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Omnicell Inc (NASDAQ:OMCL)
Q3 2020 Earnings Call
Oct 27, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Omnicell Third Quarter Earnings Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Peter Kuipers. Please go ahead.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you. Good afternoon and welcome to the Omnicell third quarter 2020 financial results call. On the call with me today are Randall Lipps, Omnicell Founder, Chairman, President and CEO, and Kathleen Nemeth, who recently joined us as our new Vice President of Investor Relations. Kathleen brings over 20 years of Investor Relations experience and has been recognized by Institutional Investor magazine for her achievements in Investor Relations.

This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today, in the Omnicell annual report Form 10-K, following the SEC on February 26, 2020 and in other more reason reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today.

The date of this conference call is October 27, 2020 and all forward-looking statements made on this call are made on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change and we undertake no obligation to update these forward-looking statements.

Finally, this conference call is the property of Omnicell, Inc., and any taping, audio duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. Randall will provide an update on our business, after Randall's remarks, I will cover our results for the third quarter of 2020, our guidance for the fourth quarter 2020 and our preliminary revenue guidance for 2021. Our 2020 third quarter results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Our prepared remarks will also be posted in the same section.

Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement.

Let me now turn the call over to Randall.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Good afternoon and thank you for joining us today and welcome Kathleen.

Kathleen Nemeth -- Vice President, Investor Relations

Thank you.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

So glad to have you...

Kathleen Nemeth -- Vice President, Investor Relations

Thank you.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

On the Omnicell team. Well, we delivered solid financial and operational performance in the third quarter, exceeding the high-end of our guidance ranges as our customers began to return to more normal business operations. This enabled us to resume those implementations that were delayed in the first half of the year, and maybe more importantly in the third quarter, we drove significant increases in new customer wins and bookings, particularly with the top 300 U.S. health systems, as customers accelerate their focus on the critical pharmacy supply chain.

Now against that backdrop, two things are now clear, first as our customers continue to navigate the impact of COVID-19, the need for our medication management automation solutions is more strategically relevant than ever. Based on the bookings and implementations we saw in the third quarter, our partners are investing in their pharmacy supply chain, which is being recognized as critical to their ability to effectively manage in a post-COVID world. There is widespread and growing acknowledgment that more sophisticated automation and digitization capabilities enable healthcare providers to focus more on patient care and reduce costly errors.

The second part of the backdrop, our customers have resumed their pre-COVID purchasing patterns. In other words, not only has the pause we saw in the first half of the year-ended, but our health partners are buying at levels consistent with strategic investment for the long-term. We believe this reflects their confidence in their financial position and forecast and in turn, it supports our confidence in our outlook for the remainder of the year and for 2021. And as a result, I am pleased to announce that we are reinstating our pre-pandemic product bookings guidance of $865 million to $900 million for the full year, 2020, which is unchanged from the initial guidance we provided in February. This includes bookings that were paused due to COVID in the first half, which either have been booked already in the third quarter or expected to book in the fourth quarter.

Now let me provide some more insight and commentary on our long-term sole source partnership strategy. Our go-to-market strategy to increase our long-term sole source partnerships continues to gain momentum. We have been implementing and expanding this strategy successfully for the last two years and in 2018, we realigned our commercial structure to focus on the top 300 health systems in the U.S. with dedicated customer success executives. And we believe that the top 300 represent the vast majority of the available markets we target. That was a smart investment of resources for us as our recent announcements demonstrate.

As at the end of the third quarter more than half of the top 300 health systems, as defined by definitive healthcare are current Omnicell customers. During this quarter, we added two new long-term sole-source contracts and were honored to have these two leading health systems join us on the journey to the Autonomous Pharmacy. This brings the total number to 143 long-term sole-source partners within the top 300 U.S. health systems, most with a duration of 5 to 10 years.

As discussed on our prior call, with the majority of these sole-source arrangements, we have a co-developed multi-year medication management automation plan to deliver improved accuracy, patient and financial outcomes. In other words, a multi-year plan to move our platform in place so that we can hit the change -- we can affect the changes to drive these outcomes.

Now turning to key customer engagements in this quarter, congratulations, I might say to the Omnicell team, on these significant wins, especially in the time of COVID. First, Lehigh Valley Health Network, based in Allentown PA is our 142nd long-term sole-source customer, they've signed a seven-year agreement for XT systems and Anesthesia Workstations for their flagship hospital and network locations. Lehigh especially noted the value and opportunity of the Autonomous Pharmacy as a key driver for their purchasing decision.

Our 143rd long-term sole-source agreement is a new 10-year partnership with Allina Health Network in Pittsburgh, PA. They will be converting existing medication management systems across their health system network to Omnicell's platform, including Central Pharmacy, IV Compounding, the XT Series and technology-enabled services.

Also Georgia-based Coastal Community Health, a current IV customer has signed a 10-year sole-source agreement for our full portfolio of solutions, expanding Omnicell's footprint across the system. We won our first official Central Pharmacy Dispensing Service with Memorial at Gulfport in Mississippi. They are looking to leverage XR2 technology to expand their cartfill distribution model to now support automated systems filling.

In our international market, we continue to expand our footprint in the Middle East with a new partnership with the Dubai Health Authority for our supply ex. [Phonetic] software supply chain solution. We've also recently won our first robotic dispensing system deal with CHU Tangiers, a leading academic hospital within the government hospital system of Morocco.

In addition to the customer wins I just spoke to, we also are expanding technology-enabled services, which are a key component of our strategy. To that end, we are building on EnlivenHealth, we have successfully launched Omnicell One and we recently completed our acquisition of 340B Link on October 1st.

Now EnlivenHealth division, formerly known as Population Health Solutions, provides patient engagement and communication SaaS solutions for retail pharmacies and health plans. We noted last quarter's conference call that we successfully launched our first location with Walmart as part of an enterprisewide rollout of our medication synchronization platform to all Walmart locations nationwide.

Today, I am particularly pleased to note that the Walgreen's popular Save A Trip Refill program is powered by EnlivenHealth medication synchronization technology. We're proud of support these two leading providers in this important work that they do to measurably improve medication adherence and health outcome through EnlivenHealth's patient engagement and communication solutions. These systems are doing real work, they impact healthcare by ensuring patients get the meds they need as easily as possible and note, when they're not picking up their meds that they get engaged in their pharmacy solutions.

Next, last quarter we announced another key milestone on the journey to the fully Autonomous Pharmacy, Omnicell One, which becomes available -- which became available in August, leveraging cloud-based data and predictive analytics, Omnicell One provide pharmacy wide optimization through real-time visibility as well as actionable insights and workflows to help pharmacies operate more efficiently.

As a result of COVID-19, many of our customers have prioritized investments in supply chain optimization in order to provide critical care to patients and are increasingly turning to Omnicell One to help them understand where and how to make improvements. Omnicell One helps pharmacists and technicians focus on what matters most, so they can work at the highest level of their license and spend more time on direct patient care.

Customer interest in Omnicell One is strong. We recently won Archbold Health [Phonetic] and they are anticipated to go live in the coming weeks along with other customers. Now similar to EnlivenHealth and Omnicell One, Omnicell 340B is a true technology-enabled service that combines analytics, workflow and experts to drive significant value for our customers. Omnicell 340B's business accelerates the development of Omnicell's autonomous pharmacy and is a high-growth software-enabled reoccurring service revenue business. Omnicell's 340B capabilities are critical to health systems to enable them to manage their medications inventory for all their patients across all care settings.

Omnicell 340B is a compelling, strategic and synergistic addition to our tech-enabled services portfolio and is an attractive growing market with cross-selling opportunities for Omnicell. This acquisition is immediately accretive to non-GAAP EPS and we are thrilled to partner with all of these great healthcare organizations as they seek to deliver safe, efficient and high-quality patient care.

Now given the strong recovery in bookings from the first half of the year and a return to more normal business operations, we are accelerating hiring in the areas of cloud engineering and professional services. We are also ramping up implementation and customer success teams aligned with our customers installation timelines.

I'd say in summary, we are very pleased with our strong financial and operational performance this quarter. It is clear, now more than ever that our customers recognize the criticality of Omnicell's medication management automation solutions and we are honored that they are joining us on the journey toward the autonomous pharmacy.

Now I'd like to turn it back over to Peter to give us an update on third quarter financials, fourth quarter guidance and a little prelim for 2021 revenue. Peter?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you, Randall. As Randall noted, our customers are returning to more normal business operations and as a result, our feasibility has improved and continues to improve. We have observed hospital admission rates increasing, this is supported by a recent report by the Kaiser Family Foundation that noted that hospital admission rates are currently trending toward 90%. We understand from our customers and other industry participants and research firms that elective surgeries have increased as well from the second quarter to the third quarter and are expected to increase through the fourth quarter and into next year to more normalized levels.

Now moving to third quarter results, our third quarter 2020 revenue of $214 million increased sequentially by 7% over the prior quarter. Year-over-year revenue decreased by $50 million or 7% from the third quarter of 2019, largely due to delays in bookings and implementations related to COVID-19.

The third quarter earnings per share in accordance with GAAP were $0.20 per share, this compares to earnings per share of $0.46 per share in the third quarter of 2019. The decrease in earnings per share is largely due to lower profit as a result of the decrease in revenue, partially offset by lower income tax expense. Full reconciliation of our GAAP to non-GAAP results is included in our third quarter earnings press release and is posted on our website. Third quarter non-GAAP gross margin increased by 210 basis points to 47.1%, mostly driven by volume leverage as our revenue increased sequentially as well as tender cost reduction programs. Total third quarter non-GAAP operating expenses of $72 million decreased $3 million from the second quarter as a result of the cost actions we discussed on the prior call.

Third quarter 2020 non-GAAP EPS was $0.60 per share compared to $0.76 in the same period last year. The decrease in earnings per share is largely due to lower profit, due to a decrease in revenue, which was partially offset by lower operating expenses and lower income tax expense. Third quarter 2020 non-GAAP EPS increased by $0.22 per share from the prior quarter driven primarily by higher revenue and lower operating expenses.

Now I would like to discuss our cash flow and liquidity and capital structure, as we believe it is the strength of our business and positions as well as we grow to address future market demand. At September 30, 2020, our cash balance was $629 million, up from $130 million at June 30, 2020, largely due to the cash received from the issuance of our convertible debt offering. During the quarter we completed the issuance of a $575 million of 0.25% convertible senior notes due in 2025, which included a full exercise of the $75 million over-allotment option.

In conjunction with the note issuance we entered into call spread transactions and the effective conversion price from the company's perspective was increased to $141.56 per share reflecting a 100% conversion premium.

As part of the execution of the convertible offering we repurchased $53 million worth of common stock from purchase of notes in privately negotiated transactions. The aggregate net proceeds from the issuance of notes net efficient costs were approximately $560 million or approximately $460 million net of the hedging transactions and stock repurchase.

During the third quarter, we also entered into an amendment in our revolving credit facility to permit the issuance of the convertible senior notes. The purchase of the hedge transactions and issuance of the stock warrants as well as to update certain confidence. The amended revolving credit facility along with the issuance of the convertible notes provides us with a tiered capital structure, which we believe positions us well for potential merger and acquisition opportunities as well as for general corporate purposes.

Just to conclude the third quarter on October 1, 2020, we closed the Omnicell 340B Link acquisition and used approximately $225 million of cash of the cash balance for this purchase. Free cash flow of $27 million was strong during the quarter, driven by strong operating results and working capital efficiencies. Net cash provided by operating activities was $37 million in the third quarter, driven by net income and working capital efficiencies, mostly related to inventory reductions.

Inventory levels decreased by $11 million from the prior quarter, mostly driven by supply chain efficiencies and timing of shipments. Accounts receivable days sales outstanding of 82 days for the third quarter declined by five days from the prior quarter and was flat from the third quarter in 2019.

As we mentioned earlier in the call, we are pleased to see that our hospital health system customers are investing in a transformational strategic capability that Omnicell provides them. As we translate the momentum of the business and sales pipeline through bookings, through backlog and then through revenue, we are making investments to support future growth, improve customer experience, generate general efficiencies and scale the business and we're making these investments in a number of areas.

First, we are increasing the momentum of the shift to cloud-based products and service development. Second, we're continuing to invest in our professional services capability that we announced in December last year. Third, as Randall discussed, we're hiring implementation and customer-facing teams. Fourth, we're speeding up the simplification speed and efficiencies of quota cash processes. And last, we are continuing to drive to virtualize and digitize commercial implementation and engineering processes.

During the first half of the year, we took actions to manage cost and streamline the business to ensure that we were operating as efficiently as possible, as we accelerate a transformation toward the autonomous pharmacy. I'm pleased with the efforts of employees across the company to prudently manage expenses, which we saw in good operating expense management during the quarter. Last quarter, we shared with you our intention to manage full year non-GAAP operating expenses through the $310 million to $350 million range. We are maintaining this range for 2020, which now includes the operating expenses for the Omnicell 340B acquisition, which we closed on October 1st this year. As we look forward, based on our current visibility and healthy demand metrics, we intend to modestly increase operating expenses in the fourth quarter to support market driven future growth.

Now moving to our guidance on revenue and non-GAAP EPS. Please note going forward our guidance for all periods will include results from Omnicell 340B. Also, please note that while we are aware of the recent increase in COVID cases in the United States, we believe in speaking with our customers that they are well prepared and believe they will continue to resume more normal business conditions. However, our bookings and revenue in future periods could be impacted if hospitals need to materially change their operations in order to address the continued increase in COVID-19 cases.

We are providing the following guidance for the fourth quarter of 2020. We expect total revenue to be between $238 million and $244 million, we expect product revenue to be between $165 million and $170 million, we expect service revenue to be between $73 million and $74 million, we expect non-GAAP earnings per share to be between $0.72 per share and $0.77 per share.

We are providing the following guidance for the full year of 2020. A solid year-to-date company performance has enabled us to reinstate the product bookings guidance, which we expect to range between $865 million and $900 million. The year-over-year growth in the second half is largely driven due to the timing of expected bookings that moved from the first half to the second half as well as healthy demands as customers return to more normal business operations. We expect total revenue to be between $881 million and $887 million, we expect product revenue to be between $626 million and $631 million, we expect service revenue to be between $255 million and $256 million and we expect non-GAAP earnings per share to be between $2.35 and $2.40.

Please note that we are encouraged by the current strength in bookings and our ability to grow our backlog and at this point we are reconfirming our long-term objectives for the business, consisting of a 10% to 12% organic revenue CAGR, an 18% non-GAAP operating margin goal and lastly a free cash flow conversion of 90% to110% as a percentage of GAAP net income.

Given the dynamics for 2020 and the commercial momentum that we have discussed earlier, we have decided to accelerate our planning process for 2021. And as a result, we're now able to provide a preliminary full-year 2021 revenue guidance. It is earlier than we would have normally done in ordinary course of business, and reflects our assumption for more normalized business continues -- business conditions to continue. We expect 2021 preliminary revenue to range between $1.015 billion to $1.045 billion, which is above our long-term guidance range of revenue CAGR of 10% to 12%. This is primarily a result of the COVID driven timing dynamics of bookings and revenue that we discussed earlier.

In summary, I'm very, very pleased with our strong financial and operational result this quarter. We exceeded the high end of our guidance ranges, we executed well on our cost control initiatives, we delivered strong cash flow and strengthened our capital structure.

With that, we would like to open the call for your questions.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

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

Questions and Answers:

Operator

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

Steven Halper -- Cantor Fitzgerald -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Steven Halper -- Cantor Fitzgerald -- Analyst

Is there -- will there be any deferred revenue adjustment off of...

Peter Kuipers -- Executive Vice President and Chief Financial Officer

No.

Steven Halper -- Cantor Fitzgerald -- Analyst

From that acquisition?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

No, there will not be, Steve.

Steven Halper -- Cantor Fitzgerald -- Analyst

Okay.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Probably pretty minor maybe a $100,000 or $200,000, it's very small.

Steven Halper -- Cantor Fitzgerald -- Analyst

And $10 million, is that in bookings also?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yes.

Steven Halper -- Cantor Fitzgerald -- Analyst

Okay. So it's $10 million in revenue in the fourth quarter and implied in that bookings guidance is $10 million...

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah.

Steven Halper -- Cantor Fitzgerald -- Analyst

From 340B.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah.

Steven Halper -- Cantor Fitzgerald -- Analyst

Great.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah.

Steven Halper -- Cantor Fitzgerald -- Analyst

Thank you. That's all I had.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Thanks, Steve.

Operator

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

Bill Sutherland -- Benchmark Company -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, so 340B is -- it's very strategic, we believe and we understand from our customer base there is some overlap, but there is meaningful growth to be have, specifically within 143 long-term sole-source contracts that either you have not a 340B program with supporting software or do you have a competitive 340B software.

Bill Sutherland -- Benchmark Company -- Analyst

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

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

Bill Sutherland -- Benchmark Company -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Bill Sutherland -- Benchmark Company -- Analyst

That's right. It's just a product bookings number.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, yeah.

Bill Sutherland -- Benchmark Company -- Analyst

Okay. Okay. Thanks.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Correct.

Bill Sutherland -- Benchmark Company -- Analyst

And then last one for me is on the Omnicell One, can you kind of characterize what an implementation kind of involves perhaps, some sense of the size range, particularly from a revenue perspective, I'm curious about the revenue rec for that software sale?

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

I'll let Peter do the rev rec. piece. For us, it's really connecting into many of our systems of the platform and aggregating the data and then constantly optimizing it so that it's not like running a report at a single moment in time, it's constantly evaluating what are the best approaches to optimizing the inventory moving forward. And then it takes the further step of once it calculates a must do action, it flows a workflow task down to a technician who's given that on a particular app to actually go do it.

So there is minimal -- there is some integration necessary, of course, integrating into our own systems is pretty easy, but sometimes there are some other additional steps necessary to integrate into the hospital systems, but I wouldn't call them major, but it does have to be set up right to start out.

Bill Sutherland -- Benchmark Company -- Analyst

Okay.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. And then on the revenue model, Bill, the revenue model is essentially a fee per month per bet, if you will, and this covers Omnicell One, and that revenue is recognized as period revenue.

Bill Sutherland -- Benchmark Company -- Analyst

Okay. And these are I assume, multi-year agreement that you're signing?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. Exactly. Yes.

Bill Sutherland -- Benchmark Company -- Analyst

Okay.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Bill Sutherland -- Benchmark Company -- Analyst

All right. Excellent, thanks. Thank you, both.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you. Next question, please.

Operator

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

Matthew Hewitt -- Craig-Hallum Capital -- Analyst

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Well, I think that we're very tied into all of our customers on a almost daily basis, particularly the top 300 of just -- if there is any kind of delays or concerns going forward, and I think the strong confidence coming back in Q3, you think that if people were a little bit skittish they would have maybe not come back and maybe then come back at 80% of what they were looking at pre-COVID, but they've all come back very strong and very quickly. And while I'm sure there are hotspots where that may develop, I feel like after we've gone through the first and technically the second wave is really after New York, and then this is really the third wave, people are really prepared on what they need, what to do and how to handle this.

And so, I think, they are very confident in understanding what they have and at different levels of COVID in their area what to expect. And so this morning, we did a double check on all of our installations for the quarter and there wasn't one single wait a second or from any place across the country that we were involved in. So this was a reconfirmation that we don't see the slowdown.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Matthew Hewitt -- Craig-Hallum Capital -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Matthew Hewitt -- Craig-Hallum Capital -- Analyst

Okay. And then one last one from me. I think Randy, you -- or no actually, Peter, I think you mentioned that you are going to be bringing some expenses back as revenues are starting to come back as well. How should we be thinking about that through next year? I mean, are you -- is -- have you found efficiencies because of what has happened here the past couple of quarters so that when we're looking at December of '21, maybe, you haven't gotten back to the Q4 of '19 levels? Or with the 340B acquisition you kind of get back there, but you're back to that level versus being above it, if that makes sense?

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah. Well, what we've said in the last call was that the cost reduction side versus the original guidance that about half of that, we expect to come back next year because a lot of that's travel and marketing and hiring delay side and some of that is coming back. We don't want to, at this point in October commit to highly feasible may be opex number at this point, but we are hiring, we are investing on a modest basis from the third quarter to the fourth quarter and I think I laid out in the prepared remarks the areas where we are investing, but the bookings pipeline backlog it's all very, very strong and market position as well. So we are being prudent. But we got to make sure that we scale as well and support our customers.

Matthew Hewitt -- Craig-Hallum Capital -- Analyst

Got it. Great, thank you.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Operator

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

Gene Mannheimer -- Colliers Securities -- Analyst

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Good question. This is a SaaS business that is still emerging. So -- but it is a totally a cloud-based system that drops in next to the pharmacy system on the retail pharmacy and evaluates patients in their database that would fit in med-synchronization workflow and there's a lot of pieces to it, its just not a one-time thing. It's an ongoing fee that we have that manages these patients going forward, because we want to keep them synchronized and keep -- make sure they're getting their meds.

But that platform is been tested by our customers who are very concerned about security and how it works and we're expanding it to do more software activities that we're offering, particularly on the communication side getting linked-up with patient, what's the right time to call them, what's the right time to text them, what's their preferred mode of conversation. These are all additional services we want to build into that platform to build it into a much more substantial business.

And so, we've done the first thing, which is get connected to very large customers who we can build a platform off of and build a really successful business going forward. So I would say, we're still in the early days there, but it is making great progress and we hope that there might be even some functionality and parts for the COVID vaccine that if you have an off-site where you need to do some quick vaccinations that that platform makes a better approach than trying to use legacy systems in that case.

So a lot of opportunity there, still need to build out some more pieces of the platform to really make it into what I would call a significant business for Omnicell, but we love it, because that's where pharmacy is going. It is going to the home and it's where healthcare is going and we need to be connected in there and it's a product, we believe that more than retail will eventually use. We think maybe even institutional and even big providers will eventually be engaged in this kind of product.

Gene Mannheimer -- Colliers Securities -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Operator

Thank you...

Gene Mannheimer -- Colliers Securities -- Analyst

Okay.

Operator

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Hey, Scott.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Hey, Scott.

Scott Schoenhaus -- Stephens Inc. -- Analyst

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Great.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Again, congrats on the results and progress. I guess I want to follow-up, I know we've belabored 340B, but based on your guidance, you said 25% gross rate of the $35 million on the top-line. This kind of is a follow-up question to the other analyst about the Cadence. But as you grow those revenue streams, I'm assuming you get more and more momentum as you have these cross-selling opportunities on your install base. So that would go with your comments about being more back half-heavy. But also we've got to think about the margin accretion and EPS accretion, given the 75% or 80% gross margin profile and healthy EBITDA margins on this software service business, do you expect your earnings -- in the cadence of earnings to be significantly accelerated throughout the course of fiscal ' 21?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Well, I would say, of course, it's a high-gross margin business, high-feasibility, highly recurring, right? So from the first point on cross-selling. So we closed the transaction about two weeks ago now. So we are aggressively starting to landscape and prepare for cross-selling opportunities. And again, that will take a little bit of time to close cross-selling deals and then you need to get them live and then there will be recurring SaaS revenue. And that probably the first instance that it's probably will be directionally in the second half of next year from a cross-selling perspective. That's probably what you would expect.

The acquisition is immediately accretive from a non-GAAP EPS perspective for the fourth quarter and we are aggressively and in a very constructive manner integrating the acquisition as well from a systems people, the process perspective. So there are some cost there. So it will be accretive. We expect of course also to earnings in 2021. I think it's a little bit too early to tell, to kind of give direction of what impact that would be on operating margin or EBITDA.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Yeah. No. That...

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Go ahead.

Scott Schoenhaus -- Stephens Inc. -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

But we look at it through the lens that I just discussed, right, so pretty rigorously.

Scott Schoenhaus -- Stephens Inc. -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Thanks, Scott.

Operator

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

Sean Wieland -- Piper Sandler Companies -- Analyst

Hi, guys. Thanks. And let me add my congrats on an impressive quarter. To be clear, I think what you're saying is that the revenue acceleration that you're guiding for in '21 is primarily related to the timing of the 2020 bookings. And so my question is, we're back up -- we're kind of back in business at the bookings level with your original guide, but still about $100 million short on revenue for the year. How much of that $100 million rolls forward to '21 and how much of that is lost because of the passage of time?

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

I'll just...

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yes. Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

So -- and I think that, yeah, obviously, in our 10% to 12% long-term growth, next year will be above that.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

And so, I think, it's kind of like we were delayed six months this year.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

And it takes...

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Another six months.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

So that's part of the program.

Sean Wieland -- Piper Sandler Companies -- Analyst

Okay. So it sounds like '21 is going to be a bit of a pig in the python year, if you will. And I'm sorry to ask you this, but for -- are you saying that the 10% to 12% you think you can grow off of that '21 number into '22?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Sean Wieland -- Piper Sandler Companies -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

As far as that covers or....

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

All of our products?

Sean Wieland -- Piper Sandler Companies -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

From a talent [Phonetic] perspective.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Well, it's probably less than 50% because most of them still have XT ahead and XT is just for -- not only just replacing what they have, but for expansions. And so -- and then you have the XR2 and our other product lines, the IV...

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Workflow systems.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Workflow systems and of course the other products on top of that. So I think we feel like there is quite a bit left to go. Just because we're probably on the early cycles with IV station and IV workflow and XR2 and XR2 is gaining momentum we've had some good uptick in those product lines. And as the technology moves forward there become more plug and play on the platforms are easier to install, easier to put up and as well one feeds into the other. So...

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

It's probably the growth to be have.

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Yeah.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah.

Operator

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

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

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

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Thank you.

Operator

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

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

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

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Randall Lipps -- Chairman, President, Chief Executive Officer and Founder

Kathleen Nemeth -- Vice President, Investor Relations

Steven Halper -- Cantor Fitzgerald -- Analyst

Bill Sutherland -- Benchmark Company -- Analyst

Matthew Hewitt -- Craig-Hallum Capital -- Analyst

Gene Mannheimer -- Colliers Securities -- Analyst

Scott Schoenhaus -- Stephens Inc. -- Analyst

Sean Wieland -- Piper Sandler Companies -- Analyst

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

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