strong start to 2024 with calendar year-to-date operating margins approaching 5%, primarily due to accelerating outpatient revenues, lower contract labor spending and lower average lengths of stay. At the same time, the interest rate environment remains challenging with forecasts for rate reductions unpredictable, and we continue to see areas of the customer base that are still facing budgetary constraints. Therefore, we are continuing to take what we believe is a prudent and cautious approach to our business planning and management.
We have begun to see market traction for some of our initial XT Amplify program offerings. The 500 plus bed academic medical center in Massachusetts is a new customer for Omnicell and is converting its automated dispensing system footprint to XT Amplify cabinets. Our CarePlus solution, which is designed to improve solution adoption and provide data driven performance optimization information supported by expert services, was identified by the customer as a pivotal differentiator that created unique value for their purchase decision and as part of a six-year extension of a sole source agreement, a Kansas-based health system is seeking to maximize the value of their XT technology through XTExtend a comprehensive console swap designed to improve a high level of security while enhancing the user experience.
Health systems across the country continue to recognize the value of Omnicell’s advanced services offering that is designed to help transform pharmacy care. In addition to adopting our Central Pharmacy Dispensing Services, a large Southern California hospital plans to leverage our IV compounding service in an effort to provide more accurate, safe and cost effective sterile compounding. Our customer base for Specialty Pharmacy Services now exceeds 400 hospitals and clinics. We’re excited to announce the opening of a new location at Good Samaritan Hospital in Indiana, which cited Omnicell’s experience and expertise in specialty pharmacy program management as key to their decision to partner with us. We expect our customer base to include an additional seven pharmacies to open in second quarter 2024.
We believe the combination of Omnicell’s 340B TPA with our Specialty Pharmacy Services program management offering is delivering growth opportunities for our customers. Our EnlivenHealth brand had a strong first quarter 2024 with a large buying cooperative choosing Enliven’s analytics solution as it works to transform its complex pharmacy data into actionable insights and outcomes focused on patient care and operational efficiency. We had multiple other wins in the quarter as well. On April 16, we announced XT Amplify innovative program intended to enhance pharmacy and nursing efficiency, reduce medication errors and waste, and ultimately maximize the value of the XT Automated Dispensing System investment. We introduced the first set of solutions in this multi-year program as part of our virtual Illuminate 2024 customer event, where healthcare and pharmacy leaders had the opportunity to learn about the potential benefits of XT Amplify.
We were joined by Jennifer Hillman, Executive Director of Pharmacy at San Antonio-based University Health, who recently completed the XT conversion project and shared her successful experience with attendees. While it’s early, we assure you that XT Amplify is intended to be just the beginning of our reinvigorated focus on new products and services, which we expect to bode well for long term growth. I hope that you can see that we are taking the necessary steps that we believe will strengthen our financial and operational performance, accelerate profitable growth, and drive shareholder value. We remain confident in Omnicell’s long term opportunities and continue to believe the company is uniquely positioned to transform the pharmacy care delivery model and ultimately help enable our customers drive better outcomes and increase their returns on investment.
Now, with that, I’d like to hand it over to Nchacha to discuss our results. Nchacha?
Nchacha Etta: Thank you, Randall. I want to thank all of our employees for delivering the results this quarter. We exceeded our guidance across all key metrics, delivered strong cash flow, and managed our expenses carefully and responsibly. While we still have work to do to strengthen our financial and operational performance we are off to a good start and I am pleased with the level of commitment and engagement I see across our company. Turning to our financial results. Our first quarter 2024 total GAAP revenues were $246 million, a decrease of $13 million over the prior quarter and a decrease of $45 million compared to first quarter of 2023. The year-over-year decrease reflects the impact of a continued challenging environment for some of our health system customers and the timing of our XT product life cycle.
Services revenue were $113 million, an increase of 8% over the first quarter of 2023, which was primarily driven by growth in technical services as we continue to see the benefits from the growing installed base and pricing actions. Total revenues in the first quarter were $4 million above the top end of our previously disclosed first quarter 2024 guidance range, which was primarily due to solid execution and timing within both Technical Services and our Advanced Services. Non-GAAP gross margin for the first quarter 2024 was 39.8%, a decrease of 380 basis points compared to the prior quarter, primarily due to lower revenue volume leverage. We expect our non-GAAP gross margin to expand in the second half of 2024 as we anticipate volume leverage from higher product revenue.
A full reconciliation of our GAAP to non-GAAP results is included in each of our first quarter 2024 and fourth quarter 2023 earnings press releases, which are posted on our investor relations website. Our first quarter 2024 earnings per share in accordance with GAAP was a loss of $0.34 [ph] per share compared to a loss of share $0.32 per share in the prior quarter and a loss of $0.33 per share in the first quarter of 2023. Our first quarter 2024 GAAP earnings per share includes the impact of $3 million for the potential wind down of the Medimat robotic dispensing system product line we announced today. Subject to local law and statutory works council consultation requirements. If the wind down proceeds, the total non-recurring costs we estimate to incur related to the wind down are approximately $15 million to $20 million, of which we have already incurred approximately $5 million.
If the wind down is agreed to the RDS restructuring plan is expected to increase our annualized net operating profit and we plan to incorporate this expectation in our full year 2025 guidance. We do not expect the RDS restructuring plan to have a significant impact on our revenue and we do not expect to achieve significant cost or operating expense savings related to the restructuring in 2024. Our first quarter 2024 non-GAAP earnings per share were $0.03 compared to $0.33 per share in the prior quarter and $0.39 per share in the same period last year. First quarter non-GAAP EBITDA was $11 million, a decrease of $13 million compared to the previous quarter and a decrease of $16 million when compared to the same period last year. First quarter 2024 non-GAAP EBITDA and non-GAAP earnings per share exceeded our expectations, primarily due to revenue execution and timing, as well as strong cost on operating expense management.
As we continue to take what we believe is a prudent approach with our investment decisions. The benefits from our higher revenue and lower expenses were partially offset by higher than expected income tax expense. The higher first quarter income tax expense was the result of timing within the year and we continue to expect our 2024 non-GAAP effective blended tax rate to be approximately 19%. At the end of the first quarter of 2024, our cash and cash equivalent balance was $512 million, up from $468 million as of December 31, 2023. Non-GAAP free cash flow during the first quarter of 2024 was $38 million as we continue to see strong cash collections and working capital management. In terms of accounts receivable, day sales outstanding for the first quarter of 2024 was 94 days, an increase of four days over the prior quarter primarily due to the modest decrease in revenues.
Inventories as of March 31, 2024 were $103 million, a decrease of $7 million from the prior quarter and a decrease of $38 million from March 31, 2023. The decrease is primarily due to the strong efforts of our supply chain team as they continue to execute and make progress on our global supply chain process improvements and inventory management initiatives. For the second quarter of 2024, we are providing the following guidance. We expect total second quarter 2024 revenues to be between $250 million and $260 million with product revenues to be between $140 million and $145 million, and service revenues to be between $110 million and $115 million. We expect second quarter 2024 non-GAAP EBITDA to be between $14 million and $20 million and we expect second quarter 2024 non-GAAP earnings per share to be between $0.10 per share and $0.20 per share.
In summary, we are working with a sense of urgency to strengthen our operational and financial performance. We are pleased to have delivered the first of many expected innovations and new capabilities for our fleet of XT medication dispensing systems, and we believe Omnicell is well positioned for the future. With that, we would like to open the call for questions.
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