Omnicell Inc

NASDAQ:OMCL

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Omnicell's First Quarter 2021 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Kathleen Nemeth. Please go ahead.

[Kathleen Nemeth, executive]

Thank you, operator. Good afternoon, and welcome to the Omnicell First Quarter 2021 Financial Results Call. On the call with me today are Randall Lipps, Omnicell's Chairman, President, CEO and Founder; Scott Seidelmann, Executive Vice President and Chief Commercial Officer; and Peter Kuipers, Executive Vice President and Chief Financial Officer. This call will include forward-looking statements 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 today in the Omnicell annual report on Form 10-K filed with the SEC on February 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 April 29, 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. Finally, this conference call is the property of Omnicell and any taping, other duplication or rebroadcast without the expressed written consent of Omnicell is prohibited. We've refreshed and expanded the Investor Relations section of our website, where you can find our first corporate sustainability report and other information.

On our call today, Randall will provide an update on our dividend. After Randall's remarks, Scott will provide perspective on the health care industry and our key customer wins. Finally, Peter will cover our results for the first quarter, our guidance for the second quarter and our total year guidance. Our first quarter financial results are included in our earnings announcement which was released earlier today and is 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. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures are included in our earnings announcement. I will now turn the call over to Randall.

[Randall Lipps, executive]

Good afternoon, and thanks for joining us today. Well Omnicell is off to a solid start for the year, and I'm proud of the outstanding results delivered by the team this quarter. We exceeded the top end of our guidance ranges for revenue, the non-GAAP EBITDA and non-GAAP EPS, posting record revenues of $252 million and non-GAAP earnings per share of $0.83 for the first quarter.

We believe the strong results reflect our customers' trust in Omnicell and the recognition of the significant benefit inherent in the vision of the Autonomous Pharmacy. Our first quarter performance also reflects excellent operational execution and financial discipline, with non-GAAP EBITDA of $51 million and strong free cash flow of $44 million. Peter will review the financial results and the guidance for the second quarter and the total year in more detail later in the call.

It's been about 1 year now since the COVID-19 pandemic fundamentally altered our society and our daily life. During this time, we have focused our efforts on supporting our health care partners in this unprecedented time. We successfully pivoted to virtual installs of hospital sites and like many companies, we implemented remote work practices. We learned a lot over the last year, and we believe the industry now recognizes that medication management is a mission-critical element of their care delivery model. It's been a privilege to support our customers as they work to modernize and optimize their medication management systems, and we are confident that Omnicell is well positioned to enable them to accomplish this effectively and efficiently.

Now turning to recent customer successes. We increased our number of long-term sole-source contracts during the first quarter with top 300 U.S. health systems. One of these new wins is the largest single sole-source agreement in Omnicell's history. A top 10 U.S. health system has chosen Omnicell to help them design and implement complex pharmacy workflows in support of their journey towards the Autonomous Pharmacy. We now have long-term sole-source agreements with 147 of the top 300 U.S. health systems.

We are honored to have been selected for this critical infrastructure initiative and believe a win of this magnitude demonstrates that our strategy and our execution of working. And our second quarter is off to a solid start with the addition of Scripps Health as our 148 long-term sole-source agreement. Through this new partnership, Omnicell will be implementing automated dispensing systems for patient care areas and operating rooms, cloud-based intelligence solutions and tech-enabled services.

This newest win is a competitive conversion opportunity for us and underscores the strength of Omnicell's value proposition. We believe that the power of our customer relations is unique within our industry as we are truly strategic partners with our customers and work closely together to understand, design and implement complex pharmacy automation workloads. This enables pharmacy staff and care providers to spend their time where it matters most caring for patients. It is the quality of these relationships together with our innovative products and services that enables us to achieve market share gains and improve business performance.

Importantly, our advanced services portfolio, which includes several subscription-based technology enabled services, such as Omnicell 340B, EnlivenHealth and Omnicell One delivered strong results for the quarter and continues to be well received by the market. As we continue to enable the vision of the Autonomous Pharmacy, we are evolving from a product hardware company to a technology-enabled software services business powered by the cloud. 2021 marked nearly 30 years since the company was founded and throughout the years, I've learned that evolving this business and undertaking a shift in strategy requires that we continue to elevate our culture.

For instance 3 years ago, I hired Scott Seidelmann to help transform our commercial organization to realize our vision. And Scott has since assembled a great team and has been responsible for some of our recent strong execution. And out of this mindset, we welcomed Christine Mellon to Omnicell during the first quarter of this year in the newly created role of Chief People Officer. The Autonomous Pharmacy vision requires investment in our people and culture, which is why the role is so critical for us at this time. Christine brings more than 25 years of experience at high-performing software and technology companies such as Oracle, and most recently, CSG. We are delighted to welcome Christine to the team.

Our achievements over the years have always been driven by our people, individuals from diverse backgrounds who share a commitment to our vision and seek to make a positive impact in the world. During the last year, our employees have shown great dedication and efforts despite the many, many challenges brought by the pandemic.

Now before I turn it over to Scott, I wanted to highlight our recently released inaugural ESG and corporate responsibility report, which many of you have probably have already seen. We recognize that we are accountable, not only to our customers and our shareholders, but also to the global community. We are focused on innovating to drive sustainability across our business ethically and responsibly sourcing materials by the adherence of the internationally recognized OECD guidance and elevating our diversity and inclusion initiatives. We will hope to file our first report and we look forward to continuing to provide updates on our progress.

Now looking ahead, I remain confident and believe that we are well positioned to continue to drive growth and add real value to the communities we serve. We're excited to continue to build on our momentum in 2021 and beyond, and we appreciate your support and confidence in Omnicell.

With that, I'll turn it over to Scott.

[Scott Seidelmann, executive]

Thank you, Randy. Before I discuss some of the customer highlights and our progress this quarter, I want to briefly expand on the point that Randy just mentioned regarding the organizational work that we have done over the last 3 years. Once we translated the Autonomous Pharmacy vision into a strategy, it was clear that we needed to evolve our organizational design from one focused on delivering primarily a single hardware product to one that could deliver new products and technology-enabled services built on the cloud. We significantly changed our organizational design by elevating our account management structure and nationalizing our sales and customer organization.

The structure that has been recognized by Gartner as a best-in-class go-to-market design. And we also added professional services, product management, customer success and software engineering function. And to that transform organizational design, we recruited seasoned leaders with expertise in technology-enabled services, Saas, customer experience and software development. So today, we are fortunate to have a complete world-class commercial leadership team, which is largely responsible for our exciting recent results.

The combination of our strategy transformed the organizational design and new leadership is helping us to realize the vision of the Autonomous Pharmacy. Practically, that progress can be seen in our continued expansion of our long-term customer partnerships and competitive conversions. As Randy mentioned, we increased the number of sole-source agreements in the first quarter, bringing our total to 147. Our 146 sole-source agreements with the top 10 health systems which selected Omnicell to deliver medication management solutions across its network of more than 65 hospitals and 550 facilities in the U.S., the largest contract in our company's history.

Additionally, we signed our 147th agreement in Q2 with a North Carolina based 4 hospital system. And our second quarter is off to a solid start with the addition of Scripps Health as our 148th long-term sole-source agreement. Through this new partnership, Omnicell will be implementing its XT automated dispensing system and its cloud-based intelligence solution. This is a competitive conversion and underscores the value of our market position -- proposition.

Another highlight for the quarter is the competitive conversion with the Illinois-based academic medical center that will be expanding their footprint in XT automated dispensing systems across their integrated health network. One of the reasons that our sole-source strategy is winning in the market is because of our unique advanced services portfolio. Let's walk through some of the highlights. Omnicell One is a cloud-based technology enabled service that combines software, analytics and experts to help health systems manage drug inventory, increase, provider efficiency and reduce compliance risk. We continue to see strong market demand for this unique solution.

Recently, West Virginia-based, WVU Medicine subscribed to Omnicell One as part of a multiyear sole-source agreement renewal. Central pharmacy dispense service is a technology-enabled service that combines our XR2 robot, analytics and experts to help health system central pharmacies reduce errors and increase provider efficiency for oral drug distribution.

We are very pleased with the positive customer feedback we are receiving on this recently launched solution and look forward to continuing to update you on our progress. In the first quarter Aultman Health Foundation and The Christ Hospital Health Network signed long-term agreements with CPDS. Omnicell's 340B is a technology-enabled service that combines workflow software, analytics and experts to help health systems organize their increasingly complex and financially critical 340B Program. We see strong market demand for this solution, and this is a great example of the power of Omnicell's channel to accelerate acquisitions.

Less than 6 months after we acquired this technology-enabled service business, we successfully integrated the Omnicell 340B capabilities into our Autonomous Pharmacy vision. And excitedly, in Q1, the largest not-for-profit health care system in Texas expanded its existing Omnicell relationship with the implementation of Omnicell 340B solution under a multiyear agreement.

Also in Q1, we signed Omnicell 340B partnerships with an integrated health system in the Midwest, and one of the largest community health centers in the Northwest. EnlivenHealth is a technology-enabled service to combine workflow software, analytics and experts to help retail pharmacies and payers to increase provider efficiency, improve economics and provide population health services to at-risk population. We are helping retail pharmacies and health plans to improve patient outcomes while reducing costs through advanced technology solutions for patient engagement and communication.

We are very proud that EnlivenHealth CareScheduler solution is playing an important role in enabling pharmacies and other health care entities to efficiently manage the historic COVID-19 immunization effort. CareScheduler automates the scheduling, patient communication and reporting for administering vaccination, immunization and select diagnostics, all increasingly important services as pharmacists are asked to expand their scope of service.

This week, we announced a new partnership with Twilio, a global leader in cloud-based digital communications technology. The partnership will enable EnlivenHealth to accelerate the creation and launch of an omnichannel communication solution that will allow customers to create a truly personalized experience for the patients and members using interactive phone messaging, SMS, texting, chat bots, e-mail and a mobile app. Like a traditional SaaS offering EnlivenHealth will continue to frequently add new features and capabilities to this platform to increase value for its retail pharmacies and payer customers. We are still early in the development of our advanced services portfolio and the realization of the Autonomous Pharmacy vision. However, overall, we are excited by our recent performance and long-term outlook. Our Advanced Services portfolio not only creates new sources of revenue growth and recurring revenue streams for Omnicell that is key to achieving the fully Autonomous Pharmacy.

The powerful combination of our Advanced Services portfolio with our superior channel and long-term sole-source contract strategy reinforces our confidence in 2025 Advanced Services revenue targets we shared with you at the JPMorgan Annual Healthcare Conference earlier this year. As a reminder, we are forecasting a 50% CAGR in Advanced Services revenues from 2020 to 2025, which would be 20% to 30% of total revenue by that time frame.

Now I'd like to turn the call over to Peter to discuss our first quarter financial and operational results in our Q2 and full year 2021 guidance. Peter?

[Peter Kuipers, executive]

Thank you, Scott. Our strong first quarter commercial, operational and financial results demonstrate the strength of our business model and that our strategy is working. Health care system partners are embracing the vision of the fully Autonomous Pharmacy, resulting in an increasing percentage, high visibility and high flexibility, recurring revenue for Omnicell. Customers see the value in our platform and solutions and are partnering with us as they advance their pharmacy automation roadmaps. We're very pleased with the progress we're making at furthering efficiency of the Autonomous Pharmacy, and I'm proud of the solid execution our nearly 3,000 Omnicell team members continue to consistently deliver.

Turning now to our financial results. Our first quarter 2021 revenues were $252 million, an increase of $3 million over the prior year quarter, up 10% over the first quarter 2020 and above the top of our guidance range. First quarter earnings per share in accordance of GAAP was $0.30 per share compared to $0.37 per share in the fourth quarter 2020 and $0.26 per share in the first quarter of last year. Full reconciliation of our GAAP to non-GAAP results is included in our first quarter earnings press release that is posted on our website.

First quarter non-GAAP earnings per share was $0.82 compared to $0.91 per share in the previous quarter and $0.66 in the same period last year. First quarter non-GAAP EPS result exceeded our expectations due to stronger revenue as well as favorable expense items such as travel and the timing of head count additions. Non-GAAP gross margin for the first quarter was 50.6%. A slight increase from the previous quarter, primarily due to revenue mix and increased trade expense.

Year-over-year, which represents an increase of 120 basis points, driven by volume leverage, supply chain initiatives and favorable product mix. The non-GAAP EBITDA margin for the first quarter was 20.1%, expanded by 250 basis points compared to the same to the prior year first quarter and decreased slightly from the previous quarter.

I would now like to talk on the strength of the cash flow performance. At the end of the first quarter, our cash balance was $548 million, up from $486 million as of December 31, 2020. The $62 million increase in cash was driven primarily by $57 million of cash flow from operations. Free cash flow during the first quarter was strong at $44 million compared to $65 million from the previous quarter and $11 million from the prior quarter. In terms of accounts receivables, day sales outstanding for the first quarter was 76 days, an increase of 5 days over the last quarter and a decrease of 17 days in the first quarter compared to fourth quarter. Inventories as of March 31, 2021, $96 million, essentially flat from the prior quarter and a decrease of $70 million when compared to the first quarter of 2020 as a result of our conservative efforts of global supply chain process improvements and inventory management.

Before turning to guidance, as a reminder, I would like to walk through the long-term financial framework we initially presented at the JPMorgan Healthcare Conference earlier this year. And that we reiterated on the last quarter's call and I'll walk through the highlights.

Our revenue base is resilient and highly visible in nature and is differentiated by 5 key drivers. First, a very robust product backlog, which increased during the first quarter and is expected to further increase during the year; secondly, long-term sole-source agreements with 148 of the top 300 U.S. health systems; third, customers value our offerings, evidenced by our strong customer retention rate of approximately 99%; fourth, we have strong insights into annual service and maintenance revenue from the large installed base of connected devices, which is in the early stages of its upgrade cycles; lastly, while nearly all our revenue has high visibility, roughly 40% of our revenue base is recurring in nature, and we are focused on growing this percentage over time.

As we have previously discussed an area of our business, which is driving substantial growth in high visibility revenue is Advanced Services. We're forecasting a revenue CAGR of approximately 50% in 2020 to 2025 for these Advanced Services. The revenue is expected to reach 20% to 30% of total revenue -- Omnicell revenues by 2025. The subscription-based recurring revenue with high unit economics. We're targeting a company level total revenue CAGR of 14% to 15% from 2021 to 2025, reaching $1.9 billion to $2 billion to $3 billion in total revenue by 2025. We're targeting non-GAAP operating margin of 21% and a non-GAAP EBITDA margin of 25% both by 2025.

We have built a company that's able to scale very well, and we believe we are very well positioned to deliver on 2025 figure. We combine more factors, including improved business mix, benefits in long-term exclusive customer partnerships, economies of scale, manufacturing savings and process solutions. 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 full year 2021 updated guidance. Given the strong start to the year, we are raising our full year non-GAAP EBITDA and non-GAAP earnings per share guidance numbers. As a reminder, our full year 2021 product bookings are expected to range between $1.090 billion and $1.150 billion. And we expect total 2021, revenue to range between $1.085 billion and $1.105 billion. We expect product revenue to range between $770 million and $785 million. And we expect service revenue to be between $315 million and $320 million.

We now expect total EBITDA '21 non-GAAP EBITDA to be between $231 million and $243 million. Using the midpoint we updated and increased non-GAAP EBITDA ranges this represents an approximately 21.6% non-GAAP EBITDA margin for 2021, up approximately 380 basis points in 2021. In 2021, we're assuming an effective blended tax rate of approximately 12% in our non-GAAP EPS guidance. We now expect 2021 non-GAAP earnings per share to be between $2.50 per share and $3.70 per share. We believe that our margin expansion progress is on track towards 2025 estimated non-GAAP EBITDA margin of 25%.

For the second quarter of 2021, we are providing the following guidance. As we noted last quarter, we continue to invest in scaling of business to support the expected increase in revenue and the timing of customer implementations. The second quarter guidance also includes additional freight cost given global market conditions. We expect total second quarter revenue to be between $265 million and $270 million. The product revenues between $192 million and $195 million and service revenues between $73 million to $75 million.

We expect second quarter non-GAAP EBITDA of $53 million to $56 million. Using the midpoint of the second quarter guidance ranges, this represents an estimated quarter-over-quarter non-GAAP EBITDA margin expansion of approximately 30 basis points. We expect second quarter non-GAAP earnings now to be between $0.80 per share and $0.85 per share.

The team has done a fantastic job supporting our customers during these unprecedented times and as Randy mentioned while, many of us at Omnicell are restricted to remote work, this was not an obstacle for our supply chain and manufacturing business. We've remained on site at the start of the pandemic, ensuring that access to our critical and strategic medication management, automation management systems were assembled, tested and transported to health care system partners and firms. I would like to thank them for their efforts and contributions. And certainly, we're very pleased with our commercial, operational and financial results for the first quarter of 2021, and we look forward to updating you on the progress of Autonomous Pharmacy. With that, we would like to open the call for your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Sean Wieland with Piper Sandler.

[Jessica Tassan, analyst]

It's Jess on for Sean. I think we're interested to know just how exactly the COVID vaccine management solution was developed? And if you could talk just a little bit about the innovation process for your customers asking you for this? How was it rolled out? And maybe just -- was it more a new customer driver? Was it incremental revenue driver at existing customers? Any details on that would be helpful.

[Scott Seidelmann, executive]

Sure. I'll take that. This is Scott Seidelmann. I think the question what could be was really around sort of what was the innovation process around the development of our COVID- vaccination solution, which is we launched as CareScheduler under the brand name. First of all, CareScheduler what that actually is? So EnlivenHealth platform is a SaaS platform that we provide to retail pharmacies that enables pharmacies to automate a variety of workflows, frankly, electing to focus on things, actually treating the patient as opposed to be an administrative thing. Clearly, one of the things that we've heard loud and clear from our pharmacy -- retail pharmacy customers as COVID unveiled and frankly, the scope of practice for pharmacists was expanded, and it became clear that pharmacists were going to have to start providing the vaccination was that, they just simply did not have the tools to do that, and we're talking, in some cases around pretty basic capabilities, like how do I schedule patients.

And now with COVID, while most of the patients queuing up inside the retail pharmacy, et cetera. And so we certainly are eager to continue to add value and add capabilities to that retail platform, which creates incremental value for those retail pharmacies. So I think kudos to the team that quite quickly over about a 6-month period, they identified the need, developed the software and rolled that out. I think one aspect of your question was did we really rolled it out to new customers, net new customers on the platform over just incremental for existing customers. The short answer is both, but predominantly existing customers. right, which is like a typical SaaS platform fashion, we could charge an additional amount for the CareScheduler module. And as they upgraded to that and have that capability, they can provide that service to your customers, so it was really quite fast.

And I think like many things in -- during the pandemic, I was -- we have been very proud of that team's ability not only to develop and bring the product to market, but actually get it deployed into the point where it can be used quite widely by that customer himself. Anyway, I hope that gives you some flavor.

[Jessica Tassan, analyst]

Yes. That's helpful. Can I just quickly one follow-up on that. So how is EnlivenHealth driving patient engagement and communication pre-Twilio? Or are they -- these pharmacies essentially going from nothing to a comprehensive omnichannel solution?

[Scott Seidelmann, executive]

Absolutely. And so like I said, the EnlivenHealth platform, automated workflows for pharmacy -- pharmacist. And in one of those workflows or one set of those workflows is enabling pharmacists to engage with their patients in that way voice in the form of IVR or with voice in the form of IVR, text message follow-up communication. So we were providing those services. What the partnership with Twilio does it enables us to really upgrade the quality of those communication technologies, look to add chat and other online and mobile. And so it really for us instead of developing that for ourselves and modernizing those we were to partner with a best-in-class provider and get to market much faster.

[Randall Lipps, executive]

Yes, it allows us to put our resources on solving problems, not delivering basic connectivity to people. So it clearly allows us to work on those complex workflows that really solve problem.

[Operator]

Our your next question comes from the line of Iris Long with Berenberg Capital Management.

[Zhilin Long, analyst]

So I guess a follow-up to the EnlivenHealth questions. I'm wondering if you guys can talk about how big is the retail pharmacy business as the percentage of your total revenue right now? And then as we think about the guidance and as you continue to add more features to the platform, I guess, what growth assumptions are you -- do you have or what the growth assumption is embedded in the guidance?

[Peter Kuipers, executive]

Yes. Thank you Iris, this is Peter. Certainly, the retail pharmacy part of our business, right, is a smaller part of the business if you compare it to the hospital side of the business. It is growing at really nice momentum, maybe in line with the total company. We are focusing, I think we discussed before, mainly on the software platform there to really engage the patients and free the pharmacists up and then -- in the retail pharmacies.

[Zhilin Long, analyst]

Okay. Got it. And then the pricing model there, is it just subscription model based on the number of modules? Is that the right way to think about it?

[Peter Kuipers, executive]

Yes, it's a combination. It's a subscription model with technology and other services. And a good chunk of that is also pure Saas.

[Zhilin Long, analyst]

Okay. Great. And the other question...

[Peter Kuipers, executive]

[indiscernible] patients engaged, right?

[Zhilin Long, analyst]

Okay. Great. And then the other question I had is on Omnicell One, it seems that you guys are seeing strong customer interest. So I'm wondering if you can compare Omnicell One to maybe some of the other software solutions on the market, what's Omnicell One advantage? And then, I guess, the same similar question there. Can you remind us what's your pricing model and the pricing strategy going forward?

[Scott Seidelmann, executive]

Sure. So the question is, how does Omnicell One compare to some of the other offerings in the market? I think 2 ways are wrapped in that, right? On the one hand, the vision for Omnicell One is not to be a pure analytics product in the sense that there's a lot of analytics capabilities in health care. And the challenge of analytics capabilities in health care, I can only speak of health care pretty much the only thing I can share with you. The challenge is that getting an operator and the customer to actually react to that data and actually change them, that's often -- they're not connected in many times because the workflow is so complicated.

And so what we've done with Omnicell One is to really integrate analytics with workflow. So what Omnicell One is predicting that there's a potential for stock out or a shortage instead of just creating a dashboard that someone may or may not pay attention to it, Omnicell One actually sends a notification to the pharmacy deck to actually do something or create a task in the workflow. And so we think that, on the one hand, that connectivity between analytics and workflow is really so important. And I mentioned previously, I think extending that is that we have a customer success organization a former pharmacy informatics, there's workflow experts that get assigned to accounts that really in true customer success fashion are really trying to interpret some of the data and work very closely with customers to engage and provide better outcomes.

So on the one hand, it is very much a true service on that in the sense that we're identifying outcomes, we're integrating the workflow and there's an expert that is on the customer journey with the customer to achieve those outcomes. We think that's highly differentiated. The second one is, I think on the second dimension, which is breadth of offerings is that Omnicell One optimizes inventory, optimizes provider efficiency, optimizes avoidance of compliance risk. So that breath is very unique when compared to other service offerings.

And that was a very deliberate in our approach to not offer those as separate modules, but operate as a single subscription service that combined it. And again, like a truly subscription service, we're continuing to add that and have that functionality, and that value will continue to grow for the customer which drives more demand from the service.

[Zhilin Long, analyst]

Great. If I may add one more question. So you guys talked a lot about competitive conversion. So I'm wondering what do you think is the main driver for success there? And then how have that changed maybe compared to last year?

[Scott Seidelmann, executive]

You're going to take that, Randy?

[Randall Lipps, executive]

I'll take. Well, I'd say it hasn't changed much from last year, but I'd say a couple of years ago or a few years ago, it was more product based. And as we moved to a solution-based company with a broader breath of products and now tech-enabled services really allows us to talk about how we're going to digitize the entire pharmacy workflow so that we can use the power of the cloud to do a lot of the work that just doesn't seem to get done as you would think would happen in a complex pharmacy operation.

And so when we go in and talk about the whole breadth of our product offering and the tech-enabled solutions to help them actually get better performance, not by them just deploying the products, but by us working together day-to-day optimizing and deploying the products together. It's a different sense of success rate that they have not seen in the past with other ways of doing it.

So people want a better outcome and the pandemic, for sure, brought up the shortcoming of the core quantity supply chains in many of these systems, which, in many cases the [ word ] is the proper care for some patients because they just didn't have the right kind of drug positioned in the right place.

So with that, I think there's a heightened sense of what we got to digitize the pharmacy in order to really get to where we want to, which is near perfection and getting drugs to the right place. Near perfection on regulation and safety and economics and making better decisions and get pharmacists out of the base and get them out behind the calendar and get them with the patient where their clinical practice can make the change and the difference than we would.

[Operator]

And your next question comes from the line of Scott Schoenhaus with Stephens.

[Scott Schoenhaus, analyst]

So my first question is on the results and guidance. You guys beat the top line, driven by greater-than-expected product revenues, came in about $4 million above the top end of your guidance range. But you didn't change your full year product revenue guidance. Was this just a pull forward in timing of a contract that you anticipated to occur later throughout the year? I just wanted any additional color there.

[Peter Kuipers, executive]

Yes. So rightly I would say that as you know, the -- our backlog going into the year -- our backlog for the end of December 31, 2020, was up 57%, right? So we feel very strong and confident in the revenue guidance for the year. We did exceed in the first quarter, the top line of the guidance range. I think that it's timing, but it's also fairly really in the years ago since we have been updating full year guidance. So we might later in the year. It's mostly aligned with customer timing of implementation. Does that make sense?

[Scott Schoenhaus, analyst]

That makes sense. Yes, that makes sense, Peter, given your track record with achievable guidance. So -- okay. Then on the services side, can you talk more about 340B opportunities and the traction you're seeing in any cross selling? I believe you stated last quarter that the 340B team closed multiple new opportunities in Q4. Are there any update to these stats in the quarter? And maybe some color on the acceleration of other software platforms we've been talking about EnlivenHealth, Omnicell One. Your guidance assumes more of a ramp in this service revenues in the back half of the year.

[Peter Kuipers, executive]

Thank you, Scott. So multiple questions there. So the 340B, we're very pleased with the addition to the Omnicell platform. We do have a rich pipeline and a relative momentum in cross selling. 340B, we did announce the first cross-sell already within -- now we talked about 148 long-term sole-source partners within the top 300 U.S. health systems. There is a really good opportunity there for those local sole-source customers that do not have 340B platform or have a different software vendor, very positive there. And also that we'll be able to then add some more cross selling this year and additional cross selling throughout the year. And of course, we go through the years as well.

And EnlivenHealth, we talked about in the script, quite extensively. We had an early traction there as well, really growing nicely, long momentum. And then also CPDS that Scott talked about a little earlier. We see some great momentum there as well. It's all aligned and maybe some other way to frame it is we're very confident and we're making progress to the long-term goal. So for this year, we're definitely on track as we report our solutions well in the pipeline.

[Operator]

[Operator Instructions] Your next question comes from Matt Hewitt with Craig-Hallum Capital.

[Matthew Hewitt, analyst]

Congratulations on the good start to the year. First one, and I think it feels like it's been a while since we've talked about the competitive landscape, obviously, as you guys have expanded the services, added more software. I feel like we don't talk about it much, but are you seeing anything from your peers? Are they trying to match or mimic the way that you've kind of expanded into other areas? Or have they -- I don't want to say given up, but I just feel like we're not hearing much about the competitive landscape much anymore.

[Peter Kuipers, executive]

Yes. Maybe I think that will go to maybe Randy.

[Randall Lipps, executive]

No they're still there, There's always competition, and it just depends on what kinds of things are customers are looking for, but most customers are taking a strategic approach to medication management. And I think if you take a strategic approach, you -- now you have to take a broader and more in-depth approach to figuring out how to digitize the whole pieces of the business. And really we are a company that's got a vision for doing that. And I think people are not buying only into what we have today but where we're going. And that's why you see these partnerships for 7, 10, 15 years is because it's not necessary that we have every single product they want today, but they know that, that we're committed and that the software-as-a-service and tech-enabled services are places where we're going to continue to create value on the platform.

And so to the extent that these customers are aligned with that vision with us and many are and maybe not everyone, but many of them are and it allows us to really compete sort of in a different space. And -- but I would never say there's no competition, there's always some. But I think we're doing what we're doing and it's a little different than most people.

[Matthew Hewitt, analyst]

Understood. And then maybe shifting gears a little bit with the ramps in the number of people vaccinated and obviously, pockets of the pandemic maybe showing signs of slowing down. Is that enabling your sales and service teams to get back in and actually meet with the customers face to face? And what can that mean from driving incremental sales?

[Randall Lipps, executive]

Yes. I think we're seeing more of that. I mean if you're vaccinated and under certain conditions, they can meet face-to-face. I'm not saying everybody is there, but certainly a lot more. But I think for many of our big customers out there, this is strategic. And so it's really beyond the question of how healthy is the financial bottom lines of hospital. This is a strategic something they have to do, they know they need to do. And it's beyond just always having to meet in the old fashion way face-to-face. So we had a lot of engagement with our account base and in with the marketplace.

And I just don't feel like at this time, that's really the end of that execution at all. And maybe in some ways, getting a few more Zoom calls is a lot more efficient in the lives of people around. So we've taken a little bit of advantage of that. So I feel really good about the pipeline, the momentum, the sales force ability to do what they need to do to get these solutions to the customers who like that.

[Operator]

You have a question from Bill Sutherland with the Benchmark Company.

[William Sutherland, analyst]

I apologize upfront, I got on pretty late in the call. So if you covered it, but Peter, did you address the service gross margin in the first quarter was different than my model than 4Q, I thought there'd be a bit more 340B positive impact in it?

[Peter Kuipers, executive]

Yes, of course. So on the service gross margin and looking at that level, we're scaling and most of the kind of services, right with all the recurrent revenue that is accounted for, for us in service revenue and the scaling that this facility has [ upfront process ] if you will. And from a gross margin perspective, so we expect both product gross margin and service gross margin to increase during the year through the quarters directionally and then also over the next couple of years.

[William Sutherland, analyst]

And so I'm not sure I caught the first part of your answer, Peter. So the first quarter is just -- is there anything other than just -- I don't know what to call it noise?

[Peter Kuipers, executive]

It's scaling an investment, which is all right. Doesn't build out scale of these service offerings as well. And then if you see historically, the benefit cost, I believe, benefit cost in the first half of the year is always high, right...

[Randall Lipps, executive]

So just adding a few more people earlier on in the year is a deal of demand as we move forward. So that kind of gets hit little bit more in the first quarter.

[William Sutherland, analyst]

Yes. So that's also what's going through me maybe because the R&D was lower than I expected as a percent of revenue, anyway. One other thought I had on the 340B, the customers that they have already, are there any discussions with their customers that might lead to sole-source deals for your other family of solutions?

[Scott Seidelmann, executive]

Yes. I think we are looking potentially both ways, right? And we're looking -- our channel certainly is quite powerful in its ability to introduce this solution to a much broader set of customers through the sole-source arrangements and as Randy pointed out, the comprehensive strategic portfolio, there's certainly demand there to have that services. We are -- certainly, the teams are also working to say are there customers that 340B has that we don't currently serve, right? It's going to be a much, much smaller risk just given the breadth and depth of our customer base. But certainly, the teams are exploring that.

[William Sutherland, analyst]

Yes. I was thinking it would mostly go one way, but it occurs to me that it could lead to some sole-source deals, too. We'll catch up later.

[Operator]

I would now like to turn the conference over to Randall Lipps for closing remarks.

[Randall Lipps, executive]

Well, thanks for joining us today. We are certainly pleased with the solid start for the year. And as the need for increased automation and digitization of processes grows our solutions are more strategically relevant than ever for these customers. Our results and our continued momentum underscores that Omnicell remains a partner of choice, and we're excited to continue to build on our platform as we advance the vision of the Autonomous Pharmacy. Thanks for joining us today. See you next time.

[Kathleen Nemeth, executive]

Thanks every one.

[Operator]

This does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.