Omnicell Inc (OMCL) 2018 Q4 法說會逐字稿

Good afternoon. My name is Dedra, 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. (Operator Instructions) Thank you.

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

Thank you. Good afternoon, and welcome to the Omnicell's 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 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 today, in the Omnicell annual report on Form 10-K filed with the SEC on February 27, 2018, 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.

The date of this conference call is February 7, 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, any 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 will 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.

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 towards 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 2 products further expand our core capabilities in automating the flow of medications through a hospital.

In addition, we expanded our population health products 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 JPMorgan Healthcare Conference, and I wanted to take that 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 2 shows the rapid increase in healthcare administrators since 1970. As you can see, the number of administrators has increased 3,000% 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 3. There are many areas of inefficiency within health care that we are working to address. Currently, 76% of a pharmacist's activity are nonclinical. Today, over $450 billion spent on drug spend annually in the U.S. with suboptimal 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 0 errors. This system reduces labor costs, decreases medication waste and improves patient's 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 4, our vision for the autonomous pharmacy integrates a comprehensive set of solutions, powered by the Omnicell cloud data platform across 3 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 5 speaks to main trends we see occurring in the industry, and these are trends lying well with our strategy.

First, healthcare systems continue to consolidate and vertically integrate, and they medication management automation solutions on one platform to improve patient and financial outcomes for both inpatient and outpatient setting.

Secondly, pharmacy spin is the fastest-growing spin category in healthcare. And as healthcare organizations increasingly manage the cost of care, medication management across the Care of 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 health care trends. And this has become increasingly evident into many of our platform sales to both new and existing customers.

In the fourth quarter of 2018, we continue 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 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 an expansion of the XT footprint.

After leveraging Omnicell solutions in other areas of the hospitals, these new additions to their autonomous and 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 Rehabilitation, the CDCR, has long ensured that California patient inmates receive the medications they need, with the help of Omnicell's single-dose packaging solution. 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 Corrections 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.

I'm going to turn the call back over to Peter with some financial discussions.

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, up 10% year-over-year.

The increase in revenue were largely due to an increase in XT Series implementations, increases in annual service and maintenance revenue from a larger installed base of equipment, and contributions from new product sales, such as XR2 and IVX Workflow, that are ramping since we launched the products during 2018.

The fourth quarter earnings per share in accordance with GAAP was $0.36 per share, down from $0.79 per share in the fourth quarter of 2017. The decrease in earnings per share is largely due to a onetime 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, onetime acquisition and restructuring-related expenses, the acquisition accounting impacts related to deferred revenue, our failure 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 noncash stock compensation expenses that are a component of our reported results as well as onetime events and onetime acquisition and restructuring-related expenses. A full reconciliation of our GAAP to non-GAAP results is included in our fourth quarter earnings press release as posted on our website.

For the fourth quarter of 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

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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 $760 million. This was a record for the business and exceeded the midpoint of our guidance range by approximately $59 million. If 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 after we sold a stronger momentum in the business. And finally, $90 million is related to one specific platform customer deal.

The second indicator is product backlog. Product backlog as of December 31, 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 exceed 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 of multimillion-dollar commercial agreements. Over 90% of these multimillion-dollar product bookings are with customers adopting multiple products of 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 a 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 multiyear 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 2 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 confer 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 and Analytics and Medication Adherence. Automation and 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 and 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 compares to $37 million of GAAP operating income in the same quarter last year.

Non-GAAP operating income of $55 million for the fourth quarter of 2018 compares 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 of 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 of certain larger automation equipment.

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 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 onetime excess in obsolete reserve for slower-moving inventory, as discussed in the third quarter of 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 $22 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 2018 was $1.7 million, primarily consisting of interest expense from 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 primary driven by net income, improvements in working capital and adjustments from noncash-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 de-lever free cash flow growth in 2019.

Inventories at December 31, 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 of 2018. The decrease is mostly driven by increased collections during the quarter.

At December 31, 2018, our cash balance was $67 million compared to $44 million as of September 30, 2018. As of December 31, 2018, we had $140 million of outstanding funded debt, and our 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 XT 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, 5-0, $50 million of debt. During 2018, we reduced our outstanding debt by 35%.

Our headcount was 2,476 at December 31, 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 will be 13%, 1-3. 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 is in 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 average annual effective tax rate of 10% in our non-GAAP EPS guidance range.

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

Now we'd like to open the call for your questions.

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

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's a little more gas left in the tank as far as XT upgrade activity is concerned that could continue to elevate the bookings level. I guess, maybe first, is that an accurate way to assess the environment?

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

Yes, and as we stated earlier in earlier calls, this year, we're expecting a double and 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 just kind of expecting the same next year. So I think it's continuing to grow as expected with strong growth, and it certainly is contributing to the large bookings growth we had this year.

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

Not a double. It's just an adoption curve that you kind of -- that we've seen in the adoption of the products. And we're in the early innings, so we're not even close to equal.

We're not on the top of the bell curve yet.

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 valuation environment not that compelling, and that's maybe why it's been a while since we've seen any transaction? Just any color there would be great.

Well, I think we are really focused on delivering the autonomous platform. And to the point that it continues that we can find the 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 you 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.

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

Peter, I was looking at the growth rate in the first quarter for product revenue, which midpoint was around 10%. And then kind of looking at what the next 3 quarters would need to be to come to your annual product revenue guidance, and of course, it would be a higher level of growth. And I'm kind of curious how we should think about the cadence of the quarters after Q1 in that regard?

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

Got it. That helps. And then on the bookings guidance for 2019. Adjusted for timing, I understand there's 13%, not quite at the case of '18. I mean, nothing to be ashamed of, but what -- any color on kind of that differential in the 2 years?

Yes, I think the business, historically, has gone 8% to 12%, and we've been kind of running at the top of that 12% as the CAGR for the last 3 years, and I think the last 2 years is 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 was any kind of slowdown in our momentum or change in our momentum. But 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're going to do next year, and the 8% to 12% has been sort of where we've been and maybe we're running a little higher than that. And maybe they'll go more, but I think with where we are today and the increased growth in revenue at 13%, I think, also speaks to the momentum of the business. You can't grow the business 13%, and not -- then you have good momentum with bookings behind it.

It's good number. And then last one for me, on the Patient Engagement initiative. I was -- once it's, say, kind of maybe an order of magnitude question as far as this year, will it be something that impacts the numbers? And will be in the service and other revenue line when it occurs?

Yes. So we're not giving specific guidance on that product specifically, if you will. But 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, that's very attractive for payers and we have multiple contracts with national payers, and we're definitely ramping up the number of patients confident with the programs, but it's not significant enough to break our revenue cycle.

And our next question comes from Mike Ott with Oppenheimer.

I wondered if you maybe give an update on the payer contract you announced last quarter, just the status of it, if we should check more like it, perhaps with the engagement work you're doing.

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

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

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

Yes. So when you look at our product backlog, so we gave 2 different numbers, so one number, we broke out -- it's on about product backlog number. The dollar amount that's expected to be installed and recognized revenue within 12 months on the balance sheet date. And we also gave the dollar amount for bookings and agreements that will revenue over more than 12 months or over multiple years. 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 the revenue flows in. So the backlog is definitely increasing quite a bit, very healthy, and we're going to go do more recurring also as a result.

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

Yes. This is Lucas Baranowski on for Matt Hewitt, here at Craig-Hallum. And we 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?

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 the JPMorgan Healthcare Conference. So yes, we do have a lot of the building blocks with the autonomous pharmacy. The autonomous pharmacy is resonating really well with customers. And we're a market leader and we definitely see a lot of growth opportunity there, so we'll continue to invest. From an R&D perspective, what I would say, though, if you would do the math on the guidance we just provided and take the midpoint, you would see that expected operating margin on GAAP will probably increase over 100 basis points from 2018 actual to 2019 guidance. So I would say, we are infusing profitability here and modestly in the next year.

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 of what percentage of revenue is coming from software right now?

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

So -- I mean, kind of, I guess, if we look at that software piece over the next 3 to 5 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?

I think, for sure, you can say that as we move forward, more value of the products is embedded on the outside of the actual systems themselves is software centric, and it helps eventually drive higher margins. Because people want robots and automation to work, obviously, the value that comes from the intelligence layer, and that actually drives probably a higher value, and eventually, 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. And we think we can get very close to perfection with the cloud and with the services we provide.

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

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

Randy or Peter, 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 is this rolled out as a kind of a big bang or in phases? If you could give any more color there, it would be great.

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

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 in some of your larger customers. Is 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?

Well, not really. Our retention is really good. I think the one change that we are seeing is that in December, they realigned our sales teams where we now have, in North America, one sales team will be selling all products, so across both segments, all products that we have a sales back, all product sales team, and we see Medication Adherence now also getting traction at health systems to develop as well. So we think that will definitely help from some integrated [solutions] there.

And our next question comes from Mitra Ramgopal from Sidoti.

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?

Yes, so international, we focus on a couple of markets where we see adoption of automation gaining momentum as the U.K. and the Middle East and Australia, parts of Asia, and also, Germany and France. I think overall, I think what we're trying to do is grow along with the 13% as well that we just guided to on revenue. So revenue, quite a bit of opportunity, but we tried to be balanced on where we go direct and where we work with distributors and vendors.

Okay. 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?

Yes. It was really a question of scale, right? So we're investing in the Patient Engagement platform and some other areas as well, and we're positive that it will scale and stand by -- the math will then show also leverage and that will increase profitability.

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

Well, 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 adviser and a leader in this new capacity.

Thanks for joining us.

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