Good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell Q1 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. Ms. Kathleen Nemeth, Senior Vice President of Investor Relations, you may begin your conference.
Good afternoon, and welcome to the Omnicell Q1 2023 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, cost savings actions, 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 and impact these forward-looking statements, please refer to the information on our press release issued today in the Omnicell annual report on Form 10-K filed with the SEC on March 1, 2023, 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. All forward-looking statements speak only as of the date hereof or the date specified on the call. Except as required by law, we do not assume any obligation to update or otherwise release publicly any revisions to our forward-looking statements. Our results were released this afternoon and are posted in the Investor Relations section of our website at ir.omnicell.com. Additionally, we would 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 issued today.
With respect to forward-looking non-GAAP measures, 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. With that, I will turn the call over to Randall. Randall.
Good afternoon. Thank you for joining us today. Our team had a solid start to the year. We continue to advance our strategy to transform the pharmacy care delivery model and deliver mission-critical medication management solutions for our customers. I'd like to begin with an update on what we are currently seeing in the overall healthcare industry and medication management space. Walk through our high-level financial results and key highlights from the Q1. Starting with the market environment, our customers are continuing to face challenges due to labor constraints. They remain mindful of their capital budgets. While we are seeing some stabilization throughout the industry, we expect the labor and salary cost pressures that hospitals saw in 2022 to continue throughout this year. In our view, these trends underscore the need to automate and modernize the medication management process.
As the industry continues to navigate these challenges, we believe Omnicell is an important part of the solution. As discussed last quarter, we remain focused on taking what we think is a cautious approach to managing the business and have taken decisive action in line with this approach. In February, we announced plans to reduce our workforce across many of our functions in order to lower our cost structure. We have also reduced our real estate footprint to align with our broader hybrid work strategy and in an effort to further reduce costs. We continue to execute on our expense containment efforts, and in the Q1, we incurred approximately $14 million of non-recurring restructuring and related charges, including $8 million of impairment and abandonment charges of operating lease right-of-use assets and other assets, and $5 million of employee restructuring.
Since the inception of our cost containment plan in November 2022, we brought our office space square footage down by 21%, Our headcount reduction is tracking to our plan, which was originally announced in November 2022 and updated in February 2023. We also continue to anticipate that the annualized savings from operating expenses will be around $50 million for 2023, which does not include the expected volume-based reductions within our cost of sales. Turning to our high-level financial results for the Q1. i think our results reflect our team's operational execution and financial discipline as we navigated another quarter of macroeconomic uncertainty. We exceeded our Q1 2023 guidance ranges for total product and service revenues, non-GAAP, EBITDA, and non-GAAP EPS.
We generated total revenues of $291 million, non-GAAP EBITDA of $27 million, and non-GAAP earnings per share of $0.39. Our solid Q1 performance was primarily driven by the timing, impact of revenue, cost, and expense within the year. We expect to continue executing through the uncertain macroeconomic environment as we progress through 2023. Peter will speak to the key drivers of the quarter in his remarks and provide further details on our financial performance. Moving on to the current customer landscape. Quarter to quarter, it becomes increasingly clear to us that despite a challenging macroeconomic environment, customers continue to choose Omnicell. We are pleased to note a new Central Pharmacy Dispensing Service win, which includes the XR2 Robot with the University of Iowa to support central pharmacy operations. Additionally, a Southern California-based not-for-profit healthcare system signed up for CPDS, including the XR2 Robot.
A New York state healthcare enterprise plans to convert their automated dispensing system footprint across the 4 hospital system to Omnicell XT cabinets, while also upgrading to Central Pharmacy Dispensing Service, and a major Illinois health system, along with a Texas-based medical center, chose to partner with Omnicell to establish a new Specialty Pharmacy Services program. We have also made meaningful progress on integrating our recent acquisitions. The pipeline for our advanced services portfolio remains strong. Scott will speak about these integrations shortly. We are confident Omnicell is well positioned for growth in the future. I'd like to briefly discuss our strategic alliance with Long Island University and the opening of the Center for Medication Management Innovation, or CIMM, that we announced recently. As we continuously discuss, we find there is a significant burden put upon nurses and pharmacists to handle the bulk of the administrative work.
This strategic alliance is intended to modernize and standardize pharmacy education as health systems start to embrace automation in order to foster a safer and more efficient pharmacy. The CIMM is a state-of-the-art laboratory with a working fleet of Omnicell devices, and it is designed to provide an immersive pharmacy technology and analytics experience for LIU pharmacy students. Through the CIMM, LIU pharmacy students have early access and exposure to Omnicell devices and should enter the workforce with a competitive edge, as well as hands-on experience with Omnicell's innovative technology. The CIMM will also host Omnicell customers for product demonstrations and diligence and will serve as a training facility for our advanced services operational teams who will then go to implement this technology at customer sites.
We're excited to invest in the future of Omnicell through this important initiative with LIU, and we believe it will bring increased awareness to Omnicell's devices. I also want to highlight that in April, we published our 2022 ESG report, which many of you have hopefully had the chance to see. If you have not yet read it, I encourage you to take a look at the full report on our website. As noted in the report, we have taken steps to bolster our internal systems in order to protect patient data, execute critical efforts to further harden our identity computing environments, and implement various human capital initiatives to foster a culture of inclusivity, well-being, and belonging. As we strive to build a healthier world, we are dedicated to furthering our ESG journey through purposeful action.
Before I turn it over to Scott, I want to touch on our search for Omnicell's next CFO. As mentioned on last quarter's call, Peter will be stepping down at the beginning of July, and a national search for our next CFO is well underway. I want to reiterate my thanks to Peter for the significant contributions he has made to Omnicell, as well as his commitment to making this a seamless transition process. We'll provide additional updates as appropriate. Now, with that, I'll turn it over to Scott.
Thank you, Randall.
As Randall noted, with healthcare labor shortages persisting, our pipeline for our automated and modernized medication management solutions is strong. Advanced services are a key part of our intelligent infrastructure, which is intended to help customers address problems in their medication management processes from the inpatient bed and acute care setting to the home. We are pleased to report that we have made notable progress integrating our recent acquisitions and expanding our advanced services solutions to ensure Omnicell is well positioned to meet pharmacy and hospital needs. Over the past few years, we have made 3 key acquisitions intended to enhance our advanced services offerings. ReCept, a Specialty Pharmacy Services management provider, FDS Amplicare, a leading pharmacy SaaS solutions provider, and MarkeTouch Media, a pharmacy technology solutions provider.
From an administrative perspective, the integration of all 3 acquisitions is largely complete, and we are now actively executing our go-to-market commercial strategy. ReCept has been rebranded as Omnicell Specialty Pharmacy Services and was introduced to the market in late 2022. In 2023, we plan to focus on integrating customer success functions into our broader organizational structure. FDS Amplicare and MarkeTouch Media are now fully functionalized within EnlivenHealth, and we are currently working on merging the technology platforms of all 3 companies into one connected experience. 340B is now part of Omnicell's Inventory Optimization Service. We continue to further integrate the solution to provide our customers better visibility into ordering, procurement, and medication analytics at an enterprise level. We now have a robust portfolio that we believe is uniquely positioned to support pharmacy care across the entire care continuum.
Let's walk through a few of our recent wins that we believe highlight the power of our offerings. First, a New York health system with 4 hospitals plans to convert its automated dispensing system footprint across its 4 hospital system to Omnicell XT cabinets while also upgrading to Central Pharmacy Dispensing Service in an effort to support enhanced patient safety and dispensing accuracy. Combining these offerings is anticipated to drive visibility and efficiency for dispensing medications across the health system. We find that health systems are choosing Central Pharmacy Dispensing Service to optimize pharmacy labor and workflows through robotics and optimization tools that are intended to help reduce the amount of time pharmacists spend on drug distribution tasks.
This technology is designed to support a variety of health system pharmacy settings, as evidenced by being chosen to support central pharmacy operations for a comprehensive academic health system in Iowa, as well as a Southern California-based not-for-profit health system. Our specialty pharmacy service also continues to gain market traction as health systems seem to be recognizing the value of launching an entity-owned specialty pharmacy operation. In the Q1, a major Illinois health system and a Texas-based medical center engaged Omnicell to establish new specialty pharmacy programs, citing our strong infrastructure and expertise in delivering speed to market for clinical and revenue goals as key drivers for their decisions.
As we continue to build strong relationships in the retail pharmacy market, we are also excited to announce that a large national chain has signed a 5-year agreement to implement EnlivenHealth advanced technology solutions in order to increase patient medication adherence. As Randall mentioned earlier, on April 20th, we were pleased to join the Long Island University College of Pharmacy and Health Sciences for the grand opening of the Center for Innovative Medication Management. Omnicell is proud of the strategic alliance we've established with LIU to launch an immersive pharmacy technology and analytics experience that should provide the next generation of pharmacy leaders early access and exposure to evolving aspects of pharmacy technology. To conclude, we believe we have made significant strides this past quarter, and we are confident we are well-positioned for the future. I will now turn it over to Peter. Peter?
Thank you, Scott. As we navigate through the ongoing macroeconomic challenges, I'm pleased with the results that we delivered for the Q1 of 2023, which exceeded our guidance ranges. Our Q1 performance was driven by strong execution, disciplined cost management, and revenue timing. I'm proud of our approximately 3,800 Omnicell team members that have continued to deliver for our customers, particularly in this challenging macroeconomic environment. Turning now to our financial results. Our Q1 2023 total GAAP revenues were $291 million, a decrease of $7 million or down 2% over the prior quarter and a decrease of $28 million or down 9% over the Q1 of 2022. The year-over-year decrease reflects lower point-of-care revenues as a result of ongoing health systems capital budget constraints.
Services revenues for the Q1 were $105 million, an increase of 12% over the Q1 of 2022, underscoring that our digital transformation strategy is working. Total revenues in the quarter were $8 million above the top end of our previously disclosed Q1 2023 guidance range. Primarily due to timing of revenue, mostly within its own services, and certain other case line within the quarter. Non-GAAP gross margin for the Q1 of 2023 was 44.8%, a decrease of 50 basis points from the prior quarter, primarily due to lower revenue volume leverage.
As we noted on our February 2022 earnings call, we expect to see the full benefit of recent cost actions as we move into the Q2 of 2023 and volume leverage begins to return by the Q4 of 2023 as revenue is projected to grow throughout the year. A full reconciliation of our GAAP to non-GAAP results is included in our Q1 2023 earnings press release and is posted on our Investor Relations website. Our Q1 2022 earnings per share in accordance with GAAP were a loss of $0.33 per share compared to a loss of $0.64 per share in the prior quarter and income of $0.70 per share in the Q1 of 2022.
Our Q1 2022 GAAP earnings per share included the impact of $5 million for severance-related expenses and the impact of $8 million for the impairment and the benefit charges of operating lease, right-of-use and other assets that we continue to rationalize our office space as part of our efforts to align with our broader hybrid work strategy and to further reduce cost. Our Q1 2023 non-GAAP earnings per share were $0.39 per share, compared to $0.33 per share in the prior quarter and $0.83 per share in the same period last year. Q1 non-GAAP EBITDA was $27 million, an increase of $1 million compared to the previous quarter and a decrease of $24 million when compared to the same period last year.
Q1 2023 non-GAAP EBITDA and non-GAAP earnings per share exceeded our expectations due to revenue timing, favorable product and services mix, expense timing and solid execution. At the end of the Q1 of 2023, our cash balance was $240 million, up from $330 million as of December 31st, 2022. As of March 31st, 2023, we have $500 million of availability under our revolving credit facility. The amount of credit availability is dependent on certain financial covenants such as total leverage ratio and secured net leverage ratio. Free cash flow during the Q1 of 2023 was a $1 million use of cash as a result of timing of cash collections and restructuring related employee compensation payments.
We expect free cash flow levels to return positive as we progress through the year. In terms of accounts receivables, day sales outstanding for the Q1 of 2023 was 102 days, an increase of 9 days over the prior quarter, primarily due to the timing of invoicing within the quarter. Inventories as of March 31st, 2023 were $141 million, a decrease of $6 million from the prior quarter, reflecting strong inventory management. This is in part due to the strong efforts of our team as they continue to execute and make progress on our global supply chain process improvements and inventory management initiatives. Moving on to our full year and Q2 2023 guidance.
As Randall mentioned earlier, we remain focused on taking what we believe is a cautious approach to managing the business. We are pleased to reaffirm our full year 2023 guidance for bookings, revenues, non-GAAP EBITDA and non-GAAP EPS, reflecting our view of a healthy backlog and our expectations for sequential revenue growth from the H1 to the H2 of the year and prudent cost management. As we noted earlier in the call, our solid Q1 performance was primarily driven by the timing impact of revenue and expense within the year. We expect to continue executing through the uncertain macroeconomic environment as we progress through the year. Given the ongoing macroeconomic uncertainty, we are managing expenses in a manner that we believe is prudent while continuing to invest in innovation.
As noted on the February 2023 earnings call, the majority of the approximately $50 million of anticipated annual operating expense savings expected to be derived from the recent reductions in force and other expense containment efforts is from functions included in SG&A. The expected 2023 operating expense annual savings will be largely offset by the impact of year-over-year inflation in employee salaries and increases in expected performance-based compensation, trend of cost increases, and investments in research and development. We expect non-GAAP operating expenses in total to be flat to down year-over-year, with non-GAAP SG&A down, modestly offset by a slight increase in non-GAAP R&D, which reflects our focus on cost savings while continuing to invest in our growth agenda.
For the full year of 2023, we are assuming an effective blended tax rate of approximately 6% in our non-GAAP earnings per share guidance. We are providing the following guidance. We expect total Q2 2023 revenues to be between $278 million and $288 million. The product revenues to be between $181 million and $186 million. Service revenues to be between $97 million and $102 million. The Q2 revenues guidance reflects a moderate decrease from the Q1 performance due to the timing shift of revenues into the Q1 and non-recurring items which benefited the Q1 of 2023. We expect sequential revenue growth from the H1 to the H2 of the year.
We expect Q2 2023 non-GAAP EBITDA to be between $22 million and $28 million. We expect Q2 2023 non-GAAP earnings per share to be between $0.25 per share and $0.35 per share. In summary, we are pleased with our results for the Q1 of 2023 and believe we're executing well over what continues to be a challenging macroeconomic environment. We remain confident in the opportunities we see ahead as we aim to deliver long-term value for all of our stakeholders. We look forward to updating you on our progress in the coming quarters. With that, we would like to open the call for questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Stan Berenshteyn from Wells Fargo. Your line is open.
Hi. Thanks so much for taking my questions. First I'd like to maybe start with your point-of-care XT product line. You know, it seems like you're still kind of in the same replacement cycle end of life products. I'm just wondering if we're thinking about demand from end of life upgrades, you know, over the next couple of years, we just think about that cohort of just end of life. Do you expect any choppiness in that demand over the next couple of years that maybe could create demand surges or demand slowdowns from these upgrades? Thanks.
Hey, Stan, this is Peter. For the XT series, we are in the H2 of the upgrade cycle. We had some choppiness during the pandemic in demand for bookings, but we expect going forward a relatively stable continuation of the upgrade cycle.
Okay. Maybe a quick follow-up here. You've implemented cost cuts. It seems like you're still doing that. Going forward, is there any change in your philosophy in terms of how you're going to be adding headcount going forward? Are you planning to rely more on a 1099 workforce as opposed to a full-time? Any type of insight you can give us there?
Well, I think we, of course, are cautious about adding permanent headcount as we move forward. We wanna be careful about that. I think we have used some flexible workforces as we add on for demand, particularly in the implementation area, and we'll continue to use those where they fit best. I think for the most part, we're not seeing a big increase in our workforce for this year.
Thank you.
Thanks, Stan. Your next question comes from the line of Scott Schoenhaus from KeyBanc. Your line is open.
Hi, team. Congrats on the strong quarter. You had really nice growth in services revenue this quarter. Can you talk about what the biggest contribution was? Was it mostly from the XR2 robot? Thank you.
Yeah. Hey, Scott, it's Peter. well, a variety of drivers really in the services, both the trend services, not necessarily specifically only the XR2 robot or CPDS as we market it now.
Yeah. I think as I mentioned in the... This is Scott. As I mentioned in my script, we're seeing very nice demand from health systems regarding setting up and operating in-house specialty pharmacies, and that's been driving some nice growth for our specialty pharmacy service.
Great. Thanks. Then just as a follow-up, what are you seeing in your EnlivenHealth platform? Are you seeing any areas of strength or weaknesses versus, last quarter or prior expectations? Thanks.
Sure. It's Scott again. I think we're very enthusiastic about Enliven and the demand there. The general thesis is that as healthcare shifts outside of the hospital to the home and the importance of managing the total cost of care, the pharmacist has to get much more engaged, and they're gonna need tools regarding digital engagement, and they're going to need tools around medical billing. The Enliven platform is very uniquely positioned with a full complement of those tools to really enable pharmacists to deliver care in that type of setting. We're really excited about the demand there.
Thank you.
Thanks, Scott. Your next question comes from the line of Matt Hewitt from Craig-Hallum. Your line is open.
Good afternoon. Congratulations on the strong start to the year. Maybe first up on the specialty services side, could you update us on the pipeline, for the specialty pharma and, you know, kind of where things sit with the 340B opportunity?
Hey, Matt, it's Scott Seidelmann. Yeah, so we, so we closed the ReCept acquisition at the very end of 2021 and spent 2022 really focused on integrating that acquisition. Rebranded the product or the platform as Omnicell Specialty Pharmacy Services. In addition to the back-office types of things around integration, the real key there was integrating it into our go-to-market and channel functions. The real demand is coming from health systems and hospitals that given some of the changes that manufacturers have put in place regarding use of contract pharmacies, that's created a nice tailwind of demand for hospitals and health systems to want to stand up and operate specialty pharmacies. The challenge for them is doing so with a very different skill set, and it's difficult to do.
It's a natural fit for us, given the sort of comprehensive nature of the medication management infrastructure that we provide to offer that as a service. We really got that integrated in 2022, and now we're seeing a really healthy growth in the top of the funnel pipeline and demand. We're really excited there.
Great. Maybe a follow-up, regarding the large retail win. Congratulations on that. It's a 5-year agreement. Maybe walk us through the, you know, the process, the courting, if you will, with that customer. Is this more of a hunting license, or is this entire chain going to be adopting the platform? Thank you.
Yeah. In general with Enliven, I'll talk generally with Enliven, those relationships are not hunting licenses. These are. Enliven is a SaaS platform that has various modules, and the business model for that is, generally speaking, you pay for each of those modules X dollars per store per month, like a very traditional SaaS. When a customer enters into that level of contract, they're committing for utilization of the platform across X number of stores. In this particular case, it is a commitment to deploy some of the modules across their the breadth of their sourcing.
Well, congratulations. Thank you.
Thanks, Matt.
Your next question comes from the line of Jessica Tassan from Piper Sandler. Your line is open.
Hi. Thank you guys so much. appreciate the questions, and congratulations on the quarter. I think first off, we were just interested, if you could help us understand the implied sequential decline in adjusted EBITDA margin. Is that conservatism or what, or what's driving that 50 basis points or so of sequential margin degradation?
Thanks, Jessica, for the question. Like we said on the prepared remarks, it's mostly timing on revenue and expense, but in the year. Looking at the total of the Q1 and the Q2 combined on revenue, that is mostly revenue timing. On a profitability basis, about 2/3, about 60% to 2/3 of the favorable EBITDA was from revenue timing within the year. A big part of that favorable revenue timing came from a lease buyout, which flows through at a 100% margin to EBITDA. As you know, we think we have a lease portfolio in point-of-care, mostly with the government, and from time to time, we see buyouts or renewals of these leases, and the remaining favorability was in expense services and higher technical services revenue.
From a total revenue perspective, yeah, there is a decline from the Q1 to the Q2 guide, but the vast majority of that is revenue timing.
Okay. That makes a lot of sense. Then just, our quick follow-up would be, in light of the macro backdrop, what's your confidence in just the ability to book and implement new product sales within the year? What we're trying to understand is just how to get comfortable with the slightly lower coverage ratio of short-term products backlog relative to forward products revenue guidance, in 2023 versus 2022. Thanks so much.
Yeah, Jess. I think one of the things that we've seen in the profile of our customer base is a steep reduction in temporary nursing health or contract nursing health to moving back to more full-time permanent nursing. We've seen some of the pressures in labor come off. We've seen a slight increase in utilization activity, mostly in elective and less COVID-related utilization. It's more like a pre-pandemic profile, getting closer to that. And because of that, we think that the ability to schedule and secure those slots and timing with customers has improved and has given us a much better sense that the backlog we have can be scheduled and customers can meet those dates.
I think, last year at the height of that, customers just didn't have the people even to be on site when to receive the equipment and assist in the installation and doing their part. For the most part, we've seen that dissipate as well as customers agreeing and making their firm commitments on our plans.
Got it. Thank you.
Thanks, Jess. Next question, please.
Your next question comes from the line of Stephanie Davis from SVB. Your line is open.
Hey, guys. Congrats on the quarter, and thanks for taking my questions. I was hoping you can give us some updates from the field since we've been getting some mixed data points this earnings season on hospital spend. Are we seeing frozen budgets start to thaw as all these labor headwinds begin to ease, or is it still many quarters away just given their priorities?
I think it's slow incrementally improving. You see some people, particularly the public, providers, may be a little ahead of the game. We really feel that there's small incremental improvements. The market has stabilized, but there's still uncertainties. I think some of the indicators and some of the research we're looking at the end of the year, we see, stronger commitments to spending more for capital. I would say it's a pretty slow process, with small increments every month. You know, every bit helps, but no major shifts or changes.
Understood. With that in mind, is there an opportunity outside of retail pharmacies for EnlivenHealth to become much bigger, just given engagement and outpatient foot traffic are now becoming just that much more important for the hospitals?
Hey, this is Scott Seidelmann. Look, I think you're seeing, in general, a significant shift from of patient care and some of the lower acuity settings in health systems and hospitals to the home. I think there are a lot of folks in healthcare and constituents that are engaging around that. I think given the importance of medication management, and more importantly, the impact of taking the right meds, taking them correctly, et cetera, on managing healthcare, but more importantly, managing downstream spend, I think the pharmacist is going to get increasingly important, in sort of this next evolution of healthcare, which is why you've seen some of the acquisitions you've seen recently with the larger public retail pharmacies.
Enliven is incredibly well-positioned to enable pharmacists to transform and start to provide different types of care, and that the participants there could be retail pharmacies, it could be hospitals, it could be payers, et cetera. Again, early days, but we feel excited about where the business is positioned.
Super helpful. Thanks, folks.
Thank you. Next question, please. Your next question comes from the line of Allen Lutz from Bank of America. Your line is open.
Thanks for taking the questions. One for Peter. EBITDA exceeded the guide by more than $15 million at the midpoint. I guess how much of the EBITDA contribution was from lease buyouts in 1Q? How much was from timing?
Yeah. We consider the vast majority of the revenue exceed to be timing in the year. From time to time, we do have lease buyouts, so we're contemplating that in the full year, so that is timing as well. I would say on the EBITDA side, about 60% of the EBITDA exceed is driven by revenue timing, and the remaining 40% is driven mostly by expense timing.
Great. Then one for Scott. Scott, you talked about building relationships with retail pharmacies, and the services business had a really good sequential quarter, especially versus where the guide was. Can you talk about what part of Enliven is resonating the most with retail pharmacies? Basically, is there a specific solution that you guys are leading with to get your foot in the door? Thanks.
Sure, sure, sure. Patient engagement in general, sort of how do these retail pharmacies engage patients outside, and they're really sort of focused on the chronic patient, the polymeds. You know, simply using a telephone to contact them is not the most efficient way, particularly given, and I'm sure you've experienced it, you go to any retail pharmacy, and now the pharmacist has a 2-hour lunch break, et cetera. Anything that a pharmacy can do ultimately to provide more leverage to its pharmacist to actually start to engage patients, to make sure they're on the right meds, make sure they're following up, making sure that, you know, they're following through adherence regimens, and they're on the right meds, et cetera. That really resonates.
Also increasingly, I would say that that pharmacist in many states now is starting to provide different types of care. Now what you're doing is you're really talking about medical billing. That's really a greenfield opportunity, and that's exciting because they today, the retail pharmacies don't have great solutions for rev cycle for pharmacy.
Great. Thank you.
Thanks, Alan. Next question, please. Your next question comes from the line of David Larsen from BTIG. Your line is open.
Hi. Can you talk a little bit about your expectation for inflation trends in 2023? I think you had $18 million of semiconductors in inventory at 12/31. Is that enough to get you through the year? I think there was like a $26 million inflation impact in 2022. What sort of headwind might there be in 2023, and how are you thinking about that? Thank you.
Yeah. Thank you, David, for the question. The, there's 2 parts there, right? The $18 million of semiconductor inventory pre-buying previous seeds will cover in most of the year for 2023. We feel very confident in the ability to have semiconductors on hand for most of our connected devices. From an inflation perspective, what we said in earlier earnings calls is that we do expect the pricing impact on the year for financial perspective to exceed the inflation. We're tracking to do that as well. It's slightly favorable on the quarter on a net basis.
Okay, great. Thanks. You've mentioned a couple times on the call revenue timing. How much revenue impact was there in 1Q from, I guess, this timing lease buyout activity? Related to that, how is your backlog trending as we head into, like, almost mid-year? Is your I guess what I'm asking is, did you pull a significant amount of revenue out of the backlog, or is your backlog and your bookings continuing to increase on a sequential basis as we progress through the year?
Yeah. Thanks, David. We see that if you look at the, first, the top end of the revenue guide for the Q1, we exceeded revenue by $8 million, where roughly half of that is the lease buyout, and the other half is revenue, other revenue timing sustainability. The lease buyout does not come out of backlog. Technical services and asset services revenue timing, most of that also does not come out of backlog.
Okay. The quality of the top line view was actually high. Okay.
Yeah.
Just my last question, 9% reduction in force. Your OpEx are expected to remain sort of flat from 2022 to 2023. I mean, that seems a little bit unusual to me. I mean, just any more color there would be very helpful. I would expect your OpEx to decline by a pretty significant amount.
The underlying as the risk impact, as the cost comes off payroll, if you will, we see that impact in the Q2, from the Q1 to the Q2. The second smaller risk that we announced in February last quarter, also that cost is coming off roughly in the middle of the Q2. We see, definitely see the step down in operating expenses going from the Q1 to the Q2 and from the Q2 going through the third quarter. An offset though we have is the inflation that we have ourselves for our own employee costs on payroll, and then we're modestly investing in R&D, as we discussed prior as well, to support our innovation roadmap.
Okay, great. Appreciate it. Thank you very much.
Yeah.
Thanks, David. Next question.
Your final question comes from the line of Anne Samuel from J.P. Morgan. Your line is open.
Hi. Thanks for taking the question. I had, you know, maybe one follow-up on the, on the prior, inflation question. You know, you had spoken previously to pricing, as a key inflation offset. I was just hoping maybe you could speak to how much pricing contributed to margin performance in the quarter or how much it's offsetting.
Yeah. The Q1, the inflationary impact is slightly lower than the pricing impact in the quarter. The Q2, the pricing impact will exceed the inflationary impact that we see. They're on the crossover point right now.
Okay. That's very helpful. Thank you. You spoke to the guide embedding a H2 sequential increase. I was just hoping you could maybe touch on how much of that is, you know, maybe just easier compares versus an assumption for underlying demand improvement.
As we talked about in the prepared remarks, we, you know, we have assured that we have seen in the Q4 and the Q1 and so far in the Q2, relatively stable demand environment. As we look at the revenue growth that we see from the H1 to the H2, the vast majority of that is already in backlog. Plus also of course, what we see in the pipeline as far as bookings that are further on in the sales stages. It's fairly steady, if that answers it as well.
Very helpful. Thank you.
There are no further questions at this time. Mr. Randall Lipps, I turn the call back over to you.
Thank you for joining us for the call today, it's been an interesting last 2 years. I want to really thank our employees for working hard, getting us through these times and arriving to a new year and a new go forward. Really looking forward to continuing to work with all of you as we move forward. I'd be remiss not to thank Peter Kuipers for the many years of great service and value add he has done for this company over his tenure to make us from a kind of a one horsepower company to an enterprise go-to-market powerhouse. Thank you, Peter, and best of luck in your next adventure. Cheers.
Thank you.
Thank you.
This concludes today's conference call. You may now disconnect.