Good afternoon, and welcome to the Omnicell second quarter 2020 earnings call. Joining me today is Randall Lipps, Omnicell founder, chairman, president, and CEO. This call will include forward-looking statements subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For 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 26, 2020, 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 28, 2020, and all forward-looking statements made on this call are 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. We undertake no obligation to update these forward-looking statements. Finally, this conference call is the property of Omnicell Inc. Any taping, other duplication, or rebroadcast without the express written consent of Omnicell is prohibited. Randall will provide an update on our business. After Randall's remarks, I will cover our results for the second quarter of 2020 and our guidance for the third quarter of 2020. Our 2020 second quarter 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. Additionally, we'd 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 turn over the call to Randall.
Good afternoon. Thank you for joining us today. I'd like once again to start the call by recognizing all of the healthcare professionals who are on the front lines battling COVID-19. These are challenging times. Your courage and resilience in the face of this pandemic continues to be nothing short of heroic. As our healthcare partners continue to navigate the impact of COVID-19, we remain focused on our long-term strategy, which we believe is unchanged. We are committed to executing the vision of the autonomous pharmacy by delivering automation, intelligence, and services designed to transform the pharmacy care delivery model to help drive significantly improved outcomes and lower costs. As the COVID-19 pandemic spread in different regions in the U.S. and internationally, there were several shortages, not only in ICU capacity, equipment, and PPE 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 COVID-19 patients. In response to help our hospital customers, we did two things. We leveraged our analytics platform and rapidly developed specific analytics tools to better inform health systems and help them strengthen their pharmacy supply chain. As discussed on our last call, we also developed and launched a rapid response XT automated point-of-care system offering to help health systems expand bed capacity for potential patient surges. In speaking with our health system customers and industry groups in recent months, we understand that COVID-19 has made them recognize how critical a sophisticated supply chain is to smooth business operations and quickly to react to a surge in patients.
COVID-19 also increased the urgency to digitize and automate processes throughout health systems, including the digitization and automation of pharmacy to reduce manual touches of medications and to enable healthcare providers to focus more on patient care. As a result, we believe that our health systems customers are more willing to take these transformational steps because they see the significant value in what we do. We're using this moment in time to focus on and invest in those strategic priorities that are within our control to accelerate Omnicell's transformation, and we are doubling down on the development of the vision of the autonomous pharmacy in the following areas. 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 shift to cloud-based products and services development.
Third, we're speeding up the simplification, speed, and efficiencies of quote-to-cash processes. Fourth, we are continuing to drive virtualized and digitized commercial implementation and engineering processes. We believe that these actions will result in a stronger and even better positioned Omnicell post-pandemic conditions. In terms of building out our offering, last week, we announced another key milestone on the journey to the fully autonomous pharmacy, Omnicell One, which will be generally available in August. Leveraging cloud-based data and predictive prescriptive analytics, Omnicell 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 COVID-19, many of our customers have prioritized supply chain optimization in order to provide critical care to patients.
We believe Omnicell One represents a significant step towards leveraging analytics that enable our customers to meet demand in an efficient manner. At the time of our last call, we had little visibility into the impact of COVID-19 on our customer base. Shelter in place was enforced throughout the U.S. and parts of Europe. Elective surgeries had been postponed, hospital systems were ramping up to treat COVID-19 patients.
As a result, our sales teams had some difficulty engaging with customers on new bookings. Some implementations from backlog were being delayed as hospitals were consumed with treating COVID-19 patients or were preparing for a potential surge in COVID-19 patient hospital admissions. Since the time of the last call, with parts of the U.S. and Europe reopening, our visibility into our customer base and how they are managing their businesses through the pandemic have increased.
In addition, customers have a better understanding of how to treat COVID-19 patients and adjust their capacities accordingly while returning to more normal operations. We also have greater visibility into our customers' financial scenario planning and forecast. We believe that a leading indicator for the spend environment for our products and services is the level of elective surgeries compared to pre-COVID levels. We have seen an improvement in elective surgery levels and availability of budget spend in our customer base. A recent L.E.K. Consulting survey estimated that the levels of elective surgery versus pre-COVID levels will increase from around 40% in the second quarter to 65%-75% in the third quarter, to 75%-85% in the fourth quarter, and next year approaching 95%.
While this is encouraging, overall, we believe that the drivers of a sustained recovery and elective surgeries will likely vary regionally and may be predicated on the extent and duration of COVID outbreaks. Turning to our results for the second quarter and our business outlook. On our 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 progressed, we gained 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 non-GAAP EPS during the second quarter. While the environment continues to change rapidly, we are beginning to see more positive indicators for our business.
Although we've seen some delays in new product bookings, we are encouraged by the progress made during the second quarter. In many regions, elective surgeries have resumed, and in areas less impacted by COVID-19, we have been able to resume some on-site sales activity. The overall level of 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 available throughout the year. At this point, knowing what we know, we believe that the second quarter bookings and revenue represent the lowest quarter in 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've enabled some implementations of our solutions to continue without the need for our teams to be on-site to perform these services. We have been successful in 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 have talked about our long-term sole source agreements. I'd like to go in-depth on these agreements. This is a really important element to our strategy going forward, as it enables us to understand the value of the customers we've already signed on. We have been implementing and expanding this strategy successfully for the last two years.
In 2018, we realigned our commercial structure to focus on the top 300 health systems in the U.S. with dedicated customer success executives, as we believe they represent the vast majority of available market we target. As of the end of the second quarter, more than half of the top 300 U.S. health systems, as defined by Definitive Healthcare, are current Omnicell customers, and 141 of those have entered into long-term sole source agreements with us, most with a duration of five to 10 years. With the majority of these sole source arrangements, we have co-developed a multi-year medication management automation plan to drive increased levels of medication management automation to deliver improved accuracy, patient, and financial outcomes.
To assist with your understanding of how multi-year medication management automation plan works in practice, we have included an example for an Omnicell health system customer in the investor deck posted on the investor relations portion of our website. This customer example shows a 12-location health system planning to invest in medication automation in each of the next five years to deliver increased KPIs and outcomes in efficiency, compliance, safety, and people. Moving to customer success. Some of the new customer wins during this second quarter include Orlando Health, one of Central Florida's largest health systems, serving more than 2.7 million patients, will implement Omnicell XT automated dispensing systems across its eight hospital system to improve clinical and operational efficiencies at the point of care. Moses H.
Cone Memorial Hospital in North Carolina will be expanding their central pharmacy IV compounding program, a comprehensive service model that combines advanced robotic technology, data intelligence, and expertly trained pharmacy technician staff to insource their sterile compounding to enhance patient safety while reducing overall cost. During the quarter, our Population Health Solutions division successfully launched our first location with Walmart as part of an enterprise-wide rollout of our medication synchronization platform to all Walmart locations.
In our international markets, we recently announced a new software partnership with the West Yorkshire Association of Acute Trusts, an innovative collaboration of NHS trusts across West Yorkshire and Harrogate in the United Kingdom. The sixth NHS trust in this region will be implementing our SupplyX supply chain solution to improve supply chain, help 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, providing 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 will turn it back over to Peter for second quarter results.
Thank you, Randall. As Randall said, and as I will discuss in more detail later, COVID-19 has had a negative impact on new bookings and has delayed implementations as our ability to access hospital systems and their 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 is down 8% over the second quarter of 2019. The decrease in revenue from last year was largely due to delays in implementations of point of care XT Series related to COVID-19. Moving to the earnings per share. The second quarter loss per share in the quarter of GAAP was $0.10. This compares to earnings per share of $0.37 per share in the second quarter of 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 was partially offset by lower income tax expense. 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 2020 non-GAAP EPS was $0.37 per share compared to $0.67 per share in the same period last year, representing a 45% decrease. The decrease in earnings per share on a non-GAAP basis is again largely due to lower revenue, which is partially offset by lower income tax expense. I'd like to quickly cover our cash flow and liquidity as we believe it is a strength of our business, particularly during these uncertain times.
At June 30, 2020, our cash balance was $134 million, up from $104 million at March 31, 2020. The increase primarily resulted from free cash flow generated in the quarter of around $28 million, primarily driven by improvements in our working capital. Net cash provided by operating activities during the second quarter of 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 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. Our liquidity remains strong.
As of June 30th, 2020, we had no debt and have access to $500 million of committed capital through the revolving credit facility that we put in place in November 2019. As we discussed on the last quarter call, we took certain cost reduction actions during the first half of 2020. These cost savings actions include, 1, elimination of all non-essential travel. 2, hiring delays. 3, reduction of consulting costs. 4, elimination of trade show and other marketing-related expenses. 5, delays in certain capital expenditures. In addition to these actions, we have delayed merit increases to 2021 and have reduced other 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 and pursue our vision for the autonomous pharmacy.
As a result, we eliminated approximately 130 roles within our organization, primarily related to the engineering, service, and manufacturing organizations. Approximately two-thirds of these reductions were a result of previously announced strategic decisions, while one-third was volume related and better enabled us to match our business to the current market. Strategically, this facilitates and accelerates the shift from hardware-based and on-premise engineering development capabilities to cloud-based competencies that require different skill sets. For services, this change accelerates a shift from traditional maintenance services to the professional services offerings that we announced last year. We recorded approximately $6.5 million of severance and restructuring costs in the second quarter as a result of these actions.
Overall, through our cost reduction actions and this restructuring, we expect to realize an additional approximate $40 million of operating expense savings during calendar 2020 when compared to the original pre-COVID 2020 guidance on February 6th this year. To provide additional color here, we expect 2020 operating expenses now to be between $310 million and $350 million.
We will continue to manage our 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 to support market demand driven future growth. Now moving to our guidance on revenue and non-GAAP EPS. While the mid to longer- term outlook remains uncertain, we do believe that we have reasonable visibility into the nearer -term. As a result, we are providing the following guidance for the third quarter of 2020.
We expect total revenue to be between $204 million and $212 million. We expect product revenue to be between $143 million and $149 million. We expect service revenue to be between $61 million and $63 million. We expect non-GAAP earnings per share to be between $0.44 and $0.52 per share. We have taken a regional approach to our bookings pipeline as availability of resources, budget, and the level of COVID-19 impact varies by region. At times, there's also variation within one region.
While we do not provide guidance for product bookings at this time, we do expect product bookings to increase from the second quarter to the third quarter and from the third quarter to the fourth quarter. Lastly, we have refreshed our long-term market assessment, including our go-to-market strategy of long-term sole source partnerships, and we have updated our strategic financial framework goals.
We believe that post-pandemic conditions, we can return to the path towards the long-term goals of 10%-12% organic revenue growth, 18% non-GAAP operating margin, and free cash flow between 90% and 110% as a percentage of GAAP net income. While our long-term framework remains in place, we believe that this will take longer to achieve than initially expected given the uncertainty and duration of COVID-19. With that, we'd like to open the call for your questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q and A roster. Your first question comes from the line of Matt Hewitt from Craig-Hallum Capital. Your line is now open.
Good afternoon. Thank you for taking the questions and giving us a little bit of help, at least 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, and what are the customers telling you?
I think, kind of almost on every metric I can think of, Q2 was the low dip, and every month and almost every quarter, we're getting more access. The discussions are continuing where they were left off or we've continued those discussions sort of in a virtual mode. I just think that for sure, healthcare systems have discovered that they're going to have to operate at full capacity, even with COVID present, and that includes not just tactically, but continuing to make good strategic decisions, like deploying more medication automation over time.
It's really good to hear these conversations, and not everybody is at the full discussion point or is full level yet, but everybody has made movements toward back to normalcy. I think the elective surgery watermarks on the L.E.K. study are sort of a good indicator of that.
I just think that you've got to remember, hospitals, they're a live entity that has been running 24/7, 365, and eventually, they figure out how to keep their businesses in the proper mode and making good decisions. I don't think it's that far off.
Okay, 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 5 purchasing item for hospitals. Given the current environment and the budgets that hospitals are dealing with, I think the American Hospital Association was talking about losses of $325 billion in the first half of the year, and that's net of the CARES Act. When you look at this environment, obviously very challenging, how quickly can their buying behavior start to rebound as these elective procedures return? Maybe they're able to kind of get back into maybe not necessarily black, but close enough.
How quickly after that, I'm trying to think back to 2008 and 2009, I know there was disruption there as well, but how quickly are you expecting them to return to the table and get back to contracting? Thank you.
Matt, this is Peter. I think in the past we've said that we've always considered our automation infrastructure solutions to be in the top two or top three of the priorities. There's a couple different views as well on kind of the profitability of hospitals. You can look at the Kaufman Hall report, a little bit more positive on the net operating margins for hospitals that they polled in, I think, the month of May. Like Randy said earlier, we see momentum, if you will, in the pipeline, in the activities, and also in bookings, and we believe that sequentially through the year that product bookings will increase from the second quarter to the third quarter and from the third quarter to the fourth quarter.
I guess, from a color perspective, we're more positive maybe than you would think, hearing your question.
Understood. Thank you.
Your next question comes from the line of David Larsen from Verity Research. Your line is now open.
Hi, can you talk a little bit about your ability to deploy your various solutions in a remote manner? Your product revenue beat our estimate and I think consensus as well. Obviously, you're deploying some products. How much of these can be done on-site versus virtually, please? Thanks.
Well, I think it's really almost the majority of the XT point-of-care systems can be deployed virtually, particularly if it's not a first-time customer.
There's new technologies, including setup wizards, that customers or technicians can employ that almost make it impossible to make a mistake when they do these last steps to bring a system live. These kinds of technologies and deployments of wizards and the like have just been done in most recent quarter. The rapid response deployment of our systems, we found that out right away, that in fact, that was our only choices was to deploy these things in a virtual manner. That's quite a bit of few. Every single product we are reviewing more of the activities that can be done pre-shipment or pre-go live without our people being there, and it's gaining. Some of the hardware installs actually having to have people come in and set up a robot or set up some carousels, you can't avoid having those people there.
Most of the software, most of the installation time on our side and even the customer side is software. I think we have a lot of flexibility there.
Okay, just one more. It seems like your cash flow was actually very good this quarter. It's a little bit counterintuitive, given that occupancy rates in hospitals were low, like very low. Just any thoughts on what drove that and would you expect that trend to continue or not?
Yeah. There's three questions there, David. The cash collections were very strong this quarter. We believe we have a very strong and healthy customer base overall. That's good to see. From a admission perspective, we understand from our partners and providers actually that currently hospital admissions are within 5% of pre-COVID-19 levels, it is not that down much anymore for prior levels. Cash flow going forward, we expect to have strong collections going forward without giving specific cash flow guidance. We had a good result in the second quarter and believe we'll continue to deliver cash flow.
Okay, great. Even though it's going to take a little bit of time for elective procedures to ramp back up, I think I just heard you say that admissions themselves are at 95% of pre-COVID levels. That's what you're seeing?
Yeah.
Okay.
Depending on who you talk to. We talk to providers and health systems. From some of the providers we hear that admissions, what they can see, are roughly at 100% versus pre-COVID, and then maybe down to 5% is what we've heard. Some hospitals are above capacity as well, above the 100% that they normally had.
Okay, great. Thanks. Congrats on a good quarter.
Thank you, David.
Thank you, David.
Next question comes from the line of Steve Halper from Cantor Fitzgerald. Your line is now open.
Hi. Could you just provide some additional details on the Walmart relationship that you mentioned during the call, and what you're doing there specifically?
Yeah. Our PHS platform connects side by side with a retail on-premise platform, and our platform is designed to enhance the revenues of retail pharmacies. In this case, Walmart has some of our other platforms that they use.
IVR
voice, the IVR systems and some other options. Most recently, they did the med synchronization, where you go through your patient list and find appropriate patients that should really just get their meds once a month, get them filled, and really reduce the contact or need to come into the pharmacy or have it delivered once a month all at one time. We've had this capability with other large, medium-sized retail customers before. Now we're rolling it out to Walmart, which I think will take over at least probably six months to maybe a little longer to roll out to all Walmart customers.
The intent is to get into all Walmart pharmacy?
Yeah. They're managing it and controlling it, so yeah. It's already been approved, I believe, enterprise-wide, so it's just a matter of.
Rolling out.
actually the rollout.
Great. Thank you.
Next question from Sean Wieland from Piper Sandler. Your line is now open.
Hi. Thanks very much. On the outlook for the bookings, I just want to better understand what gives you the confidence to say that Q2 was the low water mark, considering that these COVID-19 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 it's just the levels of activity in the pipeline at the various stages have heightened quite a bit. We carefully track every customer, where they are with capital spend, likely to spend, likely to shut down. I think with our sophisticated model and with our inputs, we feel pretty confident about it. You got to remember a lot of the bookings that are coming in in a quarter are really things that have been in discussion for 9 months, 12 months. They may have been delayed bookings from second quarter or maybe even first quarter. A delay of two or three quarters is a pretty long time in some of these cases for these decisions. We have pretty high confidence that we can continue to accelerate.
If you care to comment, will bookings for the full- year 2020 be up, down, or sideways versus 2019?
What we said on the last call is that it's going to be below the original guidance for the year.
Right. Below the original guidance. I'm just looking at year-over-year.
Yeah. We're not giving a bookings number at this time for the year.
Okay. Thank you.
Actually, yeah. Okay.
Thank you.
Next question comes from the line of Gene Mannheimer from Colliers. Your line is now open.
Thanks. Good afternoon. I wanted to just raise the issue of competitive conversions
I imagine that in this environment, there's a fair amount of hesitancy regarding a hospital's appetite to make changes here. Can you talk about how much of an impact you're seeing from that? I think historically, competitive swap outs have been about 20%-25% of your bookings. How is it trending now? Thanks.
We believe we've got a good pipeline on competitive conversions also this year. We've had some competitive conversions earlier this year as well. Maybe just a little more color on the historical bookings growth. I think at the December 10 investor day, we did state that, actually in point of care, the biggest bookings driver is actually expansion with current customers. We also have the upgrade cycle. Competitive conversions, of course, are important to us, to be able to have new customers on the Omnicell platform as well. It's not the number one revenue driver for quite some time now.
Right. Okay, fair enough. Thank you for that, Peter. If you could just talk a little bit more about the reduction in force you implemented. Were there certain product lines that were impacted more than others, whether that's IV or med adherence, as a couple of examples. Thanks.
Yeah. What we had in the prepared remarks, about two-thirds of the realignment there are really strategic, right? Last December, we announced that we're accelerating the transformation of our services from maintenance service or break-fix services to professional services. That's about one-third of the realignment there. The second third is really the engineering skill sets, where we move more from hardware on-premise capabilities to cloud-based skill sets, if you will. About a third is volume related, and that's over various locations.
Okay.
Yeah.
Perfect. Thank you.
Yeah.
Next question comes from the line of Mitra Ramgopal from Sidoti & Company. Your line is now open.
Yes. Hi, good afternoon. Thanks for taking the questions. First, Pieter, I know you talked about the long-term growth of 10%-12%, based on the conditions you're seeing and going forward, I think we've talked about Walmart, et cetera. How do you see the point of care relative to central pharmacy and retail institutional, as we look at those buckets in terms of where that growth is coming from?
Yeah. While we don't want to provide specific numbers, kind of the breakout of that 10% to 12% composition, but they are directionally roughly in the same direction as we presented on December 10th last year. The growth in central pharmacy is a couple of points higher than in point of care. Retail institutional is kind of roughly in between the two. That's unchanged.
Okay, thanks.
Yeah.
Obviously, the cash has been building nicely. I was wondering if there are any objectives or goals you have right now in terms of planned use or just let it keep building?
We'll keep building. M&A is also part of our strategy. That remains part of our strategy. Depending if there's an attractive strategic potential acquisition, that could be a use of cash as well.
Okay. Thanks again for taking the questions.
Thank you.
Next question comes from the line of Scott Schoenhaus from Stephens. Your line is now open.
Good afternoon, guys. Thanks for taking my question. I apologize if I missed this, but did you comment on what the % of your legacy install base with your automated dispensing was for the quarter? I know you usually give that out.
Yeah. We didn't have it in the prepared remarks, but we're at 26% now, program to date, and it's in the investor deck.
Thank you.
you can find on our website. Yeah.
Thank you, Peter, 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 the installation in regards to upgrades is easier to do remotely and virtually. Is that the case so that you should continue to see that percentage stable or tick up going forward?
Yeah, I think that was Randall that made the comment. Yeah, we expect a steady upgrade cycle there. What we said in the past, that it's a nine-year upgrade cycle with a curve, if you will. From our perspective, we believe that it's more a when, not an if you will. We expect to be in the mid-90s percentage as far as the customers that will upgrade, because it also has benefits also, just from a speed and capacity perspective in Windows 10 and the narcotics functionality as well. Yeah, we strongly believe that will increase over time here.
Great. That's it.
Yeah. Thank you, Scott.
Thank you.
Your last question comes from the line of Bill Sutherland from The Benchmark Company. Your line is now open.
Hey, thanks, everybody. Randall, you, in your comments, talked about four initiatives. I'm not sure if this touches on Gene's question or not. I couldn't quite hear the answer, but maybe go through those in a little more detail, where you're doubling down on some development activity in those four areas.
I think what's important is that as we move our customers to more sophisticated operations of their pharmacies, we in particular need to get them more involved in the workflow process, the analysis of the workflow process. Getting our customers to have professional services up front to do that analysis, to understand how much roadmap do they have to gain in safety, efficiency, and clinical. Setting up really what I'd call a sophisticated supply chain operation, which generally includes a consolidated service center, which is becoming more the standard. Because of that, because there's so many locations, so many places for equipment and technology to exist, we've got to move more of the functions to the cloud. The cloud gives us unlimited storage capacity, unlimited compute power, almost unlimited bandwidth. That can do so much more for us.
The Omnicell 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. 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 after it lands does it get turned on? We're really shrinking that cycle down and collaborating throughout the company, to really get this whole process with a big backlog and being able to arrange when the installs can land. We've got room to shrink that cycle. Then it's just the digitization of everything commercial, whether it's service calls.
On all our XT cabinets now, we've launched predictive maintenance on anything major, before a drawer fails or a door fails. This predictive technology now allows us to send people out when it's at the convenience of the hospital and to us, enabling us to eventually lower our costs. Over time, more and more of our service calls will be predicted and be resolved as opposed to an acute situation where someone is sent out immediately. We went ahead and launched that in just July. Huge success. Huge success instantly, both with customers, both with our service people, and lastly with the results. That's just example of one. The wizard for installing used to take about nine to 15 minutes to go through 70 different menus to set up a unit.
Now it takes less than 90 seconds through a wizard, and as well as the consistency of setting up these systems when they land the appropriate way. All of these things are being done to that, I guess we're on the roadmap, but during this moment in COVID, it's been a time to really push them forward, to keep our people out of the hospitals and to be able to deliver stuff more quickly and efficiently to the customer.
As far as the benefits, I see obviously there's lots of benefits here, for the customer. I'm wondering about for you all, is this going to be beneficial mainly to margin, or do you see it as a way to accelerate growth as well?
Well, I think over time it will be a benefit to margin, just cutting down the cycle, right, as well as the cost of sending people out.
It has been a pretty big component of the gross margin line. When you don't have to send people out or when you don't have to be there present, when you can just plug it in and it starts to play, if you will, it certainly makes a big impact over time. One of the things that's helped us a lot is having the customer have the mindset to be ready to accept and do more of a self-install. Now it's so easy they can do it, and they don't need to have us there present. We might be virtually present 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. Pieter, just quickly on cost of sales for products. What would you highlight as the main impacts as a % of revenue or a % of sales going up?
The main driver there is less volume leverage in the second quarter compared to the prior quarter, right? That's the biggest impact. Like Randall and I commented earlier, we expect the second quarter to be the lowest quarter for bookings and revenue in this year. We expect 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 consult as a percentage of revenue.
Okay. That's what I figured.
Yeah.
Thanks.
Yeah.
I don't see any questions in the queue. I will turn it back over to Randall Lipps for closing remarks.
Well, thanks again, thanks for joining us today. 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 be in a position where they're not full, whether it's of COVID patients or elective surgery patients. They know how to operate in this environment. I think that is the driver for the uplift in the strategic decisions hospitals need to make and are making with us as they move forward with the digitization and deployment of our systems.
I hope, too, 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%-12% organic growth that we believe we will return to after COVID.
Helping us a little bit during the COVID time is the importance now of the pharmacy supply chain, seen as critical as we were engaged in the Northeast as the first apex rolled through, and the shortage of the 75 drugs that were necessary to treat the COVID patients, the supply chains were breaking down. We used that information to help our other clients move forward, and I think it just really continues to position the company well.
With strong cash flow, our liquidity position is strong, and we have constantly been retooling for the future. We're not wasting our time as we move forward. With that, I'd like to thank again the Omnicell team for continuing to do great work during these challenging times and making a difference for everyone and their healthcare as they move forward. Thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.