Omnicell Inc

NASDAQ:OMCL

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, ladies and gentlemen and welcome to the Omnicell First Quarter 2022 Earnings Conference Call. [Operator Instructions]

And now at this time, I'd like to turn the call over to Ms. Kathleen Nemeth, Senior Vice President Investor Relations.

[Kathleen Nemeth, Senior Vice President, Investor Relations]

Good afternoon and welcome to the Omnicell first quarter financial results conference call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder; Scott Seidelmann, Executive Vice President and Chief Commercial Officer; and Peter Kuipers, Executive Vice President and Chief Financial Officer.

This call will contain forward-looking statements, including statements related to financial projections or other statements regarding Omnicell's plans, objectives, expectations, targets or outlook that are 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 issued today and the Omnicell Annual Report on Form 10-K filed with the SEC on February 25th, 2022 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. Our results were released this afternoon and are posted in the Investor Relations section of our website at ir.omnicell.com. 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 financial results press release.

With respect to forward-looking non-GAAP measures, such as guidance and targets, we do not provide a reconciliation of forward-looking non-GAAP measures to the comparable GAAP measures on a forward-looking basis, as these items are inherently uncertain and difficult to estimate and cannot be predicted without unreasonable effort.

I will now turn the call over to Randall.

[Randall Lipps, Chairman, President, Chief Executive Officer]

Thank you, Kathleen, and good afternoon. And thank you for joining us today. We've had a solid start to 2022 despite headwinds due to inflationary pressure, and geopolitical unrest. We continue to work to advance the industry vision of the autonomous pharmacy with our focus on creating a single cloud based platform that is designed to enable SaaS and tech enabled pharmacy operations.

Our comprehensive medication management solutions, which we believe are transforming the pharmacy care delivery model continues to resonate strongly with our health system partners, and retail customers. We saw continued strong customer demand this quarter for our Central Pharmacy Dispensing Services, and Omnicell One SaaS platform. It is clear to us that our customers recognize the pressing need to modernize and expand their medication management capabilities and our strategy is generating results.

We delivered strong first quarter results and continue to build on our momentum from last year. Overall, we exceeded our first quarter 2022 guidance ranges for total revenues, non-GAAP EBITDA and non-GAAP EPS. Our first quarter results include total revenues of $319 million, non-GAAP EBITDA of $50 million and non-GAAP earnings per share of $0.83.

I'd also like to highlight that last month we launched a new generation of our IV compounding robot IVX that will power our IV Compounding Service, an innovative solution designed to scale the benefits, provide IV robotic technology and make it accessible to the broader market. We find that compounding is an extremely labor intensive area of medication management. And we believe the IVX Station provides differentiated approach to enable IV compounding at scale, while reducing errors associated with manual processes, and reducing the high cost of outsourcing.

Labor constraints, as well as the higher cost of labor continue to be a challenge for healthcare systems, and retail customers. We believe these labor issues highlight the pressing need to automate and modernize medication management processes. With the launch of IVX Station, among many other products and solutions, we're able to assist our customers to address the staff shortages.

In summary, I'm very pleased with our overall execution this quarter, and that we are maintaining our solid outlook for the year.

With that, let me turn the call over to Scott for some more details on our first quarter. Scott?

[Scott Seidelmann]

Thank you, Randall. We believe our strategy is working. And today I will provide some additional color around some of the macro market trends and how we think our portfolio of medication management products, software and technology enabled services, address these trends. The labor market continues to be an area of concern for our health system and retail customers, particularly with regard to pharmacy technicians who are responsible for many of the manual tasks associated with medication management.

According to a recent survey from the National Community Pharmacists Association, nearly 70% of community pharmacies are having a difficult time filling staff positions. Health systems face similar if not worse conditions. These industry staffing issues have been exacerbated by the COVID-19 pandemic which increased the already daunting workload of pharmacies, leading to staff burnout and retention challenges.

We believe that Omnicell solutions can help our customers mitigate the labor issues they're facing in several ways. But to highlight a few specific examples, IV Compounding Service and Central Pharmacy Dispensing Service use robots, analytics and experts to automate extremely labor intensive areas of the pharmacy. Additionally, Central Pharmacy Dispensing Services reduces the time that a pharmacist is required to check prescriptions by up to 90%.

Omnicell One uses analytics to automate what is otherwise a very manual task for several people. And the workflow software notifies pharmacy staff when to perform key tasks, such as a cabinet restock, which should improve the efficiency of a critical labor force in the hospital. And EnlivenHealth SaaS platform automates many manual tasks for the pharmacist. And the beta version of our new personalized Interactive Voice Response solution has shown the potential to reduce the number of calls that a pharmacist needs to handle by at least 15%.

These are just a few examples of how we believe our solutions help providers mitigate the labor challenges that they face. But more importantly, the concept of using technology to increase labor efficiency is a key part of the industry's vision of the autonomous pharmacy and as such is a key design tenant for our product management team that is designing current and future solutions.

Now I will comment on some of our recent customer highlights. First, a leading health system in the Southeast selected Omnicell Central Pharmacy Dispensing Service to help it streamline inventory management and enhance safety in its central pharmacy operations. This comprehensive solution combines the XR2 Robotic Dispensing System with experts and certified technicians in an effort to improve central pharmacy outcomes and should enable pharmacy staff to focus on higher value clinical activities. This is the largest CPDS relationship for Omnicell to-date, and represents an extension of an existing long term sole source relationship.

Second, a leading Northeast Health System selected Omnicell One to enhance the health system’s medication visibility and optimize its pharmacy supply chain and resources across its 13 hospitals. This is the largest Omnicell One relationship for Omnicell to-date, and represents an extension of an existing long term sole source relationship.

Omnicell has built strong partnerships with our customers. And we have long term sole source agreements with more than 50% of the top 300 health systems in the country. During the first quarter, we extended our agreements with a leading health system in Illinois, and a leading health system in Southeastern Massachusetts, both for another five years.

I would also like to highlight that on March 29th, more than 50 pharmacy health system leaders joined us in-person along with more than 700 others, virtually, for Illuminate LIVE. At this event, we formally launched our new IVX Station robot, along with numerous other features and enhancements in our Winter 2022 release. The IVX Station will be available through our IV Compounding Service, which combines our IVX robot with analytics, expertise and certified technicians.

This as a service approach, the IV Compounding is expected to enable providers to reduce the high cost of outsource medications, reduce dependence on medication shortages, reduce manual errors, and improve staff efficiency. Additionally, during the first quarter, EnlivenHealth continued to advance this mission of building and orchestrating one of the most innovative SaaS technology solutions that helps enable retail pharmacies of all sizes and types to grow and thrive in this new era of digital driven healthcare.

A particular focus of the quarter was EnlivenHealth’s continued integration of FDS Amplicare, and MarkeTouch Media, which Omnicell acquired in 2021. EnlivenHealth is already seeing good progress and cross selling solutions between the acquired companies and EnlivenHealth’s customer base. With the launch of IVX Station, which like all of our other devices, will ultimately be powered by our cloud platform along with the ongoing enhancements, the Omnicell One, EnlivenHealth and our other services, we believe we are getting closer to our vision of a fully integrated, intelligent infrastructure that will help make pharmacy care smarter and safer for everyone.

Now, a few comments on our 340B solution. The federal 340B Drug Pricing Program, which supports safety-net and rural health care providers, is designed to enable those providers to ensure access to retail and specialty medications for at risk population, as well as provide care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs.

Omnicell’s 340B solution has deep expertise in supporting health systems on administering and complying with the 340B Program's requirements. Despite the significant value that this program creates for patients and providers, recent manufacturer actions have limited provider utilization of the Program. As such our 340B solution will experience headwinds while the industry works out these changes. However, we expect our 340B solution to continue to play an important role in our overall strategy to provide health system and retail partners with the tools and services they need to help deliver the best patient outcomes.

In summary, we believe Omnicell is uniquely positioned to deliver intelligent infrastructure and services and ultimately help enable our customers to transform a significant part of the healthcare system. We are excited by our progress to-date and look forward to continuing to build on our positive momentum.

With that, I will turn the call over to Peter.

[Peter Kuipers]

Thank you, Scott. I’m pleased with the strong results for first quarter of 2022. Our performance demonstrates to us that our strategy is working and we are executing well on our innovation roadmap designed to further the industry’s vision of the autonomous pharmacy. I'm especially proud of the solid execution that our approximately 3900 Omnicell team members continue to consistently deliver, particularly during the current dynamic microenvironments.

Turning now to our financial results. First quarter 2022 GAAP and non-GAAP revenues were a record $319 million, an increase of $7 million dollars over the prior quarter on a non-GAAP basis and up 27% over the first quarter of 2021. The year-over-year increase reflects continued strong demand for Omnicell’s medication management solutions, as well as the contribution of revenue from recent acquisitions.

Total revenue in the quarter was slightly above our guidance range, reflecting strength in implementations of our connected devices and was partially offset by lower than expected service revenue from our 340B solutions and delay timing of certain maintenance renewals within the first quarter. On an organic basis, our first quarter of 2022 GAAP and non-GAAP revenues increased 19% year-over-year.

The acquisitions of FDS Amplicare, ReCept and MarkeTouch Media are performing well and modestly exceeded our plan in the first quarter for commercial momentum, revenue and profitability. Non-GAAP gross margin for the first quarter of 2022 was 48.9% including the first quarter gross margin at the impact of approximately $5 million of inflationary costs compared to costs paid for semiconductors, auto materials and trade in 2020. Excluding approximately $5 million in inflationary costs, the margin percentage would have been 160 basis points higher.

Our first quarter 2022 earnings per share in accordance with GAAP or $0.17 cents per share, compared to $0.28 per share in the fourth quarter of 2021 and $0.30 per share in the first quarter of 2021. The full reconciliation of our GAAP to non-GAAP results is included in the first quarter 2022 earnings press release, and it's posted on our website.

The first quarter of 2022 non-GAAP earnings per share were $0.82 compared to $0.92 per share in the previous quarter, and $0.82 per share in the same period last year. First quarter non-GAAP earnings per share exceeded our expectations due to the strength in total revenue, as well as the impact of a favorable tax benefit and stock compensation of $0.06 per share. We delivered non-GAAP EBITDA of $50 million in the first quarter of 2022, which is $1 million above our guidance range and reflects a 15.8% non-GAAP EBITDA margin.

At the end of the first quarter of 2022, our cash balance was $265 million, down from $349 million as of December 31, 2021. During the first quarter, we repurchased approximately 389,000 shares of our common stock at a cost of $52 million, reflecting an average stock price of approximately $134 per share. Free cash flow during the first quarter of 2020 reflected a $31 million use of cash due to seasonal timing of cash collections, additional semiconductor insurgencies, inventory increases for second quarter, customer implementations, and employee compensation payments in the quarter. We expect positive free cash flow in the second quarter of 2022 and free cash flow to continuously improve as we progress through the year.

In terms of accounts receivable, days sales outstanding for the first quarter of 2020 were 84 days. The day sales outstanding, that's an increase of 14 days over the last quarter, primarily from the timing of [enforcing] within the quarter. Inventories as of March 31, 2022 were $137 million, an increase of $70 million from the prior quarter, an increase of $41 million from the first quarter in 2021.

It's important to note that the inventories as of March 31, 2022, includes approximately $18 million of advance purchases and receipts of semiconductors that we believe will help reasonably secure supply for future customer implementation timelines. We continue to execute very well on our global supply chain process improvements and inventory management initiatives.

Now moving on to our full year and second quarter 2022 guidance. As we look to the rest of the year, we continue to expect strong revenue growth and customer demand and a healthy backlog. We continue to have high confidence that we have secured the necessary supply for semiconductor and critical components through 2022 in order to deliver our niche and critical systems and connected devices to our healthcare customers.

Our global supply chain procurement teams are continuing to do a great job addressing these challenges and minimizing disruptions to our customers. And importantly, the pricing axes we've recently taken are being well received by customers, which we believe demonstrates the strength of Omnicell's value proposition. We are pleased with the continued momentum in customer demand for [PSN] services and have been hiring in support customer implementation timelines.

Consistent with a previous guidance, our full year 2022 product bookings are expected to range between $1.370 billion and $1.430 billion. And we expect fully 2022 GAAP and non-GAAP revenues to be between $1.385 billion and $1.410. As a result of market dynamics, we're modifying the mix of our revenues for 2022. We now expect GAAP and non-GAAP product revenues to range between $975 million and $990 million. We expect GAAP and non-GAAP service revenues to be between $410 million and $420 million.

The updated mix of revenues reflect connected devices implementation timelines and a healthy backlog offset by the service revenue [indiscernible] in the 340B market and timing of maintenance renewals on prior generation equipments within a year. We expect the timing impact of maintenance renewals be resolved and for technical services revenue to be at the original expected revenue run rate towards the end of the year.

We now expect that services revenue as a percentage of total revenue to be approximately 14% to 15% in 2022, factoring in a conservative approach to our 340B business. We continue to expect total year 2022 non-GAAP EBITDA to be between $243 million and $255 million, reflecting the strength in our business model and our commitment to the prudent expense management and operational excellence initiatives.

We now expect full year non-GAAP EPS to be between $3.85 per share, and $4.05 per share, representing an increase of $0.10 per share to both the bottom and full expanse of the guidance range based primarily on lower expected diluted shares outstanding, which includes the impact of the repurchase of approximately 389,000 shares of common stock in the first quarter of 2022.

As we noted in previous quarters, we are experiencing the impact of inflationary hazards. This continues to be primarily due to semiconductor and auto component costs, and to a lesser extent trade and steel and other raw material costs. The supply chain team continues to manage the phase well while showing continuity of supply with no shortages to-date. Totally the non-GAAP EBITDA guidance includes the impact of approximately $30 million to $35 million of cost inflation 2022 as compared to cost paid for semiconductors, other materials and trade in 2020 and remains also unchanged from last quarter’s outlook.

As discussed in the prior quarter, the full year 2022 non-GAAP EBITDA guidance also includes around $8 million of integration costs for the FDS Amplicare, ReCept, and MarkeTouch Media acquisitions. As a reminder, we expect that the pricing actions that we have put in place will begin to have a greater impact on gross margins and non-GAAP EBITDA margins near the end of 2022 and as we move into 2023.

Including in our non-GAAP EBITDA guidance is the favorable impact of these pricing actions. We expect gross margin percentage to moderately expand in the second half of 2022 as compared to the first half of 2022. For full year 2022, we continue to assume an effective blended tax rate of approximately 6% in a non-GAAP EPS guidance.

For the second quarter of 2022, we are providing the following guidance. We expect total second quarter 2022 GAAP and non-GAAP revenues be between $337 million and $343 million with GAAP and non-GAAP product revenues to be between $241 million and $244 million and GAAP and non-GAAP service revenues to be between $96 million and $99 million.

We expect second quarter 2022 non-GAAP EBITDA to be between $54 million and $58 million. And we expect second quarter 2022 non-GAAP earnings per share to be between $0.82 cents per share and $0.89 cents per share.

Now turning to our long term outlook. We continue to believe that we have built a company that is able to adapt and scale very well. And we believe it's well positioned to deliver on the 2025 total revenue growth targets, driven by a number of factors including growing its tech services revenue, the benefits from long term sole source customer partnerships, multi-year co-develop plans, and increased average deal sizes.

We continue that line of size and are committed to our 2025 profitability targets. However, it's important to reiterate and note that we issued these targets prior to the current deflationary environment. We continue to execute pricing actions and manufacturing savings programs. As we continue to scale the business in the coming years, we expect to invest or redeploy some of these savings with value creating growth and innovation initiatives.

In summary, we are pleased with our results for the first quarter of 2022 and believe we are executing well and what continue to be challenging and dynamic environment. We remain confident in our long term outlook as we continue to take steps to address inflationary headwinds and supply chain disruptions in the market. We are committed to delivering durable value for all of our stakeholders and look forward to updating you on our progress in the coming quarters.

With that, we would like to open a call for your questions.

[Operator]

Thank you, Mr. Kuipers. [Operator Instructions]. First we go through Scott Schoenhaus at Stephens

[Scott Schoenhaus, Stephens]

Hi, Randy, Peter, Scott and Kathleen. Hope the team is doing well? Just wanted to start off, so your guidance implies some reduced growth in services and software this year, you outlined the delayed 340B opportunity. I just wanted to ask where you're seeing as most growth in software in the near term. Is it on the institutional side as Omnicell One? Is it on the retail side within EnlivenHealth? Or is it now with your advanced services portfolio?

[Peter Kuipers]

Yeah, this is Peter and let’s call upon [Virad] as well. So clearly there is a lot of momentum from a customer demand perspective on CPDS and also on IVCS. And that will be powered by the next generation of IV robots. We see also really great uptake only so long, and then also on the retail software pharmacy side, which is also really solid and strong growth. So we would say both.

[Scott Seidelmann]

And the only thing I'd add to that is on the Enliven side, as Peter mentioned, on the retail side is that in the last year, we acquired FDS, and MarkeTouch. And now as we've combined those offerings in the market, at least from a commercial front end, we're seeing really nice positive reception from customers for that combined offering. So that gives us too, yeah.

[Scott Schoenhaus, Stephens]

Great. And to follow up, just trying to get a sense on how much revenue contribution could potentially come from the launch of this new IV compounding robot. If there's any numbers you could provide on maybe pricing upside for this replacement cycle, firstly, and then assuming this new equipment also is embedded with more software, and you guys talked about it briefly. But is there, is this is also a potentially way to unlock more software and service revenue streams going forward, I'm assuming? Thanks.

[Scott Seidelmann]

Yeah, no, I think it's a great question. I think that the number one thing that we're so excited about this launch is that this is a greenfield market opportunity where we believe that there is a lot of demand for this type of technology to improve IV. And so this is really unlocking a new growth market for us. We are delivering it as part of a service, like our CPDS. So this will be part of IV compounding service. And so that will be both -- there'll be product opportunity, but also software tech enabled services, kind of a recurring component as well. But in terms of timing, I mean, this year is really it's early we have customer demand and feedback is great, but it's really going to be quite limited in ’22 in terms of revenue, but again, something we're excited about end point maybe on.

[Scott Schoenhaus, Stephens]

Thanks, guys. Congrats on a good quarter.

[Peter Kuipers]

Thanks, Scott.

[Scott Seidelmann]

Thank you, Scott.

[Operator]

Thank you. We go next now to Jessica Tassan at Piper Sandler.

[Jessica Tassan, Piper Sandler]

Hi, thank you so much for taking the questions. So maybe, to follow up on Scott's question around the IV compounding service. Can you help us understand or just explain what the market opportunity is there? So hospitals of what size are viable candidates for this kind of service? Or and is the opportunity sort of as big and broad to tap that opportunity? And then just what are the key considerations that a hospital might weigh when they're deciding to endorse or outsource your [competency]?

[Scott Seidelmann]

Sure. I think starting with the second part of your question makes it easier. I mean, right now for hospitals, obviously IV compounded drugs are critical to care delivery, and hospital have a couple of choices on where to get those drugs. Predominantly, they're getting them through 503B outsourcers, which is expensive. Ironically, even though it's outsourcing, it's also -- certainly there's historically been quality issues, but that also makes them subject to the risk of shortage. The alternative to outsourcing it today is compounding them internally and that's a very manual process with well known quality and safety issues. And so the demand has been around for quite a long time for using robotics to essentially insource the compounding of those drugs, which obviously reduces errors but also the value proposition very much. It avoid shortages, and most importantly, very demonstratable ROI of avoiding the high cost of outsourcing those drugs. The challenge for a long time is that robotics has really failed to live up to being able to meet the throughput and reliability standards that the market has been, frankly, desperately needed. And so the reason we're so excited about this technology is not because we have to create demand. But because finally, we're optimistic that this robot can meet those throughput and reliability demands. And so that's really the value proposition. As far as the size of this market, again, given that robotics in use in hospitals in the US has been quite limited. It's been really single digit penetration. But we're very excited that this tends to be larger hospitals, but it's a very large portion of the US hospital market that this technology will unlock. So, in terms of magnitude, we're -- I don't think we've disclosed that. But it's meaningful.

[Peter Kuipers]

And I think it's appropriate to say that many hospitals will take multiple robots, not a single robot.

[Scott Seidelmann]

Right.

[Peter Kuipers]

In a single place, I think we've identified the Central Pharmacy, the TAM has been $15 billion. So the IV robot obviously has a significant portion of that. And it's just a fantastic opportunity to really be a centerpiece of transforming the pharmacy, I think it's not another product and another generation, it is a game changer. And the other note I'd make on the robotic pieces is if you're going to do it manually in house to save money, you have to have the most experienced technicians, and pharmacists handling these processes. And they just can't get these people to do the process. They're not there. So robotics provides a path for actually getting the job done in house which the hospitals would prefer, and not needing the labor, we're going to supply the labor to help manage the robot process.

[Jessica Tassan, Piper Sandler]

Really helpful. Thank you. And then just one quick follow up, so on 340B, I think some of these issues around the manufacturer process, around contract pharmacy that are kind of out there at the time of the acquisition. So I guess what has changed or gotten -- what is changed and has it hasn't changed your view on that, the future growth prospects for that business relative to the time of the acquisition? Thank you.

[Peter Kuipers]

Yeah, thanks Jessica, for the question. So what has changed really is in the latter part of the first quarter, the number of additional manufacturers remove certain of their math from the discount program, right. So that impacted the volume at our customer base and therefore also are following from a revenue perspective. We're taking a conservative approach to the revenue forecast that’s included in outlook, and our guide that says we believe that the 340 B program is a very essential strategic part of the US healthcare system.

[Jessica Tassan, Piper Sandler]

Got it, thank you guys.

[Operator]

Thank you. We will next go to Anne Samuel at JP Morgan.

[Anne Samuel, JP Morgan Chase]

Hi, guys. Congrats on the quarter and thanks for the question. Despite, you know, you talked about higher inflationary pressures, since you provided your guidance last, but you were actually able to maintain your bottom line guidance for the year? So I was just wondering, were there any offsets from cost savings that you were able to achieve or is maybe pricing helping you sooner than you anticipated?

[Peter Kuipers]

Yeah. Thank you for the question. So a couple of components there, and maybe first I can touch upon the inflationary costs. So we were able to manage that very well. You see, probably in the markets as well, freight and steel are inherently spot markets. There are some headwinds there. From a cost perspective, we also are experiencing that. However, we're able to offset that within -- with lower inflation on semiconductors and as you can see, in the prepared remarks, we have a significant amount of those semiconductors needed for supply to our customers in our connected device already in purchases. And so we have a balance there, we can offset it. And given the slightly lower service revenue, we're able to offset that with product revenue strength from customer demand and from the backlog, we also did some additional cost management for prudence perspective as well. So we're able to continue to guide to the original EBITDA range.

[Anne Samuel, JP Morgan Chase]

Great, thank you.

[Operator]

Thank you. We go next to Matt Hewitt at Craig-Hallum Capital.

[Matt Hewitt, Craig-Hallum Capital]

Good afternoon. Congratulations to the good start to the year. And maybe first question, and I realize it's still relatively early days but what has been the reception from customers regarding the ReCept acquisition? Are there any cross selling opportunities that you can speak to so far?

[Scott Seidelmann]

Yeah, I'd say that the reception has been very, very positive. I think we really at this point haven't fully integrated that into our sales process in communication. But that being said, I think that sort of the customer feedback that we've gotten has really validated the thesis that, yes, this is a part of the medication management process, it makes sense that it's part of the overall Omnicell platform, that certainly they would , expect and like Omnicell to deliver a service like this. And I think the other thing which, when you combine some of the manufacturer actions on the 340B side with the notion of operating specialty pharmacy better, I mean, one very positive thing which is interesting, and very helpful for us is that, at this point, most of the other major TPAs, and frankly, even competitive MSOs, are owned by entities that are competitive to the health systems or at least perceived as competitive to the health systems or aligned with a payer and/or PBM. So that puts us in a very unique position with these services.

[Matt Hewitt, Craig-Hallum Capital]

That's very helpful. Thank you. And then maybe separately, there's obviously a lot of talk and you touched on in some of their prepared remarks regarding one, hiring challenges at your customers and two, inflationary pressures, both in the form of wages and just higher costs in general. When you're talking to your customers, and they're coming to you kind of with their problems, what are the maybe the one, two and three top priorities that they're coming to you for solutions on? And maybe how quickly are you able to implement those to help the customer? Thank you.

[Scott Seidelmann]

I think that probably would vary by service or product. But I think generally speaking on the acute care side or in the health systems, it's very much right now its labor. And it's helped0 me continue to deliver the right meds to the right location at the right time in my increasingly complex geographically distributed health system, with the fact that I'm underwhelmed with labor. And so I think that's certainly feeds into the CPDS and IVCS. Even with the point of care, I think we're number two, in order to manage and mitigate your labor issues, you have to have visibility as to where the meds are in your health system at any time and more importantly, be able to direct where those meds should go. And then that's driving real interest and demand in Omnicell One, because Omnicell One provides that visibility. And then, which is a direct benefit on the labor side can direct a task to a pharmacy tech on going and restocking a cabinet. So that's helping to offset that. I think on the retail side, it's very similar, which is simply that I know as a retail pharmacy, I need to grow, I need to engage patients, I need to do more for patients than I have historically done such as scheduled vaccinations, scheduled testing, even just schedule an appointment to talk about Mrs. Smith’s med. The problem is that I am now struggling with labor shortage, I'm overwhelmed to begin with and so gives me tools and technologies that helps automate that. And so that's where an Enliven and SaaS platform is so helpful, which is to provide workflow tools to automate a lot of those. And so the themes are exactly the same, which is free up to pharmacist to deliver better clinical care. And that's the heart of everything that we're doing.

[Matt Hewitt, Craig-Hallum Capital]

That’s great. Thank you very much for the color.

[Scott Seidelmann]

Yeah.

[Operator]

[Operator Instructions] We go next now to David Larsen at BTIG.

[David Larsen, BTIG]

Hi, there, my congratulations. Hi, congrats on a very good quarter. Can you talk a little bit about your pricing power? So there's a lot going on at hospitals. COVID had very high rates, very high prevalence rates in January they abated in February and March. Like how are your hospital clients responding to these price increases that you're taking? Are they okay with them? Are they pushing back or not? Just any color there'll be helpful.

[Peter Kuipers]

So, David, this is Peter. So in EBITDA remarks, we also commented on pricing, I think in my section. So the price increases so generally being well received by customers and well understood as well. And we're not the only ones that they go to in the industry. So and it really shows-off the value of our solutions and Scott early on in the earlier question really answered really the importance of the solutions, right? It helps health systems with labor shortages and safety, and efficiencies. And so we see these latest orders coming into backlog we see --

[Scott Seidelmann]

Yeah. A healthy price increase.

[Peter Kuipers]

Price increases or the average cost or average prices are higher.

[Scott Seidelmann]

Yeah.

[Peter Kuipers]

So we can see it coming.

[Scott Seidelmann]

See it and book in some backlog, yeah.

[David Larsen, BTIG]

Okay, so it sounds like the hospital clients of yours are getting the value for what they're buying and ultimately it improve the quality of care and enables them to grow revenue on their own hospitals and ultimately reduced their own internal costs, because they have wage inflation that they're dealing with as well. So those price increases are being well received. It sounds like, okay. And then in terms of inflation, are you pretty much -- are you set for 2022? Do you have enough semiconductors in stock in inventory now, to bring you through 2022? And as we progress through April, how is inflation looking for semiconductors as we think about 2023? And are you protected from China, in particular, and Taiwan?

[Peter Kuipers]

Yeah, so thank you for that question. So overall, we're able to manage total inflationary costs, pretty well and balance. Freight is still inherently spot market, so there's some pressure there and mostly probably to what we see in the second half of the year. However, given that a substantial part of the semiconductors that we need for this year already we have in stock and already they're fixed from a pricing perspective and cost perspective. We think we're able to manage that within the range. Dependency on Taiwan and China is, there is some fantasy, I would say. We're managing to really get our supplies from OEMs directly, from brokers, etc. So we feel, we have high confidence and surety of supply.

[David Larsen, BTIG]

Okay, thanks very much. Congrats on a good quarter.

[Peter Kuipers]

Okay, thank you.

[Operator]

Thank you. We go next now to Dev Weerasuriya at Berenberg Capital.

[Dev Weerasuriya, Berenberg Capital Markets]

Hey, hello, thanks for taking my question. And a great quarter to kick off 2022, here. I just want to talk a little bit about the IV compounding station, the new IVX, does that -- when you're in conversations with the clients around that in Central Pharmacy, does that provide an opportunity to drive further automation with kind of second level robotics such as XR2? And then, kind of if not, it seems like this is the current dynamics and the end market at hospitals that are perfectly suited to kind of incentivize hospitals to drive maximum automation. So, if not kind of know, what is really -- what's really needed to drive customers to get on to something like an XR2? Thank you.

[Scott Seidelmann]

Yeah, I think your first question is, that is really our discussions around the IV compounding service, are they related or contemporary with conversations around Central Pharmacy Dispensing Services? The short answer is, absolutely. Their timing may not be the same for them. They may have different initiatives going on, etc. But the conversation, frankly, for those and OC One and even point of care is very much around, look your health system, you've got to deliver these meds to the right location at the right time. You want to grow, you're struggling with labor, and we can help automate away a number of those tasks. And the conversation then would lend itself that the sales cycle lends itself to where are you seeing those problems today? And frankly, I think, IV compounding service, more often than not has a very clear ROI. And we work with the customer depending on what drugs they're compounding. Central Pharmacy Dispense Service, the ROI is there. It's related to labor, but it's also very much about unlocking delivery model options for them. And so, do they want to manage how they distribute their meds across systems? Certainly, it reduces the reliance on pharmacy techs. So it's very, very similar and we are seeing a lot of very strong demand on the CPDS side of things as well.

[Dev Weerasuriya, Berenberg Capital Markets]

Okay, great, and kind of on the second question, just, it's this is not kind of the perfect market to drive further adoption there. You know, what really would be -- what's kind of holding back for the adoption there is what I'm really getting at?

[Scott Seidelmann]

On the CPDS side with XR2?

[Dev Weerasuriya, Berenberg Capital Markets]

Yes, that's right.

[Scott Seidelmann]

Yeah, I mean, honestly, I think time, I think process, right? I think it's, more often than not what we're competing against is continuing to do things the way that they've always done. And which is manual and people and a bit of this is just the learning curve coming up to speed, finding the right time with L-system. But I would say that the demand is strong. And I think that we're optimistic and bullish around CPDS. I don't think there's a big regulatory change. I don't think there's some -- there's no some silver bullet out there that needs to drop that suddenly unlocks the market. I think that it really does boil down to, you know, and maybe it's the labor inflation. But it really does boil down to, you simply can't operate this Central Pharmacy with 500 people in the basement picking meds off of carousels and sending them wherever. It's just simply not sustainable over time. And so, that need is apparent to the customer. It's just about finding the right time that makes sense for them to build a location or do whatever. The bottom line is, we're really bullish about the opportunity there.

[Dev Weerasuriya, Berenberg Capital Markets]

Okay, great. Thank you.

[Operator]

And it appears, we have no further questions today. Mr. Lipps, I’m handing back to you for any closing comments.

[Randall Lipps, Chairman, President, Chief Executive Officer]

Yeah, thanks for joining us today. I have couple of comments here to close this out. Turning to an update on Omnicell’s commitment to corporate responsibility, earlier this month, we published our 2021 Corporate Responsibility Report. And in that Report, we highlighted the significant strides we've made in advancing environmental, social, governance, and innovation initiatives. And so I hope you'll avail yourself to that, you go to our website and find out more about that.

And lastly, I'd really like to send a big congratulations to the Omnicell team, which is almost every department in our company around the launch of the IVX Station. Certainly our engineering, hardware, and software, our product management, our launching people, are training. Everybody in the company has done -- been working on this huge project for several years and congratulations to you all, because pharmacy will never be the same.

Thanks, everyone. We'll see you next time. Cheers.

[Operator]

Thank you again. That does concludes today's Omnicell first quarter 2022 earnings call. I would like to thank you all for joining us and wish you all a great remainder of your day. Good bye.