Q2 2021 Omnicell Inc Earnings Call
Positioning finally, Peter will cover our results for the second quarter, our guidance for the third quarter and commentary on our second half 2021 outlook.
Our results were released earlier this morning and are posted on the Investor Relations section of our website at Omnicell Dot com. Additionally.
To remind you that during this call we will discuss some non-GAAP financial measures reckon.
Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our financial results press release, I will now turn the call over to Randall.
Thanks Kathleen.
And good morning.
Thank you for joining us today.
Omnicell continues to deliver strong results and we are making significant progress towards the 5 year outlook, we outlined earlier this year.
Before I dive in I'd like.
To take a moment to welcome investors.
We'd like you may be new to Omnicell and share a bit of our history and our story on.
On the sale of the healthcare It company that was founded on the idea that innovation and technology that address complex medication management systems and workflows can help hospitals.
True health systems, and pharmacies improve patient care and health outcomes.
We are proud.
The pharmacy innovations, we have brought to the market throughout our history.
And we are humbled to be considered a trusted partner by many leading hospitals health systems.
And retail pharmacies.
In 2019, Omnicell debuted the vision of the autonomous pharmacy.
A zero error fully automated digital medication and supply management delivery platform that will enable pharmacists nurses and other clinicians to.
Focus more on patients and less on non clinical and administrative task co.
Covid has put a spotlight on the need for investment in medication management infrastructure and the value of Omnicell brings has never been more apparent.
This is our purpose.
To deliver a better way and it extends across all of our stakeholders and within the communities we serve.
We are excited about the opportunities ahead for all of them yourself and welcome those shareholders that have recently joined us.
Turning to our finance.
Actual results as a reminder of our previously stated 5 year outlook.
We're targeting a revenue CAGR of 14% to 15% from 2021 to 2025, reaching $1.9 billion to $2 billion in 2025.
And we are targeting.
Non-GAAP operating margin of 21%.
Non-GAAP EBITDA margin of 25 per cent by 2025.
Hospitals and health systems are experiencing a renaissance of the importance and the health care continuum and then.
For all of the pharmacist and both acute care and.
Non acute care settings is increasing in importance.
A key driver of our growth strategy is the continued customer adoption of our advanced services capabilities, which is seeing strong market interest and supports our continued confidence in our loans.
Long term view.
We are also executing on value enhancing M&A.
Earlier this week, we announced our intent to acquire F. D S applecare, and leading pharmacy SaaS solutions provider that shares our mission to transform the practice and business of retail pharmacy.
Yeah.
This acquisition will add a comprehensive and differentiated suite of financial management analytics and population health solutions to omni sales in life <unk> Health Division.
Broadening offerings that we believe will help pharmacies to measurably improve.
Pharmacy health outcomes, while enabling new clinical services and expanding their growth and profitability opportunities.
<unk> will discuss the acquisition in more detail, but we are excited to welcome the F. D S and prepare team to Omnicell and look forward to their contributions.
Patient as we continue to advance our vision of the autonomous pharmacy.
In terms of second quarter financials, I am proud of the strong results for the team delivered this quarter.
We exceeded the top end of our guidance ranges for revenue non-GAAP EBITDA.
<unk> and non-GAAP EPS.
Our second quarter results include record revenue of $273 million.
For record non-GAAP EBITDA of $61 million and record non-GAAP earnings per share of 97 assets.
We believe these strong results reflect our customers' trust in on.
<unk>.
And the recognition of the significant benefits our products solutions and services bring to them.
Our second quarter performance also reflects excellent operational execution and financial discipline delivering.
Delivering a record non-GAAP EBITDA of $61 million.
Michelle and strong free cash flow of $58 million.
Peter will review the financial results and the guidance for the third quarter and total year.
In more detail later in the call.
Our third quarter guidance and second half 2021 outlook incorporate the anticipated effects of.
Asian area headwinds that many others are also facing.
Over the last 29 years, we have experienced several challenging economic environments and have executed successfully within each of them for you.
We're seeing cost inflation, primarily due to semiconductor supply constraints.
Trained and to a lesser extent freight and raw material cost increases.
We have worked diligently to ensure our customers' implementation timelines for remain unaffected.
And are pleased to note that we have high confidence in our supply of critical semiconductor and other key components.
On through 2022.
We're also taking steps to offset these higher costs, we remain very confident in our growth trajectory outlined in our 5 year long term outlook.
Before I turn it over to Scott I'd like to discuss omni sales ongoing efforts.
To have best in class corporate governance, and our ongoing board refreshment process.
We're very pleased to have announced the appointment of Edward both to our board of directors.
It brings nearly 4 decades of proven leadership in the financial community and a unique perspective as an early.
Opponents of ESG initiatives.
This independent viewpoint complements and strengthens our board.
And we're looking forward to benefiting from his experience.
With that deployment on the sales board now includes 8 independent directors, who collectively bring a broad range of skills.
Early for an experience to the board.
Ed's appointment reflects our commitment to regular board refreshment and corporate governance enhancements.
We are continuously focused on advancing our corporate governance standards as we work to deliver long term value for all of our stakeholders.
Looking ahead, we are excited to continue building on the momentum in our business and enabling our customers to solve the complex challenges of medication management and adherence and in doing so improve patient care.
We appreciate your support and confidence and Omnicell.
Now, let me turn it over to Scott.
Thank you Randy.
Last quarter I discussed, how we evolved our organizational design over the last 3 years from 1 that delivered a single hardware product to 1 that can deliver new products and technology enabled services built on the cloud.
These changes to physician Omnicell for.
For the future, including transforming our sales and customer organizations, but also notably included making significant investments on our product management and software engineering organizations.
All of these changes were supported by our new World class commercial leadership team.
As a result of these organizational changes and our hard work on.
What about 3 years, we feel confident in our strategy and are truly excited about our innovation pipeline.
On today's call I would like to provide an overview of progress against that strategy and some areas of opportunity for innovation.
Well, you'll get healthcare today, it's clear that the industry is that the historic inflection point in terms.
Of how health care is accessed and delivered this change is being driven by the confluence of several key factors.
Hospitals are experiencing a renaissance of importance in the healthcare continuum.
After over a decade of debating whether we have too many hospital beds in the U S. It is clear now that the hospital plays a critical role in care delivery and.
Because scale matters consolidation will continue and the top 300 health systems will be larger and more important.
Second some care will move from acute care and other institutional setting to the home and not only on new entrance serving this emerging market for traditional players like institutional pharmacies retail pharmacies and health systems will play.
It's very well in caring for patients in the home.
Third the role of the pharmacist, both in retail and acute care settings is increasing in importance.
And as such the pharmacists need tools and services to free them from the day to day administrative work in order to deliver care directly to patients.
Lastly.
Cloud is now clearly a dominant mode of technology enablement for providers we.
We believe that these factors are driving the transformation for pharmacy care delivery model and Omnicell is uniquely positioned to not only define that transformation, but share on the opportunities that emerge I would like to highlight that on the sales products and solutions.
Our net stalled in the majority of the top U S health systems, and we are notably the sole source supplier to 148 of the top 300 health systems, reflecting the confidence our customers have in us to provide them the products they need today and long into the future.
We're seeing more competitive wins now that we have at any time in our history.
And it is clear that our full portfolio of products makes omnicell the dominant pharmacy automation player in the health system market.
This is evident by a recent addition of Scripps health, while we are implementing automated dispensing systems for patient care areas in operating rooms cloud based intelligent solutions and tech enabled services.
As we have said previously this win is a competitive conversion for us based on the strength of our competitive conversion and renewals. It is clear that our strategy is working.
Core to that strategy is a comprehensive portfolio of solutions.
And just this morning, we announced that Spartanburg regional healthcare has expanded its partnership with.
For the Omnicell to become our first customer to fully extend its end to end medication management platform with the addition of Omnicell 1 our cloud based intelligence service and our central pharmacy dispensing and compounding services. This is a great example of how on the sales advanced services portfolio can help partners like Spartanburg achieve the vision of the affiliates.
Economists pharmacy.
Now looking at the expansion of care delivery to the home setting while this market will attract new entrants. We also believe that traditional players like institutional pharmacies retail pharmacies and health systems will play a critical role in managing those patients in the home.
1 example of how Omnicell are supporting these new care delivery models.
<unk> through our expanded partnership with Chartwell.
Leading provider of home infusion and specialty pharmacy earlier. This month, we announced that chartwell selected our IV ex workflow sterile compounding technology demand is chemotherapy medication preparations this will enable improved clinical and operational outcomes and allow.
<unk> is our lead the way to zero era medication management as it provides home based care.
We are exploring and increasingly excited about the opportunity in the ambulatory and home care markets and expect to continue delivering innovations in the future.
As health systems continue to expand in the ambulatory market.
For retail and specialty pharmacy offerings for $3.40 day program is critical to their success. As a result, we continue to see strong demand from customers for our Omnicell $3.40 day service and we now have an integrated go to market strategy and are making progress against realizing synergies across the product portfolio.
Turning to the increasingly important low of the pharmacists as this shift continues the automation of medication management is critical to free pharmacists from their day to day administrative work in order to deliver care directly to patients. This is especially true in the retail setting, which we predominantly served through our <unk> live in health service.
And.
Sales delivered strong second quarter results as we continued to expand and deepen key customer relationships.
Notably in the quarter, we expanded our relationship with Walmart, which has continued to rollout key in life and health solution to additional Walmart pharmacies around the U S.
And we announced a new strategic partnership with W. S. P.
C. A Washington state based cooperative that represents more than 300 independent pharmacies nationwide.
In addition to strong customer momentum in the quarter and life and health continues to innovate in Q2 and life and health launched personalized interactive voice response, SaaS technology solution that automate.
Patient communications and frees up pharmacy spend more quality time with patients.
As the first release of <unk> live and helps new Omnichannel communications platform personalized IV or is on inbound recognition solution that enables patients to seamlessly engage with the pharmacy via telephone without ever having to speak to a staff.
Remember this builds off in life and health strategic partnership with Twilio, the leading cloud communications and customer engagement platform that we announced in Q1.
On the clinical care side and life and health just launched 2 new capabilities for care scheduler, a digital solution that automates the scheduling communications on reporting for vaccinations in point.
For the care testing for pharmacies.
The new care scheduler enhancements include an AI driven messaging solution to increase outreach to target patients for flu vaccines and fully electronic forms for flu documentation.
And last but not least we announced our acquisition of fts ample care, which adds.
Several key capabilities to enlighten health platform and expand our channel reach into independent pharmacies.
Upon closing the acquisition and live on health will have a comprehensive SaaS platform for retail and be capable of serving the entire retail pharmacy market.
Finally, the cloud dominant motive technology enabled.
But for providers and Omnicell is well positioned.
Year to date, we have added nearly 50 cloud software engineers to our employee base and we continue to deliver new innovations on the cloud later this summer we released for general availability a cloud hosted version of our on the Central platform, which is the primary software for our core.
Enable next this is a major milestone for our customers' journey to the cloud. We are excited about the opportunity that the cloud offers and Omnicell has us well positioned to be an innovator in this area in.
In summary in light of this rapidly changing health care environment Omnicell is uniquely positioned to transform the pharmacy care delivery model.
We're proud of the significant improvements in quality provider efficiency and reductions in costs.
We are solely focused on this transformation and excited about the opportunity ahead now.
Now I would like to turn the call over to Peter to discuss our second quarter financial and operational results and third quarter guidance and second half 2021.
On outlook Peter.
Thank you Scott.
Strong second quarter commercial operational and financial results demonstrate the strength of our business model and strategic market positioning.
Our health care system in retail pharmacy customers are clearly embracing the vision of a fully autonomous pharmacy.
And then.
And the demand metrics for Omnicell remained strong.
We're making strong progress towards a final for your outlook. We provided earlier this year and I'm proud of the solid execution that are over 3000 team.
Team members continue to consistently deliver.
During the quarter, we welcomed many new.
Team members for the Omnicell family and our head count increased by over 100 REO. Please for supports our continued strong growth.
Turning now to our financial results.
Our second quarter 2021 revenues for Q1.
$17 million, an increase of $21 million.
Prior quarter.
Up 37% over the second quarter of 2020.
And above the top end of our guidance range.
The sequential revenue increase reflects continued momentum in our commercial business and strong customer implementations.
For the year increase was partially attributable.
So over at a lower than typical second quarter revenue level for 2020 due to the COVID-19 pandemic.
Our second quarter earnings per share in accordance with GAAP reported <unk> per share compared to 30 cents per share in the first quarter of 2021, and a loss of 10 cents per share in the second quarter of last year.
A full reconciliation of our GAAP to non-GAAP results is included in our second quarter earnings press release and is posted on our website.
Second quarter non-GAAP earnings per share were <unk> 97 per share compared to <unk> <unk> per share in the previous quarter and 37 in the same period last.
Yes.
Non-GAAP gross margin for the second quarter gross.
51, 7%.
For an increase from the previous quarter by 110 basis points, primarily due to revenue mix.
Favorable services gross margins.
We delivered record non.
<unk> EBITDA of $61 million from the second quarter.
The non-GAAP EBITDA margin for the second quarter was 22, 4% preparing for the 21% for the previous quarter.
13, 1% from the prior year period.
Now I would like to highlight the strength of.
For cash flow performance.
At the end of the second quarter, our cash balance was $614 million.
From $548 million as of March 31, 2021.
The $66 million increase in cash was driven primarily by cash flow from operations.
Free cash.
Cash flow during the second quarter was very strong at $58 million for.
The $44 million Inc.
In the previous quarter and $28 million for the prior year period.
The increase in free cash flow was driven primarily by strong business momentum and working capital management.
In terms of accounts.
Day sales outstanding for the second quarter were 71 days.
A decrease of 5 days over the last quarter.
And a decrease of 16 days from the second quarter of 2020.
Inventories at June 32021 were $191 million, a slight increase from.
For both quarter, and an 11% decrease compared to the second quarter of 2020.
We are executing well on our global supply chain process improvements in inventory management initiatives.
As Randy mentioned, our team remains confident in our supplier of semiconductors on other key components minimize the potential disruptions.
On the price of our customer implementation timelines.
Seth we have not seen any disruptions to date and do not expect any disruptions at this time.
We have built a company that is able to adapt and scale very well.
And believe we are well positioned to deliver on the 2025 targets.
Driven by a number of factors, including improved business mix benefits from long term exclusive customer partnerships economies of scale manufacturing savings and process efficiencies.
As we continue to scale the business, we expect to redeploy some of these savings into value, creating growth and innovation initiatives.
Now moving on to our third quarter guidance and second half outlook.
Based on the strong commercial momentum we are narrowing our full year 2020 on product bookings guidance range by increasing the bottom end of the guidance range by $20 million.
Product bookings for the year.
Now expected to range between $1 billion $110 million on $1.050 billion.
We're very pleased with the continued momentum in market demand for cat surfaces.
We are also raising our expected total 2021 rent from us now to be.
On the $1 billion and $100 million and $1 billion $115 million.
We expect total 2021 product revenue to range between $785 million per second on the $95 million and we now expect total 2021 service revenue to be between.
Between $15 million entry on $20 million.
As Randy commented on earlier, we are experiencing the effects of inflationary headwinds primarily in semiconductors and other electronic components.
As well as continued elevated costs due to freight and raw materials.
3 for steel as the fed indicated these costs I expect it to be transitory in nature or potential easing beginning in 2022.
We expect to offset the majority of the impact of inflationary headwinds.
As we mentioned is primarily due to semiconductor cost to a lesser extent free from raw materials.
So in the second half of 2021, 2 actions I will discuss in a moment.
Only sell products utilize a variety of semiconductor technology nodes.
Well, we do use tips from 300 millimeter wafers. The majority of them are based off 200 millimeter wafers.
These devices have typically been low cost.
<unk> resilient price.
A variety of market factors.
We have already taken steps to manage these challenges as we continue to be followed for global supply chain.
We have high confidence in our supply of semiconductors and other key components through 2020.
2 in order to support our health system customers that are critical for health care.
We are offsetting the fact majority of the impact of inflationary cost.
1 higher revenue from strong commercial momentum customer demands on healthy backlog.
Seconds.
Prudent and targeted expense reductions, while maintaining our investment in research and development areas on customer teams, who support our long term growth strategy at scale our business for me.
The customer demands and third the initial.
Benefits from pricing refinement actions.
We now expect total year 2.
'twenty, 1 non-GAAP EBITDA to be between $231 million from $237 million, reducing the midpoint of our guidance slightly by $3 million.
Our full year guidance includes additional costs for semiconductors freight and steel given global Mark.
<unk> thousand submissions.
Using the midpoint of the updated revenue and non-GAAP EBITDA guidance ranges. This represents approximately a 21, 1% non-GAAP EBITDA margin for 2021.
For approximately 320 basis points from 2020.
Market for total year 2021, we are assuming an effective blended tax rate of approximately 9% and on non-GAAP EPS guidance, which is a reduction from 12% for fibers in the April 2021 earnings call.
The change in the tax rate includes additional expected tax.
Benefit from stock option activity and incremental benefits from certain other discrete items in the second quarter on second half of 2021.
We are in fees on our guidance for non-GAAP earnings and now expect 2021 non-GAAP earnings to be between $2.65 per share from $2 for 75.
<unk> per share.
We remain confident in our 5 year long term outlook to deliver.
First organic revenue growth CAGR between 11, and 12% through 2025.
Second a total revenue growth CAGR between 14 and 15% to.
2025 third.
Growth of our cloud services revenue totaling between 20 and 30% of total revenue by 2025.
For non-GAAP operating margin expansion to 21%.
For 2025.
First non-GAAP.
EBITDA margin expansion to 25% for 2025.
For the third quarter of 2021, we are providing the following guidance.
As we noted last quarter, we continue to its fastest scaling our business to support the expected increase in revenue and the timing of customer from the patients.
Our third quarter guidance also includes additional cost for semiconductor strength in steel given global market conditions.
We expect total third quarter revenues to be between $281 million and $286 million.
Product revenues between 2 and $2 million from 2.
$205 million.
Surface revenues between $79 million from $81 million.
We expect third quarter, non-GAAP EBITDA of $57 million to $60 million.
At the midpoint of guidance this implies a non-GAAP EBITDA margin of 26%.
We expect third quarter non-GAAP earnings now to be between 89 cents per share and 94 per share.
In summary, we are very pleased with our strong commercial operational and financial results for the second quarter of 2021.
<unk> taken steps to address inflationary.
Larry has been from the market.
We remain confident on our long term outlook.
We're also pleased to have announced the acquisition of <unk> simple care, which adds several key capabilities to Elisa.
Platform.
For closing this acquisition is expected to be immediately accretive to only sales non-GAAP EBITDA.
And non-GAAP earnings per share.
We look forward to updating you on our progress on the coming quarters with that we would like to open the call for your questions.
Okay.
Okay.
Yeah.
At this time, we would like to ask a question. Please press star 1 on your telephone keypad again that Star then the number 1.
On your first question.
Comes from Jessica per fan.
Piper Sandler.
Hi, Thank you for taking the question good morning.
So I think for Ses.
And for care side.
Interest didn't know if you guys could clarify whether the independent pharmacy customer base.
Pat.
We're firing is entirely incremental theory in retail pharmacy footprint.
And then just recent.
Recent times for potential the crossover been share existing retail pharmacy installed based on what they would be redundant and if for example, who came from that.
Scott do you want to take a share hey, Jeff here Scott sight on on how are you.
Great.
So the short emphasis basically asking 2 questions for 1 is are the independence day.
<unk> customer base largely is there much overlap. The reality is there may be some overlap, but the vast vast vast majority of it is the complementary markets just not an area that is my that's focused on <unk>.
Primarily focused on tier ones and tier 2 so the large chains and the NMB.
It changed and Sds, we've been excited about it but it's very complementary because it really brings in the independents and yes, a big portion of the thesis here is the ability to cross sell.
Both in live in.
Solutions, particularly like care scheduler, the Omnichannel communications into the the current Sds independent pharmacies, and we certainly think there's an opportunity and it's quite complementary their capabilities. So we believe that there's a really.
A really good opportunity for us to cross sell.
Sales to current fts capabilities too.
On the current customer base.
Yeah.
And then Jessica this is theater, maybe specifically.
We announced the signing of the acquisition earlier this week.
And you can see there that we disclosed that for F. D. S M for caribou bring around.
Around 15000 independent pharmacies and those are the SaaS vast majority of those will be Inc.
Credit markets for Us moving additional note as well is that the revenues of <unk> and for care are pure SaaS revenue is also high growth. So it will help also with the total.
Growth rates and then lastly of course, it's it's immediately accretive we expect for non-GAAP EBITDA.
For non-GAAP EPS, and then maybe a final point as well as far as the additional capabilities Scott referred to earlier, we're pretty excited also about the capabilities of the Medicare plan.
Use the automated.
<unk> tool there.
It was really it was really a great opportunity for us as well and it helps really to enhance the value for retail pharmacies.
Got it.
Really helpful. If I could just follow up with 1.
Indian Jackson, a little bit so in 2016, I think the dnb awarded.
CDP contract for your largest competitor.
So that appointment has had a bunch of issues and then the contract expires in 2021. So are you guys anticipating replacement RFP from the D. O D. Anytime soon and would you be eligible to compete in that market with the ex U.
Thank you.
This is Randy we'd certainly be eligible to compete we haven't seen anything yet.
And on.
Don't have enough to comment on it really but.
We certainly have a lot of government business in many facets and.
And certainly would be 1 that.
We'll be taking a close look at.
Yeah, when it becomes available.
Okay.
Thank you.
Thanks, Josh next question please.
Your next question comes from Scott showing half of Stephens.
Hi, Randy Peter and team Hope you can hear me.
So on the result, and the recent acquisition.
Yeah.
Thank you so.
Peter or Scott I guess this question is for you I think this is really for Peter but on the software expansion story here in the retail pharmacy side. Clearly you are growing the side of the business with ample care I just wanted to make sure I understand.
How you are recognizing the revenue on how youre charging your customers are these independent complementary modules that you charge that you add on for each module to your retail customer or do you bundle it.
As a as kind of a bundled offering.
Thanks.
<unk> question.
Thank you Scott good to talk to you.
This theater D. These are incremental revenue opportunities for us these additional modules.
Basically on the financial size.
Medicare plan review size and also worked for integration as well so those.
Those are incremental revenue streams to pure SaaS.
And we will charge them.
So on a monthly basis essentially.
Perfect that's exactly what I wanted to hear.
My second question Peter is on Eve shifting away from the FDA simple care.
How is it going with the cross selling opportunities.
As you know you have on installed base of 160 large health care systems. What are you seeing in the market for the 340 B on 340 <unk> side could you just add any color there.
Thank you.
So on pay for TV were very pleased with the integration.
We've completed most of the integration, we would say very successfully.
And according to plan.
Did I think in the first quarter mentioned publicly that we had our first cross sell contract is actually signed on really selling incorporating Keith would it be only sell through for <unk> to an existing long term sole source customer within the other than at 48 that pipeline is very nicely growing and.
See familiar so really good momentum there.
Great. Thanks, that's all from me great quarter.
Yes. Thank you.
You bet. Thanks.
Your next question comes from Steve Halper of Cantor.
Hi, 2 questions could you just talk.
And some of those key capabilities of Fts, just trying to understand exactly what those are.
Scott do you want to take yes.
Yes, I got it sorry.
So many of us.
I'll come back to your capabilities. So I would say simple buckets. So 1 bucket is really all around financial.
Analytics, so really helping pharmacies understand.
Payment discrepancies claims visibility opportunities for improvement so thats 1 set.
On 1 bucket of functionality, just simply helping our pharmacy understand its own business and how to make it more profitable that was on the enlightenment roadmap. So thats, certainly a synergy and an acceleration.
The other category.
On the clinical side, 1 that Peter mentioned was a set of tools that helps patients for helps pharmacist.
Guide advised patients on which Medicare plan is best suited for.
On the types of drugs and drug regimen.
That's certainly a really interesting opportunity with the growth in Medicare advantage and I think the increasing importance of the role of the pharmacist to really engage patients at that point of care.
<unk>, that's a it's a really interesting and then there is some overlap and that's an additional functionality from Ivan and there's some overlap with.
With med synchronization in communications, which we.
We believe the enlighten toolkit.
From the Fts ample care capabilities can certainly add in and the last bucket, which.
<unk> around.
Functionality, so much as technology capability.
<unk> is a really interesting technology stack that allows you to.
To sit on top of the pharmacy management system, and so that a pharmacist wouldn't have to swivel seat tours swivel between systems instead the <unk>.
Technology can now just engage a pharmacist with notifications and so it's a really complementary set of functionality a lot of which was already in the <unk>.
Back in so we think it's a really synergistic.
Acquisition.
Thank you that's very helpful. And then the follow up question was on the inflation.
<unk> costs.
Could you just quantify.
What do you think those are going to be and to what extent can you quantify the cost saves recognizing that you did lower the EBITDA.
Midpoint, just a bit I guess I'm, assuming that's because of it.
Inflation.
<unk> headwinds.
Yes. Thank you Steve This is Peter ill answer that question right. So.
Yes, net net right. So we have for reveal.
Proactive.
We see the Rockies can only change on the semiconductor market.
First of all.
With high confidence secure critical.
Apply semiconductors, they go on our products to.
Really secure supply through our critical health care customers. So that was our first objective and we're free to call on them that we have.
I assure you of supply going all the way through 2022.
<unk> direct orders for semiconductor manufacturers.
<unk> and we'd qualify though so additional parts. So we feel really good about that.
Priority <unk>.
Lee of course, our objective is to offset.
E D.
Transitory inflationary cost.
We are able to do that for the second half of 'twenty.
For such as on our prepared remarks the.
The SaaS majority, we are offsetting with higher revenue.
With lower cost for cost control, if you will while maintaining of course are the investments in innovation and customer experience and then lastly of course, we've also implemented what we call price optimization and price actions.
Almost net off right. So a really great job done by the team while supporting our customers.
And it will be our aim is well on go forward of course to continue to follow the strategy.
You can imagine of course that price actions of course, they take some time to take hold and show up in the P&L. If you will.
Then also from a cost perspective.
No cost goes.
Our backlog on inventory also over time and so on managing the totality if you will.
And at this point were not breaking out kind of the different components.
And then but.
Is it safe to say that the net impact.
<unk> was primarily responsible for the lower.
Top end of the range on the EBITDA guidance is that correct.
Yeah, the biggest driver on.
Deflationary.
Hence for inflationary cost is semiconductors.
That's the biggest price yes.
Just to answer your question directly.
It really the whole drop is just inflation.
For the additional cost.
It's the only impacted a midpoint there.
Got it thank you.
Thank you Steve.
Your next question comes from Matt Hewitt of Craig Hallum Capital Group.
Good morning, congratulations on the strong quarter.
That coupled.
Couple of quick couple.
Couple of questions on MTS first.
I think in the press release from even today, you mentioned a high growth rate for that business.
Can you give us what the percentage growth was maybe over the last 12 months and what.
Surgeon profile is for that business.
Yes, so it's a high growth business again, it's SaaS solutions.
Do you think about the growth is mid to mid double digit growth Directionally, maybe a tad higher.
Maybe a reminder, we haven't closed the acquisition yet right. So we signed on and announcements.
So we'll provide more guidance once per year once we closed the acquisition as well.
Really good gross margin as well.
As you would expect it's SaaS pure SaaS solutions.
So it's accretive to on the gross margin level as well.
So omnicell total gross margin.
Thank.
Thank you for that and then I guess as we think out.
You look back in the early 2 thousands of your product gross margin.
It was 58% plus.
Once this acquisition is.
Completed and you start getting active on the cross selling front.
Gross margins on the product side, maybe get.
Cause that level over time or are you more focused on the EBITDA margin. So.
On some incremental costs here and there on on the cost of good side is more than offset by leverage on the operating lines and therefore your EBITDA margins.
Start to approach that 2025 target.
Yes.
I would say to you.
The primary goal for us to EBITDA margin expansion that you feel fairly very falls on it on and we think it's more or less linear through the 5 day period.
Gross margin as we have talked about publicly before we see increasing.
For the year sequentially also.
Also on the on the product side.
So that probably is the largest driver overtime and thats going to be some cost on average as well, but specific yield per day.
Got it and then if I could sneak in 1 more on just out of curiosity on the 148 sole source agreements that you have with the top 300 hospitals, how many of those are currently using.
Omnicell, 1 and how do you anticipate that growing over the next couple of years. Thank you.
Yes, so omnicell 1 is in the early early days of.
Early adopters, if you will pipeline is growing very nicely there.
If you would expect.
A large portion of.
If our large healthcare.
Our top 200.
System customers too for us only so on solution, but that's over time right. So again the pipeline is really strong.
On surfaces.
Bookings if you will.
Almost all on as part of that is ahead of plan.
And actually year to day, so that's going well, but then of course you go from.
Booking for us to implementation planning on rollout.
You would say well users if you will so that's a nice.
Recurring.
<unk> revenue that will build up over time.
That's great. Thank you.
Your next question it sounds from Anne Samuel with Jpmorgan.
Hi, guys congrats on the quarter and thanks for taking the question.
Scott you talked about the Renaissance for hospitals coming out of Covid I was hoping maybe you could talk a little bit about the pace and appetite of incremental purchasing and just maybe how that'll impact.
Timing of when we'll see that start to come through the P&L.
Sure.
I think what I think my point there was what Covid has really done is that clearly I think from a society on perspective as well from a health care policy perspective from entered the role of the hospital.
And certainly the large health system and its value as a quaternary at tertiary care facility and what that means on the overall.
Health care delivery model in terms of what we're seeing I think we've said several times that 1 benefit.
Covid or certainly a tailwind of covenant for.
For us it's been it really shine the light on managing medication to treat that and more broadly just the importance of pharmacy medication management for the health system. As a result, I think what we've reported than what we saw last year on what we're seeing this year is really strong demand not only for the core products, but the newer services.
<unk> as well so that's translating into really strong bookings growth across the portfolio.
And I think Peter on give me a better sense of how that may flow through the P&L, but I think the short version is we're seeing really strong demand and that's certainly flowing through bookings.
Yes, I think Thats certainly the case.
Base.
And with the FDA essential care acquisition, we're also.
Really bolstering our presence in platform offerings across the continuum of care right. So the.
The pharmacies outside the hospital on not necessarily kind of fully separate from from the larger health systems as well so it.
We really look at it.
It looked at it as more and more in totality also.
That's really helpful and really great to hear.
Maybe just 1 on the on.
The quarter, specifically any thoughts on really nice expense savings. This quarter. I was just wondering is that related to some other cost savings actions that you are anticipating taking what was there something unique to this quarter.
Yes, thanks for any known that there wasn't really anything specific in the third quarter and then maybe a little bit of the cost actions, we're taking in the fourth quarter, but I would say that that's really a small small piece of it.
Great. Thanks, guys.
Okay.
Your next question comes from David Larsen with BP.
Okay.
Hi, congratulations on a very good quarter.
Ken can you please talk a little bit about your sales force.
It's my understanding that the products that youre selling into the health care industry. They're complicated. These are long sales cycles they are expensive.
Ultimately means in my view is that your sales force, there's a lot of value in the relationships they have built and their knowledge levels.
Did I hear something about a.
Sort of a realignment or something like that with the Salesforce earlier are not just any color there would be very helpful.
Thank you David.
And what kind of your first day recall a little bit on.
This.
So we realize really the commercial organization, that's about 2 years ago that really going on we've seen the impacts now I think we've talked about before publicly that.
For our top U S health system customers have been at 48.
That we.
I know that long term sole source agreements with.
We have a customer success executive that works with the health system to develop a <unk>.
Multi year medication management automation investment plan right. So that's where the investment assets. These are.
Really deep relationships, if you will really good understanding of the health.
We have 1 of their needs and really helping them to get through to net levels of <unk>.
Automation pharmacy, so that vessels.
Paul is referring to.
Seeing the benefits of that and we're seeing larger and larger deal sizes. As you look at it from there from a trailing perspective for deal sizes are increasing.
We announced I think in the last.
Earnings call, our largest deal if you will multiyear deal as well with an undisclosed.
National leading health system also so.
Paying dividends so it is definitely working.
Okay Fantastic that's great. Thank you and then just on on the retail and the home health side.
It sounds to me.
With the FDA with the <unk>.
Yes, ample cash solution you have all of the software solutions got a retail pharmacy might need in order to basically run their practice billing on everything and communications is that true or not and if not what other components would you need to buy and then can you maybe just touch on the home health.
Health piece like as folks start delivering these medications next day or real time same day to the home are there any is there any sort of opportunity there with all of these telehealth vendors seeking to close gaps in care for last mile. Thanks, a lot.
Yeah, I can help with that so for the first question, which is really around.
Software needs for a retail pharmacy, I would really break it down into 2 buckets..1 is the pharmacy management system itself. So that's a.
On a piece of software that's been around for a very long time and that is the primary tool that a retail pharmacy users to fill scripts and to kind of manage their day to day, we do not.
Half of that software today, what we have is really the second bucket, which is really all of the comprehensive on many of the complementary capabilities above net pms, but helps pharmacists.
Engage patients follow up of those patients on managing adherence.
<unk> with those patients.
Patients.
With the potential fts ample care acquisition, we would add to that financial capability substantial analytics capability the ability to.
Have pharmacists help engage patients around which Medicare plan, they might need to be on and so that certainly would be that combination.
Not enable us to have a much more comprehensive software solution for those value add capabilities, which we certainly think of the.
The more interesting area, but we do not have a pharmacy management system today.
I think your second question around home health and.
Mail order delivery.
Was your question really there in terms of what capabilities could where do we potentially have to enable that.
Yes, it's more like if you're a telecom vendor and you wanted to have a script delivered.
For the patient at home.
The technologies are needed to officially make sure that happens track it to make sure they are adherent.
On to their formularies and so forth.
Right, So thats really an emerging market and I think it is an interesting 1 that were exploring.
We.
Really don't have capabilities today that supports them in theory, I think what's what's an interesting potential opportunity is that.
Some of the enlighten tools I mean, they are a pharmacy and so you still need pharmacist to engage those patients to do medication adherence could you follow up and so that's an area of really keen interest to unprecedented standards the potential emerging market for in live in capabilities.
Okay, Congrats on a great quarter.
And congrats on the deal.
Thank you.
Your next question comes from Iris along of bearing Bert.
Hello, Good morning team. Thanks for taking my question. So my first question is on the Sds.
And.
So I understand that the acquisition will give you additional capabilities like financial management analytics and population health I'm just wondering from customers' perspective. So how important are these new AD capabilities to your existing tier 1 pharmacy customers and.
Maybe how should we think about the Inc. Integration timeline on when do you expect for finished integration and then what would the go to market strategy look like.
Yeah.
Yeah.
We believe there's as you mentioned before we believe that in both.
Then segments, both on the independent segments and and the typical which is the fts applecare core market as well as the core market for in live in just the tier 1 and tier twos.
The functionality of their respective functionalities are alive, and well and fts are very synergistic and so we believe there is strong.
Ascend both on the independent side for the in life and health capabilities and the tier 1 tier twos for the fts ample cash. So that's really why we're so excited about the.
The potential acquisition.
To close them and I won't speak to how long that process might take but from an integration perspective.
Really from a go to market perspective.
It's very complementary they have a sales channel that is very good and adept at targeting independent pharmacy, that's not.
A channel or a capability or in life and health has today and vice versa. We do have very strong relationships with the customer base on tier 1 and tier 2 so.
Demand on the channel and it's very complementary from a branding perspective, we think the mission vision and capabilities are very complementary and so well that's under the in life and health brand, but we haven't worked that through yet and then lastly from a product integration perspective, again that will take longer.
But as it always does but like I said the capabilities of our system logistic that were that were really excited about.
Getting those integrated.
Okay. Good.
And then I guess my second question is on the inflationary comment on them.
I'm wondering to what extent.
As for inflationary headwind kind of reflected already in the Q2 results.
And then Peter I'm wondering if you can talk a little bit about the pricing will be fine on that you mentioned.
Kind of what's the scope of that how much pricing change I'll be talking about on.
Anything.
Anything there will be.
Yeah, Great question on ours. Thank you. So the yes, there is some.
Transitory inflationary cost in the second quarter for that.
Third and then for total year and then apply it of course for the fourth quarter. We have included.
On a forecasted number for.
Helpful for associated costs. So that's that's embedded in there right.
We disclosed in the prepared remarks that were.
Our almost offsetting for the vast majority of the deflationary costs were offsetting.
For a higher revenue.
On the cost actions and then also pricing actions.
So we are we have increased if you will a.
Minimum margin requirements for deals given our market strength as well.
We've increased separately you also use <unk>, if you will and some charts twos as well.
Alright, so there is a variety of items there really holistically.
It's really low pricing optimization strategy.
Okay.
Okay great.
If I can squeeze in 1 last question I'm.
I'm wondering if you can talk about the spark convert the expansion of cash. So it seems that the extension includes the adoption for the central pharmacy against there that day.
1 on and be happy on a customer with you guys I'm wondering what how how long how much time have between a customer with you and what kind of triggers their interest for this expansion.
I don't know the exact number in everything from a customer for multiple years on the.
Amit on.
The cabinet side.
Think why we're so interested in this account as I can get really.
It's a great example of where we see the market on the customer base going which is that being spartanburg is and has been a great customers of ours on the point of care side of things.
As they've looked.
Is that health system has grown from like many have from 1 large hospital to multiple ambulatory acute care hospitals spread across our region they've been acquiring physician practices and so what that's done is it's not only changed there from a pharmacy perspective. The pharmacist is not just focused on how do I make.
Make sure that the meds are getting to the right floors above me now suddenly you have also got to be aware of observing that entire geographically distributed footprint and so some of the things that they're looking at their it's really centralizing some of that central pharmacy capabilities and scaling it up to really support that much.
Broader both acute care, but now also ambulatory care as well and so.
And so as a result, what they found it now they are investing in both our central pharmacy dispensing. So that's oral solids, but also IV compounding service as well and so and then because now you've got the point of care automation.
As well as central pharmacy automation and you've got a widely distributed geographically distributed footprint. They use of omnicell, 1 to create visibility and control and end to end throughout that organization from point from central pharmacy to point of care across that geographically distributed.
It's really a.
I think we call it out because it's.
It's really where we see going.
Going back to the point about the Renaissance in the ever changing on the hospital is that.
We think that is.
A great example of where health systems are headed and really how the full portfolio of our capabilities.
And really help that health system.
Manage what is becoming an increasingly complex air traffic control problems for them.
Okay.
Thank you.
Thanks.
The next question comes from Bill Sutherland.
Of benchmark company.
Hey, Thanks, Good morning, Hey, guys.
Just.
Changing gears here because most of my questions been asked and I know you changed leaders for your expanded leadership from the International group from last year, So maybe theirs.
Is there any developments there.
But we should know about.
Yes. Thank you bill for the question so yes.
Higher sales on muscle from GE digital health care.
Last year.
She has really reforms or team.
<unk> really focused on the plasma strategy I think the initial wins that we've talked about from our platform.
Perspective was a platform deal in southeast Roland for you, but we.
I think we did a press release.
On January and we see more platform type deals evolving specifically.
<unk> line for for the UK and then also the middle East So.
More to come there.
It is growing nicely, but again the first is to go.
Pipeline and then of course bookings in.
Once that we have.
And we kept on as we will of course on them then it will flow into revenue.
Okay.
Great.
Yes, I think I'll stop there great job guys. Thanks.
Thank you Bob.
And your next question comes from Deane Manheimer of collars Colliers.
Volume.
Thanks, Scott I thought you drop me congrats on the great quarter.
Had another question on Fts.
Just thinking about the growth trajectory, you're talking about but I'm, a little bit torrent, because I mean, I see the product looks to be penetrated in about 2 thirds.
For the independent pharmacy market.
And it's a market that's flattish to declining so with the growth that you're talking about come more from net new business within the NDS or cross selling into your existing enlightened base. Thanks.
Well the industry as both Ryan.
Specifically on the independence, so, especially with the what.
What we see and we also see in the industry is that we believe that the role of the visa pharmacy, specifically independent pharmacy as pharmacists as well as of Friday on caregiver amplified or that seems to be tracking to be expanding where there is 2 bills. We believe for.
On car growth that will have some flex as well so.
So for the India, Marvin independent market from a revenue perspective.
We definitely see if you will more revenue for for me if I Miss on the over the years. If you will and then there's also components off of course, the Sds and for care.
Additional failure with hands on capabilities that we can cross sell to the current in life and health.
Tier 2 customer base. So it's both.
Got you okay. Thank you.
On the other thing I'll add there which is important.
<unk>.
Is that.
Some of the <unk>.
There are care products are penetrated broadly and that independence, but they are newer products, which is really predicated on Medicare advantage growth. There's a lot of opportunity for growth rate simply is that Medicare advantage program continues to expand.
On a very high rate and that will grow as well so even within the existing <unk>.
Yet simple care customer base, there is opportunity for growth and that's before we even get to the cross sell opportunities.
Got you. Thank you.
Yeah.
Operator, we have time for 1 more question.
Yeah.
At this time there are no further questions you just asked ask a question. Please press star 1.
Okay. Thank you very much Randall.
Perfect.
Well. Thank you everybody for joining us today I want to give a special a warm welcome to all.
Our new shareholder base, if you've recently joined Us welcome.
I think also Ed <unk> for joining us on our board.
As a new member.
Great to have you.
If you have some other new omnicell employees who've joined over the last 90 days welcome to this team and if you're on new customer with US. We're so grateful that you've entrusted us with.
<unk> you reinvent the pharmacy and all of us.
As we move forward to reinvent the pharmacy to really change.
The pharmacy care delivery model, so we can improve health care for everyone.
We look forward to the journey.
Next time, they say chairs.
Yeah.
This concludes today's call you may now disconnect.
Okay.
Yeah.
[music] from me.