Omnicell Inc (OMCL) 2018 Q2 法說會逐字稿

Good day. My name is Brandon, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Omnicell's Second Quarter 2018 Earnings Call. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Peter Kuipers, Chief Financial Officer. Sir, [you may begin].

Thank you. Good afternoon, and welcome to the Omnicell Second Quarter 2018 Results Conference Call. Joining me today is Randall Lipps, Omnicell Founder, Chairman, President and CEO. This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today, in the Omnicell annual report on Form 10-K filed with the SEC on February 27, 2018, and in other more recent reports filed with the SEC.

Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is July 26, 2018, and all forward-looking statements made on this call are made based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change.

Finally, this conference call is the property of Omnicell, Inc., and any taping, auto duplication or rebroadcast without the expressed written content of Omnicell is prohibited.

Randall will first provide an update on our business, then I will cover our results for the second quarter of 2018 and our guidance for the year.

Our second quarter financial results are included in our earnings announcements, 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 the same section.

Let me now turn over the call to Randall.

Good afternoon, everyone. We're very pleased to update you on the company's performance for the second quarter of 2018, as the business continued to gain further great momentum in innovation, customer acquisitions and financial results.

We're excited about our advancements in innovation as we continue to build and expand our industry-leading medication management platform, with a goal of achieving the fully digitized and automated pharmacy. In December last year, we announced the XR2 Automated Central Pharmacy System and the IVX Workflow powered by the IVX Cloud. The leading-edge robotic XR2 is a significant step towards the fully automated pharmacy across the full range of customer environment. Beyond upgrade potential, the XR2 represents significant greenfield opportunities. IVX is a significant technological advancement for IV workflow processes, enabling pharmacies to safely and efficiently compound and prepare IV treatments.

We're pleased to communicate that the general availability for both XR2 and IVX workflow was achieved ahead of schedule in June, a little earlier than expected, and both of these products are accepted and live at our first customer sites.

During the second quarter, we entered into additional noncancelable commercial agreements for both the XR2 and the IVX workflow products, and we continue to see a healthy build in the commercial pipeline. As we have stated before, the expected revenue contribution from the XR2 and the IVX workflow products to 2018 revenue is modest, given the timing of the flow from bookings to backlog and finally to revenue.

Next, I'd like to discuss the momentum and customer acquisitions. In summary, it's clear we are continuing to win in the marketplace. During the second quarter of 2018, our new and competitive conversions were strong at 27% of total company bookings. This was one indicator of the strength of the business. Over 75% were competitive conversions, and the remainder were from greenfield customers, who have never automated before. For the 12 months ended June 30, 2018, our new and competitive conversion rate was a strong 29%.

The Omnicell XT Series continues to do very well and is accepted by customers. Throughout 2018 and future years, we expect to see continued fast growth in the pipeline, bookings and live XT frames.

We believe that the following trends increase the importance of medication management. First, health care systems continue to consolidate and vertically integrate, and they need medication management automation solutions on one platform to improve patient and financial outcomes for both inpatient and outpatient settings. Secondly, pharmacy spend is the fastest growing spend category in health care. And as health care organizations increasingly manage the total cost of care, medication management becomes a very strategic comparative. And lastly, we expect the formation of nontraditional health care entrants will drive the need for increased integrated medication management from a competitive perspective.

We believe that our industry-leading medication management platform across the continuum of care very strongly aligns with these health care trends.

In the last number of years, we have successfully grown the business by executing 3 scalable growth strategies: growth with our differentiated Omnicell platform, growth in new markets and growth via acquisitions. In the second quarter of 2018, we continued to experience considerable wins, and we have added notable accounts for our customer base under our first strategic growth pillar of differentiated platform. With a number of large competitive conversions during the quarter, we believe that we gained further market share and continuation of the trend of market share gains that we have experienced for many years. We also signed long-term partnership deals with existing customers. Increasingly, we are seeing the strategic and market power of the Omnicell platform with over 80% of our multi-million-dollar bookings in the quarter, adopting multiple products on the Omnicell platform. Selected strategic wins this quarter include Beaumont Health. The largest health system in Michigan has selected Omnicell's medication management platform to support 8 facilities across their system. This new long-term partnership includes the XT Series; central pharmacy automation and the performance center; cloud-based predictive intelligence platform; and optimization services to improve business and patient outcomes.

Brigham and Women's Hospital in Boston, another strategic technology partner and long-term Omnicell customer, has further expanded the existing partnership with Omnicell and will be leveraging Omnicell's platform to solutions, including the XT Series, analytics and Central Pharmacy solutions to upgrade existing automation.

The Cleveland Clinic, one of the largest and most respected hospitals in the country ranked #2 by U.S. News & World Report, has chosen Omnicell's M5000 robot and SureMed packaging solutions to support patient medication adherents. The M5000 is the first pharmacy automation system that fully automates the fulfillment of multi-med blister cards, and Cleveland Clinic has chosen this important technology to support improved patient outcomes.

The second strategic pillar we're expanding into new markets also was a significant growth driver in the last several years, which we believe sets us up well for the years to come. We are seeing increased growth in medication management automation market outside the acute care setting. For example, Advanced Pharmaceutical Consultants or APC, a leader in customized pharmacy management services for behavioral health facilities, drug treatment centers and forensic presence, will provide Omnicell XT Automated Dispensing Systems as an option to over 100 facilities across the United States. Incorporating the XT Series into these facilities allows medications to be securely stored at the facility and enables care providers to safely monitor medication dispensing.

In our international markets, King Faisal Specialist Hospital and Research Center in the Kingdom of Saudi Arabia will expand their Omnicell platform to include new XT supply series and RFID solutions. King Faisal has recognized great success with leveraging Omnicell supply platforms of solutions. And this expansion will continue to drive efficiencies, improve patient safety and enhance clinical care.

[Cleveland] Clinic has chosen Omnicell IV solutions to support their sterile compounding needs. Cleveland will be implementing Omnicell's robotic IV in-sourcing solution known as RIIS, that includes Omnicell's IV robots, technical data and support staff to manage IV preparations. By bringing IV preparation in-house, Cleveland expects to create safer, more accurate and most importantly, more cost-effective sterile compounding operation.

Our third strategic pillar of expanding our presence enrollments through acquisitions has also continued to deliver strategic results. We were seeing notable cross-selling momentum within the total product platform and combined customer base, specifically for IV and Performance Center solutions. As mentioned, increasingly, we are seeing the power of the Omnicell platform with over 80% of our multi-million-dollar bookings in the quarter, adopting multiple products on the Omnicell platform.

We believe that our 3-pillar strategy created the foundation for our success and continues to drive future growth and scaling of the business.

Now I'd like to turn it back over to Peter with some update on the financials.

Thank you, Randall. Our second quarter 2018 GAAP revenue of $189 million was up 4% year-over-year. Our first half 2018 GAAP revenue of $371 million was up 12.7% year-over-year. The second quarter earnings per share in accordance with GAAP was $0.16 per share, up from $0.05 per share in the second quarter of 2017.

Our first half of 2018 earnings per share in accordance with GAAP was $0.21, up from the loss of $0.23 per share in the first half of 2017.

In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense; amortization of intangible assets associated with acquisitions; onetime acquisition and restructuring-related expenses; the acquisition accounting impacts related to deferred revenue portfolio adjustments; and the tax reform benefit impact of the Tax Cuts and Jobs Act of 2017.

We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand the amortization of acquisition-related cost and noncash stock compensation expenses, but there are component of our reported results as well as onetime events and a onetime acquisition and restructuring-related expenses.

A full reconciliation of our GAAP to non-GAAP result is included in our second quarter earnings press release and is posted on our website. For the second quarter, non-GAAP revenue was $189 million, which is towards the high end of the guidance range of $185 million to $190 million provided in our first quarter results earnings call and at consensus.

Our first half 2018 non-GAAP revenue $371 million was up 12.4% year-over-year. Platform pricing strength and strong cost management resulted in non-GAAP EPS for the second quarter of $0.46 per share, which is above our guidance range of $0.36 to $0.42 and above consensus. Our first half of 2018 non-GAAP EPS was $0.75 per share and is up 88% compared to the first half of 2017.

Our business is also reported in segments consisting of Automation and Analytics and Medication Adherence. Automation and Analytics consist of our XT and Omni RX Automated Dispensing Cabinets; Anesthesia Workstations; Central Pharmacy; Omnicell Supply; Omnicell Analytics; Performance Center; and MACH4 robotic dispensing systems. Our acquisitions of Avantec, MACH4, Aesynt and InPharmics are also included in this segment. The Medication Adherence segment consist of a broad platform of subscription software, medication packaging and equipment used by pharmacists to create adherence offerings that assist retail pharmacies and helping patients stay adherence with their medication regimens.

Our acquisitions of MTS Medication Technologies, SurgiChem Limited are included in the Medication Adherence segment. We report certain corporate expenses that cannot be easily applied to either segment separately. On a segment basis, our Automation and Analytics segment contributed $158 million in GAAP revenue in the second quarter of 2018, up from $149 million in the second quarter of 2017. GAAP operating income of $32 million in the second quarter of 2018 compares to $20 million of GAAP operating income in the same quarter last year. Non-GAAP operating income of $40 million for the second quarter of 2018 compared to $28 million of non-GAAP operating income in the same quarter last year.

On a year-to-date basis, GAAP revenue for the first half of 2018 was $310 million, up from $271 million in the prior year. GAAP operating income for the first half of 2018 was $56 million compared to $26 million in the prior year.

And Medication Adherence segments contributed $30 million in GAAP revenue in the second quarter of 2018, down from $32 million in the second quarter of 2017, mostly driven by timing of large robot sales. A GAAP operating loss of $1 million in the second quarter of 2018 compares to $200,000 of a GAAP operating profit in the same quarter last year. Non-GAAP operating income of $1 million for the second quarter of 2018 compares to $3 million of non-GAAP operating income in the same quarter last year.

On the year-to-date basis, GAAP revenue for the first half of 2018 was $62 million, up from $59 million in the prior year. GAAP operating loss for both the first half of 2018 and 2017 was $2 million. Non-GAAP common expenses were $90 million in the second quarter of 2018, up from $80 million in the same quarter last year. Non-GAAP other income and expense for the second quarter was a net loss of approximately $2.8 million, primarily consisting of interest expense on the outstanding loan balance and the impact of FX remeasurement.

Let's now move to the balance sheet and cash flow. The second quarter 2018 cash flow from operations was $22 million, mostly driven by cash flow from accounts receivables and prepaid expenses.

Inventories at June 30, 2018, were $104 million, up $2 million from last quarter, primarily driven by an XT Series and CBM Series inventory build up for future quarter installs as well as the XR2 and IVX units proposed first-launch customers. With the market introductions of the XT Series, the XR2 pharmacy robots and the IVX workflow powered by IVX Clouds, we now have 3 concurrence product introductions that we see ramping up over the years: first in bookings, then in backlog and then [convert] into revenue.

Accounts receivable days sales outstanding for the second quarter were 86 days, down 11 days from the first quarter in 2018. The decrease in accounts receivable days sales outstanding was mostly driven by more linear timing of billing during the quarter. Based on our customer agreements, we largely invoice upon shipments.

In the second quarter of 2018, our cash balance increased from $44 million at March 31, 2018, to $46 million at June 30, 2018. As of June 30, 2018, we had $205 million of outstanding funded debt, and our loan leverage measured is outstanding total debt loan balance over the last 12 months of bank EBITDA was approximately 1.8, down from 2.2 as of March 31, 2018.

We paid out $10 million in a loan of revolver facility during the quarter. During the quarter, we did not sell shares of common stock in our -- at the market offering. Our headcount was 2,424 at June 30, 2018, up 59 from March 31 this year.

Let's now turn to guidance. The specific guidance for the third quarter of 2018 is as follows. We expect third quarter non-GAAP revenue to be between $200 million and $206 million. We expect third quarter 2018 non-GAAP EPS to be between $0.52 and $0.57 per share.

Our full year 2018 guidance is as follows. We are moving the product bookings guidance range up by increasing both the low-end and the high-end of the guidance range. And now expect 2018 product bookings to be between $630 million and $665 million, representing a 14% organic growth rate when taking the midpoints of the updated guidance range.

We expect 2018 non-GAAP revenue to be between $780 million and $800 million. This represents a greater than 10% organic growth rate when taking the midpoint of the guidance range. As of January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers. As mentioned before, the largest impact of this adoption was the reclassification of GPO fees and operating expenses to a reduction of net revenue of around $8 million annually. The net impact of ASC 606 and the timing of recognition of revenues minimal in any given quarter in 2017. The net impact of the retroactive adoption was an increase of $0.03 in non-GAAP EPS in the second quarter of 2017. And as discussed previously, our 2018 guidance includes the impact of the adoption of ASC 606.

We're narrowing the non-GAAP EPS range for 2018 by increasing the bottom end of the previously provided guidance range. And we now expect total year 2018 non-GAAP EPS to be between $1.90 and $2.05. When reviewing our 2018 guidance, it's important to note a couple of items that are included. First, for 2018, our non-GAAP results include approximately $3 million of integration expenses for Aesynt and Ateb that we do not adjust for based on a non-GAAP policy. These integration cost directly impacting GAAP -- non-GAAP operating margins and non-GAAP EPS mostly consist of IT expenses for CRM, ERP and HR systems consolidations.

Lastly, for 2018, we expect interest expense related to the senior secured credit facility to be around $8 million or equivalent to a non-GAAP EPS headwind of around $0.16 per share.

Finally, for 2018, we are assuming an annual average tax rate of 21% to adjust GAAP tax expenses to non-GAAP tax expenses. This concludes our prepared remarks.

And now we would like to open the call to take your questions.

(Operator Instructions) And your first question is from Mohan Naidu from Oppenheimer.

First on the XR2 and IVX. Great to hear about the timeline. Can you talk a little bit about the implementations on these ones?. I thought these 2 products are a little quicker than the typical XT implementations. Any color you can provide there would be great?

Well, I think that both of these products -- we're very careful about both the development, implementation and rollout. We were not under the same kind of pressure that we were with the XT, where we were swapping out a bunch of in-place orders that we had in backlog with a new product line. In this case, all the orders that we have for XR2 and IVX Workflow are brand-new orders. So the customer knows what they're expecting to get and understands. So we didn't have that same complexity of issue. The other thing about the IVX Cloud is an FDA product. And so that product, it doesn't roll out, no beta customers or alpha customers, it rolls out when it works with near perfection. And so that product is rolling out, and the first customers were very successful. And I think that a lot of customers want to see these products working in a few sites to get them more comfortable with putting their orders in. So we're -- got a lot of people kind of sitting on the sidelines watching in our first XR2 original site and picked over 50,000 doses with only 3 small errors that we just made an adjustment to the system. So a pretty accurate system that can deliver large volumes of work without errors. And so we're really excited about that, and customers certainly see that as a massive safety, high production, flexible tool that really fully digitize the pharmacy.

That's great to hear. And I guess the growth and -- I guess that you're increasing bookings guidance today, is that related to XR2 and IVX?

I would say it's overall momentum in the business. We've seen some great momentum.

Okay. Last question. Randy, can you comment on the med adherence segment, given the recent news on Amazon buying PillPack is a great tailwind for you guys, I would think but given that your med adherence products are pretty similar to PillPack, any color there?

No, absolutely. I think medication management is so important and such a high beta in getting the equation of lowering cost in health care and improving the quality. And there are also the trends as the acute care segment starts to push patients outside the hospital, then suddenly you have to run outpatient retail operations, which are even more expensive and more complicated than inpatients in many ways because of the expense of the drugs, a lot more specialty pharma is outside of the hospital. So as we see that happening, medication management is just -- has moved from a sideshow to a C-Suite, how do we make this work both in and outside? And then the revelation of Amazon and PillPack just reaffirms that these are going to be a significant way of practicing medication management. We see this much more prolific already in Europe. We already have over 1 million patients every day. And for instance, the U.K. using our medication solution systems and growing. And it's just starting off here and PillPack and Amazon, I mean, they're a great impetus just to kind of get this market a little more awake. And so if you're in a pharmacy related to outpatient pharmacy, you can't just dispense drugs, you have to be involved in medication management. That's the new world.

And your next question comes from Jamie Stockton from Wells Fargo.

I guess maybe the first one just, if we think about the sequential uptick in revenue in Q3, is there a primary driver that you would like people to think about as delivering that? Is it XR2 and IVX, which Mohan talked about a little bit or maybe the for-profits that you talked about last year, signing up, making a bigger contribution in the second half of this year or XT? I guess maybe those are the 3 things that in my mind could be driving it. But is there a primary one?

Yes. So Jamie, this is Peter. So what we've done -- I think we discussed this during the fourth quarter earnings call. We have increased our rigor around the planning of implementations together with our customer teams as well. And the sequential increase in expected revenue for the quarter simply reflects the plans and agreed upon implementation of customer sites for contracts that we already had in backlog months ago, and those are non-cancel agreements and is really the composition has a variety of elements in there and was mostly U.S.-driven.

But it's -- I mean, would you say that it is more maybe the XT platform than it is XR2 and IVX just based on, I think, maybe Randy's comment that there was a modest expectation for those 2?

Yes. So we talked this quarter, last quarter as well, well, [glad to be] in bookings. But over 80% of our larger deals are platform deals, multiple products. And so all the installations. In the third quarter, our multiple products by and large. Big dollar amount there is, of course, XT, as part of the platform and then to a smaller extent, like Randy talked about, XR2 and IVX. It's really modest for this year, like we said before, for IVX and [XR].

XT is on plan or is going to exceed plan, which is over double from last year. So that certainly is a draw -- a strong conversation piece in our discussions, but really, we quickly get to the broader platform, which is much more strategic and allows us to line up multiple implementations to address the current issues as well as lining up implementations and solution sets that spanned out over the years. So in many cases, we have moved from selling if you think of basically years and years ago, like basic single solution, which was sort of an annual driven kind of thing to where we're having these multi-year discussions with customers and then actually running up the solution sets. And that's really driven a new type of sale for us. It's very strategic that allows us to sign up customers for 7 or 10 years and look at the visibility on all those products. So it's been a good change.

That's great. And then maybe just a quick one around gross margin. Nice uptick during the quarter. Obviously, you got revenue ramp and sequentially, if I focus on product gross margin, you're almost back at 45% or somewhere thereabouts and which is, I think, maybe the high watermark since you've consolidated the Aesynt business. Is there more room to go there from here as the XT upgrade cycle continues to ramp? Or should we be thinking maybe that the gross margins are going to stabilize in here for that product segment?

Well, we see product gross margins as probably increasing throughout the year, driven by both volume leverage but also by efficiencies but modestly so not dramatically. But we're not at ceiling by any means.

And your next question comes from Matt Hewitt from Craig-Hallum Capital.

This is Charlie Eidson on for Matt Hewitt. First, related to the Performance Center, you mentioned that it doubled in Q1 quarter-over-quarter. How did that carry over to Q2?

Yes. So what we call it, as I mentioned in my prepared remarks in the last earnings call, was that the number of contracts for Performance Center, including to be implemented, more than doubled. And if you think about the revenue stream for Performance Center -- so it's recurring revenue. So that will be layered upon, if you will, but it'll a nice annual revenue that will go from this year into next year and then the following years. So it's not going to be an immediate sequential impact on the present line.

But just in terms of people, the number, I think at the beginning of the year we were 200-some-odd hospitals. That's not customers because obviously we sign up a -- customer that have multiple hospitals. But yes, I think, we're ultimately on track to get close to 300, another 50% increase. And it is a very key COG in the wheel and people not only choosing us but getting better performance out of their pharmacy operations. It's almost necessary, I would say.

Sure. I know, it makes sense. Related -- again, related to Performance Center, is the sales cycle any different for that product? If hospitals are only interested in that product specifically, like, can you get it implemented faster?

Well, you can, but generally, the best time to kind of flow decision-making through a hospital is when you're looking at multiple decisions so that you can get enough inertia and timing on things. But I think that we are really honing down our ability to implement these systems faster because they have so much impact. And so I think that our biggest challenge is -- not challenge but opportunity is to accelerate the imputation process by enabling our technologies kind of to be Performance Center-ready instead of actually having (inaudible). So I think as we improve on that technology, the turn on both the bookings and the revenue will become faster, but we probably need to invest a little bit more on the technology. But that's certainly a key win for us, and it's good margin for us, too.

Okay. That's great. One more from me. Peter, you mentioned that there were some platform pricing strength that kind of drove the quarterly results. Can you elaborate on that? Is that product mix? Are you getting more from anticipated bundle products?

It's both really. We're really -- if you look at the marketplace, I think it's fair to say that we're really the only company that can offer a medication automation platform. And as medication management goes more strategic, a lot of times we're really the only partner in the market, and therefore, it's not a head-to-head single product to single product price competition. So price is a lot lower on the list, if you will, when we negotiate a contract and develop a partnership. And so we see that coming through, so I think that is good credit to our strategy over the last couple of years to get to this point.

And your next question comes from Nina Deka from Piper Jaffray.

So can you provide some updated metrics on the XT penetration compared to what's out there currently in your existing customer base? And maybe where you expect to see that ratio by the end of this year?

Yes. So we have stopped providing that earlier this year. So we're not breaking out the product line specifically. We are focused on the platform. But the one metric that Randy earlier provided is that for bookings this year, we expect XT upgrade bookings. So those are upgrades of prior generation Omnicell systems at customer sites to more than double year-over-year.

Okay, okay. And then with this 14% bookings increase and more products in the pipeline, how do you continue to view your long-term growth rate of 8% to 12%? Do you see any opportunity for that move over time?

Yes. Well -- So what we've said in the past is our long-term organic top-line growth rate is 8% to 12%, first in bookings and then about 9 months later, you can argue that flows through in revenue. What we also have said is that given that we now have 3 concurrent product introductions and ramp-ups that we over time expect to be towards the higher end of that organic growth range. And at times, we can potentially also exceed it in the coming years. We've done that before. If you look at our numbers in 2013 and '14, that was the top years of the cycle of upgrades for G4. I think I believe they're roughly at 13% and 14% organic growth rate on revenue year-over-year so...

Yes, we -- still I would say just relatively in the XT cycle, we're still early.

Fairly early still.

And getting through of 9 innings or something like that. We've got some rich [year] just for that product, so sure.

Yes, and just as a -- just to be clear, the 14%, if you take the midpoint of the product bookings range, that's [40%] on product bookings, we also have service revenue. So it doesn't translate one-on-one to total revenue.

Right. Okay. And then just one more on the present clinical of the M5000, was that a competitive RFP process?

I don't believe so.

So we don't believe so. The Cleveland Clinic is a long-time Omnicell customer. And so they're really looking at specific populations [on] both of their employee base and outpatients to really manage Medication Adherence.

They had some of our basic multi-med card products but didn't have anything fully automated. The program was on a smaller scale. It was having great success. And they wanted to scale it up significantly. And so that's -- the M5000 allowed them to [get out to a lot of patients].

And your next question is from Bill Sutherland from Benchmark Company.

2 things. I was interested in getting a little color on your M&A thoughts at this moment in terms of where you want to focus and kind of the level of activity in your pipeline there?

Yes, So Bill, this is Peter. What we said before is that we have a dedicated M&A strategy team that is very focused on looking at the market and at opportunities, right? So nothing to announce at this time. We look roughly -- we've mentioned this before. We look at 20, 30 companies a year, probably do due diligence on a handful. And on average, we have acquired about one company per year. That's roughly the way to look at it but probably more focused on the Medication Adherence part of the business, but we're more software focused. There's definitely a lot of growth areas there that we can either develop organically, and we're rapidly developing additional med adherence software solutions, but we can also acquire some of those. So it could be either.

And I would say they're more -- no, no, I wouldn't call them tuck-ins, but they're all more roll up into our current platforms. It will be a massive platform acquisition outside of the pieces that we are in: inpatient and the outpatient. So aren't many what we have. So we have a lot on our plate now, and I think there's a lot to do so trying the right ones, we will, but I don't -- there's nothing dramatic.

No, I understand there's no schedule to it, but I did notice that it's been about a year. So I thought I'd ask the question.

Yes.

Yes.

It's a good question.

And I'm not too familiar with your RDX Essential that you sell internationally. I think it's just in release. Maybe you can just tell me about the significance of that product.

Sure. The RDX Essential is a very small robot with a very small ASP for really small pharmacies in Europe. And they're easily bought one at a time by small providers that have their own pharmacy, where they see the trade-off between labor and adding on people. And since all the formats of pharmacy retail in Europe is in boxes, you can simplify the robot process just to pick boxes of different size and deliver those. And so we have a more high-end robotic product that sells well into hospitals that we sell in Europe for managing their pharma Central Pharmacy. But we didn't have a small robot to work with the individual pharmacies. And so this was an attempt -- not an attempt, this was a entrance into the smaller market. So with smaller ASP, smaller market, smaller value. And so I don't think it's not as -- it won't be a significant mover of the needle for our overall business, but it does help our robotic European base market continue to grow.

Is it such a small ASP that use an indirect sales approach?

Indirect sales, I think that we do have some of that in Europe because it's really hard to call on. So we go through some partnerships there to deliver those. And I think that's generally the way to do it. It's really hard to sell these one at a time to individual retail locations. This is only -- that product is only for small retail locations.

In Europe.

And it's only Europe. And this wasn't from (inaudible), was it?

No, it's own developments.

And your next question comes from Gene Mannheimer from Dougherty.

The comment earlier on doubling of the XT bookings through upgrading the base, is that skewed more toward your AcuDose base or pretty broad base throughout the customers?

Both. Hey, it's pretty broad. And I think that it really has to do with sort of the age of the equipment, the timing of other things. But a lot of the equipments on the [order] side, but I'd say both customer bases are very engaged in the process.

That's great. All right. And with respect to the XR2 sales that you've shipped or actually some of those that have gone live so far, are those primarily robot RX replacements, greenfield? And can you maybe quantify the pipeline for XR2 as well as IVX for us?

They are both. One is a replacement, one is -- 1 or 2 are greenfield. And I'd [say], the pipeline is 50-50 at this moment. First-time lot users are -- they'll probably run a robot.

It really opens a new market, all the capabilities of the XR2 offers a full new market, we believe.

Great. Great. And just one more. The William Beaumont win, nice win there. I'm assuming that part of that decision was your new products, particularly on the IV side. Can you maybe also just characterize what were the drivers of that decision, how you came out on top there?

Well, I think this is one of the examples where Performance Center was a key driver of the decision and the ability to rationalize the movement of meds and pharmacy, both from a corporate level, all over William Beaumont Hospitals, down to an individual location and hospital, down to an individual site and the ability to really get a handle on some of the basics that pharmacies have not been able to do without having something like Performance Center to do that. So that tends to -- it tends to -- when you make these decisions, it really amplifies the value of what Omnicell can bring to a customer. So really with the Performance Center and the broader platform. And when I say that, this is the type of customer that signs up with 2 or 3 products that has every intention of probably buying 3 or 4 more products on a major scale down the way. And these are the kind of the customers we can sign up today that really are changing, I guess, the feel for us as we move forward to this heavy, strong medication management as well as having the outpatient products on PMAP platform to help them with med synchronization and multi-medications, multi-card medications that you need for outpatient operations, all of these things are reinforcement of -- these large providers really need platform capabilities, not point solutions.

(Operator Instructions) Our next question comes from Mitra Ramgopal from Sidoti.

Randy, I was just wondering, I know in the past, I think you feel comfortable in terms of gaining maybe close to 2% market share annually, given the success you're having now with XR2, do you think that could be even faster?

Well, what's interesting is, as we get closer to 50% of the market, I think market share gains are still important, but I think, more importantly, the sort of the solutions to deploy to our own customer base become significantly larger. So we need to become a lot more adept at continuing to broaden our platforms in the customers' base that we have, and that's just not XT. XT, that -- XR2 and the IV products line, that all make a lot of sense for people. But as we continue to be in the marketplace, people obviously bring us in often, and our story just resonates really well. And so I wouldn't -- I'm not trying to -- not to say I don't want to continue to grow the market, but probably the inside potential for us now with our new product lines is a huge opportunity that if we just execute it on our existing customers and the rollout of the products that we have, there's -- definitely, we just continue to have huge success. So it's almost like the competitive conversions are at this point are sort of cherry on top, I guess.

Right. Okay. No, that's great. And then, obviously, I'm sure you are aware, there has always been a lot of talk in terms of the cost of drugs now. And you've seen some of the big pharma companies under pressure not to raise prices further, given they are already considered higher. Are you seeing this debate or conversation helping you in terms of more customers coming to you in terms of seeking ways where you can help them?

Yes. Well, I think that it kind of refers to my other comments, where it's just the whole amount of increase and the dollar spent on medications in inpatient and outpatient is just becoming such a huge topic at all these providers. It's just not the price of a few drugs, it's just the total aggregate spend. And that drives C-Suites and decision-makers to look at their pharmacy medication management from a strategic standpoint, which is not what my inpatients spend or my outpatients, but how do I longitudinally manage this medication management across all my institutions through transitions for single patient and not just these episodes of different locations. And I always -- I kind of always say, if you're going to manage -- if you're going to drive outcomes and as a provider, you have to manage the risk. You no longer can manage the risk if you cannot manage the medication. And a lot of these institutions and payers alike are realizing that the key driver is making sure people get the right meds, and they get their meds and then they take their meds. And that's becoming a big driver in the medication story.

And now, I would like to turn it over to Randall Lipps for closing remarks.

Well, thanks again for joining us on the call. A great solid half of the year execution. It really put us to great data points of continued momentum on the business. It really looks strong for the second half of the year. Again, the platform is winning. Our new product introductions speak to new markets with new growth. People are -- want solutions that drive in and outside of the hospitals. And whether it's new entrants into the market, new kinds of pharmacies and new entities, medication management is becoming central to their success. And it gives me great satisfaction to know that Omnicell has aligned our strategies and our technologies and our investments, and I know they've been heavy over the last 2 or 3 years and acquisitions to get us to this point, but it really has positioned us quite well for the future. And I really want to give a strong shout out to the Omnicell team, who again has launched 2 new successful products, got them into the marketplace and is making a difference in health care, improving health care for everyone. Thanks, again. We'll see you next time.

And this does conclude today's conference call. You may now disconnect.