OMCL - NASDAQ

Good morning, my name is Carly and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell First Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Kathleen Nemeth, Senior Vice President, Investor Relations. Please go ahead.

Good morning and welcome to the Omnicell First Quarter 2025 financial results conference call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO, and Founder; Nnamdi Njoku, Executive Vice President and Chief Operating Officer, and Nchacha Etta, Executive Vice President and Chief Financial Officer. This call will contain certain forward-looking statements, including statements related to financial projections or performance or other statements regarding Omnicell's plans, strategy, objectives, goals, vision, expectations, planned investments, opportunities, expense mitigation, products, services or solution, driving toward a recurring revenue model, navigating the current macroeconomic environment, the impact of or ability to mitigate the impact of, tariffs, or market or company outlook that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release issued today, in the Omnicell Annual Report on Form 10-K filed with the SEC on February 27, 2025, and in other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today. All forward-looking statements speak only as of the date hereof or the date specified on the call. Except as required by law, we do not assume any obligation to update or otherwise release publicly any revisions to our forward-looking statements. Our results were released this morning and are posted in the Investor Relations section of our website on ir.omnicel.com. Additionally, we would like to remind you that during this call, we will discuss some non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press release posted on our Investor Relations website. With respect to forward-looking non-GAAP measures, we do not provide a reconciliation of forward-looking non-GAAP measures to the comparable GAAP measures on a forward-looking basis, as these items are inherently uncertain and difficult to estimate and cannot be predicted without unreasonable effort. With that, I will turn the call over to Randall. Randall?

Good morning, and thank you all for joining us on today's call. Our business performed very well during the first quarter of 2025, which is all driven by demand for Omnicell's robust medication management platform. At Omnicell, we are focused on redefining how medications and supplies are managed across healthcare as we seek to help customers seamlessly control inventory from the loading dock to the point of patient care. Our platform is designed to empower organizations to improve medication safety, drive supply chain efficiency, and make smarter data-driven decisions. Our future growth is expected to come from three core levers. First, we seek to capture greater market share across inpatient settings, including nursing floors, operating rooms, and procedural areas, as well as central and satellite pharmacies, while continuing expansion into outpatient settings, such as specialty, retail, and institutional pharmacies. Second, we are growing and scaling our predictable reoccurring revenue. And third, we are striving to grow OmniSphere, our cloud-based platform to extend and connect innovative automation technologies, which we expect will include the use of AI across the entire continuum of care. Let's review a few highlights from our strong first quarter. The demand environment tracked well to our expectations as we saw market share gains and continued interest in our platform of products and services. We delivered solid revenue performance and are pleased with the growth in our recurring revenue. And we continue to see strong customer interest in OmniCell's long-term innovation roadmap. Now let's turn to the financials. Omnicell delivered a solid first quarter. Total revenue was $270 million, an increase of $24 million from our first quarter of 2024. Revenue in the quarter decreased by $37 million from our fourth quarter of 2024, reflecting typical seasonality and the fact that fourth quarter of 2024 performance was very strong. Product revenues came in above our first quarter 2025 outlook at $145 million, which is an increase of $12 million over the first quarter of 2024, and a decrease of $37 million compared to fourth quarter 2024. Service revenues were $125 million, an increase of $12 million over the first quarter of 2024, and flat compared to fourth quarter 2024. Non-GAAP gross margin for the first quarter of 2025 was 42.1%, a decrease of 530 basis points from the prior quarter due to the combination of lower product revenue volumes, as well as some seasonal expenses including payroll taxes and employee benefits reset. Our first quarter 2025 earnings per share in accordance with GAAP was a loss of $0.15 per share compared to a loss of $0.34 per share in the first quarter of 2024, and a profit of $0.34 per share in the prior quarter. Our first quarter of 2025 non-GAAP earnings per share was $0.26 compared with $0.03 per share in the same period last year, and $0.60 per share in the prior quarter. First quarter non-GAAP EBITDA was $24 million, an increase of $13 million when compared to the same period last year, and a decrease of $23 million compared to the previous quarter. As you can see from our revised 2025 guidance that Nchacha will cover in more detail, we have completed an initial assessment of the company's tariff exposure assuming the announced tariffs, particularly on China-based products, are implemented as scheduled. As a reminder, we began working on optimizing our supply chain several years ago with a combination of dual sourcing and nearshoring efforts. However, we continue to source a meaningful percentage of our subassemblies from China. At this time, we anticipate the impact from tariffs for 2025 to be approximately $40 million to non-GAAP EBITDA. As a result, we are reducing the ranges for our full year 2025 non-GAAP EBITDA and non-GAAP earnings per share guidance to reflect that currently expected partial year potential impact from tariffs net of our planned mitigation efforts. Please note that absent the tariff headwinds, we remain comfortable with our previously issued full year 2025 non-GAAP EBITDA and non-GAAP earnings per share guidance, and are only modifying the ranges to reflect the expected potential impact from tariffs. We intend to continue to shift production of subassemblies to more favorable geographies, and over time, we anticipate considering broader changes to our supply chain. We believe we have a strong competitive position, and we plan to continue to innovate regardless of the tariff impact. Also, as we continue our pivot to recurring revenue services, exposure to tariffs on a relative basis should decline over time. We expect to have more to share with you as the situation develops. I'll now highlight a few of the key customer wins in the first quarter. Point-of-care dispensing solutions, including XT Cabinets for nursing care areas, anesthesia workstations for perioperative settings, and our XT Amplify program offerings, continue to be the backbone of medication management for many leading health systems. Leading health systems in New Jersey, Pennsylvania, and West Virginia have recently invested in Omnicell solutions as they seek to increase pharmacy and nursing efficiency and improve patient safety while delivering maximum value for the technology investment. Our comprehensive platform and innovative roadmap are resonating with customers, and we are seeing continued momentum converting customers to Omnicell solutions. One of the leading healthcare organizations in Illinois has chosen Omnicell XT automated dispensing cabinets to support point-of-care dispensing across numerous sites of care. This health system intends to leverage Omnicell's enterprise analytics solution, inventory optimization service, in an effort to enhance inventory visibility, gain medication usage insights, and optimize workflows across their system. A non-profit health system in Rhode Island selected Omnicell's point-of-care dispensing solutions, including XT Cabinets and anesthesia workstations, as they look to improve clinical outcomes and enhance efficiency for healthcare staff. A Southern California non-profit teaching hospital has chosen Omnicell's central pharmacy solutions as it seeks to reduce medication dispensing errors in waste, improve accuracy, and streamline workflows for their central pharmacy operations, which should free staff to focus on higher-value tasks. The federal government, specifically the U.S. Department of Veterans Affairs and other federal healthcare facilities, is a sizable portion of Omnicell's customer footprint. This quarter, we saw traction within our government customers for our central pharmacy and point-of-care solutions, including products from our XT Amplify program. Health systems continue to expand care delivery beyond acute care settings to improve patients' access to care, reduce costs, and increase revenue. This expansion includes investments in outpatient pharmacy programs, which for many providers may enable an opportunity for health systems to achieve financial growth and improve the patient experience. A Northeast non-profit healthcare system will add a new specialty pharmacy to their community in partnership with Omnicell's specialty pharmacy services division. We also partnered with a Pennsylvania-based health system to open a new specialty pharmacy to serve their community. A Georgia-based not-for-profit healthcare system has selected Omnicell to launch a new initiative targeted at optimizing their specialty pharmacy by expanding patient access to specialty medications and growing outpatient services. Now, before I turn it over to Nchacha, I want to provide some closing thoughts. We are pleased with our first quarter performance, and we remain very encouraged about our long-term growth strategy and how we believe it aligns with the industry-defined vision of the autonomous pharmacy. Omnicell is a trusted leader in automating medication and supply management, and we believe we are poised to grow as hospitals continue to digitize. Despite the fluid tariff environment, I am confident that we will manage through the current tariff situation. We're reviewing different mitigation strategies around our supply chain, and I feel confident that the company's competitive position will remain strong as we tackle these headwinds. With or without tariffs, we are here to help our healthcare provider partners as they endeavor to increase operating efficiencies and improve patient safety. At this point, I'd like to turn the call over to our Chief Financial Officer, Nchacha Etta, and for a more detailed review of our first quarter financial performance.

Thank you, Randall. I want to thank the entire team here at Omnicell who helped drive our strong start to 2025, delivering first quarter 2025 financial results where all of our guided metrics exceeded or landed in the upper end of our previously stated guidance ranges. Now I am going to walk you through some of the key drivers of our first quarter 2025 performance, as well as share our second quarter 2025 and updated full-year 2025 guidance. Looking at our first quarter 2025 results, total revenue were $270 million, representing an increase of $24 million over the first quarter of 2024, and a decrease of $37 million compared to the previous quarter. First quarter 2025 revenue performance, when compared to our fourth quarter 2024 results, reflect our typical seasonal patterns in line with the historical trends we have seen, in which revenue tends to increase quarterly as the year progresses. The year-over-year increase in total revenue was driven by an increased contribution from our XT Amplify program, as well as continued growth in our SaaS and Expert Services, including an increase in revenues from specialty pharmacy services offerings. For the first quarter 2025, product revenue was $145 million, representing an increase of $12 million compared to the first quarter of 2024, and a decrease of $37 million over the previous quarter. Service revenue for the first quarter 2025 was $125 million, which increased $12 million from the first quarter of 2024, and was flat compared to fourth quarter 2024 levels. Non-GAAP gross margin for the first quarter of 2025 was 42.1%, representing an increase of 230 basis points compared to the first quarter of 2024, and a decrease of 530 basis points from the prior quarter. Non-GAAP gross margins, when compared to fourth quarter 2024 results, were impacted in the quarter by lower product revenue volumes, non-recurring costs, as well as some seasonal expenses, including payroll taxes and employee benefit receipts. The full reconciliation of our GAAP to non-GAAP results is included in each of our full year and fourth quarter 2024 and first quarter 2025 quarterly earnings press release, which are posted on our investor relations website. Our first quarter 2025 earnings per share in accordance with GAAP were a loss of $0.15 per share, compared to a loss of $0.34 per share in the first quarter of 2024, and a profit of $0.34 per share in the prior quarter. Our first quarter typically is the lowest revenue quarter for the year, and our revenue tends to grow throughout the year. As a result, the first quarter also tends to be the quarter with the lowest profitability. Our first quarter 2025 non-GAAP earnings per share were $0.26, compared to $0.03 per share in the same period last year, and $0.60 per share in the prior quarter. First quarter non-GAAP EBITDA was $24 million, an increase of $13 million when compared to the same period last year, and a decrease of $23 million compared to the previous quarter. Non-GAAP EBITDA in the quarter was modestly impacted by higher cost and operating expenses, largely driven by non-recurring items and some seasonal expenses that came in a bit higher than expected. Our non-GAAP earnings per share and non-GAAP EBITDA in the first quarter of 2025 were both higher compared to the first quarter of 2024, driven primarily by an increase in revenue year-over-year in the quarter. At the end of the first quarter of 2025, our cash and cash equivalents were $387 million, up from $369 million as of December 31, 2024. The company continues to generate solid free cash flows, with free cash flow of $10 million during the first quarter of 2025. In terms of accounts receivable, days sales outstanding for the first quarter of 2025 where 86 days. We remain pleased with our continued strong quarterly collections and working capital management. This is an area of significant positive progress over the last 18-24 months. Inventories as of March 31, 2025 were $91 million, an increase of $2 million from the prior quarter, and a decrease of $12 million from March 31, 2024. Before we move to guidance, I would like to comment more broadly on our current view of the tariff headwinds we are facing. Last quarter, I shared with you that based on the tariffs announced at that time, we thought that our existing mitigation plans would largely offset the potential impact. Today, of course, we are in a much different situation. As a reminder, tariffs had no impact on our first quarter results. And as of today, we expect a fairly modest impact on our second quarter performance. We are implementing various mitigation initiatives, but obviously these take time to flow through our financial statements and to have the intended effect of offsetting a portion of the higher anticipated costs. We would expect the benefits of the mitigation plans to begin to take effect as we exit 2025. So please keep that in mind as you are preparing your financial models for 2026. As we see today with the current tariff situation, if the tariffs that are in place today remain in place throughout 2025. We are anticipating the impact to our second quarter 2025 non-GAAP EBITDA to be approximately $5 million, with the impact to our full year 2025 non-GAAP EBITDA to be approximately $40 million, net of our ongoing mitigation efforts. As we have said, over the course of the past few years and dating back to the previous administrations, we have taken steps intended to improve our supply chain, ensure continuity of products, and reduce costs as well as enhance efficiencies. As a result, the majority of our components are dual source, and we have flexibility to source key components from multiple geographies. We are continuing to monitor any changes to the tariff environment and will continue to make what we believe are the right supply chain allocation decisions based on long-term goals and in consideration of near-term impacts. While a significant portion of the estimated $40 million 2025 non-GAAP EBITDA tariff impact is a result of components we currently source from China, we also source components from multiple favorable geographies. And we will continue to evaluate the allocation of sourcing for these components. For the second quarter of 2025, we are providing the following guidance. We expect second quarter 2025 total revenue to be between $270 million and $280 million, with product revenue anticipated to be between $148 million to $153 million, and service revenue expected to be between $122 million and $127 million. We expect the second quarter 2025 non-GAAP EBITDA to be between $22 million and $30 million, and non-GAAP earnings per share to be between $0.19 per share and $0.32 per share. Please note that the ranges for non-GAAP EBITDA and non-GAAP earnings per share are wider than we typically guide due to the tariff uncertainty. For full year 2025, we are maintaining our previously issued product bookings, annual recurring revenue, and revenue guidance. As a result of the potential tariff impact as we see it today, we are adjusting the ranges for our full year 2025 non-GAAP EBITDA and non-GAAP earnings per share guidance. We are reducing the upper end of our 2025 non-GAAP EBITDA guidance by $10 million and reducing the upper end of our non-GAAP earnings per share guidance by $0.20. We are also reducing the bottom end of the range for non-GAAP EBITDA and non-GAAP earnings per share and widening both ranges to reflect the increased uncertainty due to tariffs. If not for the current potential impact of tariffs, our full year 2025 non-GAAP EBITDA and non-GAAP earnings per share guidance we had previously provided would not have changed. We anticipate product bookings to be in the range of $500 million to $550 million. Our year-end 2025 annual recurring revenue is expected to be in the range of $610 million to $630 million. Total revenue is expected to be in the range of $1.105 billion to $1.155 billion. Non-GAAP EBITDA is expected to be in the range of $100 million to $145 million. Please note that this is a wider range than we typically guide and reflect the potential tariff impact we see today. Non-GAAP earnings per share are expected to be in the range of $1 to $1.65. Again, this is a wider range than we typically guide and reflect the tariff uncertainty and expected impact that we discussed earlier. As a reminder, we are also facing an approximate $0.20 headwinds to non-GAAP earnings per share in 2025 compared to 2024. This is due to a reduction in interest income as a result of repurchasing a significant portion of the principal amount of our previously outstanding convertible senior notes. For full year 2025, we are assuming an effective blended tax rate of approximately 18% in our non-GAAP earnings per share guidance. Please note that our second quarter and revised full year 2025 guidance is based on our current estimates of the potential impact of the tariff in place today, including those which are scheduled to increase in the future and does not include any potential or additional tariff impacts from future changes not yet enacted or the potential impact of additional reciprocal tariffs that may be imposed. We recognize that the current situation is fluid and we will continue to monitor the potential impact as the year progresses. In summary, I am pleased with the strong results that all of us here at Omnicell have worked hard to deliver for the first quarter of 2025. We believe that these results reflect a strong customer demand for our innovative and outcome centric medication management solutions as our customers look to be embracing the industry defined vision of the autonomous pharmacy and our continuous focus on driving the business towards a recurring revenue model. Despite the challenging and evolving tariff situation, I am extremely proud of how our team has remained resilient and committed to delivering on Omnicell's mission to be the clinician's most trusted partner for medication management. We would now like to open the call for questions.

[Operator Instructions] Your first question comes from Jessica Datson with Piper Sandler.

Hi, guys. Thank you for taking the question and thanks for the color on tariffs. Can you guys describe what your outlook implies in terms of just tariff distribution or how the burden of tariffs is distributed between Omnicell and your customers? To what extent are you passing through some portion as price or are you absorbing effectively all of the impact? Thanks.

Well, at this moment, we are not passing significant price increases on to the customer. But as we continue through the tariff situation, there's a possibility that we could or maybe just not lower discounts as much. We do have contracts with customers that we will live up to. But I think for the most part, we need to reorient our supply chain to reduce the impact of tariffs. That's the biggest move we can make.

Got it. That's helpful. And so the reiterated guidance implies no change to units effectively because the price to the customer will be the same. That's my first one. And then just secondly, I'm interested to know, does XT Amplify have any have kind of a more favorable supply chain? Yeah, a more favorable or domestic supply chain relative to the XT Cabinets. And then just can you confirm that XT Amplify's first product, so XTExtend, is on the market and deploying right now? Thanks.

Hi, Jessica. This is Nnamdi. Thanks for the question. Well, just to kind of paint a picture, XT Amplify is part of our XT portfolio. And when you look at the Omnicell portfolio in general, our point of care products, which XT is a big part of and Amplify components, are sourced globally. So that's what's really driving our exposure, particularly from a tariff standpoint. And with respect to the rollout, XTE is being rolled out as we speak. We started the rollout last year. So that's a part of our portfolio that continues to ramp.

Your next question comes from Gene Mannheimer with Freedom Capital Markets.

Thanks, and good morning. Could you just maybe talk about the cadence of that $40 million tariff impact? In other words, Nchacha called out $5 million in Q2, but I'm trying to get a sense for whether the biggest impact will be in Q4 since that's when you install the most hardware. Just curious on that trajectory.

Yes, Gene. So the total impact for the year is $40 million. So the gross impact is about $30 million. But then we have some that will stay in inventory through the end of the year. We have a total of about $50 million. And with our mitigation efforts, that's how we get to the $40 million. And so the $40 million, we have about $5 million that is going to be recorded in the second quarter. And then the remainder will be in the second half of the year. So we're looking at about $30 million to $35 million impacting the second half of the year.

And I would add, Gene, that there could be some bias towards the fourth quarter, per your comments about that being typically the strongest revenue quarter for us.

Right, right. That makes sense. Thanks. And my follow-up is, Randy called out some nice wins in Illinois and the Northeast with respect to XT. I'm just curious if those selections maybe were extended from the fourth quarter. I'm just trying to get a sense on where the demand is and where we are in the cycle for XT upgrades now. Thank you.

Yeah, those were new customers, and they had their own timing. They're not really tied to seasonality, I would say. But more about when the decision to make a swap and make the investment. And we kind of see those come and go kind of regularly every quarter. We may not have as many in some quarter, but I wouldn't say there's any special timing to note to those. And those were folks who really loved where XT Amplify was and where we were taking it and really saw the strategic fit with what they wanted to do and what we had to offer now, as well as what we were rolling out. So we think that trend will continue.

That's great. Thanks again.

Thanks, Gene.

Your next question comes from Allen Lutz with Bank of America.

Good morning, and thanks for taking the questions. I know a lot of focus has been on the tariff piece here, but I want to talk about just generally what your hospital customers are thinking here. There have been some data points out in the market that pharmacy IT budgets may actually be inflecting a little bit more positively than where they've been over maybe the past couple of years or so. So if we kind of ignore the tariff piece for a second, are there any fundamentals going on within the hospital market that you're seeing that could be driving any type of reacceleration in demand for pharmacy IT and those types of budgets? Thank you.

Thanks, Allen. Yeah, well, certainly specialty is a top topic in all providers. And that is really making the pharmacy conversation with our customers that I have a lot more strategic. It's not just about the savings and safety issues, but the revenue generation, particularly in the outpatient settings and particularly around specialty pharmacy. And so those kinds of strategic discussions just seem to be more on customers' minds as these providers have gotten to be very, very large. So they want to leverage that, and they want to deploy a system that can help them leverage that. So I think that's the leaning we're feeling in the market. We saw the momentum at the end of last year, and we continue to see that momentum in first quarter and in the marketplace today.

Great. Thanks, Randy.

Your next question comes from Bill Sutherland with Benchmark.

Thank you, everybody. I'm wondering about, as we think about the new EBITDA guidance range, what are the assumptions at the lower end of it? And what would be the assumptions at the higher end? Is it just a matter of success with mitigation? And if that's the case, maybe I should rephrase the question as what are the two or three key mitigation steps you think are going to be most effective?

Yeah, so you're right. The changes that we made in the guidance was primarily driven to account for tariffs, both at the lower and upper end. But looking at the mitigation actions that we put in place, because we sourced most of our products from China. We're looking at really reallocating our supply chain footprint to more favorable geographies across the globe, including North America. So that's one of the main mitigation factors. And as Randy mentioned earlier, we're looking at our pricing actions, so the pricing that we can take or execute based on our contracts to try to mitigate or reduce the impact of tariffs.

And Bill, just to add a couple of points to what Nchacha has described, the other additional actions we're taking are also accelerating component shipments from lower tariff geographies. So a lot of this leverage that we have available to us is based on work that was done in the past, in past years to really build resiliency into our supply chain. As Randy also touched on, we're looking at evaluating pricing as we go as well. So all these things come together and they give us the ability to mitigate at least some portion of the tariff exposure that we're seeing.

Bill?

Yeah, I'm sorry, go ahead.

Yeah, no, I would also -- just also add to the conversation that, you know, in terms of the tariff impact to EBITDA, the lower end just assumes the full impact. The change to the higher end is contemplating the impact we're expecting in the second quarter.

Okay. And are the two biggest factors, semiconductors and metal for the frame?

The primary driver here, just kind of going back to our prepared statement, the primary driver here is when you look at the components and the subassemblies that we source from China, that's what's really driving a lot of the net exposure of the $40 million in 2025. And as we're working with our partners to reallocate and move those sourcing nodes, if you will, outside China, we'll start to see the benefit of that. But really that's the piece that's driving the exposure here.

Okay. And then I guess last, Randy, just a product question. IBX, an update on how that's moving forward?

Yeah. We've had a very successful first quarter in rolling out our next release to all of our customers and gotten very favorable responses from our customers about the new capabilities that that release comes with it. And it really allows for both broader ranges of market areas to drive through the system, as well as more speed and reliance, reliability. So it's going well and it continues to build momentum. And we do have a great pipeline in our sales force as they take this product out. And so we think that slowly but continually builds and grows every quarter.

Great. Thanks for all the color, guys.

You bet.

Your next question comes from Stan Berenshteyn with Wells Fargo.

Hi. Thanks for taking my questions. Just back on the China tariff discussion, how much time would it take to sufficiently disintermediate the supply chain exposure to China?

Just the way I would frame it here is if I go back to the actions that we've taken as a company to strengthen our supply chain. It really gets anchored in some key partnerships on the supply side. And we've made investments across multiple geographies. And that's giving us the flexibility to move the allocations out of China. With regards to how long that would take, that's something that's probably going to happen over time. It's not -- I mean, there are still some components that flow through China and Taiwan. I think there's going to be a lag on those types of things that will sort of gate the ability to disintermediate completely. But we're doing -- basically, we're taking actions here to move what we can to other nodes. And then the last few pieces we'll have to work through over time. But that's how I would explain that.

Okay. And do you have any revenue exposure to China?

Nothing material.

Okay. Thanks so much.

Thanks, Stan.

Our next question comes from Matt Hewitt with Craig Hallum.

Good morning. Thanks for taking the questions. Maybe first up, historically, you were in a position where your products, your services were -- call it top five from a decision standpoint at your customers. And that's kind of helped you when things were a little cheekier or there were questions about the macro. How does that -- how does your product portfolio or service portfolio sit today? You look at hospitals and there are some questions about the macro and Medicaid cuts and things like that. And we've heard anecdotally at least that there are some companies that are starting to see customers kind of pull back a little bit on some of the purchasing decisions. Yet you obviously had a very strong quarter. You reaffirmed your revenue guidance for the year. So is it because you kind of sit in that top five purchasing decision or is there some other dynamic that's helping you?

Well, I think pharmacy, as I said previously, becomes more and more strategic for these super large providers. And frankly, we've seen, I believe, the hospital margins first quarter around 6%, which continue to grow. They want to invest in pharmacy. And those investments aren't just in our equipment, but expanding pharmacies to be really outpatient driven as well. By having the outpatient driven piece, these providers can stay more connected to their patients and be more holistic as they approach their care and their outcomes. And so they want to do that and they realize in order to do those kinds of things, they need to do more than just have good equipment inside the four walls of the hospital. But they must have a strategy to go outside of those walls. You have to have a specialty strategy and you have to have an outpatient strategy. So those topics are high on the list of the C-suite and will continue and really position as well to tell the whole story of Omnicell not just parts and pieces.

That's helpful, Randy. Maybe as a follow up question, a little bit separate here, but I realize that you're sourcing some of your components globally. But with such an outsized tariff on the products coming from China, is there any way that you could quantify, I mean, is it roughly half of your components are coming from China? And as you mitigate that, as you shift some of your sourcing to other regions, that would have an outsized impact on helping your margins recover or any color that you could provide on geography exposure?

China is our biggest exposure. And as we mitigate that one and move things to North America, which we actually had a three year plan, we're about one year into it. So if we didn't have the tariffs, it'd probably be about two years. But that's what we're trying to accelerate the plan to move quicker on that. That's the outside is probably two years. But we believe we can accelerate that and get things back to North America where the impact is small. So there are some other things that are a little bit tariffed, but they're mostly on rounding numbers. The key about being in China is that these are subassemblies. In other words, they're just not an electronic board. They actually build the subassembly so that we can do the manufacturing in the states for configuration and shipping here. So they're feeding our manufacturing that we have stateside.

Makes sense. All right. Thank you.

Thanks, Matt.

Your final question comes from David Larsen with BTIG.

Hi. Can you talk about the progression of expected revenue growth, I think both in product and services? I mean, your revenue growth looks pretty good in the quarter, year over year. And it seems like on a year over year basis, you're guiding to a pretty significant slowdown in that growth rate. I'm just wondering why that is. And just any thoughts on XT Amplify, how those sales are progressing, maybe what the current penetration rate is in your base? Thanks very much.

Yeah. Thanks, David. We feel really strong about the Amplify portfolio. It got off to its first year, started last year, and the momentum continues. We're going to do great in that product line. And it is the product that really starts the discussion at all of our accounts about how to prepare, how to get more efficiencies and safety today and prepare for the future possibilities of more innovation to help move to outpatient to integrate with specialty, and look at some retail SaaS business as well. So I think -- I feel like the momentum is continuing, and I think we'll get there. I think that we're still earlier in the first half of the year. So we'll probably be able to provide more clarity on product bookings as we move throughout the year, where we might end up there. But I just think -- I think the feeling in the company and the feeling in the way we're running the company is we do have positive momentum and that it's continuing forward, really built on the back of our customers who really want to move pharmacy forward in their operations and make it strategic. So I'm feeling good about this year.

Great. Thanks. And just related to that, how would you characterize, like, the hospital buying environment? I mean, there was a period there with labor constraints and higher inflation. You mentioned like a 6% margin for facilities now. Would you say that the environment, despite tariffs, has improved?

Definitely. Definitely. And I think that hospitals are always laggards, right? If there's something that's happening, it generally takes a while for it to flow through. So I think we don't see any slowdown in our revenue or install processes. We went back and recreated those over the last two years, so we have very precise inputs on near-term, medium, and long-term installs. And the same for the sales cycle. And we haven't seen any slowdown in either, although I think the sales cycle could slow down. It's possible. But we haven't seen it yet.

Okay. Thanks very much.

Thanks, Dave.

I'll now turn the call back over to Randall Lipps for closing remarks.

Yeah. Well, like I said, we're very positive on the first quarter of the year. As we've entered the tariffs, we understand that that is a headwind, but we've got good mitigation plans going. We do believe that we'll be able to, over the long term, set those right. We've got to continue to ship and install for our customers as the business continues to build. The other areas of the recurring sections of our business continue to be strong, and we're happy with their specialty and enlivened business. And I just want to also reach out and know that the teams out there have been working hard through all the supply chain issues, many hours and nights, and have put a good plan in place to get us where we need to go and continue to improve. So stay tuned. I'm sure there'll be some new news on the tariffs as we move forward. But we wanted to position ourselves to be nimble and ready to do what we need for our customers and for our shareholders. Thank you.

Thanks, everyone.