Q3 2019 Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily and time Airlines will again be placed on musical. Thank you for your patience.
This time, all participants are into listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you would need to press star one on your telephone. Please be advised that today's conference is being recorded.
Acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Peter Hyperscale Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you good afternoon, and welcome to the only so third quarter 2019 earnings call.
Joining me today, it's Randall Lipps, only sell 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.
The differ materially from those expressed or implied.
For more detailed description of the risks that impact these forward looking statements.
Please refer to the information in our press release today.
And the only Sanya report on Form 10-K filed yesterday February 27.
2019.
Our more recent reports filed with the FCC.
Please be aware, but you should not place undue reliance on any.
Forward looking statements made today.
Today that this conference call as a call with 24.
2019, and all forward looking statements made on this call.
Based on the believes that hold me tell us if this data only.
Richard Francis simply the passage of time May cost these beliefs the change.
Finally, this conference calls to property up almost all anchor and anything.
On a duplication or rebroadcast without the express written consent on these how is prohibited.
Randall will provide an update of our business.
After rentals remarks, all the CCAR results for the third quarter.
2019.
Guidance would have been I know there.
Our third quarter financial results are included in our earnings announcement, which was released earlier today and as opposed to.
Any person relations section of website only sell dot com.
Prepared remarks, we'll also be posted in the same section.
Let me now turn over to Colorado.
Good afternoon.
We are pleased to share the results of another record quarter.
Key financial results for the quarter include.
Record revenue of 229 million up 12%.
And third quarter of 2018.
Record non-GAAP EPS of 76 cents per share compared to 63 cents per share the same period last year, representing a 21% increase.
And non-GAAP operating margins of approximately 17%.
Up over 180 basis points from third quarter 2018.
The value we are creating through our cotton the pharmacy vision is being realized every day.
More customers join us on our journey to revolutionize the pharmacy care delivery model.
We're continuing to invest in technology to advance decision.
Our intention is for medications to be manage through a zero air fully automated and digitized infrastructure across the continuum of care.
The economist pharmacy vision integrates a comprehensive set of solutions powered by the Ami sell cloud data platform across three key areas.
Automation solutions designed to digitize and streamlined workflows.
Secondly intelligence.
That provides actionable insights.
To better understand medication usage and improved pharmacy supply chain management.
And third automation medication dispensing work flows which includes expert services that serve as an extension of pharmacy operations.
My connecting these solutions across the continuum of care, we have the opportunity to help solve for problems like prescription air.
Medical waste.
Medication adherence.
An opioid abuse.
All significant industry wide problems.
Driving medical cost up.
And reducing the opportunity for better health care outcomes.
As we have previously discussed.
Our business has expanded over the years from a single point solution to a platform of products and services that we are developing further in the vision of the economist pharmacy.
It has resulted in large deal sizes across multiple products and we believe more comprehensive valuable and enduring relationships with our customers.
We used to highlight our newest health care partnerships.
Including.
A 10 year renewal and expansion of the sole source agreement with Mercy.
Let's see as one of the top five hospitals systems serving.
Arkansas, Kansas, Missouri, and Oklahoma.
This will support medication management and streamline workflows across their service network through omni sell automation and intelligence solutions and central pharmacy inpatient care area.
We have also reached a renewed and expanded five year agreement with Vivian.
The world's largest group purchasing organization.
For our full portfolio of products, including XR too.
I V work flow and robotics and medication adherence solution.
How many sell has been recognized with Vivian innovative technology designation.
For our industry leading solution.
Salem health hospitals and clinics, the Premier health care provider for Oregon mid limit Valley.
Has selected omni cell solutions at its flagship Salem Hospital.
Salem health will be implementing omni sell XT automated dispensing systems, along with integration to the hospitals electronic health record system.
To streamline workflows improve nursing pharmacy efficiency and help enhance patient safety.
Say, when we'll leverage close loop interoperability and the system to provide advanced medication tracking and diversion prevention.
And the government sector.
V.A. health care system in North Carolina.
And pig Veterans Medical Center, and Central Texas has selected the omni sell X are two automated central pharmacy system.
An important technological step toward building a fully autonomous pharmacy.
I V automation also continues to gain traction in this segment as facilities, including Cincinnati be a medical center and the V.A. of Los Angeles are adopting our Ivy workflow technology.
Now I'd like to turn the call back or what appeared to discuss third quarter financial results.
Thank you I know.
Our third quarter 2019 revenue of $229 million most oh.
12% over a third quarter 2018.
An up 5% on the part of corner.
<unk> revenue was largely due to an increase in Exi series implementations.
Growth in annual serves a maintenance revenue.
The larger installed base of equipment.
As follows increased population health solutions revenue.
As discussed in the past a population health solutions include medication synchronization.
Patient messaging and honor adherents solutions.
The third quarter earnings per share in accordance with gap.
It was 46 cents up from 33 cents per share in the third quarter of 2018.
Increasing earnings per share is largely due to higher revenue in the third quarter 2019.
And achieving economic economies of scale or our operating expenses.
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.
Acquisition I restructuring related expenses.
Tax reform in restructuring income tax benefits and expenses continued gains in amortization of debt issuance costs.
We use non-GAAP financial statements. In addition to GAAP financial times, because we believe it is useful on fastest I understand the fact sometime with the station with acquisition related costs and noncash stock compensation expenses that are component our reported results as well as one time events and acquisition restructuring when I look.
Sponsors.
A full reconciliation I forgot the non-GAAP results is included in a third quarter earnings press release and is posted on our website.
Hi, good quarter 2019, non-GAAP EPS was 76 cents compared to 63 cents and the same period last year, representing a 21% increase.
Similar to the increase in our coffee P.S. increasing earnings per share on a non-GAAP basis is again largely due to economies of scale achieved in the context of higher revenue.
Non cap other expenses for the third quarter 2019.
Ciro point $6 million compared to $2.2 million in the third quarter 2018.
The decrease primarily relates to lower interest expense, that's our outstanding debt balance and has decreased and interest rates have fallen.
Let's now move to the balance sheet cash flow.
At September 32019, our cash balance was a high $37 million.
From $87 million at June 32019.
Our outstanding funny that was $80 million.
Resulting in a net cash position of $57 million.
During the third quarter, we did not so any stock into our aftermarket program.
Cash flow home prices during the third quarter and nine months ended September 32009 team.
It was 56 million and how that $10 million respectively.
Compared to $16 million and $57 million.
Comparable periods last year.
The increase in operating cash flows is primarily driven by increased net income and improvements in working capital.
Free cash flow generators in the third quarter and nine months and the September 32019 was $42 million $62 million respectively.
Compared to 2 million.
$2 million for the comparable periods last year.
The increase in free cash flow is primarily due to increases in operating cash flow mentioned earlier.
Accounts receivable days sales outstanding for the third quarter were 82 days down five days from the previous quarter and down 11 days from September 32018.
The decrease in DSL from last quarter as prior year is primarily due to higher sales an increase collections.
Inventories at September 32019 were approximately $806 million up $2 million from the previous quarter upsides in mind almost on September 30 last year to increase primarily driven by demand for the Exi series product line.
Our headcount was 2625 September 32019.
77 zero from the end on a previous quarter and up on a 99 from the same quarter last year.
The majority of it increases for manufacturing.
Implementation.
Service personnel needed to support our business as a as it continues to expand.
We expect this hiring trends to continue.
We grow the business.
Let's now move to guidance.
The specific guidance for the fourth quarter 2019 is as follows.
We expect total revenues to be between $240 million to $46 million.
We expect product revenues to be between on an 81 and had an $86 million.
Expect service revenue to be between 59 $60 million and we expect non-GAAP EPS to be between 75 and 80 cents per share.
Now moving to our full year 2019 guidance.
We expect 2019 product bookings to be between sovereign 65, and $790 million. This is unchanged from our previous guidance.
We are narrowing our guidance range for 2019 total revenue. We now expect 2019 told them if needed to be between 889 and $895 million.
The midpoint of our updated the narrowed our revenue guidance implies approximately 13% year for your growth.
From a full year 2018.
Total revenue.
This revenue kind of breakdown as follows.
We now expect 2019 product revenues to be between $653 million at 600.
$58 million previous guidance range was 653 and $663 million.
I expect 2019 service revenue to be between 236 cents to a $37 million our previous guidance range was 233 $2 million to $237 million.
We are increasing and narrowing our total year 2019, non-GAAP EPS guidance.
We now expect 2009 that 19, non-GAAP EPS to be between $2.79 and $202, an 84 cents per share.
Our previous 2019, non-GAAP EPS guidance was between $2.65 per share and $2.82 per share.
The midpoint of our new and updated non-GAAP EPS guidance implies approximately 35%.
Growth year over year.
For 2019 were now assuming an average tax rate of 9% in a non-GAAP EPS guidance range.
Using the midpoint stuff the provided ranges, we expect non-GAAP operating margins for the full year to be slightly above 15%.
As Randall mentioned, we're pleased with the results for the third quarter of 2019, and we look forward to continuing to deliver profitable results.
In the fourth quarter.
Before we turn to the Q in a portion of today's call I want to touch briefly on an informal inquiry WBC somebody actually see following to report from self proclaimed short seller glasshouse comes issues in July .
Switching cars. These are not uncommon following reports like the one class house issues.
We have responded in a fully cooperating with the FCC.
We remain consistent.
On July 15, 2019 response to the class House report.
With that the purpose of today's call is to discuss a third quarter earnings and we ask that you keep questions focused on our results now I'd like to open the call for your questions.
First question place as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound Keith Please standby will be compared to Q1 day roster.
Your first question is from Matt Hewitt with Craig Hallum.
Good afternoon. Thank you for taking the questions.
Can you hear me, Okay, you haven't yet okay. Good good alright.
First off revenues, particularly product revenues came in a little bit light of my expectation the street expectations I'm just wondering if there was anything timing related or.
Maybe if you could probably little bit of color on how these orders are kind of flowing through given the strength in your bookings yeah. MISO bookings are strong backlog is very healthy a strong you ever slightly below the midpoint of the provided guidance range.
We had some headwinds from an FX perspective internationally.
And then there was a little bit a timing delay in the UK.
From a Brexit influence as well and the tiny bit in the middle East from the geopolitical developments there so.
We wouldn't have those two factors that'd be would have been at the higher end and exceeding the product with guidance range. If you will.
Okay. That's great. Thank you and then shifting gears to the gross margin so product gross margin a very strong quarter I think it might be a record there on the gross margin. Meanwhile, service and other gross margin has kind of been ticking down a little bit.
Where do you see those two kind of.
Moving over the near to mid term I can gross margins continue to expand as you add more and more soft word is that fall into the service and if so then why wouldn't that won't be ticking up. Thank you.
So for gross margin, we have a favorable products and a customer mix in the in the third quarter.
We do expect gross margins to continue to increase overtime.
With the coffee our that typically the first quarter is a.
Lower quarter and revenue if you will never be build up during the year.
So there's definitely a little bit of volume leverage as well in the third quarter unexpected.
In the fourth quarter also well service margins. So we did mention the strength and population health server solutions that comes typically at a tiny bit lower margin compared to the more traditional.
Service revenue that we have and there were also investing in in professional services finds limitations as we go forward. So those those two factors a little bit of mix on service and there were investing all some professional services and never wrapping up the the installation of from pages of the newer products and.
The on lower scale for us is kind of the core products. If you will.
Yeah that makes it the percentage of all of it down on the surface gross margin line.
Got it alright, thank very much.
Thank you.
Your next question is from Mike with Oppenheimer.
Good afternoon. Thanks for taking my question, Peter You mentioned I think that job.
At the Rev strength gross in the quarter was due to the population health solutions, just curious if you'd call out strength in any particular.
Solutions.
A really really across the board somebody we went live it a larger program. If you will that was nationwide to that.
That's a really good enrollment and that's driving the majority of it.
Okay. Thanks, and then also you said some nice government deal flow in the quarter.
Is that fairly typical for Threeq you I mean, how does this compared to past years, I mean I realized the got it just go your end here at 930.
Yeah.
So a third quarter typically is the higher quarter for Gulf of business.
So we would expect fits the highest quarter like the for government business in the year. So that's that's for bookings right.
We're very pleased to see that also the government is adopting.
Components of the eponymous pharmacy like the extra to set the pharmacy robot and IP automation.
But you're right the third quarter is for most government organizations that we serve and partner with.
Kind of for fiscal year end for them, but we do expect some more business also in the fourth quarter from Kaufman.
Great. Thanks, very much so thank you.
And as a reminder, ladies and gentlemen that a star one if you had a question at this time.
We gave a question in queue from Matt Hewitt with Craig Hallum.
A couple more here adjusted operating margin, obviously, a very strong quarter and above your typical 15% I think you've you've kind of talked about that at the back half of the year coming at north of that 15%.
Historical target.
And I'm not trying to put you on the spot here, but.
You've got Q1 do you just explain that typically you do see some deleveraging or some de leveraging their and from a margin perspective, but how should we be thinking about this given the strength that you're seeing from a bookings perspective, which should translate into revenues, you're seeing leverage and other areas of the business is 15.
Percent still the appropriate number.
Yeah. So we think for now it is we do see his time here for year that is absolutely correct.
But we do have investments continued investments in new farms pharmacy somewhat or products that we already mentioned and we're building up the new products as well plus manifesting in services on professional services perspective. So for now that is the kind of the total year longer term.
Framework and we're looking at potentially updating it in the not too distant future, but for now it's 50%.
Okay.
No. Other question regarding Dsos that he's shown steady improvement the last couple of quarters, bringing that number down do you have internal ranger target that you're shooting for and maybe how close are we to getting there.
Yeah, we're definitely a you know reducing the accounts receivable balances. If you will I think we went over to drivers compared to other medtech companies on a.
Prior calls as well, we do not have a formal DSL target.
The Dsos is purely a mathematical calculation.
At the grocery our balance over over revenue in the quarter. The one part that is very difficult to estimate is really the shipments in the last couple of weeks of a quarter.
Because they are most before installs and revenue to following quarter as it that these makes it really difficult to estimate, but we do have the won't piece. We do have we do have internal cash collection targets. My math, if you will for the teams and ever definitely.
Driving those very hard obviously, some really good results.
Okay. One last one from me regarding Mercy I as he mentioned top five health system.
By my math, that's that's an extremely large contract 10 years. The last sole source agreements you signed with them I believe was back in 2003. So this is consistent with that kind of that longer term partnership that youve previously had but as we think about this I would assume that.
There are upgrading that the X T cabinets, they're adding XR too how how will those kind of lear into revenues I would assume that her should think that they would be more front end loaded in this 10 year sole source agreement, but maybe kind of walk us through how these longer term agreements kind of.
Layer on over the over their term thank you.
Yeah, I'll I'll take that question, if you don't might I you know.
These big customers, who have been our customer for a long time really have to look at the redeployment of the newer technologies and really redesign it from the ground up not just replace what they have but how do you get much more out of the technologies and with the coordinated connection between the pieces and so as we build out the door.
Outside of that over the next couple of years.
Then we really generally you start with the oldest equipment and so is there an older customer they have quite a bit.
Flippant, that's age so a and the newer equipment of course since they run the same.
Initial software technology that we run today, they don't have to replace it quite as quickly. So the key is that that we're able to deploy a total solution sad that really gets to some of these pharmacy issues that have not been able to be addressed without sort of a total Conrad comprehensive view, but.
As just from a rollout standpoint, I would think that.
You know mercy has a lot of systems, which have been our customer for a long time, so they probably need to have some of those systems a replay sooner than later.
Understood. Thank you very much.
Thank you Matt.
Okay.
Your next question is from Mitra Ramgopal with Sidoti.
Hi, Good afternoon, Hi, I'll just couple of questions I noticed SGN a are coming in as a percentage of revenue.
Last couple of quarters, and I know already on your scaling up headcount a little I'm, just wondering where you are on that front.
Yeah, So will Oh, we enjoy a little bit of leverage here in third quarter fourth quarter.
Well, we are growing looking at backlog and bookings momentum and.
The pipeline momentum we continue to scale.
As DNA as we're hiring like.
We said, we expect to do in the fourth quarter as well.
Back to go up and ask the unit cost as well.
Okay.
But again I know you have another and then as you know into fourth quarter. We do have a number of the bigger pharmacy and health conferences that all to add costs through the fourth quarter as compose as compared to other quarters.
Okay. Okay. Thanks mentioned that and I know, you've obviously I know some nice wins.
Recently, especially obviously into you asked how about just wondering outside the U.S. now.
If you're.
Seeing any change in the business environment there.
Yeah like we like you said in an earlier when all your questions. So we do see some headwinds from a.
FX perspective on the on the British pound Euro.
Your Roe.
We do see some some delays formats on the NHS.
Capital spending if you will in the in the UK, we think thats merely a delay is mostly related we believe two to Brexit.
And then in the Middle East you do have a little bit off the geopolitical.
Impact on ordering patterns as well, we think that's mostly delays as well but.
No. We have we have a number of wins as well internationally, we do see the.
80, see adoptions and in part of Asia also picking up.
Specifically in Hong Kong, and Australia, where we have some.
So nice wins, if you will so we've got some good momentum there but you.
You know, probably a little bit lower third quarter than we expected it to be as we went into the quarter.
Okay. Thanks, I'm going to finally, Nadia tax rate obviously.
Came in quite a bit the third quarter, how should we be thinking about that going forward.
Yes, if we got it for the full year ride for if were 9%.
Right.
And the fluctuations that are really kind of depending on the.
The benefits of the stock option exercises so that's why.
Pickup.
The tiny bit but in that range, it's probably fair for you to schuman, if future in future years wherever you got to make sure that you calculate the incremental profit at the at the federal U.S. rate of 21%.
Stay at that low over ready to incremental dollars you need to really.
Tax affected about 24%.
Right. Okay. Thanks, and then finally out Randy I know already on you'd mentioned you know a lot of things that you see you can be making a difference on things like the opioid crisis et cetera, and I just wondering if you're already having conversations regarding any specific things you could be doing in terms of.
Working with your existing customer base.
Yeah, I think that a there's a whole new set of regulations and I guess scrutiny around opioid.
Management and every health care institution.
And.
We are we have solution sets now and.
We are putting a time and energy to advancing those two.
Even more the next level because the scrutiny is this is one of the areas that pharmacies have struggled a little bit on and now or are just behind that and the game because it's become such at Empire important piece of.
Executing a pharmacy, well because people do need the opioids, but.
You got to make sure no one else is diverting them. So it's become a mission critical.
Like it's ever been before so big opportunity for us and it's already a great product line that we have but more to come.
Okay. Thanks, again for taking the questions.
Thank you.
Your next question comes from Bill Sutherland with benchmark.
Hi, Bill, Thanks, Hey, everybody.
That visit deal can you give us some color on that is that kind of like more of a partnering situation or how's that going to work.
Well, there's always advantage GPO that we've we've worked with over the years for many many years, probably the new part of the Vivint deal is really a they only had our core products and not the whole expansion line and so we were able and this round to expand the product line to include Ivy.
Work flow and robotics, the XR, two new product lines.
And that's really important because you want.
Those product lines to be presented as a package not as well this dance get exported to this but none of that so.
That's important for us to have a good relationship with them and the because they have their members are really look for their blessing on these things they don't they'll do the it doesn't buy the product directly of course, but it's important and I think that was an important point enough for us to mention it and.
I think I've always going to great partner of ours.
Do you.
Probably don't want to give a percentage but.
Are you in like the majority of their hospitals or there's a lot I always say whatever our market share is a is probably the same market share that were in their hospital. So we're probably about half somewhere around half.
Of their members, maybe a little more if they represent the larger groups.
Okay.
I'm curious just in a general sense on.
Operating margins as you.
You've talked about this before but as I want to see as you get more experience with these larger multiyear platform sales.
You know net net should that be generally.
A lift.
For your operating margins.
Well largest feel obviously as you know economies the skills as lot of last however, what we said on an earlier question there there's quite a bit.
Just want to go to really bring deficient autonomous pharmacy to live Randy talked about somewhat areas that are cumbersome for pharmacists on a big issues like opioids, if you step back and Luca pharmacy, specifically hospital pharmacy.
If you are to the.
The leader will pharmacy in a hospital you need to manage about 4000 different ask you use that you need to have full visibility on and that's not the case today, there's a big got their medication waste cost us between five and 7% of annual medication costs for.
For health systems, FIS ability is limited because a lot of the automation is only.
Implemented at kind of the point of care and on the E ours does this.
As a lot of technology needs and growth to be had so we do believe that there's quite a bit of investments for us to make severely healthy industry to cut to the next level.
Yeah, and I'd, just add to that or.
Our emerging products are growing really nicely I mean, they're growing at a nice rate.
But you know the relatively still small and so it's hard to get the scale on those until they get larger so.
But the uptake in the orders.
Our nice and I think it's just you know confirms our story.
Broader product line and platform that people really want to drive all the medication sort of not just some of those.
Got it.
Thank you both.
Andrew Hanover.
Final question comes from Gene Mannheimer with battery.
Hi, Jane good afternoon that thanks, good good job on the record results I had just two things you talked to that's a major expansions in the quarter certainly mercy as a as a very good one how about how should we be thinking about net new wins. These days do you do you still view yourself.
Sales is net share gainers in the market.
And my other question.
Relates to the term I heard SCC inquiry, just trying to understand if you could expound on maybe what areas, they're looking into wind.
Where the concerns are thanks.
Yeah, so from a market a share perspective, we've always measure this or that as you recall in a relative share off bed count in the U.S.. We do believe also this year.
Have gained further market share if you will.
At a fairly consistent rate, we were clicking away and taking away about 100 basis points 150 basis points of share. We believe that that is continuing this year as well.
And then on the full and Terry informal as you see inquiry.
We can't really comment on that kind of the areas that are generally in line.
I would say refer back to the.
So for came short seller report.
And this does nothing to report.
Okay very good thanks.
Thanks Jay.
And there are no further questions at this time.
Sure closing remarks please.
Well, thanks for joining us today and as we.
I think as we continue to see the autonomous pharmacy is something that the industry is really.
Hoping for to help or change the continuum of care and the way medication management is done.
And.
And it's very exciting and at our next.
Mid year Asap, The American Society of hospital system pharmacist in December we'll be talking about more about our road map and how the autonomous pharmacy is going to be rolled out to really addressed some of these big pain points to really change the way medication management is look bad.
And executed upon so I hope you can join US there and thanks again to the Omnicell team.
Once again continued to perform well in the marketplace that really out to improve health care for everyone. Thank you very much we'll see I think that.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.