Please stand by. We're about to begin. Good afternoon, ladies and gentlemen, and welcome to the Omnicell First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speakers prepare remarks, there will be a question and answer session. If you would like to ask a question during this time, just press star one on your telephone keypad. If you would like to withdraw your question, press star one again. Now, at this time, I'd like to turn the call over to Ms. 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 in the Omnicell Annual Report on Form 10-K filed with the SEC on February 25, 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. Reconciliation 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.
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, continue 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 the 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 continued 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 of 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 a 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?
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 are facing in several ways. 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 Service 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. EnlivenHealth's SaaS platform automates many manual tasks for the pharmacist.
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. 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 tenet 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 29, 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 to IV compounding is expected to enable providers to reduce the high cost of outsourced medications, reduce dependence on medication shortages, reduce manual errors and improve staff efficiency.
Additionally, during the first quarter, EnlivenHealth continued to advance its 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 in 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 to 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 healthcare providers, is designed to enable those providers to ensure access to retail and specialty medications for at-risk populations, 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.
Thank you, Scott. I'm pleased with the strong results for our 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 vision of the Autonomous Pharmacy. I'm especially proud of the solid execution that our approximately 3,900 Omnicell team members continue to consistently deliver, particularly during the current dynamic macro environment. Turning now to our financial results. Our first quarter 2022 GAAP and non-GAAP revenues were a record $390 million, an increase of $7 million 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 and implementations of our connected devices, and was partially offset by lower than expected service revenue from our 340B solutions and delayed 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%. Included in the first quarter gross margin is the impact of approximately $5 million of inflationary costs compared to costs paid for semiconductors, other materials, and freight in 2020.
Excluding the approximately $5 million in inflationary costs, the gross margin percentage would have been 160 basis points higher. Our first quarter 2022 earnings per share in accordance with GAAP were $0.17 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 our first quarter 2022 earnings press release and is posted on our website. Our first quarter 2022 non-GAAP earnings per share were $0.82, compared to $0.90 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 from 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 2022 reflected a $31 million use of cash due to seasonal timing of cash collections, additional semiconductor inventory receipts, 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 continue to improve as we progress through the year. In terms of accounts receivable, days sales outstanding for the first quarter of 2022 were 84 days. The days sales outstanding reflects an increase of 14 days over last quarter, primarily from the timing of invoicing within the quarter.
Inventories as of March 31, 2022 were $137 million, an increase of $17 million from the prior quarter, and an increase of $41 million from the first quarter in 2021. It is important to note that the inventories as of March 31, 2022 include approximately $18 million of advanced 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 from 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 on mission-critical systems and connected devices to our healthcare customers. Our global supply chain and procurement teams are continuing to do a great job addressing these challenges and minimizing disruptions to our customers. Importantly, the pricing actions we've recently taken are being well received by our customers, which we believe demonstrates the strength of Omnicell's value proposition. We are pleased with the continued momentum in customer demand for key advanced services, and have been hiring in support of customer implementation timelines.
Consistent with our previous guidance of full year 2022 product bookings are expected to range between $1.37 billion and $1.43 billion. We expect full year 2022 GAAP and non-GAAP revenues to be between $1.385 billion and $1.41 billion. 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 reflects connected devices implementation timelines and a healthy backlog, offset by the service revenue headwinds in the 340B market, and timing of maintenance renewals of prior generation equipment within the 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 advanced services revenue as a percentage of total revenue to be approximately 14%-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 prudent expense management and operational excellence initiatives.
We now expect full-year non-GAAP EPS to be between $2.85 per share and $4.05 per share, representing an increase of $0.10 per share to both the bottom and $0.04 to the top 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 headwinds. This continues to be primarily due to semiconductor and other component costs, and to a lesser extent, freight and steel and other raw material costs. The supply chain team continues to manage inflation well while ensuring continuity of supply with no shortages to date.
Totally, our non-GAAP EBITDA guidance includes the impact of approximately $30 million-$35 million of cost inflation in 2022 as compared to costs 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 modestly 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 our 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 to 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. We expect second quarter 2022 non-GAAP earnings per share to be between $0.82 per share and $0.89 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 advanced services revenue, the benefits from long-term sole source customer partnerships, multi-year co-develop plans, and increased average deal sizes. We continue to have line of sight 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 inflationary 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 and redeploy some of these savings into 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 in what continues to be a 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 the call for your questions.
Thank you, Mr. Kuipers. Ladies and gentlemen, at this time, if you have any questions or comments, simply press star one. If you do find that your question has been answered, you can remove yourself from the queue by pressing star one a subsequent time. First, we go to Scott Schoenhaus at 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 the most growth in software in the near term. Is it on the institutional side with Omnicell One? Is it on the retail side with EnlivenHealth? Or is it now with your advanced services portfolio?
Yeah, this is Peter, and then Scott will probably add as well. 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 in Omnicell One, and then also on the retail software pharmacy side, we see also really solid and strong growth. We would say both.
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. 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. That gives us some enthusiasm.
Great. As a follow-up, just trying to get a sense on how much revenue contribution could potentially come from the launch of the new IV compounding robot. If there's any numbers you could provide on maybe pricing upside for this replacement cycle, firstly. Assuming this new equipment also is embedded with more software, I think you guys talked about it briefly, but this is also a potential way to unlock more software and service revenue streams going forward, I'm assuming. Thanks.
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. 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. This will be both, there'll be product opportunity, but also, software tech-enabled services, kind of a recurring component as well. 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 2022 in terms of revenue.
You know, again, something we're excited about in 2023 and beyond.
Thanks, guys. Congrats on the good quarter.
Thanks, Scott.
Thank you, Scott.
Thanks, Scott.
Thank you. We go next now to Jessica Tassan at Piper Sandler.
Hi. Thank you so much for taking the question. Maybe to follow up on Scott's question around the IV Compounding Service, can you help us understand or just frame what the market opportunity is there? Hospitals of what size are viable candidates for this kind of service? Is the opportunity sort of as big and broad as the cabinet opportunity? Just what are the key considerations that a hospital might weigh when they're deciding to in-source or outsource sterile compounding? Thanks.
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 hospitals 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.
The demand has been around for quite a long time for using robotics to essentially in-source the compounding of those drugs, which obviously reduces errors, but also the value proposition very much is avoid shortages and most importantly, a 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. 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. That's really the value proposition.
As far as the size of this market, again, given that robotics in use in hospitals in the U.S. has been quite limited, it's been really single-digit penetration. We're very excited that this tends to be larger hospitals, but it's a very large portion of the U.S. hospital market that this technology will unlock. In terms of magnitude, you know, we're, I don't think we've disclosed that, but it's meaningful.
I think it's appropriate to say that many hospitals would take multiple robots, not a single robot.
Right
in a single place. I think we've identified the central pharmacy TAM as being $15 billion. With PIV robot obviously has a significant portion of that. It's not just another product and another generation. It is a game changer. The other note I'd make on the robotic pieces is, if you're gonna 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. The robotics provides a path for actually getting the job done in-house, which the hospitals would prefer, and not needing the labor.
We're gonna supply the labor to help manage the robot process.
That's really helpful. Thank you. Then just one quick follow-up. On 340B, I think some of these issues around the manufacturer protests around contract pharmacies were kind of out there at the time of the acquisition. I guess what has changed, and has it changed your view on that, the future growth prospects for that business relative to the time of the acquisition? Thank you.
Yeah. Thanks, Jessica, for the question. What has changed really is in the latter part of the first quarter, the number of additional manufacturers removed certain of their meds from the discount program, right? That impacted the volume at our customer base and therefore also our volume from a revenue perspective. We're taking a conservative approach to the revenue forecast that's included in our outlook and our guide. That said, we believe that the 340B program is a very essential and strategic part of the U.S. healthcare system.
Got it. Thank you, guys.
Thanks, Jess.
Thank you. We go next now to Anne Samuel at JPMorgan organ.
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, you know, maintain your bottom-line guidance for the year. I was just wondering, you know, were there any offsets from cost savings that you were able to achieve, or is maybe pricing helping you sooner than you anticipated?
Yeah. Thank you for the question. A couple of components there. Maybe first I can touch upon the inflationary costs. We're able to manage that very well. You know, as 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. 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 pre-seized. We have a balance there, we can offset it. Given the slightly lower service revenue, we're able to offset that with product revenue strength from customer demand.
From the backlog, we also did some additional cost management from a prudence perspective as well. We're able to continue to guide to the original EBITDA range.
Great. Thank you.
Sure.
Thank you. We go next now to Matthew at Craig-Hallum.
Good afternoon. Congratulations to the good start to the year. Maybe first question, I realize it's still relatively early days, but, what has been the reception from customers regarding the ReCept acquisition? I mean, are there any, cross-selling opportunities that you can speak to so far?
Yeah. I'd say that the reception has been very, very positive. I think we really, you know, at this point, haven't fully integrated that into our sales process and communication. 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, as part of the medication management process, it makes sense that it's part of the overall Omnicell platform that certainly they would, you know, expect and like Omnicell to deliver a service like this.
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 a PBM. That puts us in a very unique position with these services.
That's very helpful. Thank you. Maybe separately, there's obviously a lot of talk, and you touched on it in some of the 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 maybe the one, two and three top priorities that they're coming to you for solutions on? Maybe how you know how quickly are you able to implement those to help the customer? Thank you.
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 it's labor. It's helped me continue to deliver the right med 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. I think that certainly feeds into the use of CPDS and IVCS, even with the point of care. I think 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, being able to direct where those meds should go.
That's driving real interest and demand in Omnicell One, because Omnicell One provides that visibility. Which is a direct benefit on the labor side, can direct a task to a pharmacy tech on going and restocking a cabinet. 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've historically done, such as schedule vaccinations, schedule testing, even just schedule an appointment to talk about Mrs. Smith's meds. The problem is that I am struggling with labor shortage, I'm overwhelmed to begin with, and so give me tools and technologies that helps automate that.
That's where the EnlivenHealth platform is so helpful, which is to provide workflow tools to automate a lot of those. The themes are exactly the same, which is free up the pharmacist to deliver better clinical care. That's the heart of everything that we're doing.
That's great. Thank you very much for the color.
Yep.
Ladies and gentlemen, just a reminder, star one for any questions. We go next now to David Larsen at BTIG.
Hi, there. Hi. Congratulations. Hi. Congrats on a very good quarter. Can you talk a little bit about your pricing power? 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. 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 would be helpful.
Yeah, David Larsen, it's Peter Kuipers. In the prepared remarks, we also commented on pricing and think of my section. The pricing increases have, you know, generally been well received by customers and well understood as well. We're not the only ones, I think, also in the industry. It really shows also the value of our solutions, which Scott Seidelmann just earlier, on the earlier question, really answered the importance of the solutions, right? It helps health systems with labor shortages, with safety and efficiencies.
Yeah. As we see these, the latest orders coming in the backlog, we see, you know.
The health team price increase.
... pricing increases are, and the average cost or-
Yeah
average prices are.
Yeah
are higher.
Yeah.
We can see it coming.
See it in bookings and backlogs. Yeah.
Okay. It sounds like the hospital clients of yours are getting the value for what they're buying, and ultimately it improves the quality of care, it enables them to grow revenue in their own hospitals and ultimately reduce their own internal costs, because they have wage inflation that they're dealing with as well. Those price increases are being well received, it sounds like. Okay. In terms of inflation, are you set for 2022? Do you have enough semiconductors in stock, in inventory now to bring you through 2022? As we progress through April, how is inflation looking for semiconductors as we think about 2023? Are you protected from China in particular and Taiwan?
Yeah. Thank you for that question. Overall, we're able to manage total inflationary costs pretty well in balance. Freight and steel are inherently spot markets, so there's some pressure there and mostly probably what we see in the second half of the year. However, given that the substantial part of the semiconductors that we need for this year already have in stock and they already get their fixed lower pricing perspective and cost perspective, we think we're able to manage that within the range. Dependency on Taiwan and China there is some dependency, I would say. We're managing to really get our supplies from OEMs directly, from brokers, et cetera. We feel, you know, we have high confidence to surety of supply.
Okay, thanks very much. Congrats on a good quarter.
Yeah. Thank you.
Thank you. We go next now to [inaudible ] [Baird].
Dan?
Yeah. Hey, thanks for taking my question. Great quarter, kicking off 2022 here. I just want to talk a little bit about the IV compounding station, the new IVX Station. Does that, you know, when you're in conversations with the clients around that in central pharmacy, provide an opportunity to drive, you know, further automation with kind of second level robotics such as XR2? Kind of if not, you know, it seems like this is the current dynamics in the end market at hospitals are perfectly suited to kind of incentivize hospitals to drive maximum automation. You know, if not kind of now, what is really, you know, what's really needed to drive customers to, you know, get on to something like an XR2? Thank you.
Well, I think your first question is are discussions around IV Compounding Service, are they related or contemporaneous with conversations around Central Pharmacy Dispensing Service? The short answer is absolutely. Their timing may not be the same for them. They may have different initiatives going on, et cetera. The conversation, you know, frankly for those and Omnicell One and even point of care is very much around, look, you're a 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. The conversation then would lend itself to, the sales cycle lends itself to where are you seeing those problems today?
Frankly, I think, you know, 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 Dispensing Service, the ROI is there, it's related to labor, but it's also very much about unlocking delivery model options for them. Do they want to manage how they distribute their meds across systems? Certainly it reduces the reliance on pharmacy techs. It's very similar and we are seeing a lot of very strong demand on the CPDS side of things as well.
Okay, great. Kind of on the second question, just, you know, if this is not kind of the perfect market to drive further adoption there, you know, what really, you know, would be, you know, what's kind of holding back further adoption there is what I'm really getting at.
On the CPDS side with XR2?
Yes, that's right.
Yeah. I mean, honestly, I think time, process, right? I think it's, you know, more often than not, what we're competing against is continuing to do things the way that they've always done them, which is manual and people. A bit of this is just the learning curve, coming up to speed, finding the right time with the health system. I would say that the demand is strong and, you know, I think that we're optimistic and bullish around CPDS. I don't think there's a big regulatory change. There's no 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, you know, and sending them wherever. It's just simply not sustainable over time. You know, that need is apparent to the customer. It's just about finding the right time that makes sense for them to build a, you know, a new location or do whatever. Bottom line is we're really bullish about the opportunity there.
Okay, great. Thank you.
It appears we have no further questions today. Mr. Lipps, I hand things back to you for any closing comments.
Yeah, thanks for joining us today. I have a couple comments here to close us 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. I hope you will avail yourself to that and go to our website and find out more about that. 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, our training, everybody in the company has done been working on this huge project for several years.
Congratulations to you all, 'cause pharmacy will never be the same. Thanks to everyone. We'll see you next time. Cheers.
Thank you. Again, that does conclude today's Omnicell first quarter 2022 earnings call. We'd like to thank you all for joining us and wish you all a great remainder of your day. Goodbye.