Q2 2020 Omnicell Inc Earnings Call
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This time all participants are in the listen only mode. After just sneak his presentation there will be a question answer session.
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I would now like to have the conference over to your speaker to be Chief Financial Officer feature hybrid. Thank you. Please go ahead Sir.
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Thank you.
Good afternoon, and welcome to the only sell second quarter 2020 earnings call.
Joining me today, it's Randall left.
<unk> founder Chairman President and CEO.
This call will include forward looking statements subject to risks uncertainties and other factors that could cause actual results could differ materially from those expressed or implied.
For more detailed description.
The rest of impact. These forward looking statements. Please refer to the information or press released today.
And the only sell annual report on form 10-K filed with the actually see on February 26.
Good morning.
And in order for recent reports filed with the FCC.
Please be aware that you should not place undue reliance on any forward looking statements made today.
The data this conference call with July 28, 2020, and all forward looking statements made on this call are based on the believes told me so that's something that they'd only.
Q3 fronts, we're simply the passage of time me coffee is believed to change and we undertake no obligation. So I'll say these forward looking statements. Finally this conference call for property hold me selling and any taping order.
Application or rebroadcast without the expressed written consent of only sell is part of it.
Right no wholl provide an update on our business.
After rentals remarks will occur harvest sold for the second quarter of 2020.
And our guidance for the third quarter of 2020.
2022nd quarter results I quoted in our earnings announcement, which was released earlier today and its posted in the Investor Relations section of website at only sell dot com.
Our prepared remarks, we'll also be posted in the same section.
Additionally, we like to remind you that during this call we will discuss some non-GAAP financial measures.
Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement.
Let me now turned over to call through Randall.
Good afternoon, and thank you for joining us today.
Like once again to start the call by recognizing all of the health care professionals were on the front lines battling told at Nike.
These are challenging times and your courage and resilient in the face of this pandemic continues to be nothing short of ROI.
Other healthcare partners continue to navigate the impact of Kobe 19, we remain focused on our long term strategy, which we believe is unchanged.
We are committed to executing the vision of the economist pharmacy.
Delivering automation.
Intelligence and services designed to transform the pharmacy care delivery model, they help drive significantly improve outcomes.
And lower cost.
As a cobot 19 pandemic spread in different regions in the U.S. and internationally there were several shortages not only and I see you capacity.
The equipment and P P.
That occurred at varying levels, but also in pharmacy.
More specifically in U.S. hospitals, we found that there was a lack of visibility in pharmacy supply of approximately 75 drugs.
That are critical for coal that patients.
In response to help or hospital customers, we did too thanks.
We leveraged our analytics platform and a rapidly develop specific analytics tools to better inform health systems, and helping strengthen their pharmacy supply chain.
And as discussed on our last call we.
We also developed and launched a rapid response XP automated point of care system offering to help health systems expand bed capacity for potential patients surges.
And speaking with our health system customers an industry groups in recent months, we understand the cobot 19 has made them recognize how critical it sophisticated supply chain is to smooth business operations.
And quickly react to a surge in patients.
Cobot 19 also increased the urgency to digitize and automate processes throughout health systems.
Including the Digitization and automation pharmacy to reduce menu touches of medications and to enable health care providers to focus more on patient care.
As a result, we believed that our health systems customers are more willing to take these transformational steps because they see the significant value and what we do.
We're using this moment in time to focus on and invest and those strategic priorities that are within our control to accelerate omnicells transformation and we're doubling down on the development of the vision other Thomas pharmacy and the following area.
First we are accelerating the commercialization of the professional services that we announced in December last year.
Second.
We are increasing the momentum of the ship to cloud based products and services development.
Third.
We're speeding up the simplification speed and efficiencies of quote to cash processes.
And for.
We're continuing to drive Virtualized and digitize commercial implementation and engineering processes, we believed that these actions.
As a result in a stronger and even better position.
On the cell post pandemic conditions.
In terms of building out our offering last week, we announced another key milestone on the journey because the fully at how the pharmacy omni sell one which will be generally available in August.
Leveraging cloud based data and predictive and prescriptive analytics Ami. So one provides real time visibility.
With actionable insights and workflow optimization recommendations.
That will help improve clinical financial and operational outcomes across the pharmacy supply chain.
As a result of cobot 19, many of our customers have prioritized supply chain optimization in order to provide critical care to patients.
We believe omni sell were up one represents a significant step towards leveraging analytics that enable our customers to meet demand in an efficient manner.
But at some of our last call, we hadn't little visibility into the impact of cobot 19 on our customer base.
Shelter in place within four throughout the U.S. and parts of Europe elective surgeries had been postpone and hospital systems, we're ramping up to treat cobot 19 patients.
As a result.
Our sales teams had some difficulty engaging with customers on new bookings.
Also some member implementations from backlog were being delayed as hospitals will consumed with treating covert 19 patients.
We're preparing for a potential surge in covert Nike inpatient hospital admission.
Since the time over the last call with parts of the U.S. in Europe reopening a visibility into our customer base and how they are managing their businesses through the pandemic Kevin Greece.
In addition customers have a better understanding of how to treat cobot Nike in patients and adjust their capacities accordingly, while returning to more normal operation.
We also have greater visibility into our customers financial scenario planning and forecasting.
We believe that a leading indicator for the spend environment for our products and services.
Is the level of elective surgeries compared to pre co bed level.
We have seen an improvement in elective surgery level.
And availability a bunch of spend in our customer base.
A recent LDK consulting survey estimated that the levels of elective surgery versus pre coal that levels will increase from around 40%.
And the second quarter.
To 65% to 75% in the third quarter.
To 75% to 85% and the fourth quarter.
And next year approaching 95%.
Well. This is encouraging overall, we believed that the drivers of a sustained recovery and elective surgeries will likely very regionally.
And maybe predicated on the extent and duration of cobot outbreaks.
Turning to our results for the second quarter of their business outlook.
Or last call, we discussed expected disruptions.
For product implementations as well as new product bookings.
At that time, it was difficult to predict how significant these disruptions would be to our business.
As time progress would gain more visibility into the environment.
And I'm pleased to report that the impact to our business was not as significant as we expected.
And we exceeded our own internal plans for each of the product bookings revenue and not GAAP EPS during the second quarter.
Well the environment continues to change rapidly we are beginning to see more positive indicators for our business.
Although we have you seen some delays and new product bookings.
We were encouraged by the progress made during the second quarter.
In many regions elective surgeries have resumed and an area is less impacted by covert 19, we have been able to resume some onsite sales activity.
The over all level a system implementations has also been increasing.
I'm also pleased that we have experienced no disruption to our supply chain and our implementation capacity, which was and has been fully of be available through out the year.
At this point, knowing what we know.
We believe that the second quarter bookings and rubber and revenue.
Represents the lowest quarter and 2020.
We expect that bookings and revenue will increase sequentially through the third and fourth quarter of 2020.
We have implemented a variety of technology based tools to assist our customers through this difficult time virtual tools that enable customers to self install certain automation products have been extremely valuable and that we have enabled some implementations of our solutions to continue without the need for.
Our teams to be onsite to perform these services.
In addition, we have been successful and leveraging technology to transition to remote product demonstrations, which has enabled our sales team to engage with health systems in a virtual environment.
We did accelerate the implementation of these virtual tools and intend to continue to use and leverage these tools post pandemic.
For many years, we've talked about our long term sole source agreements.
Today I'd like to go in death on these agreements.
This is a really important element to our strategy going forward as it enables us to understand the value with the customers Weve already signed up.
We have been implementing an expanding this strategy successfully for the last two years in 2020, a team we realigned our commercial structure to focus on the top 300 health systems and the U.S. with dedicated customer success executives.
As we believe they represent the vast majority of the available market we target.
So as of the end of the second quarter more than half of the top 300, U.S. health systems as defined by definitive health care.
Our current Ami so customers.
And 141 of those have entered into long term sole source agreements with us.
Most with the duration of five to 10 years.
With the majority of the sole source arrangements, we have co developed a multiyear medication management automation plan.
To drive increased levels of medication management automation to deliver improved accuracy patient and financial outcomes.
So to assist with your understanding of how multiyear medication management automation plan works in practice. We have included an example for an Ami So health system customer in the Investor deck posted on the Investor relations portion of our website.
This customer example shows it well location health system planning to invest in medication automation in each of the next five.
For years.
To deliver increased K P eyes and outcomes in efficiency compliance safety and people.
Now moving to customer success.
Some of the new customer wins during the second quarter include Orlando Health when a central Florida is largest health system, serving more than 2.7 million patients will impose men Ami silex t. automated dispensing systems across its eight hospital system to improve.
Clinical and operational efficiencies at the point of care.
Most as age cone Medical center in North Carolina, we'll be expanding their central pharmacy, Ivy compounding program.
A comprehensive service model that combines advanced robotic technology data intelligence.
And expertly train pharmacy technician staff to Insource, there are several compounding to enhance patient safety, while reducing overall cost.
Also during the quarter, our population Health solutions Division successfully launched our first location with Walmart as part of an enterprise wide rollout of our medications synchronization platform to all Walmart locations.
And our international markets.
Well, we recently announced a new software partnership with the West Yorkshire Association of acute trust.
An innovative collaboration of NHS trust across West Yorkshire, and Harrogate.
And the United Kingdom.
The six NHS Trust in this region will be implementing our supply ex supply chain solution to improve supply chain helped deliver consistency of care and openly share data across the collaborative.
We are thrilled to partner with these organizations.
We are committed to working with our healthcare partners. During these challenging times provides the technology.
And intelligence that will help them navigate a rapidly changing landscape and deliver safe efficient and high quality patient care.
With that I'll turn it back over to Peter for a second quarter results.
Thank you I know.
As Randall said and I as I will discuss in more detail later covert my team has had a negative impact on new bookings.
They have limitations as our building ability to access hospital systems into staff has been restricted in certain locations.
That said, we are encouraged by the results for both product bookings and revenue in the second quarter.
Our second quarter 2020 revenue of $200 million was down 8%.
Over the second quarter 2019.
The decrease in revenue from last year was largely due to delays in implementations of point of care Exi series related to covert vaccine.
Moving to the earnings per share.
The second quarter lost share in accordance with GAAP was 10 cents.
This compares to earnings per share of 37 cents per share in the second quarter 2019.
The decrease in earnings per share is largely due to lower profit as a result of a decrease in revenue as well as higher operating expenses compared to the same period last year.
The impact of these factors partially offset.
Lower income tax expense.
They have a reconciliation of GAAP to non-GAAP results is included in our second quarter earnings press release and is posted on our website.
Second quarter 2020, non-GAAP EPS was 37 cents per share compared to 67 cents per share on the same period last year, representing a 45% decrease.
The decrease in earnings per share on a non-GAAP basis again, largely due to lower revenue, which was partially offset by lower income tax expense.
Now I'd like to quickly cover our cash flow and liquidity.
As we believe it as a strength of our business.
Particularly during these uncertain times.
At June 32020, our cash balance was a high $34 million up from on a $4 million at March 30, Onest 2020.
The increase primarily we sold it.
For free cash flow generated and the corner of around $20 million, primarily driven by improvements in our working capital.
Net cash provided by operating activities during the second quarter 2020.
Was 47 million up from $27 million during the same period last year.
The increase is primarily due to improvements in working capital.
Partially offset by lower net income.
Accounts receivable days days sales outstanding for the second quarter were 87 days.
Unchanged from the same period last year and down six days sequentially.
We had record accounts receivable collections in the second quarter.
On a crowd even makes wrong as of June Thirtyth 2020, we have no data and have access to five of them I'd also committed capital could've evolving credit facility that we put in place and if I'm in 2019.
As you discussed on the last quarter call. We took some cost reduction actions during the first half of 2020.
These cost savings factors include.
Good morning elimination of all non essential travel.
Second Haringey lice third reduction of consulting costs.
Fourth eliminates a trade show an honor marketing related expenses and 50 lace certain capital expenditures.
In addition to these actions we have delayed merit increases in 2021.
And have reduced honor compensation incentives.
We also restructured certain parts of our organization to ensure that we are operating as efficiently as possible as we accelerate our transformation up a super efficient for your columns pharmacy.
As a result, we eliminated approximately 830 roles within our organization primarily related to the engineering surface and manufacturing organizations.
Approximately two thirds of these reductions were a result off previously announced its easy decisions. All one third was falling related.
And better enabled us to match our business through the current market.
Strategically this facilitates accelerates the shift.
Hardware based an on premise engineering development capabilities.
To close based competencies that require different skill sets.
And for services this change accelerates a shift from traditional maintenance services.
Through the professional services offerings that we announced last year.
Recorded approximately six not going to all of a severance and restructuring costs in the second quarter as a result of these actions.
Overall.
Our cost reduction access and this restructuring.
We expect to realize an additional approximate $40 million operating expense savings during calendar 2020, when compared to your original pretty cold for 2020 guidance almost on February six this year.
Super five additional color.
Yeah, We expect 2020 operating expenses now to be between 310, that's going on $50 million.
We will continue to manage operating expenses in line with the performance of the business.
And would expect the majority of these cost savings to be limited to 2020, as we begin to increase investments over time.
Support market demand driven a future growth.
Now moving through a dinosaur revenue non-GAAP, yes.
Well the mid to longer term outlook remains uncertain.
We do believe that we have reasonable visibility to the nearer term.
As a result, we are providing the following guidance for the third quarter 2020.
We expect total revenues to be between.
Got a 4 million or two and a $12 million, we expect product revenues to be between one on a 43 on a $49 million, we expect service revenues to be between 61.
$63 million and we expect non-GAAP earnings per share of to be between 44 cents and 52 cents per share.
We have taken a regional approached our bookings pipeline, that's a feasibility of resources budgets and the level of covert 19 impact varies by region.
And at times, there's also a variation but in one region.
While we do not provide guidance a product bookings at this time, we do expect product bookings to increase from the second quarter through the third quarter and from the third quarter two to four core.
Lastly.
We have refreshing the long term market assessment.
Including our go to market side, you have long term sole source partnerships that we've updated our strategic financial frame or goals.
We believe that post pandemic conditions, we kind of return to the path through its a long term goals off.
10% to 12% organic revenue growth.
18% non-GAAP operating margin.
And free cash flow between 90, and Honda, 10% as a percentage of cabinet.
Well on long term.
Framework remains in place we believe that this will take longer to achieve than initially expected given the uncertainty and duration of coal for 19.
With that we'd like to open the call for questions.
As I reminded to ask a question you will need to fresh star one on your telephone. So we try your question first the founder Hashed. Please standby mode. We compile that you any Boston.
Your first question comes from the line as much.
Okay. How then capital your line is now open.
Good afternoon, and thank you for taking the questions and giving us a little bit of help at least to regarding Q3.
Given the current environment, maybe could you talk a little bit about how the selling environment has evolved from maybe may to June to where we're at today.
As hospitals are starting to reopen in some areas for elective procedures, how are those discussions changing in and what are the customers telling you.
Well I think.
You know kind of almost on every metric I can think of Q2 is the low dep and every month and almost every quarter.
We're getting more access the discussions are continuing where they were left off or you know weve continue those discussions sort of in a virtual mode. So I I just think that for sure health care systems have discovered that.
That they're going to after operate at full capacity.
Even with goes at present.
And that includes not just topically, but continuing to make good strategic decisions like deploying more medication automation.
Overtime. So it's really good to hear these conversations not everybody is at the full.
A discussion point or full level, yet, but everybody has made movement toward back the normalcy and it's just going on I think the elective surgery watermarks on the only case study or sort of a good.
Indicator of that and but I I just think that.
You've got to remember hospitals, you know their lives entity that has been running 24, seven 365, and eventually they figure out how to keep their businesses a in the proper mode and making good decisions. So I don't think it.
That far off.
Okay, and then maybe a follow up and then I'll hop back into queue. Historically, you've talked about the medication dispensing cabinets and your equipment and software being a top five purchasing.
Item for hospitals and given the current environment in the budgets.
That hospitals are dealing with say I think the American Heart Association was talking about losses of $325 billion and the first half for the year and that's net of the Cures Act, but when you look at this environment, obviously very challenging.
How quickly can they're buying behavior start to rebound as he is elective procedures return.
They're able to kind of get back into maybe not necessarily a black but close enough.
Quickly after that I'm trying to think back to always know nine I know there was just disruption there as well, but how quickly are you expecting them to return to the table and get back to contracting. Thank you.
No matter the theater something in a positive signs that we always considered our automation infrastructure solutions to be in a talk to more talk three other priorities. So we think that's unchanged.
There's a couple different views as well on kind of the profitability of hospitals you can look at the carbon all reports and that's a little bit more positive home and not operating margins for hospitals, I think Paul and things amount of May.
The like Randy said earlier, we see momentum if you will and ER and the pipeline in the activities and also in booking so we really did sequentially through the year. That's a product bookings will increase from the second quarter, two or three quarter on from the third quarter through the fourth quarter. So.
I guess you know from a corporate back if we were more pasta magazine anyone thing.
Now here in your question.
Understood. Thank you.
Your next question comes from the line of David Larsen from variety investments your line is Nelson.
Hi, can you talk a little bit about your ability to deploy your various solutions in a remote manner.
I mean, you product revenue beat our estimate and I think consensus is well, meaning so obviously, you're deploying some products I mean, how much of these can be done on site versus virtually please thanks.
Well I think it's really almost the majority of the.
The X T point of care systems can be deployed virtually if it's a particularly if it's not a first time customer.
There's new technologies, including set up lizards that customers are technicians can employ that.
Almost make it impossible to make a mistake when they do these less steps to to bring a system life. So.
And these guys it technologies and deployments of lizards that alike have just been done a you know in most recent quarter and the rapid response.
Deployment of of our systems, we we've found that out right away that in fact that was our only choices was to deploy these things in a virtual manner. So that's quite a bit of here, but every single a product. We are reviewing a more of the activities that can be done pre.
Shipment or pre go live without our people being there and its gaining now some of the hardware installs are actually happen to have people come in and set up a robot or set up some care sales you can't avoid having those people there, but most of the software for most of this.
Collation time.
Oh on our side and even the customer side is software so.
And I think we have a lot of flexibility there.
And then just one more I mean, it seems like your cash flow was actually very good this quarter I'm, a little bit counterintuitive given that you know occupancy rates in hospitals were low very low just any thoughts on on what drove that and you know I mean would you expect that trying to continue on.
Not.
Yes. It was a three questions here today, that's sort of the the cash collections refer strongest quarter.
I believe we had a very strong unhealthier customization overall and that's good to see.
Hum and admission perspective, we understand from our partners on for five it's actually that currently hospital admissions are.
Then 5% of pretty Covance levels, how does not that much anymore prior levels.
Cash flow going forward, we you know we expect to to have.
Strong collections going forward without giving specific a cash flow guidance. So were we had a could result in a in the second quarter unbelievable and we'll continue to deliver clash flow.
Okay, great. So even though it's going to live in time for elections procedures to ramp back up I think I. Just heard you say that admissions themselves are at 95% of pre covert levels. That's that's what you're seeing no depending on when you talk that we talked to providers and.
And health system, so sort of a five as we hear that admissions what they can see a roughly at 100% persist recall that.
And then maybe down to 5% is what we've heard but some hospitals are above capacity as well above 100%. That's normally have so.
Okay, great. Thanks, Congrats on good quarter.
Thank you David Thank you David.
Next question comes from the line of Steve Halper from Cantor Fitzgerald. Your line is no.
Hi, I'm could you just provide some additional details.
Mark relationship that you mentioned during the call.
I mean, there specifically.
Yeah. So our phs platform is connect side by side with a retails on premise platform and the our platform is designed to enhance the revenues of retail.
Pharmacies and in this case, Walmart has or some of our other platforms that they use but particularly the they the.
Wages, the Ivy our systems and some other options, but most recently they did the med synchronization where.
We'll go through your patient listened find appropriate patients that should really just get their med once a month.
Let them filled and that really reduce the contact.
Or need to come into the pharmacy or haven't delivered once a month all at one time and so.
Had this capability with other a large medium sized retail customers before and ER and now we're rolling it out to Walmart, which I think will.
Take over at least probably six months to maybe a little longer just to roll out to all Walmart or customers.
So the the intent is to get into all Walmart pharmacy.
Yeah, they get their their manage again and controlling it. So yeah do they you know they want one it's already been approved I believe enterprise wide such as a matter of them actually the rollout.
Great. Thank you.
Uh huh.
Next question from Sean Wieland from Piper Sadly your line is now open.
Hi, Thanks, very much so on the outlook for the bookings I just want to better understand what gives you the confidence to to say that Q2 was the low watermark.
Considering that you know these these go big numbers aren't getting any better and the uncertainty in all of our lives right now for the back half of the year.
Yeah, I think that's just the levels of activity in the pipeline at the various stages.
As heightened quite a big and you know we carefully track every customer or where they are with capital spend likely to spend likely to shut down and and so I think with our sophisticated model and with our inputs. Oh, you know we feel pretty confident that means you got to remember a lot of the bookings that are coming in at a cost.
Order or are really things that have been in discussion for nine months 12 months and so they may have been delayed.
Bookings from second quarter, or maybe even first quarter and so a delay of two or three quarters is a pretty long time, if a in some of these cases for these decisions. So they are pretty high confidence that we can continue to accelerate.
And if you care to comment I will bookings for the full year 2020 be up down or sideways versus 19.
What we sell last call us out it's going to be below the original guidance from a pretty year.
Right well below the original guidance, but I'm, just looking year over year.
Yeah, we're not giving a bookings number at this time for the year. Okay. Thanks in order to actually yeah. Okay. Thank you.
Next question comes from the line of Gene Mannheimer from Colliers. Your line is Nelson.
Thanks, Good afternoon, I wanted to just raise the issue a competitive conversions.
I imagine that in this environment there, there's a fair amount of hesitancy regarding hospitals appetite to make changes here. So.
Can you talk about how much of an impact you you're seeing from that I think historically.
Competitive swap outs have been about 20% to 25% of your bookings how is it how is that how is it trending now thanks.
Yes, and we believe we've got a good pipeline on competitive aquifer. Since also this year, we've had some kind of a person's earlier this year as well, maybe just a little more color on.
As far Cola bookings growth to think that the summertime.
Today, we redid states that are actually and point of care. The biggest bookings drivers actually expansion with current customers I never you also have you all critical.
Versions of course are important to us a to be able to have new customers all known as health, that's almost all but it's not the number one revenue driver.
Requirements for quite some time, though right right, Okay fair enough and Ah. Thank you for that Peter and if you could just talk a little bit more about the reduction in force you implemented where there are certain product lines that were impacted more than others, whether that's ivy or med adherence is it is a couple of weeks.
Samples thanks.
Yeah. So we've had in the prepared remarks about two thirds of Oh, the realignment there are really strategic fine so.
When we announced that were accelerating the transformation of our services from maintenance service or break fix services to professional services. So that's a that's about one third of the alpha realignment there or the other third the second third as a as Lady engineering skill sets, where we move more from from hardware on premise.
Capabilities to the cloud based Skillsets, if you will.
For.
It's falling related and that's over fairness locations.
Okay.
Perfect. Thank you.
Yeah.
Next question comes from the line of Mitra Ramgopal from Sidoti. Your line is now open.
Yes, hi, good afternoon. Thanks for taking the questions I first Peter I know you talked about the long term growth of 10, 12% and based on a conditions you're seeing in going forward.
I think we've talked with Walmart et cetera, how do you see the point of care relative to central pharmacy, and retail institutional as you look at those buckets in terms of where that growth is coming from.
No. We don't want to provide specific numbers kind of the breakout off that 10% to 12% composition, but there are directionally.
Roughly the same direction as represented only summertime last year. So were the growth the central pharmacy as a couple of points higher than data point of care.
In the retail and institutional is kind of roughly between too.
That does contract.
Okay. Thanks.
And then.
Obviously, yeah. The cash continue or has been building nicely I was wondering if there any objectives.
Goals, you have right now in terms of pan use or just let it keep building.
Oh, well keep building on M&A is also part of a sign of GE a that remains part of a strategy so depending on their as attractive strategic potential acquisitions I cover your use of cash as well.
Okay. Thanks, again for taking the questions. Thanks.
Next question comes from the line Scott's comments from Steven.
Ladies Nelson.
Good afternoon, guys and thanks for taking my question.
I apologize if I missed this but did you comment on what Youre the percent of your legacy install base with your automated dispensing.
It was for the quarter I know you usually give that out yeah. It's are we didn't have it in the prepared remarks from around 26% now program Tonight and attorney. Thank you that's fine.
Oh, I'm sorry no.
Thank you Peter and I guess as a follow up to that do you see that more as less risk as you commented earlier in the call I believe.
That you know the installation with in regards to upgrade is.
Easier to do remotely and birch.
Is that isn't is that the case or that you should continue to see.
That percentage us <unk> stable or tick up going forward.
Yeah, I think that was right in terms of Meda Randall that make a call it not yeah, we expect.
[laughter] study upgrade cycle there're always having to pass now that it's a it's a nine year upgrade cycle that it would occur if you will and.
From our perspective, we believe that that is this more aware not not an AFE. If you will we expect to be in a in the mid ninetys the percentage as far as for customers and walk right. Because it also has benefits also to stuff on the speed capacity perspective, I windows time.
No not caught axa functionality as well so yeah. We believe we strongly believe that will increase overtime.
Great that's it.
Thank you Sean.
Your last question comes from the line of deals saw their lines from the bench Mark call. Your line is now.
Hey, thanks, everybody.
You are in your comments talked about four initiatives I'm not sure. If this touches on genes question or not I couldn't quite here to answer, but maybe I'll go through those a little more detail.
You know, where you're doubling doubling down on some development activity in those four areas.
Yeah, I think whats important is that as we.
Move our cluster averse to more sophisticated operations of their pharmacies.
We in particular, a need to get them more involved.
And.
The workflow process the analysis of the workflow process, so getting our customers that have professional.
Services upfront to do that analysis to understand how much you know road map to they have to gain and safety efficiency.
And clinical and setting up a really what I'd call up.
A sophisticated supply chain operation, which generally includes.
Consolidated service center, which is becoming more of the more of the the up.
Standard and because of that because there's so many locations. So many places for equipment and technology does exist, we've got to move more of the functions to the cloud.
And the Flout gives us unlimited.
Storage capacity compute power almost unlimited bandwidth and so that can do so much more for us and the Ami. So one is a great example of that because it's doing all the calculations on several of the things that would be normal operations for these groups to do manually and now are done automatically.
And then just internally the simplification.
And the speed of quote to cash.
The way, we invoice the way we charge the way we collect.
The way we ship when we build product when it lands how long, but after Lance does it get turned on what we're really shrinking that cycle down and collaborating throughout the company.
To really.
You know get get this whole process, you know with a big backlog and the being able to a range when the installs a can land, we've got room to shrink that that cycle.
And then that's just the Digitization if everything commercial whether it's a service calls on all our X T cabinets now Weve law, and we've launched a predictive maintenance on anything major.
Before a draw our fails our door fails a this predictive.
Technology now allows us.
To send people out when it's at the convenience for the hospital and to us.
Enabling us to really you know, especially lower our cost and over time more mall our of our service calls will be predicted and be resolved as opposed to you know an acute situation where someone is out immediately. So we went ahead launch that and just July in.
Huge success huge success instantly both with customers both with our service people and both with the risk and lastly, with the result, that's just example of one and then the Wizard like for installing used to take about nine to 15 minutes to go through 70 different menus to set up a unit.
Now takes less than 90 seconds through a wizard and and as well as the consistency of setting up these systems when they land the appropriate way. So all of these things are being done to that that I guess, we're on the road map, but during this moment in cold. It has been a time to really put.
Push them for to keep keep our people out of the hospitals and to be able to liver stuff more quickly and efficiently to the customer.
Oh and as far as the benefits you know I see obviously, there's lots of benefits here customer I'm wondering about for you all.
Is this.
<unk>.
Fishel, mainly to margin or do you see it as a way to accelerate growth as well.
Well I think overtime it will be a benefit the margin just cutting down the cycle right in.
As well as the cost of sending people out.
It's been a pretty big component of the gross margin line and so when you don't have to send people out or when you don't have to be there at present one of the when you can just plug it in and starts to play if you will it certainly makes a big impact overtime one of the things that helped us a lot as having in the customer have the mine.
Set to ready to accept and do more of a self install because now it's so easy they can do it and they don't need to have us there at present, we might be virtually president over the phone or something but we don't have to be there physically.
Which is.
Definitely easier for the customer and easier for us.
Got it and then Peter just quickly on cost of sales for products.
Well what would you highlight is the main impacts on on <unk> as percent of revenue or some sales going up.
No. The main driver there is a is less volume leverage in the second quarter compared to the to the prior corner right. So that that's a that's the biggest impact then.
Like Randall and I call. It earlier, we expect a the second quarter to be the lowest quarter for bookings and revenue a in this year.
So we expect a modest increases in gross margin as well through the quarters. This year and of course related to the volume leverage as well.
Resulting in lower cost of consoles as a percentage of revenue.
Okay, that's what I figure.
Yeah.
I don't see any questions from the Q I will turn it back right you Randall that's for closing remarks.
Well, thanks again for thanks for joining us today and just in summary, we do believe Q2 is the low for US. We do believe hospitals are figuring out to run their hospitals full.
They can't.
They can't are being a position whether or not full whether its of course that patients are like to certain surgery patients. They know how to operate in this environment and so I think that is the driver of for the a uplift in the strategic decisions hospitals need to make into making with us as they move forward with the decisions as they.
And deployment of our systems I hope to that today the more explanation on the long term sole source partnerships that we have really gives you a good understanding of.
The strength of our business and the future growth.
That we talk about the 10 or 12% or Oh organic growth that we believe it or will return to after a cove it.
And helping us a little bit during the call. Their time is the importance now the pharmacy supply chain seen as critical as we were engaged in the northeast as the first apex roll through and the shortage of the 75 drugs that were necessary to treat cobot patients.
The supply chains were breaking down so we use that information to help our other clients a move for and and I didn't think it just really continues to position the company well with strong cash flow, we our liquidity position is strong and and we have.
Constantly been Rutu route retooling for the future and I think up and we're not wasting our time as we move forward so that I'd like to thank again, the omnicell team before continuing to do great work during these challenging times and making a difference for everyone and their health care as they move.
Sure Thanks very much.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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