Q1 2020 Earnings Call
[music].
[music], ladies and gentlemen, thank you for standing by and welcome to the Omnicells first quarter earnings announcement at this time, all participants are any listen only mode.
After the speaker presentation, there will be a question and answer session.
You asked a question during this session you would need to press star one on your telephone.
Please be advised of today's conference is being recorded.
If you're acquiring any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today, Peter Capers, Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you.
Good afternoon, a welcome to the only so first quarter 2020 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 more detailed description of the risks that impact. These forward looking statements. Please refer it today inflammation in a press release today.
And the only selling to report on form 10-K, followed with yes, you see on February 26 2020.
And then other more recent reports filed with the FCC.
Please be aware at issue that you should not place undue reliance on any forward looking statements made today.
David This conference call as May seven 2020 at all forward looking statements made on this call are based on the beliefs of only sell that's off this date only future events are simply the capacity to fine may cause easily the change and we undertake no obligation to update these forward looking statements finally.
Called it's called the property of only saw eight and anything or duplications or rebroadcast without the expressed written consent of only sell its prohibited.
Rendell will provide an update on our business.
After rendell's remarks, our car harvest results for the first quarter 2020 at our guidance for 2020.
Our 2021st quarter results are included in earnings announcement, which was released earlier today and as opposed to any Investor Relations section Oh website, but only sell dot com.
Ill prepared remarks, we'll also be posted in the same section.
Additionally, we like to remind you that during this call will discuss some non-GAAP financial measures reconciliations of these non-GAAP measures to the most comparable GAAP financial measures I included in our earnings announcement.
Let me now turned over to call through rental.
Good afternoon, and thank you for joining us today.
I'd like again today by expressing our extreme gratitude to the health professionals on the front line.
The Cove at 19 pandemic.
Your response to this crisis is nothing short of her ROI.
And on behalf of the entire omni sell team. We thank you for your courage your bravery and your resilient.
Our mission is.
Just to be the care providers, most trusted partner and that mission has never been more critical.
As our partners navigate this challenging time, we continue to stay focused on our long term strategy, which we believe is unchanged.
We're committed to executing on division of the autonomous pharmacy by delivering automation intelligence and services designed to transform the pharmacy care delivery model.
Hoping to dramatically improve outcomes and lower costs for our health care partners.
We believe Kobe Nike has made the industry more aware of the significant challenges in pharmacy.
That could make our solutions more relevant going forward.
That's the case in point, we believe our point of care solutions or important infrastructure and health systems to dispense medication safely during a pandemic.
Analytics and intelligent solutions.
Can be key decision support tools for customers to manage inventory more efficiently during patient volume surges.
Our central Pharmacy automation solutions are designed to help reduce the administrative burden on the pharmacy and allow clinicians to operate at the top of their license and focus on patient care.
Fast changing political environment.
Now I'd like to briefly outline our response to covert 19 and discuss the actions we have taken to ensure the safety and well being of our customers employees suppliers and communities.
In order to operate in a safe manner. We are following the health and safety guidelines of the U.S. centers for disease control and local and state public health departments and each of the regions, where we operate.
All of our manufacturing distribution.
And other facilities are operating under these guidelines.
As we are an essential business our manufacturing facilities have remained open.
And we continue to manufacture our products with limited disruption.
And our facilities, we have implemented a variety of protocols to ensure the safety of our workforce.
This includes scheduling staggered shifts to enhance social distancing.
Extensive cleaning up our surface and they use a personal protective equipment.
In addition, the vast majority of our nonmanufacturing and non customer facing personnel have transitioned to a work from home environment.
Last year during 2019, we implemented a variety of virtual technology tools.
We're now accelerating the use of these virtual tools to develop and implement virtual service.
Training consultations product demonstrations in sales processes.
And as a result, the shift to a remote work environment has been essentially seamless.
We're now engaging with customers virtually which enables us to work with customers and new ways during difficult times like these.
I am grateful to the Omnicell team for their ability to transition quickly.
And safely so that we can continue to focus on servicing our customers during this challenging Todd.
Now to assist our customers on the front line to the pandemic, we quickly mobilized to develop programs and solutions to support critical care needs.
A rapid response to covert 19 has been focused in three key areas.
Supporting infrastructure for new emergency care areas.
Providing tools and intelligence for medication supply chain management.
And ensuring a quick access and continuous support or health system training in certain things.
As our partners began to expand bed capacity for potential patients surge. Our teams worked quickly to launch the rapid response X T Cabinet program.
We successfully expedited production preconfigured medication and supply cabinets design with clinical input.
And fast tracking fast track ordering.
Shifting and installation so that they health system could rapidly deploy these critical resources.
And we've received a lot of positive feedback from our customers in response to this program.
No the critical need identified by our partners in this pandemic Epicenters like New York City.
Is the ability to quickly and efficiently track medication inventory.
There are currently more than 75 drugs being used to treat covert 19.
Leveraging our analytics platform, we have partnered with pharmacy leaders and industry associations, including as Asap.
And the society of critical care medicine to offer daily reports on medication inventory levels and forecasted use rates.
This intelligence can help pharmacies make faster decisions about deploying medication to areas with the greatest needs.
Actively planned to safeguard medications and project potential shortages and increased emergency care levels as appropriate.
We're continuing to leverage this data to predict usage trends across regions to help health systems with preparation and planning for future surged needs.
And we're working to ensure a customers have the infrastructure to support patient influx.
We were able to provide quick support when new training programs to rapidly onboard staff and provides a more service options in order to minimize the needs for on site visits.
Suspecting social dispersing requirements.
On the supply chain perspective, we have continued to work closely with our partners to ensure we are able to source key components and maintain appropriate inventory levels to meet customer demand.
Today, we have experienced very little disruption in our supply chain and have not experienced any shortage of key materials at this time.
This has enabled us to continue to operate our factories at full capacity and positions us well to continue to serve our customer base.
We're also supporting the local communities in which we operate by providing monetary support to charitable organizations.
Today, we made monetary donations to the American nursing fun.
And we are implementing a company matched to all donations made for employees to support healthcare organizations on the front lines.
Now turning to our results for the first quarter and our business outlook.
The key first quarter was very strong as the impact of covert 19 had minimal impact to our revenue and profit.
Since most of our revenue comes from the implementation of automation systems, which are often scheduled months in advance.
Most implementations preceded us scheduled through the end of March.
I ever with respect to bookings for new sales beginning in the second half of March we have seen hospitals began to slow purchasing decisions.
Additionally, as our customers are dealing with cobot 19, her ability to access hospitals and their staff in order to perform implementations of the equipment will likely be delayed.
Well systems are facing increased costs due to large surge expenditures to cover no kobin 19, caseload and increasing prices for needed equipment.
Decreased revenue due to cancellation or postpone elective surgeries and other reduced demand.
As well as cash flow challenges.
As a result of the slowdown in purchasing decisions and however, I would are reduced interactions with our customers do the social just thinking protocols are bookings are behind our internal estimates.
As of this time.
Although there are some encouraging signs for our business medium term as the country begins a gradual process to reopen a portion of the economy and elective surgeries resume.
We believe hospital spending will be materially disrupted.
In the near to medium term and it is not possible to predict how long this pattern will continue.
We anticipate Kobe 19 demand disruptions to negatively impact 2020 results versus prior guidance and we do not believe we can provide meaningful near to medium term direction at this time.
Well this uncertainty is difficult.
We remain confident in our ability to execute on our long term strategy.
There are set several favorable tailwinds for our business for the long term.
First we have a healthy backlog and a strong customer base many of which are under long term sole source agreements.
Purchase our products and services.
At this time, we have not lost any multimillion dollar agreements and we're not aware of any cancellations second the mix of recurring revenue compared to prior economic recessions omni sell has weathered this much higher.
Today, approximately 40% of our business is re occurring and then that this time, we don't expect this portion of the revenue to be materially affected by the pandemic.
And lastly, our liquidity is strong we have cash on our balance sheet no debt and access to 500 million of committed capital on a revolving loan facility.
As we progressed through the phase recovery of Cobot 19, we will continue to look for innovative ways to provide solutions to help our customers navigate the current situation.
So that I'd like to start back over to Peter for a first quarter results and we're on the guidance.
Thanks Randall.
We had a very strong start to 2020, a first quarter of 2020 revenue off $230 million.
Well, it's up 13% over the first quarter 2019.
The increase in revenue from last year was largely due to an increase in X P series implementations, that's all Daniel service and maintenance revenue from a larger installed base of equipment.
As of March 31, 2020, approximately 24% of our existing installed base of previous generations automated dispensing cabinets.
Orders to upgrade to our new X P series.
At this time last year, approximately 30% of installed base had book or to steel grades XT.
As we've mentioned in the past you began shipping X T. In 2017 and at the time, we estimated that the existing installed base of prior generation systems would be upgraded over a nine year period.
Well, we expect some near term delays.
Like we saw towards the end of the first quarter.
We continue to believe that you have good cycle will take place over our original nine year estimates.
We will continue to monitor this and provide updates at a later time.
As Randall said and I guess I will discuss in more detail later covert 19 has had a negative impact on new bookings.
And has delayed implementations as our ability our ability to access hospital systems in certain areas has become more more restricted many locations. We believe this trends will continue in the near to medium term.
We believe that many hospital systems are under process will be fairly waiting that capacity.
Staffing revenue profitability and cash flow and as a result, because ability in their hospital systems capital equipment buying behavior is limited at this time.
Now moving to earnings.
The first quarter earnings per share in accordance with gap was 26 cents per share up from eight cents per share in the first quarter of 2000 team.
The increase in earnings per share is largely due to lower income tax expense. During the first quarter 2019, we incurred approximately $9.6 million of income tax expense related to onetime restructuring of intellectual property.
Income tax costs negatively impacted EPS by 23 cents period to period ended March 30, Onest 2019, and did not occur again in 2020.
In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense.
With the cessation of intangible assets associated with acquisitions.
Acquisition, and restructuring related expenses and restructuring income tax benefit and expenses.
Whenever the patient that issuance cost.
We use non-GAAP financial statements. In addition, the GAAP financial statements because we believe.
Got it is useful for investors to understand the effects of amortization of acquisition related costs and non cash stock compensation expenses that are component of a report results.
As well as defense and acquisition and restructuring related expenses, which are unrelated to our ongoing activities.
Full reconciliation of GAAP to non-GAAP results is included in a first quarter earnings press release.
It is posted on our website.
First quarter 2020, non-GAAP EPS was 66 cents per share compared to 61 cents into same period last year, representing an 8% year over year increase.
The increase in earnings per share on the non got days is largely due to increase revenue.
This was partially offset due to tax benefits realized from the exercise of employee stock options, which was lower in the first quarter of 2020 compared to the same quarter last year.
Now I'd like to quickly cover our cash flow liquidity as we believe it is the strength of our business. During these uncertain times.
At March 31st 2020, or cash balance was 100, and a $4 million down from $127 million at December 30, Onest 2019.
During the first quarter of 2020, we repaid 55 zero million dollars on outstanding debt.
As a result, the businesses no debt free and has access to the full $500 million available under our revolving credit facility.
Net cash provided by operating activities. During the first quarter 2020 was $25 million down from $26 million. During the same period last year. The decrease is primarily due to an $8 million decrease in net working capital primarily attributable to increase in accounts receivables.
Accounts receivable increased during the first quarter due to some covert 19 related delays and expect this collections, which were received in the very first week of April as well as additional enforcing a products that were shifts.
Not installed by the end of the quarter.
As a result, our accounts receivable days sales outstanding for the first quarter.
Were 90 or 93 days unchanged from the same period last year and a 12 days sequentially.
The decrease in net working capital was mostly offset by cash flow attributable to higher net income in the first quarter 2020 compared to the same quarter last year.
Free cash flow generators in the first quarter was $11 million or up $1 million from the same period last year.
The increase was primarily driven by lower capital expenses and the current year, partially offset by lower cash flows generated by operating expenses.
Free cash flow into first quarter 2020 feet was approximately 100% of GAAP net income for the quarter. We're just in line with a long term framework, we provided in December 2019.
Lets Randall mentioned earlier, we believe our liquidity is strong with our existing cash and the balance sheet no data and we have access to $500 million of committed capital could've before the credit facility that we put in place in November of 2019.
We believe the businesses very healthy and capable of absorbing short term disruptions to our revenue and cash flows caused by the pandemic.
In order to preserve our liquidity restarted that we'll continue.
To take certain actions to defer costs that's necessary.
These cost saving axis include but are not limited to Juan elimination of non essential travel to hiring delays.
Three reduction of consulting expenses.
For a reduction of trade show, an auto marketing related expenses.
And lastly, delays and sort of and capital expenditures.
We continue to monitor this situation closely and we will take further actions as we feel unnecessary at the appropriate time.
Moving to our guidance as Randall mentioned earlier, we cannot predict how long the pandemic a masters intended to contain contain.
The spread of Cowen I'd seen will continue.
What effect cope with my team and the associated containment measures will have on our customers as a result, where we're growing our full year 2020 guidance.
We have spent the last two months work, it's again insights from our customers to help us determine how to plan for future implementations, a new product bookings.
There is uncertainty and arrange a possible outcomes.
As a result, we do not believe we can provide meaningful direction at this time.
Looking ahead, we will continue the staying close contact with our customers and take into account relevant facts and circumstances as we move forward. This includes closely monitoring to ramp up of elective surgeries ambulatory care and other factors, which impact the financial Health Hospital systems.
With that we would like to open the call for your questions, but we'd like to remind everyone. There were unable to comment on any specific financial framework for the near to medium term at this time.
We believe we will have more visibility you next quarter and look forward to finding more direction at that time [noise].
As a reminder, I'd like to ask the question you may do so by pressing Star then the number one on your telephone keypad.
And that is.
You asked a question.
Your first question comes from Steve Halper can't Cantor Fitzgerald.
Hi.
Good evening, so I totally understand about 2020 guidance, but could you.
Where do you stand on those five year targets.
Four or five year guidance that you issued in December to those still hold.
Well if you look at the so what we believe when we stated in his script as well as that we believe the Saudis stays unchanged recall from 10 aside Angie the long term strategy, we really the long term drivers are unchanged. We believe the long term assumptions are the same and we'll continue to evaluate the overall framework.
Drive implementation are still not going into these facilities and so that that has to first take place for some of them major installs to take place with particularly central pharmacy equipment, where you've you've got.
You know make some facility changes and those kinds of things a lot of time. So those are going to be more challenged and probably the cabinet ones are less challenging because.
We can do a lot of the in falling virtually as in hospital personnel could actually moving into place since the last bit.
It's really hard to tell on bookings I think hospitals, even if their cash flow even if they have a lot of cash in the bank right now.
They're not sure where there.
Cash flow is going to end up on an ongoing basis.
And it's a lot of it has to do with just on P. elective surgery, but the ambulatory part of their business, which is drop significantly because patients are coming in now some of that.
Made up by virtual visits.
But until those things become clearer as to what their cash flow ramps are they're not willing to commit.
Big Big projects, unless they've already been started or they have a building the finishing so I I think is still a little early for us to.
The two figure it out I think.
I think our next call will have more information and then I think that at some of the form pieces will begin to come more clear.
Yeah that makes sense, so it sounds kind of reading between the lines and Randy Appeals like.
Ads things.
<unk> activity in the hospitals kind of get back to the normal course, and they're making money again.
Bookies implementation. So it doesn't seem like there's like a lead my particularly Ah I really I think they kind of go together now none of the people who have implementations.
Are not going to do them. That's for sure. It's just you know there's a delay until everything out face when it's got no I just want to make sure <unk>.
Think it's it's important to remember also that most states or a bigger cities.
They just rent videos packs a call for 19.
Two weeks ago. So there are just <unk>.
Cutting back to quote unquote more normal operating.
So we're getting now just got to connect it with customers again so.
Time, and does does limit of disability, we've we've <unk> every single.
Customer on a significant size.
Of 10 to 15.
Individual.
Metrics on trying to do the analysis of where they are in their implementation thinking and their scheduling and and you know, we're just getting to the post apex.
Age for many people in so.
You know I think will have good Intel we've got good Intel on that and as those those metrics change will have a good feel for it going for.
I'm just curious as you've had to.
Re align some of your operational because you know structure.
Work Arounds et cetera have you found that there are things that you may keep doing differently that you had to adopt in this crisis.
<unk>, we had some of these things were on the road map.
For the next 24 months and a lot of the installation as we are now doing many pieces virtually and so that systems can be almost ordered and shipped immediately and many of these cases for the X.T. rapid response cabinet program and the order.
The configuration, they ship minutes and installation was done in 14 days.
And now that that was and two things enabled that one we had had got our teams together too.
Create those processes and the customers were willing.
To make some of those changes as well now that's a little bit of an extreme but.
We think we can can take a lot of learning from that and and fuse that.
That's really improve the customer experience and we think we're we're not as far as.
I was 14 days compared to your normal.
Excellent.
Longer.
A long run a fourth you that much.
Much longer.
And I'm not sure we're going to get everybody to go to 14 days, but.
You know when you got a mandate from your state Governor to expand so bad that occurred facility in in 30 days you know you want to work with somebody can get you. There. So it's it's been an amazing accomplishment Meyer teams coming together and recreating the process that allows that to happen.
And what's more important is it's just this new understanding amongst our customers and ourselves about how do we impact medication management more effectively by reducing the steps putting intelligence into the process, it really allowing us to do more.
More work for them that they really you know we that we couldn't do in the past because we were really allowed in the door so too.
Set a real circle, then it's personal training first of all sales processes, including.
<unk> product advertisements also so we can be made that change also it wasn't a robot like Randy sad, but we accelerate at the digital transformation, which we think as a positive.
Mhm.
Okay.
I'm sure the color guys.
Yeah.
Their final question, it's <unk> <unk> <unk>, that's the L.D.
Yes, hi, good afternoon, thanks for taking the questions I, just curious how cope it as.
Impacted your Oh, U.S. operations, but it's Canada, obviously, you are off but even in the middle East and also it'd be already sort of a one time expense says you think that were associated with complying et cetera, improving seems to get sort of might be using for you going forward.
Yeah, I thought it was kind of Oh, the blended basis, a international it kind of roughly the same dynamics, but a difference by country right. So.
Definitely also half a up take off our Rocco response Ah offering in in the U.K.
In Spain, and France, and the Middle East, but also there we saw it towards the latter half off a of March a delay.
In a in near bookings and then also to some extent a little bit only implementation side garments are providing a quite aggressive ah.
And some other countries international like the U.K. were yeah. The you pick off of my path every 10 minutes or written off 13 billion.
<unk> sort of different dynamics, if you will.
I don't I think the last part of the question was on any cost related to cope with we have some expediting additional costs four four frames for about a million million and a half dollar and a quarter you might know that airfreight expenses.
Have doubled or tripled because of the lower capacity 'cause commercial airline sonata.
Flying airplanes, and then of course, it providing additional phrase capacity there so it's about a million Apple.
Syntax and a quarter when airfreight.
Okay. That's great. Thanks to take the questions yeah. Okay.
Hi, now like to turn the corporate your random <unk>.
Well, thank you everybody for joining the call today.
Of course, the immense impact at the Corona viruses add on our personnel I personnel and professional lives.
Then you know staggering and.
Do these challenging times, we're honored to be part of our customers a fight against the pandemic.
We've done so much in the last 45 60 days to mobilize have support teams.
Ensure business continuity for our customers protecting their health and safety of our employees.
Manufacturing an implementation in service teams are fully meeting customer that demand.
It's just.
I would just say the adrenalin has been flowing at a very high level for us as a company in the last 60 days.
And I I just one thank beyond me fell team.
For making it possible to impact Oh, so many people's lives directly.
By what they do.
So thank you for joining us today.
Well see you soon take care now chairs.
Ladies and gentlemen, just concluded today's conference call. Thank you for your participation you may now disconnect.
[music].
[laughter].
[music].
[music].
[music].