Good afternoon, everyone. I'm Kathleen Nemeth, Senior Vice President of Investor Relations for Omnicell, and I'm delighted to welcome you to our 2022 Investor Day. There is a lot going on in Midtown Manhattan this week, which makes the fact that we are all able to be together extra special. I also wanna welcome those of you who are joining us on the webcast today.
We have an exciting agenda planned for you this afternoon. In just a moment, you're going to hear from our visionary Chairman, CEO, President, and Founder, Randall Lipps. Randall will talk about our vision, as I mentioned, our mission, our strategy, and also the fact that we are celebrating 30 years this year as a company since our founding. The reality is we are just getting started.
Following Randall's presentation, Scott will come up and talk with you about our competitive positioning and provide a deeper dive on our advanced services portfolio. At that point, we will have a short break. After we finish break, Danny Sanchez will come up. Danny heads up our EnlivenHealth team, and Danny will talk with you about our retail opportunity and also the way some of our SaaS offerings within retail are applicable to other care environments.
Then at the conclusion, Peter Kuypers, our CFO, will come up and walk you through our strong financial performance and how our business model is evolving as we transform the company toward advanced services. Now, it wouldn't be an Investor Day without a safe harbor statement. I wanna remind everyone that during today's presentations, we will be making forward-looking statements.
There are always risks when we're talking about the future, so we encourage you to review our most recent filings with the SEC for a full list of those risks and disclosures. Now in just a moment, I'm going to play a video that we've created for our employees to look back at where we've been and, more importantly, where we're headed.
Well, yeah. Dope video. Well, welcome to Omnicell's 2022 Investor Day. So glad to have you here in person, so many of you, as well as over the phone. 30 years it's been since I sat across my own daughter and sat in the NICU and was wondering why this clinical nurse was spending so much time doing administrative work.
Why aren't they spending more of those golden minutes, you know, clinician to patient engagement? Very few were there. It's been 30 years. How are we doing on that, right? How are we doing on that? How has pharmacy changed? You know, 10 years ago, I'd walk into a pharmacy, go downstairs to the basement.
I'd visit a director of pharmacy, whose office was in the basement back then, and I would engage with them on the use of our point of use systems, which at the time and previous to then only had about 50 to 100 drugs. It was a convenience system that really allowed drugs and first dose to be given between the regular frequency delivery of all the meds that came at 7 A.M. and 7 P.M.
When DRGs came and the pressure for acute care came to create a margin and to move patients out of the hospital, they moved patients quickly from high-cost areas to low-cost areas. Suddenly their drugs weren't there. Nurses pressured pharmacy to put more drugs on the systems.
They moved to 500 drugs, sometimes 700 drugs, so that no matter where the patient was, they could get their drugs immediately because the patient was a moving target. Now, as this happened, the complexity of pharmacies started to change immensely, right? When you had 100 drugs and you had 10 locations, you had 1,000 discrete locations.
Now you've got 500 drugs and 10 locations, you have 5,000 discrete SKU locations, right? You gotta keep each of those. You can't have too many 'cause they expire on the shelf. You can't have too little, then you're not gonna have the drug there when somebody needs it. Oh, but then expand the systems to the OR. You know, merge with a few other sites. Now you have 200 points of distribution.
With 500 drugs each, that's 100,000 discrete locations that need to be managed. Now you add that to the equation of moving outside of the four walls of the hospital. Now you've gotta run an outpatient clinic. Now you have to have specialty pharmacy. Now you can't use outsourcing compounding. You'd have to bring it back in-house because outsourcing got reset with the Northeastern event with compounding, right?
So a lot of complexity has changed pharmacy, particularly in these last 5 years, right? The complexities have really almost driven pharmacy. I would say, as we walk in and I talk to pharmacy leaders, I would say they're frazzled, a little bit desperate for solutions to help them. This is a good thing for us, right? Two things have changed dramatically in pharmacy over the last 3 or 4 years.
One is the director of pharmacy's office is not in the basement anymore. It's near the C-suite. It's the Chief Pharmacy Officer, used to report to the operating officer, but now reports to the CFO, right? The CFO, why? Biggest cost expense reduction is from the pharmacy. Biggest revenue opportunity, driving a lot of the revenue and earnings in healthcare, is through the pharmacy.
Hence, it makes sense to elevate the job, particularly in COVID, particularly as hospitals become under pressure to elevate that job. One of my biggest frustrations over the 30 years is how do we get technologies to be adopted by these institutions? Remember, healthcare, we want it to be, is a conservative discipline, right? First, do no harm, which also can mean, first, do no change, right? Don't change the way we do things.
You want to infuse automation and technologies to be run at the highest levels. I would say one of my deepest frustrations over the years was to come make great technology and walk into sites, and they had all the good stuff turned off, and the pharmacies weren't executing to the optimization they could, right?
We had to change our business model. We had to change our thinking, and we had to reinvent ourselves. One of that is we had to be able to get inside the pharmacy. We had to move our people and our experts to work alongside day in and day out, 365, 24/7, not to run the pharmacy, but to keep these complex systems running at their best. Because of the labor shortage now, because of COVID, we find the door wider open to our services, right?
We had to move from a solution-based to an advanced service or tech-enabled service, which has experts either on-site or behind the scenes or SaaS technologies that really constantly improve the operation of pharmacies. Now, our ultimate goal is to get to something we call the autonomous pharmacy, really to unload all of that work that's done by the pharmacist that isn't clinical.
Today, about 25% of the work is clinical for a pharmacist. About 75% is done doing administrative stuff. How do we know when we're succeeding? We know we're succeeding when we don't find pharmacists in the basement anymore. They're engaged with patients, creating those golden minutes of patient and clinician engagement, right? The same thing for retail. We don't want the pharmacist really behind the counter counting pills or reading through scripts. We want them engaged with the patient.
Why? Where is the safest place for transactions and information to pass clinician to patient? Where's the best outcome gonna come? It's gonna be clinician to patient. Where are probably the lowest cost and best decisions made? It's gonna be clinician to patient, and probably most importantly, behavior modification, right? Right?
Our vision is to get to this autonomous pharmacy. It is big, and it is bold. I think you'll see today how we're doing on that and how we feel about it. I think you don't join Omnicell without wanting to climb this mountain because it's worthy. It's an important piece of who we are. Well, healthcare is extremely complicated and broken. Remember, over $4 trillion this year will be spent on healthcare. Remember, some of the smartest and best minds in the world have tried to transform healthcare.
You know, the Haven, you know, Amazon, Berkshire Hathaway, JPMorgan Chase. Hopefully, you guys aren't in here. But anyway, really smart guys tried to change the world, and it's tough. Remember, the size of healthcare in the United States, if it was a country, would be the fourth largest country in the world. Very complex. You can't fix it by, you know, legislating a few one-liners, and then it's all gonna be fixed, right?
Extremely complicated. It's also complicated for medication management. As patients bounce around to these different silos, they get a different experience on the medication piece, right? Everyone's trying to optimize and standardize their encounter with the patient, but it doesn't make sense to the patient when they go to their next silo because they're taking a different approach, right? This is where Omnicell comes in, right?
What is our view? The view should be a wonderful experience on medication management for the patient. It should take on their view of how their medication processes take place, no matter where they are, inpatient, outpatient, retail, it doesn't matter. It should make sense, it should be easy, because we know if we get the right med to the patient at the right time, we are going to bend the curve.
You cannot manage outcomes, you cannot manage the risk, if you can't get medication right. It's impossible. It's too big of a beta in the equation of great outcomes. We've got all these new services because we're becoming more the trusted partner of our customers, and we're moving away from products to extended services, which really allows us to work with them day-to-day.
That, in turn, creates a much larger TAM for us because we're creating more value for our customers, which creates more value for our shareholders, revenue and earnings. This is a very large TAM. Most of this TAM is unpenetrated, and Scott and team are gonna go through this a little bit more in detail.
This is a massive opportunity, particularly as we move services. Now, what's our channel like? It's amazing, right? Do you realize that four out of five pharmacies in the United States are using an Omnicell solution? We are in almost every retail pharmacy out there with at least one of our solution sets. It's an amazing position to be in as we bring in more technology.
Half of acute care, we talk about that a lot, the top 150 largest acute care providers, and even greater than 60% for our sub-acute. These are all the segments of pharmacy, right? We've got the channel to all of these segments today. What are we coming to these segments with? We're saying, "Look, you really want one platform."
One platform allows your segment of pharmacy to move a little between inpatient and outpatient or sub-acute and retail. We really want a solution set that connects these connected devices and delivers superior outcomes. Why one platform? Why is it important to be one platform? The complexity of pharmacy requires a single platform. There's no way to solve the biggest issues in pharmacy if it's not a single platform. This is what our customers are asking for.
This is what they're attracted to. In some cases, they're price insensitive to the fact that what our solutions are if it's on a single platform, because they know they need all of these pieces to be connected. Well, you can have a great TAM, you can have a great market, but really, you've gotta have the people to do it.
I get asked by many of you many times in the investing community, "Why do you think you can move from a product company to a service company?" I mean, that's a hard thing to do. We had to go out and reinvigorate our management team. We had to make some serious changes. All of these players come from digital health or digital technology.
They've all joined the team in the last three or four years, and they are driving the change to digital health for us. It's just many of them are in the room, so after the presentation, we have a little chit-chat time. Please find one of these folks here and ask them what's going on. I think they got their badges on.
Also today, let me also point out, I have two board members with me, our Lead Board Director Joanne Bauer, and Edward Ossa, who's also here. You can ask him how I'm doing these days if you want. Anyway. Thanks for coming, guys. This required.
You gotta realize how gut-wrenching it is to rejuggle your management team when you've really been successful for 25 years and say, "Oh, well, we don't need to make many changes." In fact, almost 50% of the leadership team has changed over in the last 2-3 years to make this change.
We're not going in this half-hearted or wishing. We are gonna get this done, and these people have committed to make it happen. What's our big strategy, right? How do we win? This is a bold goal here. We're gonna have a single app in the cloud with what's called microservices that drives pharmacy. This single app is gonna work inpatient, outpatient, sub-acute, home. It's gonna do everything. Why is a single app so important?
Well, that's the only way we can drive this experience for the patient to a singular view. This is extremely hard. I wasn't gonna talk about the management team, but Varad is here. He is the smartest guy on the planet. He's driving the technology execution. He's got people running all over the world. He worked at Oracle.
He knows how to take on-prem stuff and move it to the cloud. He knows how to work at both ends of the problem, and then in the middle with an elegant solution. Varad, raise your hand so people know you're here. All right. He's under contract. Don't try to steal him. Anyway, it's just. This is how we win. You say, "Well, what's so great about the cloud?" Two things that I point out, there's a lot of things.
One is the pace of innovation moves from months to days. One of the hardest things to do in healthcare is to get people to adopt your solutions. One of the things that the cloud is very good at is A/B testing. What is A/B testing? It's when you put forth an interface or a user interface that's A and one that's B, and then you measure them, you put them out in the population and see which one's acceptable.
Then you know that B is gonna be better than A, and so you move your whole platform over to B. It can be done very quickly. You can't do that with on-prem equipment. The other thing you can do, obviously, with cloud-based systems is you just monitor the usage of our systems.
W e have a whole team of people that look at the dashboards of the data flows and the people that have our high-tech web-enabled pieces, and we know looking at the data flows, whether they're happy, whether they're reaching their goals or they're exceeding their goals. We know a lot about what's happening just by the way they're using the system.
That's why we've got to get here. The other thing that's really important and obvious, 100,000 discrete inventory locations, right? How do you figure out that? You just move that work to the cloud, right? I mean, well, you got unlimited compute power, unlimited storage power, and almost unlimited bandwidth. Let it do the work for you. It's thinking all the time, not just when somebody runs a report. We've got this channel, we've got these people, we've got these products.
How do we convert that to opportunities for us to grow? Land and expand is a very easy one, right? Most of our customers have long-term agreements with us or significant agreements with us, but they're only deploying one, two, or three of the solution sets that we offer. It's easier to add on solution sets that have great ROIs and dashboards and expand easily into more of our products.
Secondly, there's technology upgrades all the time, but particularly there's lower cost technologies that drive data back to the cloud systems from the edge that give us even more information on the intelligent infrastructure that we're creating for the autonomous pharmacy. I think as we go out to the market, we're seeing that competitive swaps are still available.
What attracts them the most is the cloud strategy and the platform strategy, the ability to have those pieces connected with advanced services, connected with experts that keep the systems running at the top level.
Innovation has always been a hallmark of Omnicell, and we wanna innovate because we don't want clinicians wasting their time when the cloud could do the work. Today, our platform, we feel, is comprehensive. We don't need to go make an acquisition to finish the platform, but we have access to capital on our balance sheet.
If we find some smart, disciplined acquisitions that will accelerate the autonomous pharmacy, we're gonna look at them hard and probably buy them, right? But we don't need either additional acquisitions to finish out the platforms, even to make our long-term goals of 2025. We don't need more acquisitions.
I'm really excited to have Danny come up here. One of the really cool things about some of these acquisitions are that they're already services or they're tech-enabled services, and so you just plug them in on your platform. Integration is quick, and then you can quickly go to your account base and broaden your platform, and it's building a wonderful pipeline that we've never had before.
We're becoming the de facto company to go through for retail because we have so many of the necessary pieces of the puzzle that you wanna go with one vendor. Dan's gonna come up and talk a little bit about that. How do we capitalize on this growth? What does this mean? In 2021, we went out and boldly say, "Hey, in 2025, we are gonna double the size of the company." We're absolutely committed to that.
Peter's going to go into more detail on that. The company is growing. There's such a demand and need to transform the pharmacy that growth is gonna continue to be there. Now, we did come off our non-GAAP EBITDA margin from 25% - 23%. We see a lot of other companies do that. We think that's smart with macroeconomic and geopolitical uncertainties.
I mean, certainly there wasn't a war, there wasn't inflation when we put these goals out there. It's still a nice growth in our gross margin, which we're detailing here in 2025 for the first time, 25%-53%. It's probably about a hundred and sixty basis points plus per year on average on the gross margin.
We've got a strong plan. We know how we're gonna generate more earnings and improve both the gross margin and the net margin over the next years. More details coming out on that. It's an exciting time. Also, we're staying committed to the 20%-30% of our revenue comes from advanced services by 2025. This is a key indicator. Is our strategy working? Are customers adopting these solutions?
More details are there, but just some incredible numbers on the rate of bookings year over year. Peter's gonna disclose some new ranges on that. It's just continuing to grow. People want these solutions because they know this is the only way they can solve some of these problems.
We're not only gonna be focused on making profits, but we're gonna be focused on being responsible. I cannot tell you how important it is that when people switch from high-tech, high-paying jobs to Omnicell, they're coming here because of the purpose. The purpose is to change healthcare forever. It's to get to this autonomous pharmacy, which is in reach. It's not ten years out there. It can be done, it should be done, and it will be done.
The purpose-driven nature of a company is driven by the fact that when we get to zero errors and the right meds show up at the right time, healthcare improves for everyone, not just a few, not just people in the US, but everywhere. This is a driving goal that keeps us moving and gets us going up every day. Why do we win, right? Why do we win? You know, we have been fortunate to be pharmacy-focused, supply chain-focused for 30 years.
We have the best experts and the best mindsets in the business on how to truly partner with our customers. We're the only one driving toward this single app, investing people both in our customers and behind our customers on a daily moment-by-moment basis to execute with perfection. We've got a comprehensive portfolio.
We understand cloud like nobody's business, and the most important part is we're driving real outcomes. People will buy products that really deliver return and outcomes, not only for patients, but eventually for our shareholders. I just wanna say, you know, I get asked a lot, I think someone wrote a piece about Old Man Randy's still in the seat or something up there today, I saw it in the newspaper somewhere.
I am more excited and more thrilled and am more honored to be driving us to this moment of perfection. It's the autonomous pharmacy is the dream. It can happen, and, you know, God willing, I'm gonna make it happen. Scott, a lot of that's on you too, so come on up here and tell us how we're gonna do it.
All right.
All right.
Thank you. Thank you, Randall. Transform the industry, transform all of healthcare. That's on me. What a nice intro. Thank you all for being here. I'm Scott Seidelmann, Omnicell's Chief Commercial Officer. Randy outlined a very big vision to transform all of healthcare.
The way that he outlined doing that is not only optimizing medication management within each setting of care, but by putting the patient in the center, optimizing it across those settings of care. Now, how do we translate that into a strategy, into a product strategy, into a go-to-market strategy? I joined Omnicell about four, a little over four and a half years ago, and I'm a product person and entrepreneur, so I'm inspired by really big, important problems to go and solve.
Pharmacy, largest portion of healthcare by dollar spend, touches every patient in every setting of care, undoubtedly delivers very real, very important healthcare value. Like every ology and every portion of healthcare, it has problems. Lots of clinical problems. It doesn't deliver great outcomes. Labor, lots and lots of labor. That is a very topical point. It's the number one problem today in the industry.
All of that translates into big, big economics, which for a product company or a service company, this is what we're focused on. Again, appropriately calling out today, hospitals in the United States spend $144 billion on labor. For the last mile of drug distribution, they spend a significant percentage of their time in and around our products delivering that care.
Almost $50 billion a year is spent on direct labor related to pharmacists and pharmacy techs. Four and a half years ago, when we started to reformulate our strategy and we understood what the problems were, what the opportunity was, we drew a line in the sand, and we said that everything new from this point forward or that point forward, whether it's a product or a service, is going to deliver real outcomes, ROIs with quick paybacks.
Whether or not that's improving safety and patient care, absolutely. More importantly, can we reduce labor? Can we reduce drug spend? If that became the North Star, as Randy pointed out, we said, "Well, what's the strategy?" We reformulated.
Focus in on the largest providers that have the most opportunity to transform pharmacy and enable those providers to do so by delivering them a set of services that improve quality, reduce costs from inpatient to outpatient, from the bedside to the home, all built on a single cloud platform, which again, makes the customer experience better, enables us to deliver products and services faster, and ultimately allows us to develop network effect, which we'll talk about later.
Key to this strategy, as we've talked about before, is a portfolio of services which we call the advanced services. As Randy pointed out, we said that by 2025, those advanced services will comprise between 20%-30% of our top line revenue, which we're committed to, we feel confident in. To double click a little bit on that advanced services portfolio.
EnlivenHealth, and I'll go through these one by one. EnlivenHealth, Danny Sanchez is here with us today. He'll talk a little bit after the break. I don't want to steal his thunder. However, EnlivenHealth is a SaaS solution that combines software, analytics, and experts to enable retail pharmacists to engage patients digitally and to optimize the retail pharmacy from a financial and clinical perspective.
Why is that so important? Pharmacists today typically are in the back of the pharmacy filling amber vials. The reality is there's 300,000 of them in the United States, and as we saw during COVID, that resource needs to be utilized to provide more care if the overall system is gonna bend the curve and improve outcomes.
Pharmacists are being asked to do more and more, and they can't do more and more and participate in the broader healthcare story if they're sitting in the back of the pharmacy focusing on amber vials, using a pharmacy management system that doesn't do any of those things.
EnlivenHealth today is focused primarily on retail pharmacies, but increasingly hospitals, as they focus on the outpatient side of their enterprise, will utilize and are starting to utilize the EnlivenHealth platform as well. The annual addressable market for EnlivenHealth service is a little north of $1 billion a year.
This service, probably one of the more mature advanced services that we have in the portfolio. We're excited about. It's scaling. It's demonstrating real results. We're seeing customer renewals. We're really, really excited about EnlivenHealth. Danny will tell you more about it after the break.
Our inventory optimization service is a SaaS solution that combines software, analytics, and experts to enable primarily hospitals to manage their inventory across inpatient, outpatient, and soon across 340B and non-340B drugs.
Now, we are in the process of combining our Omnicell One platform with the 340B software that we acquired a couple of years ago to create a single perpetual inventory management service that will help hospitals manage drugs across all those settings of care and across 340B and non-340B drugs. That doesn't exist in the market today. This is spreadsheets, tribal. It's pieces, parts. It's a little bit here. It is a swivel chair of optimization.
The reality is for a health system, if you're a chief pharmacy officer today, the reason this is so important is that managing inventory across that health system is like managing air traffic control at LaGuardia Airport.
The goal is fundamentally to take planes off and land them on time without killing people. In a hospital setting, the challenge is I'm managing a formulary of hundreds, if not thousands of drugs, and I've got 15 acute care facilities, 100 physician practices, 20-30 clinics, and I'm trying to achieve what pharmacists call the five rights, getting the right drug at the right dose to the right location at the right time, while managing the cost of those drugs and at the same time managing the workforce that is supposed to be getting those drugs to the right locations. It is incredibly complicated.
You cannot do it without a technology like this. We are very excited. It continues to scale. We're seeing a lot of demand for this. We're really excited about this service. This is a $1.3 billion annual addressable market for our inventory optimization service.
Now, outpatient pharmacy service, formerly known as ReCept, which we've repositioned, and rebranded and now are in the market with. Outpatient pharmacy services is a technology-enabled service that combines software, analytics, and experts to stand up and operate a specialty pharmacy on behalf of a hospital. Now, why is that so important?
As Randall pointed out, 340B specialty pharmacy is the single biggest revenue and profit opportunity for hospitals and health systems, and hospitals and health systems that have 340B specialty programs in place, frequently, what you'll hear them say is that it's generating 50, 60, 70% of the profit for the entire system.
Only 35% of hospitals had their own specialty pharmacy in 2020. That number has obviously increased, but it's still a wide-open market. Now, a lot of talk about 340B. There is two ways to fill a script for a hospital to fill a script, a 340B specialty script. The easy way to do it is to assign or refer that script to a contract pharmacy. The much harder way to do it is to stand up and operate your own in-house specialty pharmacy.
That is a very different skill set for a hospital and a health system that requires figuring out how to engage payers about it, setting up entirely new clinical programs, engaging manufacturers about limited distribution drugs. The vast majority of the industry has done the easy way for years and years and years, which is referring out to contract pharmacies.
As many of you all know, earlier this year, the manufacturers changed their rules around how to fill contract pharmacies. That's made the easy way a lot harder. That will come back over time. I don't think contract pharmacies are going anywhere. What that's done is it's created a very significant tailwind for hospitals interested now in doing it the hard way. Because it's hard, they're not interested in trying to figure it out themselves.
They just assume outsource it to a service like our outpatient pharmacy services. We will be adding or bundling, I should say, our inventory optimization service as well as our EnlivenHealth service to this over time, which we believe will create a highly differentiated offering. We're really excited about this.
This is a greenfield market. It's growing. It's in the sales channel now. We're getting a ton of demand from it, particularly in this environment where hospitals can't avoid investing in areas that are gonna grow revenue and grow profits. This is a sizable, almost $2 billion annual addressable market opportunity.
Now, turning towards the central pharmacy, and a big theme over the last 10 years is that as health systems have consolidated, and now I'm not on one hospital or two hospital, I'm 15 hospitals as a health system, and I've acquired 100 physician practices, and I've got, you know, as I mentioned, 20-25 standalone EDs and urgent care centers, and I'm trying to manage the drugs across all of those.
That puts an enormous amount of pressure on the central pharmacy, the depot where the drugs come in, they're broken down, repackaged, and sent off to the four walls of the health system.
One theme that's occurred is that today, if we walked into most hospitals in the US, and you went to the basement, you'd see probably a couple of hundred hourly employees taking orders off of an EMR, going to shelves or carousels, picking drugs, packaging those drugs, and sending them off by courier or orderly or pharm tech to the four walls.
As you can imagine, that's a very manual process, and as you can imagine, that's very error-prone, and it's very expensive. No one believes that that's the right way to do this. The right way to do it is to automate away that work. CPDS, or central pharmacy dispensing service, is a technology-enabled solution that combines our XR2 robot with analytics and experts to deliver a service that enables hospitals and health systems to automate that central pharmacy.
It delivers ROI and payback through inventory control, reduced drug spend, avoided waste, avoided stock outs, but most importantly, through labor, both on the pharmacy tech side as well as the pharmacist. We're seeing very nice traction for this now in the pipeline and in bookings. We have a prior generation of robots, so we're seeing replacement cycle now.
Increasingly, this shift as hospitals move towards automating their central pharmacy and very excitedly look at their entire health system and say, the right way to do this is to build a centralized distribution center. We firmly believe that CPDS is going to be the heart of the future of central pharmacy, certainly the beating heart of a CDC.
The addressable market for CPDS is a $2.4 billion product market and a $400 million a year annual recurring service opportunity. Also sticking with this theme, IV compounding. Our IV compounding service combines our IVX robot with analytics and experts into a service that helps hospitals deliver better care and save money by insourcing those drugs, insourcing compounded drugs.
Why? Today, hospitals spend roughly $3 billion a year buying drugs from manufacturers outside the hospital called 503B manufacturers. Aside from being very expensive, those drugs have historically had safety issues and concerns, so it's not something they wanna rely on. The reality is what IVCS can do is very easily and very clearly generate an ROI from simply the differential of insourcing some of those drugs and compounding them in-house.
We just recently launched a new version of our robot called the IVX Station, which is an order of magnitude higher throughput than our previous generation and every other robot on the market, but it's early technology and we're scaling.
IVCS is a $1.1 billion product addressable market and a $400 million annual recurring revenue opportunity. Now, Doug Descalzi, who's also here and runs robotics for us, recently recorded a video in our Thorn Hill manufacturing site that demonstrates some of the features and functions. I haven't seen this video, so this will be really interesting to see what he says.
Hi, everyone. I'm Doug Descalzi. I'm Head of Robotics for Omnicell, and I'm standing here in our engineering laboratories outside Pittsburgh, Pennsylvania, to tell you a little bit about our third-generation, brand-new IV compounding system called IVX Station. I'm gonna do two things. I'm first gonna give you a quick orientation and overview of the technology, and then I'm gonna provide a quick demo as well to give you an idea how it works.
I'm first gonna give you a quick orientation and overview of the technology, and then I'm gonna provide a quick demo as well to give you an idea how it works. This here is IVX Station. As you can see, it's about the size of a large refrigerator. This footprint was very intentional. It allows ease of implementation because we can get this through standard clean room doors. It's also a very scalable way of doing IV compounding from an automation standpoint.
Our smallest customers will probably implement one of these systems, whereas our largest customers may implement 3, 4 or even more of these systems. The way the robot works is bulk doses and consumables are passed into the system. The robot compounds everything in an automated fashion.
There's no human intervention at all, and then it passes back out, ready to administer patient doses to go on further in the process. If I open this door, I can show you what's inside the system and the compounding chamber, the robotic arm, as well as the sub-autonomous systems that are throughout the robot.
This allows for parallel processing. Everything can work in tandem and actually allows much faster throughputs. This robot is 2-3 times faster than the prior generation and increases the return on investment for our customer. Now, if we step over here, I can show you a quick demonstration of the technology. This is a 10 ml syringe, so we're gonna pull a 5 ml dose from this vial into this syringe.
This robot has already been tasked via our enterprise-wide web application called IVX Cloud, so the request has already been downloaded, and it's ready to go. What it's gonna do is it's gonna start asking me for consumables. Once the consumables are loaded, the system will automatically begin the compounding process.
The system will output a label ready to administer fentanyl citrate dose for our patient. This gives you a quick idea of how the IVX Station system works. It's brand new from the ground up. It's the first new robot in approximately 10 years. The market has really embraced this already, and we're very enthusiastic about its potential, and it's a big part of what we see in the autonomous pharmacy for the future. Thanks for watching.
SaaS subscription and tech-enabled services portion of the revenue that they'll generate will achieve 20%-30%. Over the last several years, with the launch of those services, the total addressable market for that SaaS subscription and technology-enabled services revenue line is now roughly $5.5 billion a year.
While certainly we are very interested in competitively converting the 50% of the market that isn't an Omnicell point of care customer today, and IVCS and outpatient pharmacy services give us a really interesting competitive wedge in the environment because we can sell those services into a non-Omnicell customer, a non-Omnicell point of care customer, develop a very good relationship that is now already starting to generate much more interest in our broader suite of services.
A key portion of the strategy is to leverage the 50% install base on the point of care that we already have and upsell services. Not surprisingly, roughly 50% of the addressable market for these services is already within an existing Omnicell customer, the vast majority of which is in the top 300, the largest health systems as well.
Lastly, that 20%-30% that we said that we could achieve by 2025 would mean that we'd have to achieve between 7%-10% market share of this portfolio in total by 2025, and we think that's very achievable. Now, I walked through these products individually, and that's not necessarily how we go to market.
If you remember what we said from a strategic perspective is that we go to market, we focus on large providers, and we engage them in long-term strategic partnerships to transform pharmacy care delivery model, this medication management process. What I'll walk you through now is an example of how that goes and how it's been going and how that story comes together.
Again, let's take a typical health system, 15 acute care hospitals, 100 physician practices, standalone EDs, urgent care centers spread over this geographically wide area. We may engage that customer to talk about their pharmacy care delivery model. They're spending too much on labor. Their outcomes aren't what they should be. They're spending too much on drug spend. They're not maximizing their revenue opportunity.
Maybe we engage that customer most likely with our new XT ADCs, whether that's an upgrade or a competitive conversion, and we enter into a 10-year partnership with that customer. Our teams will come back and say, "Look, give us all of your data on IV compounding. Give us the last three years of drugs that you've purchased from 503Bs." That team will then come back with a very detailed financial pro forma that shows that if you insource drugs A, B, C, D, E, and F to start or A, B, and C to start. You could generate really significant cash flows, achieve the payback very, very quickly, achieve a positive ROI, et cetera. They would contract for our IV compounding service. Now, the teams that are engaged with this customer will now start talking about, "Look, we've been analyzing your central pharmacy operations.
You are running a central pharmacy in every location you have. You're not getting the right drugs to the right locations. You're spending way too much money on the people, and you're burning them out. And oh, by the way, you can't hire them right now anyway because the pharmacy techs. That's just a terrible way to run your central pharmacy. What you should do is automate the five largest hospitals.
Let's put CPDS in each one of those locations, and let's help you stand up and operate a centralized distribution center, where we'll also build it around CPDS. Now you can use that centralized distribution to support all of you. You're gonna save money on labor, you're gonna avoid waste, you'll have a better handle on the inventory management across the entire system. They contract for central pharmacy dispensing services.
Now, you've automated your central pharmacy, you've automated your point of care, but you've still got decentralized purchasing on drugs. Every hospital's buying their own sets of drugs. You're still not optimizing the labor. You're doing a bad job of landing and taking off planes, frankly.
Now the teams come back and do a pro forma to show, God, if you centralize, if you could virtualize all purchasing and you could actually manage the inventory across your system, and more importantly, manage the workforce across that geography, you will save money on drugs, you will save money on labor. You'll contract for our inventory optimization service. Now, the team comes back and says, "Look, you've been sending a lot of drugs for your 340B specialty off to your contract pharmacies.
You could generate more revenue, expand the program, and generate more profit by standing and operating your own in-house specialty pharmacy. Our team can show you the pro forma. We can do that. Now you can contract with us for our outpatient pharmacy service." Lastly, now you're discharging patients, they're going to the home, you're losing those scripts to CVS or Walgreens.
More importantly, you're probably at risk now with Blue Cross Blue Shield of Massachusetts or Medicare Advantage Plan X for the total cost of care for treating those patients. The reality is that you need your pharmacist engaging them from a medication management perspective to make sure that they're on the right meds or getting those meds and coordinating. That's where our EnlivenHealth solution can help you there.
This is just an example of the journey that we can take these customers on over a 5- to 10-year period to optimize the entire medication management framework. Now, we talk a lot about the autonomous pharmacy. Now, just a reminder or refresher on that. Back in 2019, a group of industry professionals, CPOs, came together and defined not only what good was in pharmacy, but what great looks like.
They codified that into five levels. They defined metrics behind it, et cetera. They went one step further to say, the vast majority of hospitals today in the US are at level one or level two. Don't draw a bright line between it, connect the dots, but the reality is the journey I just took you through in optimizing all of that medication management framework gets these health systems to level five.
It will optimize and get them there, and that's what we're helping them do. Now, you've heard me say service a lot. Service is a lot. What does service mean to us? What does service mean to the customer? Why is service important to us long term? If we use IVCS as a great example of this.
If you're a chief pharmacy officer in a health system and you're worried about your IV compounding, there's a lot of things you're worried about and a lot of variables that you're trying to understand. The goals are actually very, very simple. I wanna improve patient care, I wanna make my clinicians happier that they have the right drugs at the right time, and I wanna save money.
The reality is, to achieve those three relatively simple goals, I've got to navigate all of this complexity, and it changes constantly. 503Bs, it's like a spot market, raises price in this region, takes it down in this region. Hurricane hits Puerto Rico, screws up the supply chain, changes the drugs again. My anesthesiologists want different drugs.
The formulary is changing. It's constantly changing. IV compounding service combines all the elements that are necessary and sufficient for that hospital to achieve better quality and lower cost from its IV compounding. Yes, at the heart of our IV compounding service is our new IVX Station robot. Yes, it is an order of magnitude faster than anything that's come before, and that's driving great throughput. That's not what's generating the real value of the service, certainly not over time.
Behind all of that, we have a team of data scientists and clinicians that are watching all the IVCS customers, monitoring what's going on with 503B markets, monitoring the best practices, what's working, what's not working, and they're curating a single database, knowledge. They're collecting knowledge.
That knowledge of what works and what doesn't work, which basically boils down to what to put in the robot and what not to put in the robot, when to put it in and when not to put it in, etc., they pass as best practices to our customer success team, who drives it back out to the customer.
That's constantly changing. As our customers compound more drugs, as we add more customers into the IVCS program, the knowledge set grows and grows and grows, and the outcomes get better and better and better.
We're doing that across all of our advanced services. That's the theory of comparative advantage and why we can do this better than our customer can operate one. It also creates a barrier to entry. It becomes the competitive moat as to why we get bigger and bigger and bigger. As our services grow, the outcomes get better and better and better.
As Randy pointed out, that's fundamentally why we're going to win. We have an incredible channel. We build great software. We build great robotics. We have a great customer experience. We're ahead of our competitors on the cloud. We're going to win in the near term and the long term, more importantly, because we can continually demonstrate that they are saving money and delivering better outcomes from our services. Pharmacy has really, really big, important problems to solve.
Our advanced services portfolio positions us really well to demonstrate and drive real value. There's a big opportunity for us when we execute against that, and we think there's a clear path to execution. We're incredibly excited. I hope you feel the same way, and I thank you all for being here. We're gonna take a short break now. When we come back from that 10-minute break, Danny Sanchez will come up and tell you a little bit more about EnlivenHealth or correct everything that I said that wasn't true. Thanks so much. We'll take a quick break.
Pharmacies and their health plan partners face persistent challenges to efficiently manage healthcare quality and costs. The continuing effects of the COVID-19 pandemic have only complicated the task of ensuring the lifelong optimal health of patients and health plan members. Amidst these growing challenges, the neighborhood pharmacy stands out as being uniquely positioned to play an even greater role in the healthcare continuum.
More than 95% of the US population lives within a few miles of a pharmacy, making pharmacists the most accessible healthcare provider. It's no wonder that patients have gravitated to their community pharmacy for safe, trusted, and affordable care during the pandemic. Health plans also play a critical role in today's challenging healthcare environment. They're responsible for managing and optimizing the health of their member populations and increasingly are partnering with pharmacies to achieve this vital mission.
Powering this crucial healthcare partnership is a new generation of digital technologies. These advanced software solutions are transforming patient and member engagement and communications, all of which are essential for improving health outcomes. Take, for example, the pioneering medication synchronization solution from EnlivenHealth. This proven appointment-based technology has revolutionized the seemingly basic process of managing medication refills and pickups.
Research has shown that medication synchronization technology drives higher medication adherence while lowering inpatient utilization that leads to a 9% reduction in medical costs. Pharmacies have also found the EnlivenHealth medication synchronization solution to be a powerful tool for driving script growth and patient retention. Synchronizing and streamlining medication management is not the only way in which pharmacies and health plans are leveraging digitization in healthcare. Just as innovative new communications technologies have revolutionized virtually every aspect of life, they are driving significant positive change in healthcare.
Case in point, the new EnlivenHealth's personalized communication solution is dramatically changing how pharmacies and health plans communicate with their stakeholders. This omnichannel communication solution leverages advanced conversational technology powered by natural language understanding to create a truly personalized experience. It customizes communications to meet the individual's personal needs and preferences.
Most important, the new EnlivenHealth's personalized communication solution allows pharmacies and their health plan partners to connect the right therapy to the right patient at the right time. It does that by integrating all channels into one system that includes conversational interactive voice response for inbound and outbound phone communications, SMS texting, chatbots, mobile application, and email.
The digitization future is happening right now in healthcare. Through intelligent orchestration of digital-first communications technologies, pharmacies and health plans are achieving consistently better health outcomes, adherence scores, and quality ratings.
To learn how you can orchestrate measurably better patient communications and engagement, visit enlivenhealth.co. EnlivenHealth Health, an Omnicell innovation. Pharmacies and their health plan partners face persistent challenges to efficiently manage healthcare quality and costs.
The continuing effects of the COVID-19 pandemic have only complicated the task of ensuring the lifelong optimal health of patients and health plan members. Amidst these growing challenges, the neighborhood pharmacy stands out as being uniquely positioned to play an even greater role in the healthcare continuum.
More than 95% of the US population lives within a few miles of a pharmacy, making pharmacists the most accessible healthcare provider. It's no wonder that patients have gravitated to their community pharmacy for safe, trusted, and affordable care during the pandemic. Health plans also play a critical role in today's challenging healthcare environment.
They are responsible for managing and optimizing the health of their member populations and increasingly are partnering with pharmacies to achieve this vital mission. Powering this crucial healthcare partnership is a new generation of digital technologies. These advanced software solutions are transforming patient and member engagement and communications, all of which are essential for improving health outcomes. Take, for example, the pioneering medication synchronization solution from EnlivenHealth.
This proven appointment-based technology has revolutionized the seemingly basic process of managing medication refills and pickups. Research has shown that medication synchronization technology drives higher medication adherence while lowering inpatient utilization that leads to a 9% reduction in medical costs. Pharmacies have also found the EnlivenHealth medication synchronization solution to be a powerful tool for driving script growth and patient retention.
Synchronizing and streamlining medication management is not the only way in which pharmacies and health plans are leveraging digitization in healthcare. Just as innovative new communications technologies have revolutionized virtually every aspect of life, they are driving significant positive change in healthcare. Case in point, the new EnlivenHealth personalized communication solution is dramatically changing how pharmacies and health plans communicate with their stakeholders.
This omnichannel communication solution leverages advanced conversational technology powered by natural language understanding to create a truly personalized experience. It customizes communications to meet the individual's personal needs and preferences.
Most important, the new EnlivenHealth personalized communication solution allows pharmacies and their health plan partners to connect the right therapy to the right patient at the right time. It does that by integrating all channels into one system that includes calls for inbound and outbound phone, chatbots, mobile application, and email.
The digitization future is happening right now in healthcare through intelligent orchestration of digital-first communications technologies. Pharmacies and health plans are achieving consistently better health outcomes, adherence scores. Now you can orchestrate measurably better patient communications and engagement. Visit enlivenhealth.co. EnlivenHealth Health, an Omnicell innovation.
Mic's not live yet. There you go. Okay. All right, everyone. If you would like to take your seats. In just a moment, Danny Sanchez will come up and provide you some more information on EnlivenHealth. First, we have a brief video we'd like to share with you.
Well, welcome back from the break. I'm Danny Sanchez. I'm really happy to be here today to talk through some of the details around EnlivenHealth and just get a little bit more granular into the business. As Scott mentioned earlier, EnlivenHealth is a retail component of the business, right? We're focused on retail pharmacies and outpatient engagement.
My presentation talking about two major problems that retail pharmacies face. Now, before then, let me just highlight the pharmacist, right? So the pharmacist. The pharmacist is the second most trusted healthcare professional out there. These are highly accessible, right? You saw on the slide there, 95% of the US population lives within a few miles of a pharmacy.
As a matter of fact, this morning when I woke up, I mapped it out how many pharmacies are within 5 blocks, and we have nearly 14 pharmacies within 5 blocks of where we're sitting today. Very accessible. Pharmacies are very accessible. Pharmacists, you know, I've been working in pharmacy a long time, and I think we take them for granted sometimes, right?
You can walk into a pharmacy any time of the day, there's 24-hour pharmacies. You can walk up to the counter, and you can interrupt the pharmacist in the middle of their advice, and they're gonna happily walk from behind that counter, and they're gonna give you healthcare advice. What's really unique is they're gonna do it for free, right? What other healthcare profession can you walk into and get advice for free?
That's what's unique about pharmacy, about retail pharmacy. Now, the takeaway here is love their pharmacists. Look at the slide on the screen there. 34 visits on average a year, a consumer visits a retail pharmacy, compared to four visits to primary care. Consumers enjoy having conversations with their pharmacy and appreciate the accessibility of that pharmacy. It's a good segue into the first problem, right?
First problem that pharmacies face, and this problem's well documented, and it's talked about quite often. Busy. They're very busy. That's not new. That's been in existence for some time, but it's further amplified today by staffing shortages across the country. If you walk into a pharmacy, I know very well, you walk in and what you're gonna find are pharmacy techs and pharmacists on the phone.
Those pharmacy techs and pharmacists spend their days on the phone. What they're trying to get through is, they're trying to get through the day. They're trying to fill as many prescriptions as possible. They're trying to solve problems, often talking to insurances, often talking to physicians, making sure that your medications are covered, right?
If you have a medication that may have been prescribed, it's not covered under your insurance, you expect that pharmacist to engage with your doctor and to re-prescribe you your medication to something that's covered, right? They just spend a ton of time on the phones, and that's a reality of today.
Today, that model is extreme, and pharmacists are just reacting to whatever the day holds for them. The second major issue, again, very well documented, is reimbursement squeeze from PBMs, right? Pharmacies don't prescriptions.
That's becoming harder and harder for them, right? PBMs are squeezing reimbursement for pharmacies. Again, very well documented, right? Then compound that by DIR fees. If you don't know what DIR fees, you get paid today, and 2-3 months down the line, after you've spent your profits, somebody comes back and says, "Hey, I need you to pay me back something. You shouldn't have gotten paid that much. I want that back." That describes what DIRs are, right?
My point is, if you're running a pharmacy today and you're just filling prescriptions, you're gonna struggle, right? You're overworked and your reimbursement outlook. This problem is, it persists, and it persists because we're not asking pharmacies to do less. I think everybody would agree that through COVID, we've asked pharmacies to do more.
Pharmacies do, right? Reimbursement's not changing. You know, I spend a lot of time educating myself on the market. Every morning, I read two or three news feeds on what's going on with pharmacy, and I love that reimbursement's often talked about all the time, right? But it's never. There's no resolution to it, right? I would imagine I'll retire one day and PBMs will continue to squeeze pharmacy and reimbursements will still be a problem. These problems persist.
Now, that said, there is a fantastic silver lining in all of this, right? Retail pharmacy at a fantastic rate, right? I'm gonna take you back to 2009. In 2009, H1N1 hit the United States really hard.
This is the flu. It was the first time that we leaned on retail pharmacy, right? We called on the pharmacist to say, "Hey, we need help. We need help giving out flu vaccines," right? That was really the first call to action, and they began immunizing patients. Today, 2022, it's estimated that 80% of immunizations are going to be given in a retail pharmacy.
This is a fantastic example of what happened in primary care of giving immunizations back in 2009 and before, and we've shifted it now to this clinical setting of pharmacy, right? Pharmacy's now giving those immunizations. In 2022, over 106 legislation has been presented across the states, all focused on the expansion of pharmacy practice, right?
Expanding pharmacists into providers, right? Very exciting. Of that 164 across the states, expanding the practice of pharmacy. In some states, pharmacists can consult on contraceptives, right? They can consult and prescribe contraceptives already.
They can engage in opioid interventions and prescribe drugs like naloxone that help prevent opioid. Another great example is how the FDA has stepped up and allowed test and treat for COVID, so pharmacists can now test you and treat you for COVID.
My point is that the profession, again, is evolving very quickly. As a matter of fact, in the Senate today, there's a bill to expand the scope of practice for pharmacies at the federal level. What that means is pharmacies would be able to bill Medicare for Part B services, and Part B services are the medical side of Medicare.
As the profession progresses forward for the profession to be able to now bill at a state level and at a federal level as providers, right? Now, glimpse into the EnlivenHealth portfolio. This is just a really small subset of what we offer. As Scott and Randy both pointed out, EnlivenHealth is all SaaS. This is all subscription-based technology. I wanna highlight the personalized IVR solution that was shown on the sizzle reel a second ago.
This IVR has proven today to reduce inbound calls to a pharmacy by 20%. If you just kinda think about that a little bit, right? Pharmacies are busy. They're overwhelmed. I can take away 20% of your inbound calls just by implementing this technology. I love personalized IVR because we developed it from the ground up. This isn't an acquired to where it is today.
The solution, you know, if you call a pharmacy today that has kind of antiquated legacy technology, I'm sure everybody's experienced this, you call in and you have to enter your prescription number, right? If you're a polymed patient, you're on many meds, you have to enter all your prescription numbers up when you hit zero. We're all guilty of hitting zero when we call a pharmacy.
Eventually you get to the pharmacist or pharmacy tech, and you tell them, "Hey, I wanna refill," and you're taking time away from that pharmacist because now they gotta pull up your profile, they gotta find you, they gotta find your meds, and they gotta refill your drugs. Well, that's not a good use. Do something else.
We want them to engage in giving more immunizations. We want them to, you know, engage in opioid interventions. There's a lot that we want that pharmacist to do. Well, if you're a pharmacy and you've bought into our story here. That's a whole different experience now. Your patients are calling in. Your patients, we recognize that patient through their phone number. We authenticate that patient with their date of birth, and now I'm talking to you. This is a conversational component of our technology.
I am telling you what's in your profile to refill. The system is telling you what medications you should refill. If I may, "Hey, Danny, are you sure you don't wanna refill this one too?" Our system has already shown that it adds incremental prescription volumes to the pharmacies that use it.
Not only are we saving 20% of time, right, adding incremental revenue through our technology. I also wanna highlight that the way that we've engineered our technology, there are workflows where we're able to, for example, query the state registries of flu vaccine or your COVID vaccine, and we're able to quickly retrieve that information. On that same phone call, we're able to say, "Hey, Danny. Oh, by the way, we see that you're eligible for a flu vaccine.
Would you like to schedule that now?" It ports you over to our CareScheduler. Another solution of ours that we built from the ground up, right? A CareScheduler is fantastic, and that allows you to schedule time with your pharmacist and fill out all the forms electronically. Gone are the days of paper for our pharmacies, right?
Now that patient is scheduled to come in, is no longer gonna show up randomly for something, but they're actually scheduled to come in, right? That's one piece of the technology I wanna highlight. The second is on the top right. I've explained to you a little bit on how we engage the patient and orchestrate the patient to reduce the labor needed in a pharmacy. Now we wanna repurpose that labor.
We wanna repurpose that labor into our Enliven360. About the Enliven360 platform, because the Enliven360 platform is how we orchestrate a pharmacist's day. Just as Scott mentioned, from behind the counter to the front lines. We want that pharmacist to be front and center, but they need to be able to play in this clinical.
Brings all the solutions together so pharmacists can play in the clinical world. We orchestrate the pharmacist's day so the pharmacist knows Danny's coming in at 2 o'clock for a vaccine. Someone else is coming in at 2:30 for an MTM engagement. We're moving from a reactive model, as I mentioned earlier, to an appointment-based model, where now orchestrate a day.
Our Enliven360 platform is driven by a decision engine, where we look at all the opportunities that reside within a retail pharmacy and we prioritize them to drive the most value. Reimbursement issue, right? We're moving pharmacy from just being a place where you're gonna pick up prescriptions to a clinical destination where you're gonna get more services. That's really exciting.
We believe that retail pharmacy is gonna be a patient walking up to the counter. That pharmacist is gonna pull up Enliven360. He's gonna see the entire wallet, the healthcare wallet of that patient, and we're gonna talk about the services and the healthcare that we can provide at the pharmacy. Patients are at the pharmacy to get their prescriptions. That's gonna happen. That's not going anywhere.
We need to make sure we capture the patient's wallet when they walk in and provide them more healthcare. That's exactly what we're positioning our customers to do. That is this 360 platform. You know, the way we've engineered this platform is we recently acquired two companies, right? FDS Amplicare, MarkeTouch assets that help us on this journey.
FDS Amplicare, you know, the strategy behind that or the thesis behind that acquisition was really to bring the engine that would drive medical billing for us, right? So now we have the wherewithal to drive medical billing. But when you acquire an asset, you wanna get it out to market quick, right? You don't wanna sit on that asset a long time. We have numbers that we have to prove out. We have this thesis that we have to prove out.
What Enliven did to take those assets and quickly deploy them to our customers. As Randall stated, we're able to take these assets and put them on the 360 platform right away. While our customers are driving value, we're engineering the back-end communications of all of that, right? It'd be great to softwarize. Is it necessary right away? No, but let's get it there.
First, let's make sure that solution is there for our customers to utilize, right? We take these assets, get them out there to the market, helps across our customers while we engineer the back-end communications of all these solutions. That's the power of Enliven360. A little bit about the financial solutions on this slide as well. I mentioned MedBill. That's exciting, right? Recon, reconciliation.
Recon is our ability to look at pharmacy claims and make sure that pharmacies are getting paid correctly, which is a fantastic tool that will benefit us on the medical side of these contracts and ensure they're being reimbursed correctly is something that we do today, and we'll cross that over on the medical side as we mature that product.
Now, both Scott and Randall highlighted our market, right, these in the United States. We're already within 50,000 of those pharmacies. What you see on the screen is a representation of some of our customers today. You know, we break up the market into three tiers. Our tier one customers are those top five chains that are out there, right? These are your Kroger's, your Rite Aid's, right?
Now, exciting is the fact that we already do business with 3 of the top 5 chains today. In the business we do with them, we are fully integrated, right? We are within workflow in those top chains. If you're at a Walgreens, our tool, they use MedSync. It's marketed as Save a Trip, and it is all powered by Omnicell, right? If you're a pharmacist filling a prescription at Walgreens, you are working within our tool in workflow as you fill that prescription.
That's exciting. Our tier two customers are our mid-level customers, right? These are the chains who, you know, I like to refer to them as the white glove experience. Grocers have a little bit more time to spend with pharmacies, but fantastic. We do a really great job with our tier two chains as well.
Finally, our tier three. These are pharmacies under an independent owner-operated. So you can see here through the recent acquisitions, you know, we now have nearly 80% of the pharmacy market as our customer. I think the stability, the fact that we play within all the tiers of retail pharmacy bring a lot of stability to our business, right? We're not Walgreens. You know, we play in all retail pharmacy.
Again, that brings a lot of stability to our business. We serve everyone. I wanted to just a little case study on one customer, right? So this is RBS. This is a tier two customer. You can see some of the banners that are underneath them here. Now, RBS customer, they've been a great customer for a long time, and they have a fantastic operation there.
You know, we really enjoy the engagement with RBS. They have over 700 stores across 11 states. It's a pretty sizable customer. I would say if I go back and tell them everything, we sold them the house. As we were innovating more products, they continued to purchase more and more. What this slide highlights is the fact that through our recent acquisitions of MarkeTouch Media, FDS Amplicare, we've opened up a ton of green space to sell more into this customer. A great customer base.
As we bring in more solutions, selling into that customer base, I'd say it's easy, but it's certainly easier. We already have those relationships there. This is a great example of how our acquisitions are supporting our cross-sell activities, right? Example here, this is a prospect that we're working on.
This is a tier one customer, so this is one of the five. What's interesting about this is we wouldn't be in this opportunity if it weren't for the fact that we now have all these acquired products, and we're able to bring together a full suite of solutions. This is an example of a cross-sell opportunity where we've been able to bring all the solutions together and cross-sell, you know, into this customer.
Again, this is an example, and we're working through an opportunity for us, booking value over five years. You can see when this deal is fully matured, it's driving $14 million of ARR to the business. Within our current portfolio, the total TAM, product TAM within this customer today is based here, but a very exciting opportunity within a tier one customer.
I'll finish off with just highlighting Enliven is bringing forward all recent acquisitions. Our goal is to be the single vendor within retail pharmacy, orchestrating both that patient experience and the pharmacist, right? Scott mentioned and Randy mentioned our, you know, the fact that we're almost at 80% penetration in retail.
You know, we're very focused on our customer enablement teams, and we've made significant investment, and the teams work side by side with the pharmacies to make sure that they're driving the most value, that they know how to use our solutions. We proactively monitor our customers. If we see them struggling with a solution, we are proactively engaging to stay on top of our customers and ensure that we're driving the most value and that they're seeing the most value out of our solution.
I'll say this, is that we feel really good about the adoption of EnlivenHealth. You know, we will continue those cross-sell initiatives. If you think about where hospitals are going, both Scott and Randy highlighted that there is a merger between where outpatient pharmacy is going in a hospital and retail. EnlivenHealth solutions by their nature facilitate that growth into the outpatient side on our acute side of the business. I appreciate your time, and now I will to Mr. Peter Kuipers, our CFO.
Thank you, Danny. It's great to see the fantastic growth there, fantastic solutions for a large customer base. Randall earlier talked about how pharmacy has evolved. First, the complexity has dramatically increased. Second, very significant part of pharmacy, also financially for health systems. COVID really brought to light the lack of visibility, the lack of automation throughout health systems by patients at the right time.
Lastly, we've seen in the news that labor shortages are actually fairly acute the last couple of years, and they really drive the need for automation. Now we have the platform, we have the people, and the market is ready. Now how are we capitalizing on this opportunity? We as a business, prior to 2017, we're mostly a hardware-focused business. Hardware sales with a trailing maintenance recurring revenue stream.
While we're pleased with the results up to then, we saw the opportunity to build a comprehensive platform, the next levels. We are currently further developing our platform and scaling it, and we're funding this business transformation with a strong balance sheet. Now currently, it's important to note that like many other companies, economic, macroeconomic pressures.
We're closely monitoring health system CapEx budgets and labor shortages. We are encouraged to see steady momentum in customer demand. We have a strong backlog. Omnicell solutions are either number one or number two healthcare IT priority investments. Looking forward to 2025, we'll continue to scale trends services to the target that we set out two years ago.
We have strong conviction that by 2020 services, recurring revenue will be between 20%-30% of total revenue, and we'll drive that via expansion, platform adoption, market share gains. The targets remain total revenue $1.9 to. Earlier, discussed our disclosure around our gross margin target as well.
We'll talk more about margin expansion just in a little bit, and also EBITDA target of 23% by 2025. Revenue growth framework. Again, we're targeting 11%-12% organic revenue growth, again, via land and expand that both Randall, Scott, and also Danny. Strong growth there, not only within a certain healthcare system site, but also across many more sites, right? These large health systems have many locations, large complexity where you need automation.
We see continued growth from next-generation technologies, point of care, like Scott pointed out, also in central pharmacy and also in IV. We believe we'll continue, we have been doing that steadily. We see it every quarter, very predictable.
We'll continue to drive innovation to get automation to the next levels of the five rights pharmacy framework. Overall, given also the macroeconomic environment on the longer term of 2025, we wanna be prudent. Our current outlook for 2025 is more towards the lower half of the organic revenue range of $1.65 billion-$1.75 billion.
That said, we're comfortable, and we have conviction that we will be in the range of total revenue of $1.35 billion, and that organic revenue here is supplemented with value-enhancing M&A that Randall and Danny talked about earlier. Now, it's important to note that our revenue, also the connected device revenue, is very resilient.
We have high visibility because of our standing strong long-term customer relationships with the top 150 health systems. Long-term strategic partnership agreements we have with these top customers, many of which are 10 years in length, but the majority of these we actually have multi-year investment plans. A large customer base in retail as well. Of course, we have disclosed previously, we have a very strong backlog of $1.25 billion for the end of last year.
Again, the growth are important to note that we're also playing and we're helping bring solutions to our customers in growing markets. This is a familiar goal as well. We have conviction that we are driving to advanced services revenue of total revenue between 20%-30% of total revenue by 2025.
With 2022, we're trending towards 13%-14% of total revenue, up from 10% in 2021. Omnicell is a growth play here as well that we just talked about. Now, different here is, of course, for advanced services recurring revenue, that these are largely cloud-based. They are recurring, they have high margin unity. Now we want to take a deeper dive on the composition of revenue.
We previously disclosed that in 2021, around 65% of our revenue in the year was driven by device revenue, and 25% was made up of technical services revenue and consumables. 10% of the revenue in 2021 was driven by advanced services. We are comfortable, and we have conviction that we can drive revenue with a CAGR of 4%.
We believe we can scale advanced services recurring revenue to, again, 20%-30% of revenue. Now, we have that visibility both in the pipeline and in the backlog. We believe that by 2025, advanced services bookings as a percentage of total bookings will be 60%. Now, this is an important metric. This metric in 2021 was around 20%, and for 2022 towards 30%-40%.
This is a lead indicator for the growth in advanced services. Let's take a deeper dive in advanced services. There are two business models and two revenue types within advanced services. One, SaaS and software subscription, which includes Omnicell and Omnicell 340B.
And two, tech-enabled services that has a labor component. And the examples there, IVCS, CPDS, and outpatient pharmacy service. Scott talked earlier about what our market share assumptions are. We believe our market share assumptions are very reasonable and achievable in a range between 7%-10% of the market that's available for 2025.
We believe that our recurring revenue in 2025 will be between $250 million and $400 million, with a 2025 gross margin target of 65%-70%, with a longer-term target to increase that further to 70% in line with benchmark.
Similarly, tech-enabled services target revenue by 2025, we believe will be between $125 million and $200 million. From a gross margin perspective, the services revenue to about 40% gross margin. On the longer term, we believe we can achieve a gross margin between 50%-55%, again, in line with benchmark as well.
We have conviction, and we believe that advanced services recurring revenue will be between $375 million and $600 million in 2025. Now, let's take a deeper dive actually on the mechanics and the characteristics of the business models. You don't see on this page is the hardware business model, right? Hardware connected devices, we typically sell, gets installed.
We recognize product revenue upon install. We have a trailing technical services or maintenance revenue over time. Now, while that is attractive, we really wanna drive more value for customers. Let's talk about one example. On the top of the page, you see the tech-enabled services model for IVCS and CPDS. These are comprehensive solution sets of intelligent robotic device, software, and maintenance.
The customer pays a steady cash payment every month for the all-inclusive service that drives better outcome. From a revenue perspective for Omnicell, we recognize product revenue for the value of the robotic device in year one. However, then we have following advanced services recurring revenue at a much higher or significantly higher level compared to this because we drive the outcomes that Scott talked about earlier.
The second type of revenue streams within advanced services, SaaS and software subscription, and EnlivenHealth is a good example there. Cash payments equal the revenue in a certain period. Generally, we believe for most accounts, we can scale that as we land and expand and volume goes up with a certain customer. Again, what are the benefits of advanced services?
One, it really drives an increased, a significantly increased value to customers, a significantly higher revenue per contract, and it delivers highly visible and recurring revenue and predictable cash flow. Let's talk about margin. We're very well positioned to have multiple levers to expand margin, EBITDA level.
First of all, like we talked about a moment ago, we are scaling these advanced services, and we will increase the gross margin for both types of revenue streams in the advanced services. Secondly, we have pricing strength with our long-term sole source contracts within the top 300 US health systems.
Business model is very scalable. Incremental revenue comes at a high gross margin. Pricing initiatives, specifically, we've talked about publicly numerous times, we see pricing initiatives more than offsetting the semiconductors, steel, and freight in 2023.
We will continue and are continuing to become more efficient, more output at the same or better quality for the same base costs. We are also investing to really make our internal processes also more efficient, so that will be benefits both for efficiencies as well. We put here yellow 'cause we are also investing in growth initiatives.
Depending on the demand that we see on advanced services, we might invest more in growth and services to capture the market that is there to grab for us to capitalize on. Again, we do see some uncertainty about labor inflation. We have baked in labor inflation at a decent rate in our model. However, there is some uncertainty on longer term for labor. Now let's look at our EBITDA progression and expansion over the years.
2017, our non-GAAP EBITDA percentage was 13%, scaling to 2022 to around 18% for the midpoints of the guidance ranges. Most of the we have some product mix and price as well. Supply chain initiatives have a good impact. You see there the decrease in EBITDA margin driven by the specific inflationary number for semis, steel, and freight. 2022 to our forecast is an expected EBITDA margin 2025 of 23%.
We see one of the main drivers being volume and scale, and importantly, half of that we believe will be driven by advanced services. Again, we'll also get more price and buckets. The pricing actions in there are more than offsetting the specific inflation from semis, steel, and freight. Within the inflation bucket for both COGS and OpEx, the specific inflation for
However, we also have non-semis, steel, and freight inflation that will be a headwind like it is every year, and then we also expect some OpEx inflation. Overall, we're very confident that we have conviction to achieve the 23% growth in 2025. Now let's talk about inorganic growth as well. M&A is part of the strategy, but let's talk about our capital allocation strategy and philosophy first.
Our first capital allocation priority is organic growth. We drive that via 7 to 8-year product roadmaps that we can depend on as we build out the autonomous pharmacy solution set in our platform. Second, we may look at M&A to supplement, accelerate go-to-market, or add additional capabilities. A third priority for capital allocation could be return of capital. Now, the way we look at M&A, we're very disciplined 'cause we're a pure play.
We focus on medication management automation only with a specific focus on advanced services. The more compelling opportunities are, of course, large and strong channel, both on the health system side and on the retail side. We apply both qualitative and quantitative criteria, of course.
We actually look at a strong cultural fit. For example, we need to have a strong value proposition. We like acquisitions to be potentially by itself and increase profitability. Of course, the ability to cross-sell is very important for us as well. Again, the focus here is mostly on advanced services with a recurring, attractive recurring revenue profile. Now, we have a strong balance sheet, like you see on the metrics on the right side. Flow greater than GAAP net income.
It's important to note, though, that we are investing to transform the business from hardware model to an advanced services model that will require capital for innovation. We'll continue to drive the transformation.
Again, Randall, the commitment to our long-term target for revenue between $1.9 billion and $2 billion by 2025. Our current outlook is that we do not need an additional acquisition to be within that range, right? In summary, key takeaways. We are targeting to grow total revenue by 2025 to $1.9 billion to $2 billion, 15%. 11%-12% organic, supplemented by 300 basis points via inorganic.
25 non-GAAP EBITDA margin of 23%. We are scaling advanced services revenue to be between 20% and 30% of total revenue by 2025, and then we have a strong balance sheet. With that, turn it over to Randall.
Yeah. Actually, we're going to transition to our Q&A. It's a quick break, but we are going to have a Q&A session now. I do want to remind everyone, so if you do have a question, please make sure you use the microphone.
We do have a mic runner here if you just want to raise your hand, or there's a couple of mics in the aisle way as well. In addition, there is an opportunity for you to ask a question on the webcast. We'll do our best to take as many of those as we can today. We'll take a quick break, and then we'll have the chairs brought up, and we could go into Q&A, okay? Thank you.
You can let them know.
You ready to wrap it up? You ready?
We're just about ready to get started for Q&A, so please go ahead and take your seats.
Is this where the questions come from? Down, down here.
They just have the questions.
Okay.
A couple of
Yeah. I asked the person.
Again, just a reminder, this meeting is being webcast. If you're listening, you can submit your questions. We'll try to get to as many as we can. If you're here in the room, please either step up to the microphone or raise your hand, and we'll have one of the runners come by. We are ready to get started. I think our first question here is Dave Larsen. If you wanna use the mic there.
Thanks very much for all the great detail. Dave Larsen with BTIG. Scott, I've been getting a lot of questions from investors around the 340B program, and there's been some adjustments to, like, the services guide. Some investors that I've talked to have been concerned about that business.
Can you maybe provide a little more detail around what exactly is going on there? It seems like there's a bit of a, for lack of a better word, battle going on between the manufacturers and the PBMs. How does that get resolved? When will it get resolved? And what is Omnicell sort of role in that process?
Yeah. As we talked about it, 340B specialty pharmacy is critical to health systems and hospitals financially. I don't think the program is going away. There's two ways. There's an easy way and a hard way, as I said, to fill that script. The hard way is run your own pharmacy, and we talked about how our outpatient pharmacy services enables that.
The easy and historical way is to essentially send that script to a contract pharmacy. Earlier this year, about 18, I think the number is 18 drug manufacturers came out and said that, they were no longer going to honor 340B discounts if you sent a script to a contract pharmacy. If you wanna fill it in your own in-house pharmacy, no problem. Give you the discount.
If you send it to a contract pharmacy, 16 of the 18 manufacturers said, "You can send it to a contract pharmacy. We'll allow you to do that," simplifying this, "if you send us all the claims data." Right? What they mean by that, what they want is essentially that their.
The manufacturer's real gripe is not necessarily the program itself or not necessarily the hospitals or contract pharmacies. Their real issue is the PBMs. Because what the PBMs do is they basically.
Their business model is they basically charge a rebate for drugs that roll through the program. The 340B legislation way back when said PBMs are not allowed to do that when it's a 340B drug, right?
Bottom line is, I think that program, the process of submitting that claim data third party is probably going to stay. I think we're now seeing health systems have basically the majority have decided to submit the data.
We're starting to see the discounts come back. I think that program will return. Will it return in full force? I don't know. The bottom line is that technology is critical to managing inventory. We're excited by that, and we're really excited by the tailwind of driving to our outpatient pharmacy services.
Basically, all the manufacturers need are the claims data. That data is getting submitted back to them. They can then share that with the PBM, and everybody's sort of happy with the program.
Yeah, I'm not claiming that manufacturers and PBMs will ever like each other.
Right.
Be in the same room, ever agree on anything. I'm just saying that, yes, that's the vision, that's the premise that they've outlined.
Okay. Are hospitals looking forward to some sort of a incremental reimbursement from CMS due to some disputes that may have occurred in the past around this program? Could they be receiving-
Yeah. C ompletely unrelated to all this, back in 2018, I think the, you know, HHS changed the discount or basically said, "You're gonna get less of a discount on these 340B drugs." Earlier this year, the Supreme Court reversed that. Said, "No, you can't do that."
Two things need to occur is, one, you know, we'll put the discount rate back to the original discount rate, and they're trying to figure out what to do with the underpayments effectively between then and now. Theoretically, you know, hospitals could get a check at some point in the future, I guess, but that's a question for a bunch of other people.
Okay, it sounds to me like there's gonna be relief to hospitals coming up, tied to this program.
I think there was basically champagne on the American Hospital Association side that they would get additional dollars, which would be wonderful, right? 'Cause that dollar is coming into the pharmacy P&L, which means that, you know, they can engage us for sets of services. You'll have to ask a-
Great. Thanks very much.
Policy partner. Sure.
Thank you. Anne, you were next, I think.
Hi. Anne Samuel, JP Morgan. Thanks for hosting the day. It's been great so far. Peter, I was hoping maybe you could talk a little bit about the investments in cloud. Maybe provide a little bit of numbers around, you know, quantifying what that's gonna look like. How do we think about cadence through 2025 in the model? Are we gonna see maybe a bump initially and then we'll see leverage, you know, in the outer years? How do we think about how that'll look?
Yeah. I'll answer the first one, part, and then Scott will add to it as well. We already have transitioned a lot of our engineering focus and dollars to really build the cloud solutions, if you will. That will continue. I wouldn't expect necessarily a big increase year-over-year in the cloud dollars, but you can expect a roughly same R&D percentage of total revenue, if you will. In that. Anything to add or?
No.
All right.
Thanks.
Okay.
Thank you.
Jess.
Awesome, thanks for taking the questions. Jessica Tassan from Piper Sandler. I was hoping just you could help us understand on the EnlivenHealth business, specifically, if you guys are in 78% of retail pharmacies, kind of how is. We estimate that business is $70-ish million a year. How is it possible that you're in 78% of pharmacies, but that business is only generating $70-ish million a year against a $1.1 billion per year annual TAM? What are the incremental opportunities?
Yeah. Thanks. Thanks for the question. One, we've never given revenue guidance on Enliven, so just wanna clarify that. Two, not all our pharmacies have adopted the full portfolio, right? A lot of these solutions that we have today are through our acquired entities over the last year and a half or so. We've acquired products through FDS and MarkeTouch Media, right?
We have entities, we have pharmacies out there that have one or two solutions, where there's still a lot of green space to sell into them. You might have a pharmacy, for example, have MedSync, but they don't have IVR. Or you have a pharmacy that's adopted our cloud IVR but have yet to adopt MedSync. When we look at that number, it is the total number of pharmacies that have a solution.
Does that help?
Got it. We should just imagine that the majority of those 78% are sort of skewed towards legacy MedSync and that the opportunity lies in-
Yeah, there's a ton of green space in our market.
Got it. Then just my next question would be on this unified data platform spanning inpatient, outpatient. Just interested to know, following up on Annie's question. A, what is sort of the cadence of investment in developing that platform? B, just what sort of value proposition do you imagine offering customers who might be like Epic, Willow, for pharmacy management today? What is the incremental value should they adopt the Omnicell sort of unified platform? Thanks.
Sure. I'll take that one. The cadence, I mean, look, I think investing in an earnest way in the cloud platform probably began two years ago. It's a multi-year journey. That, as you imagine, you called it the data, the unified data platform, which I think is what we used to call it, because early on, what we started was it was really about pulling data feeds in and offering, you know, sort of analytics on top of that.
I think when we say cloud data platform, we mean much deeper technology stack that controls all the products. You know, in the future, we'll launch a hardware product like a Tesla that, you know, has hardware and that software is all in the cloud that operates the thing, right? That's been kind of the cadence of investment.
I think that, The second part of your question, which is really around value proposition. Oh, yeah. Look, I think it's a couple of things, right? I think we gave an example a couple of quarters ago of, NYC Health + Hospitals, which is the, it's the, you know, this value proposition exists on a couple of levels. NYC Health + Hospitals is a great example of a, you know, it's a DSH system.
It's basically the option of last resort for care in and around Manhattan. If you imagine, it's unionized labor, they don't have a lot of money, et cetera, right? The value proposition for them with going with the cloud-hosted or our cloud platform was simply the fact that their CIO did not have. I love innovation out of desperation.
Their CIO simply did not have any resources to go and stand up more space, more racks in a data center, add more servers, monitor those servers, load software onto those servers, et cetera. This whole notion that, God, you're just telling me that I've gotta open up feeds for you to get access?
Like, that's hugely valuable, right? I think that's the basic value proposition, which is pretty standard. I think when you add a value proposition on this, which on top of that, which gets to your Epic question, is that you now are collecting data. Everybody that signs onto the cloud platform allows their data to be shared in a de-identified, anonymized way.
What's really helpful and powerful about that is you go back and you talk about services, the fact that now our inventory optimization service can light up benchmarking. As a hospital that understands my, you know, what percentage of my drugs are in short or stock out, and I can compare my performance to other hospitals and health systems in the Omnicell network like that's incredibly powerful.
That very much is a value proposition. I mean, look, I think Epic Willow Inventory Management, which is a module off of Epic, that is a module that offers you inventory visibility, right? It's a set of dashboards and dials and some basic workflow that gives you basic visibility into my inventory.
That is not what we talk about in terms of a true SaaS or technology-enabled service that combines software, which is the—you know, similar software, but with that analytics and that expertise. Because now the complexity of managing inventory is not just, I'm gonna look at this dashboard of dials and then pick up the phone and call this tech and tell him to go here and do that.
What we're delivering as a service is the actual insights and saying, "Hey, look, based on what we're seeing, you should do X, Y, and Z. You should move this drug from point A to point B. You should avoid the stock out." We're actually taking the software and then trying to add a service on top of it that actually engages them, that actually helps them yield the outcome.
The analogy we use internally constantly is like, you know, an Epic Willow Inventory Management, which is a good piece of enterprise software, is like the nav system that comes with your car, which no one uses because everybody uses Waze or Google Maps because Waze is gonna use the network to inform data on traffic and get me there faster. Our inventory optimization service is Waze, not just a bunch of maps and directions, et cetera.
Allen, go ahead.
Hi, Allen Lutz at Bank of America. Peter, we went the whole Investor Day without talking about the XT upgrade cycle. Just wanna hear a little bit about where you think the trajectory of revenue contribution from that business goes over the next few years. Thanks.
Yeah, great question. Thanks, Alan, for that. I think we disclosed in the last earnings call that from a bookings perspective, 57% or 59% of the installed base measured over the installed base in 2016 had booked an upgrade, right? Since then, of course, we have gained market share quite aggressively.
We've also expanded, of course, our footprint also even in point of care, right? It's an important growth driver from a revenue perspective. A good portion of that 57% is still in backlog, so that will be revenue go forward. We also have other upgrade cycles, like Scott talked earlier about, the central pharmacy for both the IV robots and for the prior generation of the XR2 robot, right?
What's important to know that the point-of-care market for us, the revenue there is not only driven by upgrade cycles, but mostly also by expansion, by land and expand.
Okay. I'm going to take a question from the web, and then we'll get back to questions from the room. There's a question: How has the IV portfolio ramped since introduction, and has the increasing pressure hospitals are facing from a staffing perspective driven increased interest? How quickly can you implement the service once a contract is signed?
IVCS, the IV compounding service, has actually been in the market for years. The service has been out there. We have a lot of customers on that service. It's utilizing the prior generation of robot. The big innovation that's occurred in the past year is we launched the new generation of robot, IVX Station, which is faster, has more throughput, enables different methodologies for compounding.
The market, and more importantly, the ability for the service to deliver an ROI has just increased as a result of that new robot. I think, yes, the pressure that hospitals are having on staffing is absolutely adding to demand for IVCS as well as CPDS, as well as Omnicell One. That is the single biggest ROI driver for these advanced services, and IVCS is exactly that.
I mean, it's very difficult to hire pharmacy techs that operate robotics, keep them trained on IV. You know, get the right things at the right time to what to compound. IVX very much hits that value proposition and which is why we're excited about the demand. One of the big changes for the new IVX Station was the way that it was built, the way that it was architected makes implementation much faster and much easier of the raw technology.
The good news there is that those implementations can go a lot faster. Now, getting all the resources lined up on both sides, et cetera, still probably ends up being the long pole in the tent, but we are excited. Again, the new robot is early and, you know, we're very excited by it.
It's right on plan, but we're still in the stage of learning and really growing that technology.
Scott, I think you had a.
Scott Schoenhaus, KeyBanc Capital Markets. Randall, and Peter, and team, thank you for hosting such a great event. My first question is a follow-up to Annie's question. Your bridge, your EBITDA bridge, Peter, 50% of it looks like the margin erosion or margin compression from your previous guidance was coming from the cloud investments, but the other 50%, the labor cost inflation.
Can you just help explain what you're currently seeing in the market? Is it from more tech-enabled services front? Is it from software engineers? Is it something that just ramps up in 2023, and then you get operating leverage throughout the next two years? Just help us understand the labor component of the margin.
Yeah. Thanks for the question. Yeah. It's both of that, right? Labor inflation is quite common for many companies. We think we baked in a reasonable assumption for inflation on the labor side, both on the tech-enabled side and then also on the OpEx side.
Okay.
Yeah.
I guess my second follow-up question is on the EnlivenHealth. It seemed to be a big focus. Retail upselling these modules seems to be a big growth driver for the services. Is this something that you can talk about how big of a portion of that targeted services growth, the EnlivenHealth and the retail portion of this business is driving that?
Secondly, are there services in the market that you're seeing that can be acquired that you currently don't offer that could complement EnlivenHealth, and the software services side on the retail side? Thanks.
Yeah. To the first piece, Peter, I wanna take that on guidance. We haven't historically broken out the guidance for Enliven as far as the customer base and the adoption of the solutions. On the second piece, there are quite a bit of services that it takes to run a retail pharmacy, right? From switch services to, as I mentioned, reconciliation services.
So there, you know, as we look into the future, you know, we certainly will look to add or develop some of those services. Now, with the acquisition of FDS, that was predominantly independent pharmacies. That's who they served. Now taking those services and localizing them into our tier one customers, that's a priority for us, right? Right now, that's the focus is, let's make sure we cross over these acquired assets into the rest of our customer base.
Just like we would take our MedSync platform that was predominantly in tier one, we wanna cross it over into tier three. So that's the focus today, but there's certainly other services that, you know, we'll look at either building or acquiring.
I think Jeff's triangulating the math correctly, which is we do very, very little business with a lot of retail pharmacies. That's great because we have the relationships, and then it's really all the growth is upsell.
Yeah. I wouldn't undersell the integration piece, right? If you integrate with us, then moving to the next solution is that much easier. Whether they're tier one, two, or three pharmacies, they don't really wanna integrate with multiple people. They don't want pharmacists swiveling between two or three systems.
They wanna swivel to one landing page, work with one vendor, to get maximum productivity. That's really key. Even though there's only one service, the fact that we're already integrated on the back end is key in order to win the next.
Yeah. Thank you very much.
Yeah.
Okay. Perfect. Dev here from Berenberg. Thank you very much for all the information today. I'm just kind of, you know, sitting here and digesting it all, just from a wider perspective. You know, TAM increased, but the 2025 target stayed steady, and it looks like inorganic growth is now, you know, just a little bit more important in meeting that 2025 target from a percentage standpoint.
But you also mentioned that, you know, the portfolio comprehensively, you know, doesn't really need anything, you know, right now from where it stands, and you guys are making those investments in cloud. So what type of opportunities are you looking at from an M&A perspective or inorganically to drive that, you know, 2025 target here? And I have one follow-up.
Well, most of the opportunities we're looking are tech-enabled or SaaS services that would fit on the platform and really accelerate the pharmacy. There are a lot of these smaller companies that got started that figured out a way to create quick value for pharmacies, either inpatient or outpatient, that makes a lot of sense.
Most of the time, these companies sell out when they are ready to ramp up sales channel in order to get to the next level, or they can sell to us, and we can put that solution set in our channel. That's the most valuable piece they have. Some of them are actually finding it more difficult to sell their one-off systems when they're selling against the platform because there's resistance in the marketplace now that we have a
Pretty comprehensive platform to deal with multiple vendors when it comes to solution sets. They are out there and the various sizes. We're disciplined about actually, we wanna make sure that we don't distract the team with something that's a marginal add or something that we generally have in the roadmap and we are going to get to.
If they have a superior solution set with enough customer base and earnings to make it make sense, we will do it. Danny is the pro at driving these. I see Peter over here in the back right now. He's the cloud pro on the retail side, driving a lot of these very technical pieces that look very elegant on the front end, and customers wanna buy.
Thank you, Randy, for that color. The second question, you know, again, just looking at the commercial picture, it looks like you guys have a lot of penetration across the different, you know, care settings, and now it's really a story of upselling and cross-selling opportunity.
I guess in relation to that, or Peter or Scott, you know, as the XT replacement cycle, you know, tail is off here, what are some things that can catalyze, you know, that upselling resell opportunities and maybe even M&A, you know, could be a portion of that. Any color on kind of different puts and takes that can catalyze that upsell resell opportunity would be helpful. Thanks.
Yeah. Maybe I'll take the first part, and then maybe Scott can go through the sizzle again that he explained in the presentation. Besides, of course, the upgrade cycle, we have expansion as a large growth driver as well. I think we disclosed earlier in the presentation that out of total bookings for the company, advanced services bookings were around 20% of total bookings in 2021.
We expect that same metric to be between 30% and 40% of total bookings. Advanced services bookings in 2022, this year, we expect to be between 30% and 40% of total bookings, and we expect that to further increase to be over 60% of total bookings by 2025. Advanced services demand is significantly ramping. You see that both in bookings but also in the pipeline.
Of course, a lot of that is cross-sell and land and expand. Do you wanna answer that?
Yeah. The only thing I'd say is that we talked a lot today about the cloud and robots and, you know, advanced services, but I think the real transformation the customer or the company's gone in the eyes of the customer is that we completely changed our engagement model, right? We used to talk about why our cabinet was better than the other guy's cabinet, et cetera, but that was standard of care.
There wasn't an ROI about it. Now, what I'm hearing from our sales teams is that the last thing they're talking about the cabinet, what they're talking about is drug spend and labor spend and the move to centralized distribution. I should think differently about IV. And oh, by the way, we have cabinets. We've gotta get you completely connected.
That's the real transformation the company's going through, which is now we're talking about sort of outcomes that really matter and how you generate real value and what the payback is, what the IRR is on those new products and services.
Oh. We can see you. Sorry.
All right. Thank you, Stan. Three questions. First, maybe hitting the pharmacy question again. If you fully penetrate Enliven, Amplicare, MarkeTouch, what kind of revenue lift would you get off your current revenue base?
Yes. Our current target is for 2025 between 20%-30% of total revenue. We disclosed the range of market share, so both Scott and I talked about that. Across the portfolio of advanced services, we believe it'll be, in 2025, between 7%-10% of the market share at that time.
So-
There's differences across the different pieces of the advanced services portfolio.
Full penetration, not gonna tell us. If you fully penetrate within your existing client base, on the pharmacy side, what kind of lift to revenue, like multiple wise? Like is it a double, triple, quadruple?
Well, I think Danny showed a specific customer example where if you look at that slide, it's about half of the TAM is penetrated as opportunity, greenfield or expand opportunity for the other half of the wallet share, right? So maybe
It's $1.1 billion TAM.
Yeah.
If half the customers are ours, that would be $500 million annual recurring revenue.
Second question. Thank you. On the robotics, if we think about IVX and XR2 from a product standpoint on a hospital basis, like there's 6,000 hospitals in the United States.
Yeah.
If we think about average per hospital, is it fair to assume that XR2 is like 1 for every 2 hospitals and IVX is maybe you're targeting 2 for every 1 hospital? Is that in the ballpark?
No, the ratio is typically the reverse of that, right? Which is that it's just the near-term target market for us tends to be bigger hospitals that are compounding lots of drugs, spending a lot of money. They have very large concentrations of labor into a single central pharmacy.
So, you know, it's not targeting the 6,000 hospitals, it's targeting the bigger hospitals that have a lot of people. It will expand over time with the advent of centralized distribution centers, which now brings automation to smaller hospitals. But you couldn't go into a 50-bed hospital that's spending nothing on drugs and has five people in the basement and try to justify a robotic system.
For sure. I'm just trying to. If I'm using 6,000 as a denominator versus how many units do you think is, like, fully addressable. Like, how many XR2 units could be fully out there across however many hospitals you think we'll have?
We can give some colors. If you look at the slides that Scott presented, both for CPDS and IVCS, I think the capital piece, right? Although we only offer IVCS and CPDS as a service, right? There's still the product piece, right, that goes to product revenue.
Both opportunities are around $1 billion to $1.2 billion, right? You know, we've disclosed in the past publicly that the ASP for these robots is somewhere between $1.2 million and $1.5 million, depending on configuration. So you kind of back into the number of robots that we think is the market.
Okay, thank you. Last question, advanced services. You gave a pretty wide range there, $375 to $600. Can you maybe just walk us through what gets us to the bottom of the range? What gets us to the top of the range? What needs to happen?
Yeah, that simply is the math of the 20-30% of total revenue, right? That's how we presented it, if you will. Of course, we have models, and we're targeting within that range, of course. Yeah, we have, you know, very good pipeline, strong bookings. I talked about the percentage of bookings for advanced service of total revenue.
We're, you know, we've got really strong growth there. You know, I would say it's a very reasonable assumption. We have conviction that we can execute on those numbers, right? Now, if it accelerates, we might invest more, like we talked about in the margin expansion topic today.
Yeah, we could exceed. We could also be lower end in the range, but we see some, you know, some very good uptake.
Yeah, I think if I were to go figure it, Danny said there's 14 pharmacies around here. He's gonna run out here after this.
Right when we're done.
Sell.
We'll sell.
Hey, guys. Thanks for taking my questions. Joy Zhang from SVB Securities. Knowing Scott said that the last thing I wanna talk about is cabinets, but I do have a hardware question. Curious, are you seeing any sort of competitive pressures or opportunities from your largest competitor buying another one of your competitors, namely Parata, in June?
You specific to generally with BD or specific to-
Both. Both would be good. Yeah.
Yeah. Look, yes, they're a good competitor. They have a good channel. They've got, in the ADC side, a directly competitive product. I think for years we've fought the future function battle. I think we've taken a very specific strategy to focus on solving these problems in and around medication management.
They don't seem to be or as of now, haven't done a lot on the IV, on the central pharmacy dispensing service side. I think they've got a collection of solutions on the inventory optimization service, but it isn't one specific solution. I'm unaware of anything on the patient engagement or the outpatient pharmacy services side of things. These key drivers that optimize the health system.
I think a number of their acquisitions, which all seem to be good acquisitions, but Parata is a great example, tend to be very, very far away from the hospital in the ambulatory setting. I think Parata isn't directly competitive with anything we do today. It's adjacent, certainly. I think that business is very much focused on that institutional pharmacy market.
Look, I think we're further ahead on the cloud is what we hear. I think that as we mentioned in the presentation, I think that going back to the conversation we had before is that the biggest competitive differentiation is that engagement.
The fact that we're engaging them, the customers, and talking about improving, you know, payback and ROI on things like labor savings and drug savings, actually are willing to deliver a service that binds everything necessary and sufficient to get there. We just haven't heard about the competitor or any competitors doing anything like that.
That's super helpful. Just as a follow-up, Scott, I appreciate you going through each of the solutions within advanced services. Super helpful there. You mentioned EnlivenHealth is the most mature of the solutions. One of the most mature. Can you just force rank by growth rates each of the different products in the portfolio just to give us an idea?
I think I said Danny was the most mature of all the leaders of those services, not it was the most mature. I don't think we're gonna break that out, but I think it's a portfolio and, you know, like your portfolios, and we feel confident in total.
Yeah.
Allen Lutz, BofA. Peter, going back to the organic revenue growth targets, towards the lower end, can you talk about what is causing that to go to the lower end? Is it product revenue? Is it service revenue? Anything you can point to there?
Yeah. I would say just saying general from a macroeconomic and geopolitical perspective, we wanna be prudent on what we see in the outlook. Nothing has changed really fundamentally in the business. We have a strong channel, strong platform, and we see the growth to advanced services accelerating. It's mostly the macroeconomic environment.
Okay. Thank you.
Yeah.
Okay. I'll take another question from the webcast, and then we'll get you, Annie. The question is, would you consider buying back stock in this environment? What's your thoughts on that?
Well, certainly tempting, isn't it? You know, I think we gotta look at capital allocation. We've gotta put some dry powder for potential opportunistic acquisitions. But I think, you know, the board and myself and Peter, we look at this constantly and how to best use our dollars.
You know, we did do a buyback last year, or just early this year, and so I think we're constantly looking at it.
Nothing to announce today.
No.
Go ahead, Anne.
Thanks. Anne Samuel, JP Morgan. I just wanted to follow up on maybe that macro question and just was hoping you could talk a little bit about what you're hearing from your customers as they make these decisions, you know, what their concerns are. You know, are they more likely to make a product versus a services decision? Are there areas that they're thinking of maybe cutting back? You know, where are their pressure points?
Yeah. Our biggest issue with customers is their labor. I was at a recent customer last week, and they were hiring pharmacists to do pharmacy tech work because they couldn't hire enough pharmacy techs. I mean, that's how bad it is. They're spending 3-4 times the salary dollars to get the same work done that they should be able to achieve with a pharmacy tech.
Everything revolves around labor shortages on site at these facilities. You know, in some cases, how easy is it to deploy new technologies if they don't have the correct people there to roll them out? I don't think there's a lack or shortage of demand for our products. I think that, as Peter alluded to, the 30%-40% growth in what?
In bookings of total bookings versus 20% last year is people begging for those services to help relieve the pressure on the labor side, as well as on the ROI side, particularly for things like IV and CPDS and the like.
You know, I just think that you need to push these opportunities forward, if you're in a stressed environment, you need to invest in a few places that can give you a return. That still is pharmacy. I know we went into one place and they said they had a capital freeze, and they were building a $40 million CDC to put all of our stuff in and buy more stuff, but they had a "capital freeze," quote, unquote.
That's not everyone, but that is just how important it is to have these solutions in place in order to get through whatever they're gonna go through, particularly slowdowns or capital freezes or labor shortages.
Okay. Scott, go ahead.
Just to follow up on that customer question. It seems like there's gonna be some nice tailwinds from the new IVX replacement cycle, both services and product. That's a very expensive machine. I think in the last cycle, very little of your customers had financing options.
Can we talk about how your customer base has changed and the fact that they can now have financing options? I think you've alluded to your slide about the cash coming in from financing. Can you talk about how those purchases and those discussions have changed now that more of your customers are using third-party financing to make such big purchases?
Yes. Thanks, Scott, for the question. There's really probably two aspects that I'd like to address. IVCS, we're exclusively offering as a service. It's one monthly payment by the customer for a comprehensive service, including a robotic device, the tech labor, software, and maintenance, if you will.
Right? Financing, we're financing essentially, if you will, the hardware, if you will, over time. Actually, it's a net sales type of asset on the balance sheet. Right? It's a little bit of cash usage for us there. And then I think your other question on the financing side, we generally believe in our customer base in the US that funding generally is available. We do see some capital freezes like Randall also talked about.
We think about 30%-40% of our US large health system base probably uses financing partners. We believe that is generally available. The rates are higher. They're still fairly modest, maybe historically. The other around 60% of health systems have either a fund or a foundation or finance from their own balance sheet.
We generally believe health systems are fairly healthy as well. That's good to understand as well. We believe that health systems in general, from a financial goal perspective, are targeting a mid-single-digit operating margin as well. Any surplus they would reinvest in additional care, additional specialties. For the nonprofits, this is for the nonprofit health systems.
Just to be clear, they're not.
Yeah.
No one's financing IVCS as a service.
As a service.
I'll take another quick question from the web. Someone's asking about the slides. Will they be available after the meeting? Yes, they will be. They were filed with the SEC this morning, and they'll be available on the omnicell.com website on the investor relations page. Do we have any other in the room? Jess, go ahead.
Mine's a quick one.
Okay. It's okay. Okay.
Mine's a quick one. Just on the advanced services product bookings, should we think about those product bookings as basically converting to revenue over a seven-year period, roughly?
Yeah. Great question. It depends on what type of service and what specific contract. I would say generally 3-7 years, so there's a mix in there. Yeah.
Got it.
Yeah.
I was interested to know if you guys could give us an update on any payer contracts or just outcomes-based contracting within the EnlivenHealth- Retail pharmacy business.
As well, that while it is so urgent, we're not putting the sort of paper business.
That's correct.
I'll hold it.
Okay. Are there any other questions here in the room? Yep, go ahead, Dave.
One last one.
Sure.
I think I heard you say that price increases in 2023 are more than offsetting inflation and semiconductors. Did I hear that correctly?
Yeah. More than offsetting specific inflation for semiconductors, steel, and freight. Yeah.
Okay. Any other questions from the room? Oh, go ahead, Dev.
I don't have a mic, but I can speak louder.
I can repeat it for the webcast.
Hopefully for a quick update on the pricing renegotiations, Peter, the pricing renegotiations that you know were happening. How is this progressing, you know, mainly the 150 sole source customers you said, you know they have. Any, you know, changes in the pricing that's, you know, that's required now in the pricing strategy, whether it's, you know, going to more module pricing with the shift to advanced services?
Question was on pricing strategy, so go ahead.
Does my mic work? Yeah. Great question. We talked publicly about the initial pricing actions that we implemented in the third quarter last year, and they're really threefold. Increase in list prices. Secondly, increases in the minimum margins needed for larger deals, and then increases to service pricing, right?
After that or in conjunction, we also engaged a boutique pricing strategy firm to really refine our pricing strategy. It's a main element of our go-to-market strategy. We continually refine our pricing strategies, if you will, customer segmentation, customer profitability, et cetera. That'll be a continuing focus area, and generally pricing increases are well understood by our customer base, specifically the ones that drive outcomes as well. We've got good traction there. Yeah.
I think we have time for one more question before Randy wraps it up. Go ahead, Sam.
Hi. Thank you. Maybe can you just give us an update on Omnicell One adoption, anything there in terms of rollout, what to expect going forward?
I think as I said earlier, demand in what we see in the pipeline is very, very strong.
Right.
Demand is very strong. I think that as I mentioned, by combining the 340B software we now will have a comprehensive optimization solution. We're on track. We're excited and.
Okay. That is all the time we have today. Randy?
Yeah. Just want to thank all of you for coming. You know, the initial question I asked, well, how are we doing, right? 30 years ago, looked pretty ugly. Not doing good enough. There's still not enough golden minutes between the patient and the clinician, wherever they are, nurse, pharmacist, physician.
The value creation that we are going to create as a company the next 5 years is gonna be more than all the value we created in the last 30, because we're going to expand those golden minutes for pharmacists and nurses to get to the autonomous pharmacy. Thanks for being here. Thanks for being engaged. We'll see you next time. Cheers.