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Omnicell Inc (OMCL) Q4 2018 Earnings Conference Call Transcript


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Omnicell Inc (NASDAQ: OMCL)
Q4 2018 Earnings Conference Call
Feb. 07, 2019 , 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Deidre, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Fourth Quarter Earnings Announcement Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I will now turn the call over to our host, Mr. Peter Kuipers, Chief Financial Officer. Sir, you may begin your conference.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you.

Good afternoon, and welcome to the Omnicell fourth quarter and year-end 2018 earnings call . Joining me today is Randall Lipps, Omnicell Founder, Chairman, President and CEO.

This call will include forward-looking statements subject to risks, uncertainties and other factors that could cost 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 today, in the Omnicell Annual Report on Form 10-K filed with the SEC on February 27th, 2018, and in other more recen t report s 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 February 7th, 2019, and all forward-looking statements made on this call are made based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change.

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 first provide an update on our business. After Randall's remarks I'll cover our results for 2018 and our guidance for 2019. Our fourth quarter financial 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. Included in our fourth quarter earnings release are a few slides that Randall will speak to in his section. Our prepared remarks will also be posted in the same section.

Let me now turn over the call to Randall.

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

Thanks, Peter. Good afternoon, everyone.

We just concluded our global sales field meeting, and 2018 was a record year for Omnicell. I'm very pleased with the execution of our strategy and the performance of the business as we continue to transition our business toward the vision for the autonomous pharmacy.

Some of the key financial accomplishments during this year include record bookings of $716 million, up 26% from 2017; record product backlog of $478 million, up 39% from 2017; record revenue of $787 million, up 10% from 2017; and record non-GAAP earnings per share of $2.09, up 48% from 2017.

In addition to these financial results, I am also very proud of the Omnicell team for the work done to execute on our strategy. During 2018, we released several new products. The most notable additions to our product portfolio are the XR2 central pharmacy robot and the IVX workflow. These two products further expand our core capabilities in automating the flow of medications through a hospital. In addition, we expanded our population health product offering by introducing new capabilities in our patient engagement platform and began to develop relationships with payers to use these solutions to provide improved patient care.

We have also continued to make investments in our industry-leading medication dispensing technology. Earlier this week, our automated dispensing technology was awarded best in class for the 13th consecutive year and our IV automation was recognized as the category leader for IV compounding solutions. As a result of our continued innovation, we believe Omnicell has become an even greater strategic partner for health systems, but we still have a lot of work to do.

Late last year, at the ASHP Midyear Clinical Meeting, we announced our vision for the autonomous pharmacy. Earlier this year, we also presented our vision at the J.P. Morgan Healthcare Conference, and I wanted to take a moment to explain this in more detail. Included in our fourth quarter earnings release are a few slides to help visualize the issues facing healthcare and our strategy to assist with the solution.

So slide two shows the rapid increase in healthcare administrators since 1970. As you can see, the number of administrators has increased 3000% over this time. Over time, the complexities in medication management have led health systems to address the increased volume of patients and medications with very manual processes. These processes are not efficient and have resulted in substantial growth in the number of people allocated to administrative tasks to handle the volume. These trends are not sustainable into the future, and we believe the key to solving this is with automation tools that integrate together and track medication and therapy to provide the best patient care for the lowest cost.

Moving to slide three. There are many areas of inefficiency within healthcare that we are working to address. Currently 76% of a pharmacist's activity are non-clinical. Today, over $450 billion is spent on drug spend annually in the US with sub-optimal outcomes for patients. We believe that our core product offerings have the ability to address many of these areas through improved automation that we are calling the autonomous pharmacy.

As you can see, products like our XR2 central pharmacy robot can provide automated medication dispensing with virtually zero error. This system reduces labor costs, decreases medication waste and improves patient safety by helping to ensure each patient receives the right medication at the right time. Our IV technology has been shown to reduce medication compounding costs by 66% compared to the manually compounding methods. And finally our medication adherence solutions provide a way for patients to organize all of their medications in a simple to use consumable package, which increases adherence rate to approximately 90%.

These are a number of the core products that are the foundation for the autonomous pharmacy.

On slide four. Our vision for the autonomous pharmacy integrates a comprehensive set of solutions powered by the Omnicell cloud data platform across three key areas: automation solutions designed to digitize and stream workflows; secondly, intelligence that provides actionable insights to better understanding medication usage and improve pharmacy supply chain management; and third, automation of medication dispensing workflows, which includes expert services that serve as an extension of pharmacy operations to support improved efficiency, regulatory compliance and patient outcomes.

The right side of the slide shows the areas where our customers are realizing benefits: cost, revenue, safety, efficiency, compliance and value based care. Our vision for the autonomous pharmacy seeks to digitize each medication as a node on the network allowing fully automated flow from pharmacy to patient throughout the continuum of care.

Finally, slide five speaks to main trends we see occurring in the industry. And these the trends aligned well with our strategy. First, healthcare systems continue to consolidate and vertically integrate, and they need medication management automation solutions on one platform to improve patient and financial outcomes for both inpatient and outpatient settings. Secondly, pharmacy spend is the fastest growing spend category in healthcare, and as healthcare organizations increasingly manage the cost of care, medication management across the care continuum elevates its strategic importance. And lastly, substantial increases in healthcare administration focused on manual task highlights the need for complete medication management solutions to drive efficiencies and, for sure, patient safety.

We believe that our industry-leading medication management platform across the continuum of care and our vision for the future of medication management automation very strongly aligns with these healthcare trends, and this has become increasingly evident in the many of our platform sales to both new and existing customers.

In the fourth quarter of 2018, we continued to see strong momentum in new orders booked which include multiple products from the Omnicell platform. Overall, we see specific strength in customers expanding their implementation of the Omnicell platform by adding additional products and while also upgrading existing products. Some notable examples include: Texas Children's Hospital, where we continue to build our partnership with the addition of new automation for pharmacy, including the XR2 automated system, IV compounding solution, as well as expansion of the XT footprint. After leveraging Omnicell solutions in other areas of the hospitals, these new additions to their autonomous medication management strategy will help bolster patient care and support the safest process possible.

Vanderbilt University Medical Center, one of the largest academic medical centers in the Southeast and a current customer of Omnicell, has chosen to upgrade their existing systems to the XT Series. With more than 2 million patient visits each year, our closed loop interoperability with Epic will help Vanderbilt achieve the highest levels of medication safety and security.

The California Department of Corrections and Rehabilitations, the CDCR, has long ensured that California patient inmates receive the medications they need with the help of Omnicell's single dose packaging solutions. CDCR is now expanding this partnership to pioneer a state budgeted clinic model, leveraging the XT Series platform at each of their 34 institutions statewide to automate their medication path process. This effort will increase clinical quality and safety for the 150,000 inmates in the California state correction system, ultimately reducing costs for California's taxpayers.

While 2018 was a great year for our business, our new strategy is resonating with customers in the form of record product bookings and we look forward to continuing our progress in 2019.

Let turn the call back over to Peter with some financial discussions.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you, Randall.

Our fourth quarter 2018 GAAP revenue of $212 million was up 8% year-over-year. Our full year 2018 GAAP revenue of $787 million was up 10% year-over-year. The increase in revenue were largely due to an increase in XT Series implementations, increase in annual service and maintenance revenue from a larger installed base of equipments and contributions from new product sales such as XR2 and IVX Workflow that are ramping since we launched the products during 2018.

Fourth quarter earnings per share in accordance with GAAP was $0.36 per share, down from $0.79 per share in the fourth quarter 2017. The decrease in earnings per share is largely due to a one-time tax benefit in the fourth quarter of 2017 which did not repeat in 2018. Our full year 2018 earnings per share in accordance with GAAP was $0.93, up from $0.79 per share in 2017. Growth in full year earnings per share was driven by the incremental profit contribution from increased sales as well as overall margin expansion.

In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense, amortization of intangible assets associated with acquisitions, one-time acquisition and restructuring related expenses, the acquisition accounting impacts related to deferred revenue for value adjustments and the tax reform benefit impact from the Tax Cuts and Jobs Act of 2017. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand the amortization of acquisition-related costs and non-cash stock compensation expenses that are a component of our reported results as well as one-time events and one-time acquisition and restructuring-related expenses. A full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release and is posted on our website.

For the fourth quarter 2018, non-GAAP revenue was $212 million, which is an 8% increase over the fourth quarter of 2017. Our full year 2018 non-GAAP revenue of $787 million was up 10% year-over-year. Fourth quarter 2018 non-GAAP EPS was $0.70 per share, up 27% from the same quarter last year. Full year 2018 non-GAAP EPS was $2.09 per share and is up 48% from 2017. The non-GAAP EPS favorability was mostly driven by higher revenues, gross margin expansion and improved (technical difficulty)

Operator

We are experiencing technical difficulties at this time. Please remain on the line. Excuse me, ladies and gentlemen, please remain on the line. And you're now live.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

We're are back again. We had some technical difficulties. We will continue the call.

In addition to strong revenue and profitability growth, there are additional indicators that demonstrate the momentum in our business. First, product bookings for the full year of 2018 increased approximately 26% to $716 million. This was a record for the business and exceeded the midpoint of our guidance range by approximately $59 million. Of the increase above the midpoint of our guidance range, approximately $20 million was driven by timing of orders that we expected to occur in 2019 and closed earlier in the fourth quarter of 2018. Another $20 million are the result of stronger momentum in the business. And finally, $19 million is related to one specific platform customer deal.

The second indicator is product backlog. Product backlog as of December 31st, 2018, increased approximately 39% to $478 million. Third, non-GAAP gross margins exceeded 50% for the second consecutive quarter and expanded over 200 basis points to 49.3% for the full year of 2018. Fourth, our non-GAAP operating margin exceeded 16% in the fourth quarter and expanded 370 basis points to 12.9% for the full year of 2018.

Lastly, during the fourth quarter we again entered into a record number multi-million dollar commercial agreements. Over 90% of these multi-million dollar product bookings are with customers adopting multiple products on the Omnicell platform.

I'd like to take a moment and explain certain trends in our product backlog as it will be useful to investors in understanding some of the dynamics related to our platform sales approach. Historically, our product backlog was largely consisted of capital equipment that would generally be installed in less than one year. But as our business has evolved to more platform oriented sales, a larger portion of our product backlog is now longer-term in nature.

Products like Performance Center and IV RIIS, which is our IV compounding solution as a service, consist of multi-year agreements with customers. These product lines are becoming more substantial to our business. And as we continue to transition to more cloud based platform applications, it will be more important to understand the impact on our product backlog and revenue. Going forward, we will be reporting two different metrics on our product backlog that we believe will be useful to investors. We will report our total product backlog as well as the portion of our product backlog that will not convert to revenue for over one year.

As of the end of 2018, our total product backlog, as mentioned previously, was $478 million compared to $345 million as of the end of 2017. Of these amounts, $103 million and $65 million as of the end of 2018 and 2017 respectively are considered long-term over one year. We expect to continue to provide these metrics annually.

Our business is also reported in segments consisting of automation analytics and medication adherence. Automation analytics consists of our XT and OmniRx automated dispensing cabinets, anesthesia workstations, central pharmacy, Omnicell Supply, Omnicell Analytics, Performance Center and MACH4 robotic dispensing systems. Our acquisitions of Avantec, MACH4, Aesynt and InPharmics are also included in this segment.

The medication adherence segment consists of a broad platform of subscription software, medication packaging and equipment use by pharmacists to create adherence packages that assist retail pharmacies in helping patients stay adherent to their medication regimens. Our acquisitions of MTS Medication Technologies, SurgiChem and Ateb are included in the medication adherence segment.

We report certain corporate expenses that cannot be easily applied to either segment separately.

On a segment basis, our automation analytics segment contributed $178 million in GAAP revenue in the fourth quarter of 2018, up from $162 million in the fourth quarter of 2017. GAAP operating income of $47 million in the fourth quarter of 2018 compared to $37 million of GAAP operating income in the same quarter last year. Non-GAAP operating income of $55 million for the fourth quarter 2018 compared to $44 million of non-GAAP operating income in the same quarter last year. On a year-to-date basis, GAAP revenue for the full year 2018 was $656 million, up from $587 million in the prior year and GAAP operating income for 2018 was $148 million compared to $94 million in the prior year.

The medication adherence segment contributed $34 million in GAAP revenue in the fourth quarter of 2018, slightly down from $35 million in the fourth quarter of 2017. The slight decrease relates to the timing -- related to the timing of implementation of certain larger automation equipments. The GAAP operating loss of $600,000 in the fourth quarter of 2018 compares to $600,000 of GAAP operating profit in the same quarter last year. Non-GAAP operating profit of $1.9 million for the fourth quarter of 2018 compares to $3.1 million of non-GAAP operating income in the same quarter last year. The year-over-year variance of both GAAP and non-GAAP operating income was mostly driven by a one-time excess and obsolete reserve for slower-moving inventory as discussed in the third quarter 2018 earnings call. For the full year, GAAP revenue for 2018 was $132 million, up from $126 million in the prior year. GAAP operating loss for 2018 was $5.5 million compared to $1.6 million in the prior year.

Non-GAAP common expenses were $23 million in the fourth quarter of 2018, up from $19 million in 2017. This increase is primarily driven by accruals for product bookings incentives in 2018 that we did not have in 2017. Non-GAAP other expenses for the fourth quarter of 2018 was $1.7 million, primarily consisting of interest expense on the outstanding loan balance and the impact of foreign currency remeasurement.

Let's now move to the balance sheet and cash flow. Fourth quarter and full year 2018 cash flow from operations was $48 million and $104 million respectively. Our strong operating cash flow in the fourth quarter was primarily driven by net income, improvements in working capital and adjustments for non-cash related items such as depreciation and amortization. For the full year, the business generated approximately $50 million of free cash flow. We believe our business will continue to deliver free cash flow growth in 2019.

Inventories at December 31st, 2018, were approximately $100 million and relatively flat from the prior quarter and up 5% from last year as we are ramping up production of the XT Series, XR2 and IVX Workflow. Accounts receivable days sales outstanding for the fourth quarter were 85 days, down 8 days from the third quarter 2018. The decrease was mostly driven by increased collections during the quarter.

At December 31st, 2018, our cash balance was $67 million compared to $44 million as of September 30, 2018. As of December 31st, 2018, we had $140 million of outstanding funded debt and a loan leverage measured as outstanding total funded loan balance over the last 12 months of bank EBITDA was approximately 1.1.

In addition, during the fourth quarter we utilized our at-the-market offering to sell approximately 555,000 shares of our common stock at an average selling price of $72.40 per share. The total gross proceeds raised during the quarter were approximately $40 million. These proceeds were used to repay outstanding debt. During the fourth quarter, we repaid $50 million of debt. During 2018, we reduced our outstanding debt by 35%.

Our headcount was 2,476 at December 31st, 2018, up 129 from beginning of the year.

Now moving to our full year 2019 guidance. We expect 2019 product bookings to be between $745 million and $780 million. This represents a 7% organic growth rate when taking the midpoint of the guidance range. Earlier I mentioned that we received approximately $20 million of product bookings in the fourth quarter of 2018 that we originally expected to occur in the first quarter of 2019. When adjusting for the timing of these product bookings, the calculated organic growth rate in our guidance would be 13%.

We see strong growth in product bookings over the coming years as both adoption of the Omnicell platform and upgrade cycles are gaining momentum. The product bookings CAGR from 2016 to 2019, using the midpoint of the provided guidance is 12%. We expect 2019 total revenue to be between $880 million and $900 million. This represents a 13% organic growth rate when taking the midpoint of the guidance range.

It's important to note that our total revenue consists of product revenue and service revenue, which inherently have different growth rates. As a result, we're providing specific guidance for both product revenue and service revenue in 2019. We expect 2019 product revenue to be between $652 million and $668 million. We expect 2019 service revenue to be between $228 million and $232 million.

We expect total year 2019 non-GAAP EPS to be between $2.40 and $2.60 per share. This represents a 20% year-over-year organic growth rate when taking the midpoint of the guidance range.

For the first quarter of 2019, we expect total revenue to be between $196 million and $202 million. We expect product revenue to be between $140 million and $145 million and we expect service revenue to be between $56 million and $57 million. And finally, we expect non-GAAP EPS to be between $0.38 and $0.43 per share. Finally, for 2019 we are assuming an average annual effective tax rate of 10% in our non-GAAP EPS guidance range.

As Randall mentioned, we are very pleased with the results of 2018 and we look forward to continue to deliver strong and profitable results in 2019.

Now we would like to open the call for your questions. First question, please?

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Jamie Stockton with Wells Fargo.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Hey, Jamie.

Jamie Stockton -- Wells Fargo -- Analyst

Hey, good evening, thanks for taking my questions. So I guess maybe just to start with, on the bookings guidance for next year, I mean it sounds like, Peter, with your commentary that you guys do think maybe there is a little more gas left in the tank as far as equity upgrade activity is concerned that can continue to elevate the bookings level. I guess, maybe first, is that an accurate way to assess the environment?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Well, absolutely. I mean, on the XT upgrade cycle, really here in the second inning. So we're accelerating and there's a lot more gas in the tank for many years.

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

Yeah. And as we I think stated earlier -- in earlier calls this year we're expecting double in the growth of XT from current customers who are doing replacements from year to year. We did accomplish pretty much that this year and we're kind of expecting the same next year. So I think it's continuing to grow as expected, the strong growth, and it certainly is contributing to the large bookings growth we had this year.

Jamie Stockton -- Wells Fargo -- Analyst

Randy, when you say the same next year, do you mean another doubling or an equal kind of level...

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

Yeah, another double -- no, not a double.

Jamie Stockton -- Wells Fargo -- Analyst

Not a double? Okay.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

It's just an adoption curve that you kind of -- that we've seen in the adoption of the product. So we're in the early innings. So we're not, I mean, to close to peak...

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

No. We're not at the top of the bell curve yet.

Jamie Stockton -- Wells Fargo -- Analyst

Okay. And then a fairly unrelated question here. But as far as M&A is concerned, can you just talk about -- are you guys seeing a lot of interesting opportunities now? Is the -- is the valuation environment not that compelling and that's maybe why it's been a while since we've seen any transactions? Just any color there would be great.

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

Well, I think we are really focused on delivering the autonomous platform into the -- to the point that it continues, that we can find acquisitions that drive that platform to more completion, it does make sense. But I think we're not looking for those substantial acquisitions that would change the face of the Company. I think we've got our vision and our marching orders and so some of the things are going to be organic. And there might be some innovation we might be able to buy out there, but I don't think it's quite as significant in our M&A strategy going forward as it has been in the past.

Jamie Stockton -- Wells Fargo -- Analyst

Okay, that's great. Thank you.

Operator

And our next question comes from Bill Sutherland with Benchmark Company.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Hey, Bill.

Bill Sutherland -- Benchmark Company -- Analyst

Hey, thanks. Good afternoon, guys. Peter, I was looking at the growth rate in the first quarter for product revenue. The midpoint was around 10%. And then kind of looking at what the next three quarters would need to be to come to your annual product revenue guidance then of course it would be a higher level of growth. I'm kind of curious how we should think about the cadence of the quarters after Q1 in that regard.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, so -- yeah, it's a great question. If you look at our seasonality that traditionally we've had, right, so the fourth quarter typically is the highest quarter as far as -- as revenue for product. I would point to the prepared remarks in the script where we exceeded the bookings in the fourth quarter by $59 million, right? A lot of that is not for implementation and installs in the first half of the year, so for -- mostly for the second half of the year, right. So that's also what helps that growth. And these are all non-cancelable agreements. Does that help?

Bill Sutherland -- Benchmark Company -- Analyst

Got it.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Okay.

Bill Sutherland -- Benchmark Company -- Analyst

That helps. And then on the bookings guidance for 2019, adjusted for timing, I understand it is 13%, not quite at the chase of '18. I mean, nothing to be ashamed of but what -- any color on kind of that differential, the two years?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, and I think the business historically has grown 8% to 12% and we've been kind of running at the top of that. 12% was the CAGR for the last three years, and I think the last two years, it's actually higher than that. But I don't see anything in the environment, either with hospital spend or our product launches that would suggest there is any kind of slowdown in our momentum or change in our momentum there. There are some large deals that could impact one year a little bit more than the other, but the momentum of the business continues to grow and it certainly shows in the bookings and the excitement about the platform and the autonomous pharmacy. So I just think that -- just first quarter, we're looking at what we got to do next year and the 8% to 12% has been sort of where we've been, and maybe we're running a lot higher than that and maybe it'll go more, but I think with where we are today and the increase, growth in revenue of 13% I think also speaks to the momentum of the book of the business. You can't grow the business 13% and not maybe have good momentum with bookings behind it.

Bill Sutherland -- Benchmark Company -- Analyst

Yeah, no -- it's good number. And last one from me on the patient engagement initiative. I was -- I wanted to see -- kind of maybe an order of magnitude question. As far as this year, will it be something that impacts the numbers? And will that be in the service and other revenue line when it occurs?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. So we're not giving specific guidance on the products specifically, if you will. What we will say is that we are now utilizing the network that we have of connected retail pharmacies that are connected to our platform. It's very attractive for payers and we have multiple contracts with national payers and we're definitely ramping up the number of patients covered under those programs, but it's not significant enough to break out revenue separately.

Bill Sutherland -- Benchmark Company -- Analyst

Okay. Thanks for taking the questions.

Operator

And your next question comes from Mike Ott with Oppenheimer.

Mike Ott -- Oppenheimer -- Analyst

Good afternoon. Thanks for taking my question. I wondered if you could maybe give an update the payer contract that you announced last quarter, just the status of it. If we should expect more like to ramp from the engagement work you're doing?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, I think that was the prior question as well. So we're ramping that up every single day and getting more patients on those programs every single day. And that becomes a layering of recurring revenue, and say, from a product perspective and engagement perspective, we're happy and we keep innovating and offer additional services.

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

And it is an embryonic, new kind of service, new kind of network. So I would say that we're really pleased with the early results, what we're getting and has great potential, not just for payers but also for provider network. So it's a great offering to complete the autonomous platform.

Mike Ott -- Oppenheimer -- Analyst

Okay. Well, thank you. And then also, Peter, I think we missed -- you gave a long-term backlog mix kind of number. I don't know if you could just give that again.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. So when you look at our product backlog, so we get two different numbers, right. So one number that we broke out, of the total back -- product backlog number, the dollar amount as expected to be installed and recognized as revenue within 12 months on the balance sheet date, yeah. And we also gave the dollar amount for bookings and agreements that will revenue over more than 12 months or over multiple years, right. So that piece of the business is growing over time, so it's important to understand if you do your modeling to look at kind of how that revenue flows in. Total backlog is definitely increasing quite a bit, very healthy, and we're getting more recurring also as a result.

Mike Ott -- Oppenheimer -- Analyst

Great. Thanks very much.

Operator

And your next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Lucas Baranowski -- Craig-Hallum Capital Group -- Analyst

Yeah, yeah, this is Lucas Baranowski on for Matt Hewitt here at Craig-Hallum, and we've just got a couple of questions here today. I guess, first off, looking at the EPS guidance, that looks to be above consensus. And you've mentioned in the past about potentially allowing some more dollars to flow through to margins. I mean, so should we take this to mean that fiscal '19, this is a year where maybe you're not going to spend as much on R&D given you've already done some of the heavy lifting in terms of the upgrades?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Well, I think what's really good to look at is the pages that we posted on the autonomous pharmacy and we presented that at ASHP and at J.P. Morgan Healthcare Conference. So yes, we do have a lot of the building blocks for the autonomous pharmacy. The autonomous pharmacy is resonating really well with customers and we're a market leader. We definitely see a lot of growth opportunity there. So we will continue to invest from an R&D perspective. What I would say though is if you would do the math on the guidance we just provided and take the midpoint, you would see that expected operating margin, non-GAAP, would probably increase over 100 basis points from 2018 actuals to 2019 guidance. So -- and I would say we are increasing profitability here modestly in the next year.

Lucas Baranowski -- Craig-Hallum Capital Group -- Analyst

Thank you. That's very helpful. And then kind of turning to kind of individual product lines, I mean, could you just kind of give us a sense even if you can't give a specific number, but just give us a sense what percentage of revenue is coming from software right now?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. Again, you should really take a look at the autonomous pharmacy. So software is actually a really important piece of the robots and the other equipment you see as well, I mean, a lot of the value prop and the value-add is coming from software, right. We do have pure software products as well, but we're not breaking out -- breaking it out separately. But that is strongly growing, that piece.

Lucas Baranowski -- Craig-Hallum Capital Group -- Analyst

So, I mean, kind of, I guess if we look at that software piece over the next three to five years, I guess you're looking at double digit growth there? Just kind of generally, what are you looking at there in terms of the growth rate?

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

Yeah, I think, for sure, you can say that as we move forward, more value of the products, whether it's embedded or on the outside of the of the actual systems themselves, is software-centric and helps eventually drive higher margins because people want robots and automation to work, obviously, but the value, it comes from the intelligence layer and that actually drives probably a higher value eventually than the hardware itself. So that's what we believe. And that's what we're focused on. Not just providing the systems, but how do you make those systems work seamlessly without any intervention and just drive perfection, I mean, where we think we can get very close to perfection with the cloud and with the services we provide.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

And remember, in our prepared remarks, we talked about the multi-million dollar deals and 90% of those are multi-product on the platform, if you will, right, that also include software. So don't think about it as a singular product or product line. The vast majority of the multi-million dollar deals, the 90% plus, they are buying the platform. We are becoming their strategic medication management automation partner throughout.

Lucas Baranowski -- Craig-Hallum Capital Group -- Analyst

Okay. Thank you very much. I think that's all I had.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

And your next question comes from Gene Mannheimer with Dougherty & Company.

Gene Mannheimer -- Dougherty & Company -- Analyst

Thanks, good afternoon and congrats on a strong finish to 2018. Randy or Peter, as you -- as you develop out this vision for the autonomous pharmacy, how does that R&D effort look? Is it -- should we expect it to be inflated for several quarters? Or does this rollout is a kind of a big bang or in phases? Maybe if you -- any more color there would be great.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

You should really assume in your modeling kind of a relatively flat percentage of revenue as you go through -- I mean, it's relatively stable as a percentage.

Gene Mannheimer -- Dougherty & Company -- Analyst

Okay. All right. Good to hear. And with respect to the -- some of your comments around the medication adherence division, you called out revenue was down year-on-year due to timing of implementations and some of your larger customers. Is that -- was that really the entirety of it? I'm just curious how retention is there and if you're seeing any impact from consolidation across institutional pharmacies at all?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

No, not really. Our retention is really good. I think the one change that we are seeing is that in December, we realigned our sales teams. We now have in North America one sales team will be selling all products, so across both segments. All products will be in the sales bag of our sales team and we see medications here is now also getting traction at health systems themselves as well. So we think that will definitely help, an integrated sales team there.

Gene Mannheimer -- Dougherty & Company -- Analyst

Okay. Very good. Thank you.

Operator

And your next question comes from Mitra Ramgopal with Sidoti.

Mitra Ramgopal -- Sidoti -- Analyst

Yes, hi, good afternoon. I was wondering as you look at the guidance for 2019, how do you see international factoring into it? Do you expect it to be a big contributor going forward?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah. So international, we focus on a couple of markets where we see adoption of automation gaining momentum, right, so that's the UK and the Middle East and Australia, parts of Asia and also Germany and France. I think overall, what we're trying to do is grow along with the 13% as well that we just guided to on revenue. So definitely quite a bit of opportunity. But we try to be balanced on where we're going direct and where we work with distributors and partners.

Mitra Ramgopal -- Sidoti -- Analyst

Okay, thanks. And then quickly just switching over to medication adherence. As you look at the profitability of that segment, any initiatives you think you need to undertake in terms of accelerating that?

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Yeah, it's really a question of scale, right. So we're investing in the patient engagement platform and some other areas as well and (inaudible) scale and then by -- the math will (inaudible) leverage and will increase profitability.

Mitra Ramgopal -- Sidoti -- Analyst

Okay. Thanks again for taking the questions.

Peter Kuipers -- Executive Vice President and Chief Financial Officer

Thank you, Mitra.

Operator

And I will now turn the call over to Randall Lipps for closing remarks.

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

2018 was a year of strong growth momentum, and really more evolution for Omnicell. And as you can see from our 2019 guidance, the momentum and the strength of the business continues on as we continue to roll out our platform and the autonomous pharmacy, which really the industry is -- really needs and patient care needs. And I particularly want to thank the Omnicell team for an unbelievable 2018 and being the kind of team that are dedicated beyond the numbers, but dedicated to improving healthcare for everyone. And lastly, I'd like to give a special thank you to Robin Seim for his 13 years of exemplary service to the Company. As previously disclosed, Robin will retire and join us on the Board of Directors next month. So we wish him the best and look forward to having him continue as a thoughtful advisor and leader in this new capacity. Thanks for joining us.

Operator

This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Duration: 51 minutes

Call participants:

Peter Kuipers -- Executive Vice President and Chief Financial Officer

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

Jamie Stockton -- Wells Fargo -- Analyst

Bill Sutherland -- Benchmark Company -- Analyst

Mike Ott -- Oppenheimer -- Analyst

Lucas Baranowski -- Craig-Hallum Capital Group -- Analyst

Gene Mannheimer -- Dougherty & Company -- Analyst

Mitra Ramgopal -- Sidoti -- Analyst

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Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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This article appears in: Personal Finance , Stocks
Referenced Symbols: OMCL



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