Omnicell - Earnings Call - Q3 2021

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by and welcome to the Omnicell Q3 twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Kathleen Nemeth, Vice President of Investor Relations. Thank you.

Please go ahead, ma'am.

Speaker 1

Good morning, and welcome to the Omnicell Third Quarter twenty twenty one Financial Results Conference Call. On the call with me today are Randall Lipps, Omnicell Chairman, President, CEO and Founder Scott Seidling, Executive Vice President and Chief Commercial Officer and Peter Kuipers, Executive Vice President and Chief Financial Officer. Also joining us today is Roxanne Turner, Vice President of Corporate Responsibility, who will share an update on our ESG initiative. This call will contain forward looking statements, including statements related to financial projections or other statements regarding Omnifold'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 ks filed with the SEC on 02/24/2021 and in other more recent reports filed with the SEC.

Please be aware that you should not place undue reliance on any forward looking statements made today. The date of this conference call is 11/02/2021, and all forward looking statements made on this call are based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change, and we undertake no obligation to update these forward looking statements except as may be required by law. Finally, this conference call is the property of Omnicell and any taping, other duplication or rebroadcast without the expressly written consent of Omnicell is prohibited. Our results were released earlier this morning and are posted in the Investor Relations section of our website at 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.

Speaker 2

Good morning, and thank you for joining us today. On today's call, I will walk through the drivers of our strong performance this quarter and our continued progress toward our 2025 growth targets. I'd also like to briefly discuss our corporate responsibility initiatives before handing the call to Roxanne Turner, vice president of corporate responsibility, to provide additional color on all the great work the team is doing in this important area. Beginning with our financials, we delivered strong third quarter results, reflecting the continued momentum in our business as well as solid execution. Overall, we exceeded the top end of our guidance ranges for revenue, non GAAP EBITDA and non GAAP EPS.

Our third quarter results included record revenues of $296,000,000 record non GAAP EBITDA of $66,000,000 and record non GAAP earnings per share of 1.08 I'd also like to highlight that we closed the acquisition of FDS Amplicare in early September. This is a major milestone, and I would like to extend a warm welcome the employees of FDS. As a reminder of our previously stated five year outlook, we are targeting a revenue CAGR of 14% to 15% from 2021 to 2025 and expect to reach $1,900,000,000 to $2,000,000,000 of revenue in 2025. Additionally, we are targeting a non GAAP operating margin of 21% and a non GAAP EBITDA margin of 25% by 2025. We believe we are making good progress toward achieving these long term objectives.

While we are mindful that we are not immune to current inflationary pressures in the market, the underlying customer demand for our products and solutions continue to be robust, and we are confident in our ability to successfully navigate this economic cycle. I'd like to discuss a few of the current health care trends that we believe Omnicell is well positioned to address, particularly with our advanced services portfolio. First, we believe medication management and adherence is a critical area within health care infrastructure. In our view, the pandemic has highlighted the pressing need to invest in intelligent infrastructure, migrate legacy data systems to the cloud, and elevate the role of the pharmacist. Quite simply, the health care delivery model is undergoing a historic transformation.

We find that the challenges of medication management require automated and intelligent solutions now more than ever before. While many health care systems were already looking for ways to improve their care management and delivery, we believe the pandemic has accelerated these trends by five to ten years based on our experience. Omnicell is leading the way, and it is clear to us that our customers recognize the benefits of moving their data and workflows to cloud based systems. We believe Omnicell is uniquely positioned to enable critical advancements in transforming the pharmacy care delivery model, and importantly, improving experiences for care teams and driving better patient outcomes. Another trend that our health care system partners and retail customers appear to be facing is the looming labor constraints within health care, particularly for nursing and pharmacy staff.

At last month's meeting of the Autonomous Pharmacy Advisory Board, nearly all of the chief pharmacy officers on the board reported they were facing staff shortages of pharmacy technicians. Likewise, a nationwide survey conducted in late May by the National Community Pharmacists Association found that nearly 90 of the survey's 278 respondents said they were having trouble hiring enough pharmacy technicians, and it's a similar story with nursing staff. As the category creator of automated medication management, Omnicell solutions are designed to reduce manual and administrative tasks so clinicians' time can be optimized and devoted more toward patient care. As a result of these trends, we're seeing continued strength in advanced services. This quarter, we saw increased adoption of Omnicell One, a technology enabled service delivered through the cloud.

Omnicell One enables enterprise wide optimization for medication spend, reduction in medication waste, and improvement in pharmacy labor productivity. It also supports identifying potential diversion activity. We are pleased to report that we now have multiple customers in live deployment. Also this quarter, we are pleased to note that the VA Tucson will be implementing our central pharmacy dispensing system. The VA is the nation's largest integrated health care system, and we are proud to support their mission of providing care for our veterans and their families.

Enlivant Health also had a very strong quarter. With the flu season now in full swing and the COVID nineteen booster shots approved for millions of patients nationwide, many pharmacies are grappling with how to manage this increased patient demand. Enlivant Health's CareScheduler was built for these pharmacy challenges and opportunities. CareScheduler automates the scheduling, patient communications, and the reporting of administering vaccines and point of care testing. In the third quarter of twenty twenty one, Enlivant Health closed a major deal to provide CareScheduler to its longtime partner, Publix, a leading regional chain of grocery stores and pharmacies serving seven Southeastern states.

Publix plans to deploy Care CareScheduler to manage its off-site vaccination clinics. Another advanced services highlight was the strong performance this quarter from our 340B service solution. Our teams continue to make excellent progress toward developing cross selling opportunities within our channel and successfully closed on several large deals during the quarter. Turning to our health system partners, we signed three net new long term sole source agreements, bringing our total to a 151 health system partners. With these latest signings, all of our top 10 largest customers have now agreed to partner with us in long term agreements.

We believe this is a testament to our innovation road map led by our advanced services portfolio, our consultative approach to redesigning pharmacy workflows, and our customers' confidence in our ability to help them advance toward a zero error, zero waste, and highly efficient pharmacy delivery model. We are humbled by their reliance on us and are motivated by our mission to be the clinician's most trusted partner for medication management and adherence. Now as I noted, I'm joined today by our vice president of corporate responsibility, Roxanne Turner, who will speak to our commitment and approach to corporate responsibility. We're excited to have convened an executive steering committee operational leaders who are accountable for developing strategies and setting targets to achieve our ESG objectives. I'll now hand it over to Roxanne to discuss these initiatives in a bit more detail.

Roxanne?

Speaker 3

Thank you, Randy. I'm happy to share our progress since we published our first corporate responsibility report in April of this year. As you may be aware, we began to implement our formal ESG program over the past two years even though Omnicell has a longer history of contributing to the well-being of our communities where we live and work. We recently completed our materiality assessment of issues that impact our business. The results indicate we have four categories of significance for our stakeholders, diversity, equity, and inclusion, talent retention and recruiting, business ethics, and data privacy, with about a dozen areas of focus within each of those four categories.

Our assessment process included interviews with both internal and external stakeholders, including our executive team and functional leaders as well as customers and individuals who serve on boards of different companies, including our own. We have also been actively soliciting input from the investment community each time we have the opportunity to talk about our ESG program. The executive steering committee Randy mentioned consists of leaders in several operational areas, including supply chain, product, quality, HR, finance, risk management, and customer slash sales who are accountable for targets and strategies in the areas of focus for us. This will help ensure that the ESG program can be operationalized across the organization. We also have a cross functional working group undergoing target setting exercises, referencing our materiality assessment with the aim to set short, medium and long term SMART objectives for overall operational improvements.

We expect this team to also set goals intended to contribute towards global efforts to reduce greenhouse gases, including reductions in Scope one, two and three emissions by 02/1930. Corporate responsibility is a long term focus for Omnicell, and we look forward to keeping you updated on our progress. I'll now hand it over to Scott Seidlman to discuss our innovation pipeline and key customer highlights. Scott?

Speaker 4

Thank you, Roxanne. Last quarter, I provided an overview of our progress toward our long term strategy and some areas of opportunity for innovation. The pandemic has highlighted what Omnicell has recognized since our founding twenty nine years ago. Pharmacy requires innovation. Now more than ever, health care system pharmacies need solutions that will enable them to safely and efficiently address complexity in medication management.

In early October, we welcomed more than 1,100 pharmacy nursing IT executives and c suite leaders for our second annual Omnicell Illuminate twenty twenty one digital medication management event. This is the largest industry event of its kind, and we believe that the interest and participation that it attracts underscores the growing need for an entirely new digital medication management infrastructure. The three day virtual gathering featured more than 30 sessions and more than 50 speakers sharing insights and best practices tackling the biggest challenges in medication management and health care more generally. Randall hosted an opening keynote discussion with representatives from leading health systems discussing their digital transformation experiences. They shared stories highlighting the benefits of digital infrastructure and ways that it has positively impacted patient outcomes, improved the experience of the care team, and lowered costs.

Attendees had the opportunity to see our technology action and chat live with Omnicell experts in virtual chat rooms. New to the agenda this year were two sessions focused on specific industry challenges, including mental health support for health care workers and women in health care leadership. We also specifically highlighted Omnicell's investment and commitment to improving the customer experience, a cloud infrastructure, and packaging technology as true services that deliver real customer outcomes. Overall, we are pleased by the industry response to this event and look forward to continuing these important conversations and helping our customers realize the industry vision of the autonomous pharmacy. Now let's turn to some of the key business highlights this quarter.

Omnicell's products and solutions are currently installed in the majority of the top US health systems. As Randall mentioned, we added three net new long term sole source customers this quarter, bringing the total to 151 of the top 300 health systems. We are very pleased to be the medication management partner of choice for these three prestigious health care providers, a major Northeastern health system, a current On the Cell customer in one of the nation's leading children's hospitals, and a Texas based health system. Each of these customers has selected On the Cell because of our singular focus on medication management, our comprehensive platform of products and solutions, and our commitment to investing in innovation. The third quarter was an exceptionally strong quarter for Omnicell One.

We now have multiple live deployments. Omnicell One, which we launched in July of twenty twenty, is a cloud based service that combines software, analytics, and expertise to optimize medication inventory, improve employee efficiency, and reduce compliance risks. COVID not only highlighted the need to better manage medication inventory, but also exacerbated labor shortages. Omnicell One directly addresses these challenges, and as a result, is a significant differentiator for Omnicell generally. Our central pharmacy dispensing service is also resonating well with the market.

Today, we announced that Tucson VA Medical Center will expand their Omnicell platform with the implementation of our central pharmacy dispensing service, which includes the XR two robotic pharmacy dispensing technology, operational staff, maintenance support, and analytics for real time optimization. Central pharmacy is labor intensive and error prone. We launched central pharmacy dispense service two years ago because we knew that we could help health systems overcome these challenges and improve outcomes and lower costs. This is an important element of our advanced service portfolio, and we are pleased with the positive market reception. Turning to three forty b.

As we have commented in prior calls, we believe there are very strong cross selling opportunities for our three forty b solution. 90% of the top 300 health systems are three forty b eligible, and optimization of the three forty b program is a key component for realization of the autonomous pharmacy vision. Our 340B advanced service is well received by the market, had strong performance in the third quarter, and is tracking well against our expectations. During the third quarter, we announced that we completed the acquisition of pharmacy technology provider, FDS Amplicare. This is a strategic addition to our Enlivant Health solution.

FDS adds a suite of comprehensive and complementary SaaS technology solutions and a national network of more than 15,000 independent retail pharmacies. So far, the integration is going well, and we are excited by the positive market reaction. And as Randall noted earlier, the community pharmacist needs more support now than ever. The recent approval of booster shots, the anticipated approval of vaccination for children ages five through 12, and the start of the flu vaccination season will put enormous pressures on community pharmacists. Enlivant's CareScheduler was built for these type of pharmacy challenges.

CareScheduler automates the scheduling, patient communications, and reporting for vaccinations. And SDS enables pharmacies to build Medicare for these services. Enliven and SDS are well positioned to help pharmacists address their upcoming challenges. Our recent Publix relationship highlights this demand and the power of our recent combination. In summary, Omnicell is uniquely positioned to drive the transformation of the pharmacy care delivery model.

Our innovative cloud based services approach will enable improvements in quality, provider efficiency, and financial performance. We are solely focused on this transformation. We have considerable domain expertise, and we are passionate about the opportunity ahead. Now I'd like to turn the call over to Peter to discuss our third quarter financial and operational results, the fourth quarter and full year 2021 outlook. Peter?

Speaker 5

Thank you, Scott. I'm pleased with the strong third quarter momentum in our long term sole source partnership strategy in our commercial pipeline, product bookings and revenue, which we feel demonstrates that our strategy is working and that our products and solutions are resonating with our customers. Our healthcare system and retail pharmacy customers continue to turn to Omnicell to realize the vision of the fully autonomous pharmacy. And the overall demand metrics for Omnicell remains strong. We are making good progress toward the five year outlook we provided earlier this year, and I'm proud of the solid execution that our over 3,000 Omnicell team members continue to consistently deliver.

During the quarter, we welcomed over 200 FDS Empocare employees to the Omnicell family, in addition to adding around 100 new employees, mainly in the customer product and software engineering teams. Turning now to our financial results. Our third quarter of twenty twenty one GAAP and non GAAP revenues were $296,000,000 an increase of $24,000,000 over the prior quarter, up 39% over the third quarter of twenty twenty and above the top end of our guidance range. Our third quarter GAAP and non GAAP revenue reflects the timing of certain customer implementations initially expected to occur in the fourth quarter of twenty twenty one as well as GAAP and non GAAP revenues from FDS Amplicare, the acquisition that we closed on 09/09/2021. The sequential revenue increase of $24,000,000 reflects continued strong demand for Omnicell's medication management and adherence automation solutions.

As a reminder, the year over year increase was partially attributed to the lower than typical third quarter GAAP and non GAAP revenue levels in 2020 due to the COVID-nineteen pandemic. Our third quarter twenty twenty one earnings per share in accordance with GAAP was $0.61 per share compared to $0.43 per share in the second quarter of twenty twenty one and $0.20 per share in the third quarter of last year. A full reconciliation of our GAAP to non GAAP results is included in our third quarter earnings press release and is posted on our website. Third quarter twenty twenty one non GAAP earnings per share were 1.08 compared to $0.97 per share in the previous quarter and $0.60 in the same period last year. The year over year increase was mostly driven by higher revenue and gross margin leverage.

Non GAAP gross margin for the third quarter in 2021 was 51.1%, a decrease of 60 basis points from the previous quarter, primarily due to increased inflationary costs related to semiconductors and components, raw materials and freight. We delivered record non GAAP EBITDA of $66,000,000 in the third quarter of twenty twenty one. The non GAAP EBITDA margin for the third quarter of twenty twenty one was 22.2% compared to 22.4% for the previous quarter and 19.3% in the prior year period. Moving to cash flow. Year to date free cash flow of $130,000,000 reflects the overall increased demand in the business, better collections and strong working capital management.

At the end of the third quarter of twenty twenty one, our cash balance was $482,000,000 down from $640,000,000 as of 06/30/2021. The $132,000,000 decrease in cash is the result of financing activities related to our recently completed acquisition of FDS Emptocare, partially offset by operating cash flow in the quarter. Free cash flow during the third quarter of twenty twenty one was $27,000,000 compared to $58,000,000 from the previous quarter and $27,000,000 from the prior In terms of accounts receivable, days sales outstanding for the third quarter of twenty twenty one were seventy three days, an increase of two days over the last quarter and a decrease of nine days from the third quarter of twenty twenty. Inventories as of 09/30/2021 were $104,000,000 a slight increase from the prior quarter and a slight increase compared to the third quarter of twenty twenty. The increase was due primarily to the advanced purchase of semiconductors that we believe will reasonably secure supply for future customer implementation timelines.

We continue to execute well on our global supply chain process improvements and inventory management initiatives. We've built a company that we find is able to adapt its scale very well, and we believe that we are well positioned to deliver on our 2025 targets, driven by a number of factors, including growing advanced services revenue, benefits from long term sole source customer partnerships, increased average deal size, manufacturing savings and process efficiencies. 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. Now moving on to our full year outlook and fourth quarter guidance. All guidance includes FDS EmptoCare.

For context, the last twelve months revenue for FDS EmptoCare for 09/30/2021 was $30,000,000 Going forward, we anticipate FDS EmptoCare to have an annual revenue growth rate between 1520%. As we noted last quarter, we're experiencing the impact of inflationary headwinds. This continued to be primarily due to semiconductor and other component costs and to a somewhat lesser extent freight and raw materials costs. As discussed in the previous call, the measures we are taking to generally offset the majority of the impact of inflationary costs in the second half of twenty twenty one includes, first, higher revenues and strong commercial momentum, customer demand and a healthy backlog. And two, prudent and targeted expense reductions while maintaining our investment in research and development areas and customer experience teams to support a long term growth strategy that scale our business to meet customer demand.

And third, seeing the initial benefits from pricing we find with Axis. In line with the comments we made on the last quarter's call, we have high confidence that we have secured supply for semiconductor critical components through 2022 in order to deliver our mission critical systems and connect the devices to our health care customers. Our supply chain and procurement teams have done a great job addressing these challenges and minimizing disruptions to our customers. We're very pleased with the continued momentum in market demand for advanced services, and we are increasing our full year twenty twenty one product bookings guidance based on strong commercial and in particular, advanced services momentum, which includes now the FDS Entered Care business. Product bookings are now expected to range between $1,130,000,000 and $1,170,000,000 We are increasing our 2021 revenue guidance.

We now expect total 2021 GAAP and non GAAP revenues to be between $1,129,000,000 and $1,134,000,000 We expect total 2021 GAAP and non GAAP product revenue to range between $8.00 $8,000,000 and $811,000,000 And we expect total 2021 GAAP and non GAAP service revenue to be between $321,000,000 and $323,000,000 We are also increasing our 2021 non GAAP We now expect full year 2021 non GAAP EBITDA to be between $235,000,000 and $238,000,000 which includes an anticipated 2,000,000 to $3,000,000 of non GAAP EBITDA from FDS and PerCare. Our full year guidance includes additional costs for semiconductors, freight and steel given global market conditions. Using the midpoint of the updated revenue and non GAAP EBITDA guidance ranges, this represents approximately 21% non GAAP EBITDA margin for 2021. For full year 2021, we are assuming an effective blended tax rate of approximately 7% in our non GAAP EPS guidance, which is a reduction from 9% provided in our July 2021 earnings call.

The change in the tax rate includes additional expected tax benefits from stock option activity in the second half of twenty twenty one. The company also recognized the discrete tax benefit related to the release of a net uncertain tax benefit of $6,200,000 as a result of an effective settlement of tax authorities for the nine months ended 09/30/2021. This onetime tax benefit was excluded from the third quarter twenty twenty one non GAAP results. Lastly, we're also increasing our guidance for non GAAP earnings and now expect full year 2021 non GAAP earnings per share to range between $2.8 and $3.85 per share. Based on the total year guidance provided earlier in this call, for the fourth quarter of twenty twenty one, we are providing the following guidance.

As we noted last quarter, we continue to invest in scaling our business to support the expected increase in revenue and the timing of customer implementations. Our fourth quarter guidance includes additional costs for semiconductors, freight and steel given global market conditions. We expect total fourth quarter twenty twenty one GAAP and non GAAP revenues to be between $3.00 $8,000,000 and $330,000,000 with GAAP and non GAAP product revenues to range between $290,000,000 and $222,000,000 and GAAP and non GAAP service revenue to range between $89,000,000 and $91,000,000 We expect fourth quarter twenty twenty one non GAAP EBITDA of $58,000,000 to $61,000,000 We expect fourth quarter non GAAP earnings to be between $0.90 and $0.95 per share. This outlook includes FDS Enflicare, which is expected to contribute approximately $10,000,000 in revenue and $2,000,000 in non GAAP EBITDA. Please note that the fourth calendar quarter is typically a seasonally strong quarter for SDS AmpliCare.

As I mentioned a moment ago, we continue to have high confidence in our supply of semiconductors and other key components through 2022 to support our health system customers that are critical to health care. We are anticipating supply chain challenges and inflationary cost effects to continue through at least the middle of twenty twenty two. And at the same time, we continue to refine our pricing actions and expect the favorable impact from these actions to offset more inflationary costs as we progress throughout 2022. We remain confident in our five year long term outlook and expect to deliver organic revenue growth CAGR between 1112% through 2025, A total revenue growth CAGR between 1415% through 02/2025. Growth of advanced services revenue is still linked between 2030% of total revenue by 2025, non GAAP operating margin expansion to 21% by 2025, and lastly, GAAP EBITDA margin expansion to 25% by 2025.

In summary, we're very pleased with our commercial, operational and financial results for the third quarter of twenty twenty one. We are taking steps to address inflationary headwinds in the market and we remain confident in our long term outlook. We look forward to updating you on our progress in the coming quarters. With that, we would like to open the call for your questions.

Speaker 0

First question comes from the line of Jessica Tsaan with Piper Sandler. Please go ahead with your question.

Speaker 6

Hi. Thank you so much for taking the question, and congratulations on a good quarter. So maybe, Randall, in your prepared remarks, you mentioned some takeaways from the Autonomous Pharmacy Advisory Board. Can you just remind us of when and why you formed that Board and who it consists of? And maybe just how it's contributing to your thought leadership wins, at existing and new acute care customers?

Thanks.

Speaker 5

Yeah. The Autonomous Pharmacy Board is an industry led board, led by chief pharmacy officers interested in the future of pharmacy and raising the level of pharmacist out of the administrative work to the more clinical pieces of pharmacy disciplines that really are what pharmacists, you know, went into the career for. And so as they are looking for into the future and what's driving the future, you know, it's really cloud based technologies. And particularly, these technologies in this last board meeting, we're really emphasizing the labor shortage component that we continue to see in a lot of industries, but particularly in the pharmacy technician area. But we're excited about it because they are not only just helping to lead the industry to this next level of pharmacy understanding of of what's needed and how the technologies will enable the Autonomous Pharmacy, but maybe most importantly, what are the steps along the way to get there?

So it's a real privilege to be part of the TOMSI board as as as an industry movement.

Speaker 6

And maybe just a quick unrelated follow-up. Can you just help us understand the impact of supply chain inflation and disruption on q three results and then on your guide for q four? Thanks again.

Speaker 5

Hello, Jessica. This is Peter. Yeah. So we see increased inflationary costs from the third to the fourth quarter. It's about 2 to $3,000,000 incremental quarter over quarter additional inflationary cost.

That said, like in the prepared remarks as well, we have high confidence in the surety of supply for semiconductors. We've done pre buys. We have stocked semiconductor inventory as well as for the prepared remarks. That said, freight and steel are more of a spot market, and we expect some more volatility in that going forward.

Speaker 1

Thank you.

Speaker 0

Your next question will come from the line of Scott Kunehaus with Stephens. Please go ahead with your question.

Speaker 7

Hi, team. Congrats on the quarter. Can you hear me okay?

Speaker 5

Yes. Yes.

Speaker 7

Okay. So my first question is around the third quarter and fourth quarter moving parts. It looks like you saw some nice demand pull through this quarter, especially on the software side. Service revenues grew over 32%. That led to nice operating leverage.

Peter, you mentioned some of the pull forward from earlier customer implementations, which you expected to actually hit in the fourth quarter. But can you give us a sense of how much of this pull forward was on the product side versus software side? And then just to confirm that your all your software platforms, whether it be 340B cross selling, success you mentioned, the Omnicell One, the new FDS amplicare, they're all recognized as recurring SaaS revenues off of this strong revenue increase that we saw in the third quarter.

Speaker 5

Thank you, Scott. I think you packed in three or questions there, but I'll answer the last one first. Yes, that's all recurring revenue. The timing, I would call it timing, not necessarily a pull in. The timing of revenue between the fourth and the third quarter, it's about $6,000,000 So $6,000,000 of revenue, mostly in product revenue, the current actually in the third quarter, and we had originally planned for that in the fourth quarter.

Speaker 7

Okay. Great.

Speaker 4

And then it's a follow-up to

Speaker 7

your part the margin question. But, you know, we we talked about the gross margin pressures from additional semiconductor costs, freight, steel costs that you continue to expect throughout the remainder of the year. But anything on the operating expense side we should be aware of? Obviously, labor costs are helping you probably on the demand side, but are you having to pay more for your your specific labor at Omnicell?

Speaker 5

Well, we we think that we're a pretty attractive company to work at given our mission and the innovation that we drive. But we had a good year at Mark as well. We hired over over 100 freight sales of new employees that we want to.

Speaker 4

So I would say maybe we

Speaker 5

see some pressure from a from a cost perspective, but but not significant at this point.

Speaker 7

Okay. Great. Congrats on the strong quarter.

Speaker 5

Thank you. Thank you, sir.

Speaker 0

Your next question comes from the line of Iris Long with Berenberg. Please go ahead with your question.

Speaker 1

Hi, team. Thanks for taking my question. So I guess, one, Omnicell One, I'm wondering if you can talk about how many customers are either using or have signed up for the platform. And then can you also talk about the implementation process a little bit? What is that process like, and how much time does it take for you to implement the system?

Speaker 4

Hey, Iris. It's Scott Seiderman. The first question you asked, which was, you know, really how many Omnicell One customers we now have live. The good news is the demand is incredibly strong, and we're seeing that demand tied to, really the entire portfolio sale. In other words, customers are interested, not only in o two one, but but certainly how that, as it relates to point of care and some of our other products.

So that's really good news. As far as, number of live implementations, we now have several and are tracking wealth of plans. I didn't hear the second part of your question, though, which I apologize for.

Speaker 1

Yep. It's about implementation. I'm just wondering what that process is like and, like, roughly how much time does it take you to to implement it. Yeah.

Speaker 4

I mean, it's it's implementing a a data driven IT project inside health systems, which is always complicated because you have to find the data and connect the data, and so that takes some time. But nothing unusual relative to implementing any other piece of software inside of a health system. As far as timing, the the largest tense in the poll, so to speak, is is simply the fact that oftentimes, OC one, if you think about it, is really lighting up data that exists in other forms of automation. And so huge implementation, it's not necessarily that OC one implementation

Speaker 5

takes time.

Speaker 4

It's simply that there's really no point in implementing it until the large portion of the automation is done because there's no data to be generated for o one to optimize. And so when we look at implementations for o c one and as you should think about it in terms of the lag that might occur as it gets implemented, it's really just a function of it's really well designed for large health systems that are all in and on the cell products. And so that implementation, those those systems just take a while to implement. Implement. So

Speaker 1

Okay. I appreciate that. And then another question, on the Tucson VA hospital deal. I believe that the press release said that, this hospital is actually the first one deploying CPDS in among the VA hospital. I'm just wondering, was it more difficult to sell into a VA hospital?

And then do they do they kinda make the purchase decision for these event services a little bit differently than the other hospitals? If you can talk about the, the dynamics there, it would be helpful. Thank you.

Speaker 4

Yeah. The key point on the Tucson VA announcement, and frankly, the really exciting part of it is that, it's the first time that a VA, at least from an Omnicell perspective, has has has purchased a true service where we're not only combining the hardware, but we're combining that with optimization, ongoing services, analytics, etcetera. So that was that was the really important milestone. And while that means that this, you know, well, in terms of go forward with other VAs, it certainly you know, I think selling into any large system, it's certainly helpful when one VA has made this decision to go in and reference that VA with other VAs. But it's by no means, any kind of large enterprise wide VA deal.

Speaker 1

Thank you so much. Appreciate that.

Speaker 0

Your next question will come from the line of David Larson with BTIG. Please go ahead with your question.

Speaker 8

Hi. Congratulations on a very good quarter. Can you talk a little bit about the pipeline for Omnicell One, Scott, please? And what is the difference between Enlivant, FDS, AmpleCare and maybe three forty b? And and how can all of these different solutions sort of work together to gain share on on the retail side?

Thanks.

Speaker 4

So pipeline for o c one, we're very bullish on. We're excited about. As I said, you know, where OC one drives the most value is really think about it. It's it's it's large enterprises that are all in on Omnicell products. And so when you're all in on the platform, Omnicell one ties it all together, helps you optimize that data.

And so where we're seeing on the cell one is is a great differentiator for us as a company is those large health systems. And so it's not surprising that, you know, oftentimes in the in the one fifty one in those relationships, OC one is part of that. So that's sort of your your comments on the pipeline. I think your question, which is around Enlivant SDS, three forty b, and how all these pieces parts might come together. Enlivant SDS as a portfolio is really focused on the retail outpatient pharmacy.

So not really the health system, but the large you know, the 60,000 retail pharmacies and really helping that community pharmacist deliver value add services beyond filling. Omnicell three forty b and Omnicell one are really focused on the acute care, the health system sector, and helping those health systems optimize inventory, labor compliance events in the case of o c one, and then the three forty b program in the case of o two three forty b. The vision of how it all comes together, which is really exciting, is that as health systems increasingly move from inpatient acute to managing and to treating patients in the ambulatory environment into the home, they are now going to need the same tools and capabilities that a retail pharmacist have. And so we're really excited about the the prospects of pulling the whole platform together and really engaging those health systems to manage the entire continuum of care. And so that's that's really how they'll ultimately all come together.

Speaker 8

Congratulations. I think that's exactly, the right strategy. And then just Peter, how much revenue came from FDS and Amplicare in the quarter? And was that part of the 3Q guide? Was FDS in the 3Q guide?

Speaker 5

Yes. So the third quarter FDS, AmpleCare revenue was about a million and a half dollars. It was not included in you guys.

Speaker 8

Okay. So there was a there was a huge beat there, even if we back out the FDS AmpleCare. Okay. Thanks very much.

Speaker 0

Your next question will come from the line of Steve Halper with Cantor.

Speaker 9

Headwinds and some of the steps you're taking to offset that. But on a go forward basis, does the company have any ability to pass that along to customers in order to make up that margin that it's costing you?

Speaker 5

Thank you, Steve. This is Peter. Like we said in our prepared remarks, we are refining pricing actions, and we have some ability to to just price. So what we said, I think, in the last call is that we have increased list prices. We've increased service price as well, and we've increased margin deal threshold approval levels.

Also good to point out for context that was also in the prepared remarks is that, of course, these pricing actions, the impact of those will start to increase as we go through the quarters into next year as well. So looking at next year, preliminary look, the first half next year, we can assume that the inflationary costs are greater than the impact of the pricing actions. And then throughout the year, we believe at this point that it will catch up. Now that said, semiconductors, we've done pre buys and we have taken inventory in advance as well as you can see in the balance sheet. We have high confidence there, surely on supply.

That said, freight and steel are more of a a spot market. So there's more expected volatility there, and we manage it on a day to day basis.

Speaker 9

Right. And and you feel as though you have enough supply of chips for the foreseeable, you know, future given the actions you've you've taken?

Speaker 5

Yes. That's correct. Throughout 2022 calendar year.

Speaker 9

Okay. And then just do me a favor and just walk me through the pull forward commentary again for, you know, that occurred in in in q three. You you you just reiterate that. I just wanna make sure. $6,000,000 of of product Yes.

That was accelerated?

Speaker 5

Yes. So compared to the original guide, we had about $6,000,000 of revenue that we initially anticipated to occur in the fourth quarter. Those implementations were actually completed early in the third quarter.

Speaker 9

Great. Thank you.

Speaker 5

Thank you.

Speaker 0

Our next question will come from the line of Matt Hewitt with Craig Hallum Capital. Please go ahead with your question.

Speaker 10

Good morning and congratulations on the strong quarter. First question, now that the FDS AmpleCare transaction is closed, do you have any plans to add sales reps on the retail pharmacy side as you've kind of broadened your capacity and your application set for that market?

Speaker 4

Short answer is given the growth and the demand being so positive, I think we will continue to invest there on the sales side for sure.

Speaker 10

Okay. And then maybe a follow-up question. You're seeing the challenges that some of your customers are having, hiring employees and getting up to full staff. As you start to add more and more services into these customers, as they acquire those services from you, are you able to find the talent required to meet their needs? Or has that been a source of pressure?

Speaker 4

I think labor pressure is labor pressure and regardless of of who the employer is. That said, I think that our services on the cell is a pretty compelling employer. And so we're we're a really interesting place to work for a lot of this technology sometimes. And so as of now, we feel it's a good strong pipeline of candidates. We're not seeing undue pressures there.

And and I think, frankly, the candidates, you know, to that end, one of the things that we can offer is is that training and certifications in advanced robotics. And so I think that's a pretty exciting career prospect for pharmacy technology labor.

Speaker 10

Understood. Thank you.

Speaker 0

At this time, there are no further questions. I will now turn it back over to mister Lipps for any closing remarks.

Speaker 5

Well, I wanna thank, everyone on the Omnicell team and including the over 300 new employees that we added this quarter. Welcome to Omnicell. Thank you for, getting on the road with us to the Autonomous Pharmacy and making a difference in health care for everyone. See you next time. Cheers.

Speaker 0

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.