Omnicell - Earnings Call - Q2 2019

Transcript

Speaker 0

Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Second Quarter Earnings Call. Lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session.

I would now like to turn the call over to Peter Kuipers, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to the Omnicell's second quarter twenty nineteen earnings call. Joining me today is Randall Lipps, Omnicell Founder, Chairman, President, and CEO. This call will include forward looking statements subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward looking statements, please refer to the information in our press release today in the Omnicell Annual Report on Form 10 ks filed with the SEC on February 2739, and other more recent reports filed with the SEC.

Please be aware that you should not place undue reliance on any forward looking statements made today. The date of this conference call is July 2539, and all forward looking statements made on this call are based on the beliefs of Omnicell as of this date only. Future events are simply the passage of time may cause these beliefs to change. Finally, this conference call is the property of Omnicell Inc, and any taping, auto duplication or rebroadcast without express written consent of Omnicell is prohibited. Randall will provide an update on our business after Randall's remarks on the corporate results for the second quarter of twenty nineteen and our guidance for the remainder of the year.

Our second quarter financial results are included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at omnicell.com. Our prepared remarks will also be posted in this same section. Let me now turn over the call to Randall.

Speaker 2

Thanks Peter. Good afternoon. We are pleased to share the results of another strong quarter as the healthcare industry continues to recognize the importance of the vision for the Autonomous Pharmacy. As we have discussed previously, this vision of creating a zero error fully automated and digitized infrastructure will lead to enhanced safety, control and efficiency of medication management across the continuum of care. We have made significant strides this quarter to advance this vision and engage customers to join us on this journey.

Our business is very healthy and continues to grow profitably. Key financial results for the quarter include record revenue of $217,000,000 up 15% from the same quarter of 2018. Non GAAP EPS of $0.67 per share compared to $0.46 per share in the same period last year representing a 46% increase. Our product backlog at June 3039 is at an all time high and is growing faster than our product revenue. During this quarter, we continued to see strong momentum of new customer partnerships that are embracing the vision for the Autonomous Pharmacy.

The Autonomous Pharmacy integrates a comprehensive set of solutions powered by the Omnicell Cloud Data Platform across three key areas. First, automation solutions designed to digitize and streamline workflows. Second, intelligence that provides actionable insights to better understand medication usage and improve pharmacy supply chain management. An automation of medication dispensing workflows which includes expert services that serve as an extension of pharmacy operations to support improved efficiency, regulatory compliance, and patient outcomes. Some of our recent partnerships include Spartanburg Regional Healthcare System, an integrated healthcare delivery network in South and North Carolina has selected Omnicell Solutions at their flagship research and teaching hospital Spartanburg Medical Center as well as the newly acquired Mary Black campuses Spartanburg will make will Spartanburg like many provider networks is building a centralized distribution center or CDC as the main hub for pharmacy supply chain management.

Central to operations in this new center will be Omnicell XR2 automated central pharmacy system, a robotic system designed to automate critical workflows maximize inventory control, help improve efficiency, and increase medication safety. Spartanburg will also have the ability to better utilize health data analytics through Omnicell Performance Center. MUSC Health, named the number one health system in South Carolina by US News and World Report, will be implementing Omnicell's robotic IV in sourcing solution to bring sterile compounding in house as part of the health system central pharmacy operation. This unique program combines advanced robotic technology, data and expertly trained pharmacy technician staff into a comprehensive turnkey package. MUSC Health will also implement Omnicell's XT Series in patient care areas.

Additionally, we have secured several long term partnership commitments with leading healthcare systems including St. Luke's University Health Network in Eastern Pennsylvania and Western New Jersey plus Northern Arizona Healthcare and in Charlotte, North Carolina's based Atrium Health. These health systems will support medication management across their service networks through Omnicell automation and intelligence solutions, helping to improve management of the pharmacy supply chain while empowering pharmacists, nurses, clinicians, pharmacy staff to focus on patient and clinical satisfaction. These three health systems alone represent approximately 1% of The US hospital market based on total bed count. For the second quarter, we closed a record number of multimillion dollar deals versus any previous second quarter in the company's history.

Over 80% of these deals are anchored by long term commitments, and over 90% of these customers will purchase multiple products from the Omnicell platform. These are examples of how our business has expanded over the years from a single point solution to a platform of products and services, which has resulted in larger deal sizes across multiple product lines, more complex implementations and we believe a more comprehensive and enduring relationship with our customers. Autonomous Pharmacy is steadily evolving from a vision to a collaborative mission being driven in partnership with our customers and industry partnerships. I'm thrilled to share this progress and look forward to our continued success. Now let me turn the call back over to Peter for second quarter update and the rest of the year guidance.

Peter?

Speaker 1

Thank you, Randall. Our second quarter twenty nineteen GAAP revenue of $217,000,000 was up 15% over the second quarter of twenty eighteen. The increase in revenue is largely driven by an increase in XT Series implementations from a growing base of customers. Second, increases in annual service and maintenance revenue from a larger installed base of equipment and lastly, contributions from new products introduced over the last year. The second quarter earnings per share in accordance with GAAP was $0.37 per share, up from $0.16 per share in the second quarter of twenty eighteen.

The increase in earnings per share is largely due to higher revenue in the second quarter of twenty nineteen and achieving economies of scale over 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 and restructuring related expenses, tax reform and restructuring income tax benefits and expenses, contingent gains and amortization of debt issuance costs. We use non GAAP financial statements in addition to GAAP financial statements because we believe it's useful for investors to understand the effects of amortization of acquisition related costs and noncash stock compensation expenses that are part of our reported results as well as onetime events in acquisition and restructuring related expenses. A full reconciliation of our GAAP to non GAAP results is included in our second quarter earnings press release and is posted on our website. Second quarter twenty nineteen non GAAP EPS was $0.67 per share compared to $0.46 per share in the same period last year, representing a 46% increase.

Similar to the increase in our GAAP EPS, the increase in earnings per share on a non GAAP basis is again largely due to economies of scale achieved in the context of higher revenue. Non GAAP other expenses and income for the second quarter of twenty nineteen was $1,100,000 compared to $2,800,000 in the second quarter of twenty eighteen. The decrease primarily relates to lower interest expense as we have continued to deleverage. Let's now move to the balance sheet and cash flow. Second quarter twenty nineteen cash flow from operations was 27,000,000 Our operating cash flow in the second quarter was primarily driven by net income and adjustments for noncash related items such as depreciation and amortization, which were partially offset by changes in working capital.

During the second quarter of twenty nineteen, the company generated approximately $12,000,000 of free cash flow. We believe our business will continue to deliver free cash flow through the remainder of 2019. Inventories at June 3039 were approximately $104,000,000 flat from the previous quarter and flat from June 3038. We have been able to hold our inventory relatively constant over the last year despite continued growth, new product launches, and larger average deal sizes. Accounts receivable days sales outstanding for the second quarter were eighty seven days, down six days from the previous quarter and up one day from June 3038.

The decrease in DSO from last quarter is primarily driven by higher sales. As of June 3039, our cash balance was $87,000,000 up $10,000,000 sequentially and up $41,000,000 from June 3038. The increase in cash is due to proceeds from our at the market offering and operating cash flows. During the second quarter, we utilized our at the market offering to sell approximately 217,000 shares of our common stock at an average selling price of $82.51 per share. Total gross proceeds raised during the quarter was approximately $18,000,000 These proceeds were used to repay outstanding debt.

During the second quarter, we repaid $21,000,000 of debt. As of June 3039, we had $80,000,000 of outstanding funded debt, our loan leverage matched as outstanding total funded loan balance over the last twelve months or LTM of bank EBITDA was approximately 0.5 times. As of June 3039, we are now in a net cash position for the first time since the closing of the Asim transaction in early Our headcount was 2,555 at June 3039, up 83 from the end of the previous quarter and up 131 from the same quarter last year. The majority of the quarter over quarter increase is for manufacturing, implementation, and service personnel needed to support our business as it continues to expand.

Now moving to our full year 2019 guidance. We are increasing our full year product bookings guidance. We now expect 2019 product bookings to be between $765,000,000 and $790,000,000 Our previous guidance was between $745,000,000 and $780,000,000 The increase in our product bookings guidance is based on strong commercial momentum, especially from expected orders for our XT series. We continue to gain traction in XT upgrades, And as we have mentioned previously, we're in the early years of the XT upgrade cycle. We are increasing the midpoint of our 2019 total revenue guidance by narrowing our guidance range.

We now expect 2019 total revenue to be between $886,000,000 and $900,000,000 Our previous guidance range was between $880,000,000 and $900,000,000 The midpoint of our new guidance range is $893,000,000 compared to $890,000,000 which was the midpoint of the guidance range for 1Q twenty nineteen earnings call. Also, the midpoint of our new total revenue guidance range implies approximately 13% year over year growth from a full year 2018 total revenue. This breaks down as follows. We now expect 2019 product revenue to be between $653,000,000 and $663,000,000 Our previous guidance range was $652,000,000 and $668,000,000 We now expect 2019 service revenue to be between $233,000,000 and $237,000,000 Our previous guidance range here was $228,000,000 and $232,000,000 We are narrowing our total year 2019 non GAAP EPS guidance. We now expect 2019 non GAAP EPS to be between $2.65 and $2.82 per share.

Our previous 2019 non GAAP EPS guidance range was between $2.62 and $2.82 per share. The midpoint of our new non GAAP EPS guidance implies approximately 31% growth year over year. For the third quarter of twenty nineteen, we expect total revenue to be between $227,000,000 and $232,000,000 We expect product revenue to be between $168,000,000 and $173,000,000 We expect service revenue to be between 59,000,000 and $60,000,000 And we expect non GAAP EPS to be between zero six seven dollars and seventy two cents per share. Finally, for 2019, we're assuming an average effective tax rate of 7% in our non GAAP EPS guidance range. As Randall mentioned, we are very pleased with the results for the second quarter of twenty nineteen, and we look forward to continuing to deliver profitable results throughout the rest of the year.

Now I would like to open the call for your questions.

Speaker 0

Your first question comes from the line of Mohan Naidu from Oppenheimer. Please go ahead. Your line is open.

Speaker 3

Thanks for taking my questions. Randy, Peter, I think you guys made a comment about backlog being all time high. I guess XT is probably a big part of it. Can you talk about what other products are contributing to that? And is there any change in mix in that backlog, I think, as of last year?

I think you guys had mix around 22% long term versus short term. Any other color would be useful.

Speaker 1

Yeah, thanks, Mohan. If you look at, of course, the total revenue, product revenue, so take service revenue to the side. So within product revenue, there's also product backlog. XT Series is biggest product line. So yeah, that is a correct assumption.

There's one nuance there that most of the increase above the revenue increase, the increase in product backlog, is really more in the short term backlog as well. So that is an improvement, if you will, in the installation timing in the product backlog. So we're very pleased with that conversion momentum that's reflected in the backlog.

Speaker 3

And I guess, Peter, what other products are contributing on the short term side apart from XT? Are there any specific products that are gaining momentum at this point?

Speaker 1

It's the platform, it's XT Series, it's Performance Center, it's XR2, it's med adherence robots, services. So we're building out the platform that we announced in December at ASHP. So that's all picking up and including IT rights. Yeah.

Speaker 3

Okay, thank you and maybe a couple more questions, I guess in the last couple of weeks there have been a lot of questions about receivables growth and revenue recognition. Maybe, I guess what type of terms do you normally place in your contracts for payments? It sounds like the implementations are taking longer, there are delays in conversion there, but do you insist on a fixed payment terms or do you let clients wait until the full implementation is done? Can you elaborate on that?

Speaker 1

Yeah, so it's a good question. There's a couple of dynamics there, So yeah, average payment terms are roughly around forty five days. Larger long term partnerships might be more around sixty day range. International, by nature, longer payment terms as usual in business practice there. Then I would say because of the larger deals and the larger installs, that probably adds about ten days to that average, and then I would also say because we're a configurable product and we serve the customer, that probably adds another ten days, calculates to roughly that eighty day average there.

You can compare it also maybe to some other medtech companies that are also in the 80 range to up to 100 or above that, so we feel very comfortable. You should also consider that we bill for our main product lines, we bill upon shipping, right? So not all companies do that, so to some extent that elongates the payment cycle as well.

Speaker 3

And just to be clear, when you ship the product, when you put that revenue, I guess not revenue, but that amount into the receivables, you do not recognize the revenue,

Speaker 1

Exactly. Revenue follows later after installation is completed, after there's a written customer acceptance. For the main product line, that is. Capital credit.

Speaker 3

Okay. Got it. Thank you so much for taking my

Speaker 1

questions. Your

Speaker 0

next question comes from the line of Gene Mannheimer from Dougherty and Company. Please go ahead. Your line is open.

Speaker 4

Thanks. Good afternoon. Good job on the quarter and outlook. I just wanted to follow the other line of questioning. Do you think you can get DSOs back down to the 60s and 70s levels over time?

And same for inventory days, could you bring those go even lower going forward?

Speaker 1

Yes, we're not really going to give guidance on specific DSO inventory turns, if you will. Of course, we're working on both metrics, expect to get some traction there. Again, I would refer also to other medtech companies that have DSOs in the range of 80 to 100. And not all of those have the contractual terms where you actually can bill upon shipment. So we have a strong contractual term there.

On the inventory side, I would say that we do have a very large installed base, as you know, that we need to serve from a services perspective as well. We have a marketing commitment to service equipment in the field for about ten years. So that's included in inventory as well. Plus then we have the new product ramp up for Exa2 and for IPX.

Speaker 4

Mhmm. K. Make makes sense. Thank you. Could you offer, Randy, maybe some commentary around the IV, line of products?

What how's the reception there? What what are you seeing? What type of reception from your customers? Thank you.

Speaker 2

Well, think everyone in the provider network is struggling with the cost of IV compounding. And you have a lot of choices to make either outsourcing or buying a robot or insourcing and help us help you run it. And the pricing in the IV compounding market shifts around a little bit. So it's a more complicated equation because how you set the robot up and you run it to get maximum efficiency is important. And so that's why we see bigger uptake on the IV rise side, but we're really helping customers run that for them and we can get better throughput and better productivity out of it.

But this is a constant nigh and nagging problem caused by decompounding and I think we have new products on the IV workflow side and we're heavily invested in this area to constantly find ways to make this cheaper, faster and better. And so I think everybody recognize that it's about what strategy they want to take and how comfortable they are having us come in and help them run some of those pieces or whether they want to try to take some of those on themselves. I think some of the earlier customers who took these products on themselves, I think it's harder for them to keep up with the configuration changes as much as they should. So we think we've got the better working models in the pool.

Speaker 4

Very good. Thank you.

Speaker 0

Your next question comes from the line of Matt Hewitt from Craig Hallum Capital. Please go ahead. Your line is open.

Speaker 5

Thank you for taking the questions. A couple for me. I guess, first off on and kind of hit some of the areas that have been hot button items here recently. But on the receivables and the DSOs, and I appreciate what you put out in the press release, but I'm wondering if you could discuss a little bit how the business has changed over the past, call it, half dozen years. Are you seeing more system wide adoption, maybe ten, twelve hospital systems purchasing the product versus single hospitals or even divisions within a hospital?

And how does that change or how do those bigger contracts, how do those change how you collect on those receivables?

Speaker 1

Yeah, that's a great question. So we talked in this script and in earlier scripts about the long term sole source or long term commitments, if you will, multi year. Those are typically five, seven or ten year commitments where become, Onco becomes a partner for that health system to provide all medication management automation products and services right and that then is anchor that then is substantiated if you will as you go to the partnership to build the next level of pharmacy within that health system by purchase orders of bookings every year or every six months if you will as you build that out. The deal sizes are also becoming bigger, so those POs are becoming bigger, the installs are becoming bigger as well. Yeah, would say definitely does impact the average collection timing as well.

Sometimes hospital systems wait till the very last floor is installed for the last facility. But we're becoming a lot more strategic as well. If you look at our bad debt expense, last five years has been less than half a percent, hospitals do pay, also the bigger health system including as well, but just might be a little follow-up.

Speaker 5

And then shifting to the inventories, and you just provided a little bit of detail there as far as making the commitment for ten years to support the programs. But if you look back, there's been some comparisons to the last upgrade cycle, the G4 upgrade cycle. Maybe if you could describe a little bit some of the differences between the G4 upgrade cycle and the full equipment platform upgrade cycle with XT and some of these other product lines.

Speaker 1

Yeah, so the G4 upgrade was different. That was a console upgrade, is the computer console in the frame, on the existing frame, if you will. Therefore, the parts are really common, so both for upgrades and total complete product. So the requirements for inventory for service was definitely the same parts, if you will. Now move forward now to the current period of May.

We now have the largest installed base specifically for ADCs in The US consisting of Accudose and G4 Omnicell ADCs that we will support for the economic life of our customers up to ten years after purchase. And of course, those service parts are not used in the XT series. So that's a new frame and a new console. And we, of course, look at some of our inventory based on demand for both a current product perspective and also from a service perspective. That makes feel comfortable there.

Speaker 5

Got it. All right. And then maybe one last one for me regarding adjusted operating margin, 14 That's point 8% in the a really good number. It's the highest we've seen since Q2 of twenty fourteen, which was a little bit of an anomaly due to some recognition of vacation. But I'm wondering 14.8% in Q2 implies that you're going to get higher than that as we get into the back half of the year.

Have you had a chance to look at maybe a three year or a five year target for that? I know that you've kind of historically stuck to that 15%, but as you look at the model shifting to more software, do you envision an opportunity for that to maybe lift at times to something north of 15% on an annualized basis? Thank you.

Speaker 1

Yes, so first looking at 2019, if you're going to back into our guidance and use the midpoints of the provided guidance ranges, going to end calculating up roughly at 14.5 for year. So the math shows that for third quarter and fourth quarter, we're estimating to be slightly higher than the 2Q 'nineteen non GAAP operating margin. I would say we're not ready at this point to provide longer term guidance. We are transforming the company to more of a service oriented company, also with the Autonomous Pharmacy. So as the market, we see the TAMs are growing with our evolution, I would say.

So more to follow-up.

Speaker 5

Understood. All right. Thank you.

Speaker 1

And then the last point maybe, just looking at the data that we disclosed, so the growth of the multimillion dollar deals, if you will. If you look at the top 10, for example, the top 10 deals in the fourth quarter of 'eighteen, they were on average $10,300,000 each. Compare that to the fourth quarter of 'fifteen, that was 2,700,000 on average. So if you asked about the last six years, this is the last four years, gives you a good indication of the average PO size for the top 10 in the quarter. Almost three, four times bigger if you look at those quarters.

Speaker 5

All right, thank you.

Speaker 0

Your next question comes from the line of Jamie Stockton from Wells Fargo. Please go ahead. Your line is open.

Speaker 6

Good afternoon. Thanks for taking my question. Guess, Peter, I think you said that, obviously, you guys have gotten into a slight net cash position here. How are you thinking about M and A at this point? It's been, I think, a little over two years since you did your last acquisition.

Piggybacking on Matt's question earlier about margin thoughts. Historically, it feels like every time you guys have bumped up against 15%, you've backed yourself down a little bit from that by buying interesting businesses. Anything there would be great.

Speaker 2

Yeah, Jamie, if I can take that question for you. There's lot of momentum in the business. So it really, we're actively sorting through M and A potential always and particularly anything that can fit into that platform that will enhance the big pipeline, the big connection to these customers that can tie into the platform to enhance and make it more valuable. So as we have sort of evolved from the single solutions, the platform play, it makes a lot of sense to try to find the right kinds of tuck ins just to leverage that platform. But you know, there's a lot of things out there and some of them are not just got to find the right one at the right time, but there's no particular timing, but we're active, we're looking and we want to make it make sense, but it's not particularly time to earnings or anything else other than finding the right ones at the right time.

Yeah,

Speaker 1

it's probably fair to say also that the last big acquisition, ascent if will, we commented earlier on the XT upgrade cycle in the early years. Think the potential of the upgrade cycle for the customers that came with Ascent, actually those products of ABC, that's also in the early years. So there's more to come there. But to Randy's point, yeah, always look at the acquisition. It doesn't mean that we need to close one over close one every year or every other two years.

It depends. It needs to fill that framework. It needs to be at least an adjacency. It needs to be contributing as well as the revenue growth there. And to profitability maybe not nearly to 15%, but it needs to contribute as well.

We like to make sure deals are accretive on a non GAAP basis, non GAAP EPS basis from day one. Okay.

Speaker 6

That's great. And then maybe just an update. And I know you guys consolidated the business you don't report the two segments anymore. And I realize you kind of changed the way things are run internally, so that made sense. But if we think about maybe the non acute settings, retail pharmacies, institutional pharmacies, can you just give us an update on how things are going there?

Is there any traction in trying to build out a broader offering with deals like the ATTEB platform?

Speaker 1

Yeah. That business is evolving. Benefit there we have is that we have a very large customer base in our partner network, specifically on the population health solution side, medication therapy management, the comprehensive medication review. We have some really good early results commercially, not big enough to break out by any means on the front of the P and L. So the benefits are that we have a large customer base, plus also is that we have some good early successes but we need to continue to work on that.

Think that's what we're trying say. Yeah,

Speaker 2

think it's just it's still sort of in the embryonic stage but good early success stories and you know we need to leverage those up and continue to see some bigger growth there. I mean we've got a nice growth but it's on a small base and you know and it fits with the whole story of when you go to these provider networks and they're looking at both inpatient and outpatient and you got to have solutions that work in both. And the same thing for institutional pharmacy, they're evolving as well. I think our business there is still strong. We just want continue to develop some of our population health products to get to a bigger size.

Speaker 1

More scale. More scale.

Speaker 6

Thank you.

Speaker 0

Your next question comes from the line of Bill Sutherland from Benchmark Company. Please go ahead. Your line is open.

Speaker 4

Hi, Bill. Actually, hey, Peter. My question got pretty much answered in the last two. So good quarter. I'll leave it there.

Thank you.

Speaker 1

Yes. Thank you, Bill.

Speaker 0

Your next question comes from the line of Mitra Ramgopal from Sidoti. Please go ahead. Your line is open.

Speaker 7

Yes. Hi. Good afternoon. Just wanted to follow-up on the record backlog you're seeing and get a sense as to if it's coming more from, say, new customers versus upgrades or competitive wins. Any color on that would be great.

Speaker 1

Yeah, it's all of the above. We're in the early cycles or years for DXP upgrades. We continue to gain market share. We believe that for the first six months of this year we have further gained market share as well, and then the growth also comes from expansion, Remember that these big health systems that we have long term partnerships with, they expand as well and they might implement our products and services at the next facility, then the next facility. So it's a combination of all, so we're seeing contraction in all of those tracks or revenue drivers.

Speaker 2

And I would just add to that the XT series certainly is in some cases is the entry point for the big discussion which then broadens out into a longer and broader type agreement. Think a couple of our deals we announced Spartanburg I know was a new customer for us that we've worked on the other ones with us as well. We don't really track those things but it's just states about how important it is to have these kinds of systems in a large system in a programmatic way. And I think that the big systems are scaling up and standardizing and you know, of them have our older systems or you know, the legacy systems from where we acquired. So, know, they've got to make a bigger movement towards standardizing and putting in more pieces of the product line.

You just start to see that.

Speaker 7

Okay, no, that's great. And then just following up on that, any constraints in terms of being able to handle the increased business you're seeing and in terms of whether it's needing to add personnel, etcetera, to handle the implementation or are you comfortable that you have enough on board?

Speaker 1

Yeah, in our prepared remarks, we talked about the headcount increase. So sequentially, we're up 83 heads or headcounts from the March, and the majority of the increase is for manufacturing, implementation teams and service teams. So, we're definitely scaling up. You have to do that always just a little bit ahead of the revenue increases to a lot of training, etc. So yes, we are doing that and we don't see really impacts on manufacturing capacity, for the XT series, we've a really efficient assembly and best plan, if you will, where we can run a second shift also.

Speaker 7

Okay, thanks again for taking the questions. Your

Speaker 0

next question comes from the line of Matt Hewitt from Craig Hallum Capital. Please go ahead, your line is open.

Speaker 5

Just one follow-up from me. During the prepared remarks, I believe you were talking about the three wins with St. Luke's, Northern Arizona and Atrium representing 1% market share from a bed comp perspective. I know historically you've talked about gaining 1% to 2% a year and you obviously hit those numbers and that's what's allowed you to become the market leader as of last fall. But I'm just curious, that does the 1% to 2% still hold?

Or are you seeing such momentum that you think that you could actually take more than 2% share over the next couple of years as you get into the XT cycle in particular?

Speaker 1

So there's a couple of nuances there. So Northern Arizona, that was a competitive conversion. So that's a new customer. Atrium is a renewal, really a platform renewal, sole source contract. So think about bigger platform more products, if you will.

And St. Luke is also an existing customer, but that's a new sole source agreement, multi year agreement.

Speaker 2

Okay. Yeah,

Speaker 1

so only part of that 1%, but it's anchored, if you will. So that definitely is our strategy. And smaller locations and health systems that we don't disclose, that don't make it to the level of a press release, we're chipping away at those and we're gaining that first year of the quarter we take away and we have to have competitive approaches in our favor. So we don't necessarily want to give guidance on market share increases, but we believe that throughout the first six months of the year that we have further gained market share in The US and the 1.5% to 2% has been mostly historic rate over the last couple of years. It might have been higher in so many years, but I think that's fair enough for now to assume.

The real expansion also on revenue besides competitor prefers is really the whole platform and then the upgrade cycle.

Speaker 5

Got it. All right. Well, that was it. Thank you.

Speaker 1

Thank you.

Speaker 0

And there are no further questions at this time. I will now turn the call back over to Randall Lipps for closing comments.

Speaker 2

Well, thanks for joining us today and I as we enter the second half of twenty nineteen, I'm thrilled to see our Thomas Pharmacy vision come into life together our health systems and retail pharmacy partners are helping to create value for the industry by transforming pharmacy care delivery model. And this is really freeing up the pharmacists that's getting them out of the basement behind from behind the counter and getting them connected to clinicians of the patient so that we can improve outcomes for everybody. And I especially want to thank our customers for partnering with us and especially the Omnicell team for executing on our strategy as we deliver our vision of the autonomous pharmacy and really improve healthcare for everyone. Thanks everybody. See you next time.

Cheers.

Speaker 0

Goodbye. This concludes today's conference call. You may now disconnect.