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spk00: Good day and thank you for standing by. Welcome to the OmniSales first quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star 1 on your telephone keypad. If you require any further assistance, you can press star zero. I would now like to hand the conference over to your speaker today, Ms. Kathleen Nemeth. Please go ahead.
spk07: Kathleen Nemeth Thank you, operator. Good afternoon and welcome to the ArmySEL First Quarter 2021 Financial Results Call. On the call with me today are Randall List, ArmySEL Chairman, President, CEO, and Founder, Scott Seidelman, Executive Vice President and Chief Commercial Officer, and Peter Keitler, 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 FCC on February 24th, 2021, and another more recent report filed with the FCC. 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 29th, 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 Inc., 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 business. After Randall's remarks, Scott will provide perspective on the healthcare 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 amicel.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.
spk06: 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've exceeded the top end of our guidance ranges for revenue, 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 these strong results reflect our customers' trust in OmniCell and the recognition of the significant benefits inherent in the vision of the autonomous pharmacy. The 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 of the second quarter in its own year in more detail later in the call. It's been about one 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 healthcare partners through 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 OmniHealth 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 Omicel's history. A top 10 U.S. health system has chosen Omicel to help them design and implement complex pharmacy workloads in support of their very tortuous 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 are working. And our second quarter is also 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 automated dispensing systems for patient care areas and operating rooms, cloud-based intelligent solutions, and tech-enabled services. This newest trend 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 gain and improve business performance. Importantly, our advanced services portfolio, which includes several subscription-based technology-enabled services, such as OmniCell 340B, Enliven Health, and OmniCell One, delivers 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 marks nearly 30 years since the company was founded. And throughout the years, I've learned that evolving the business and undertaking a shift in strategy requires that we continue to elevate our culture. For instance, three years ago, I hired Scott Scottelman to help transform our commercial organization to realize our vision, and Scott has since assembled a great team that has been responsible for some of our recent strong executions. And under this mindset, we welcome Christine Mellenthal, myself, 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, 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 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 adhering to internationally recognized OECD guidance, and elevating our diversity and inclusion initiatives. We will hope you find our first report helpful, and we look forward to continuing to drive 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. And on we go. With that, I'll turn it over to Scott.
spk04: Thank you, Randy. Before I discuss some of the customer highlights and the 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 few 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 organizations, a 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 functions. And to that transformed organizational design, we recruited seasoned leaders with expertise in technology-enabled services, staff, customer experience, and software development. So today, we're fortunate to have a complete world-class commercial leadership team, which is largely responsible for exciting the recent results. The combination of our strategy, transformed 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. Randy mentioned we increased the number of sole source agreements in the first quarter, bringing our total to 147. Our 146th sole source agreement is with a top 10 health system. We've selected On Yourself to deliver medication management solutions across a 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 with Q2 with a North Carolina-based four-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 XP automated dispensing system and its cloud-based intelligence solutions. This is a competitive conversion and underscores the value of our market proposition. Another highlight for the quarter is a competitive conversion with an 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. Omnicel 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 risks. We continue to see strong market demand for this unique solution. Recently, West Virginia-based WVU Medicine subscribed to Omnicel One as part of a multi-year sole-source agreement renewal. Central Pharmacy Dispense Service is a technology-enabled service that combines our XR2 robots, 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, Altman Health Foundation and the Price Hospital Health Network signed long-term agreements with CPDS. Omnicell 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 programs. 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 six months after we acquired this technology-enabled service business, we successfully integrated the Omnicel 340B capabilities into our autonomous pharmacy vision. And excitedly, in Q1, the largest not-for-profit healthcare system in Texas expanded its existing Omnicel relationship with the implementation of Omnicel 340B solutions under a multi-year agreement. Also in Q1, we find Omnicel 340B partnerships with an integrated health system in the Midwest and one of the largest community health centers in the Northwest. Enliven Health is a technology-enabled service that combines 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 populations. 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 Enliven Health's care scheduler solutions playing an important role in enabling pharmacies and other healthcare entities to efficiently manage the historic COVID-19 immunization effort. CareScheduler automates the scheduling, patient communication, and reporting for administering vaccinations, immunizations, and select diagnostics, all increasingly important services as pharmacies are asked to expand their scope of service. This week, we announced a new partnership with Twilio, global leader in cloud-based digital communications technology. The partnership will enable Enviven Health to accelerate the creation and launch of an omnichannel communication solution that will allow customers to create a truly personalized experience for their patients and members using interactive phone messaging, SMS, texting, chatbots, email, and a mobile app. Like a traditional fast offering, Enliven Health will continue to frequently add new features and capabilities to its 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 Omnistel, but is key to achieving a 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 the 2025 advanced services revenue targets we shared with you at the J.P. Morgan Annual Healthcare Conference earlier this year. As a reminder, we are forecasting a 50% tagger in advanced services revenue 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?
spk06: Thank you, Scott. Our strong first quarter commercial, operational, and financial results. demonstrate the strength of our business model, and now our strategy is working. Our healthcare assistant partners are embracing the vision of this fully autonomous pharmacy, resulting in an increasing percentage of high visibility and high expectability of recurring revenues for all machines. Our customers see the value in our platform and solutions, and are partnering with us as they advance their pharmacy automation roadmap. I'm very pleased with the progress we're making in furthering the vision of Utah's pharmacy and I'm proud of the solid execution by nearly 3,000 OmniSoft team members who 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 entire quarter, up 10% over the first quarter of 2020, and above the top of our guidance range. First quarter earnings per share in a quarter is a gap of $0.30 per share compared to $0.37 per share in the full quarter of 2020 and $0.26 per share in the first quarter of last year. A full reconciliation of our gap and non-gap results is included in our first quarter earnings specialties as posted on our website. First quarter non-gap earnings per share is $0.83. compared to 91 cents per share in the previous quarter and 66 cents in the same period last year. First quarter non-GAAP EPS results exceeded our expectations due to stronger revenue as well as favorable expense items such as travel and the timing of account additions. Non-GAAP gross margin for the first quarter was 60.6%. A slight decrease in the previous quarter primarily due to revenue mix and increased trade expense. Year-over-year 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 of 20.1% expanded by 250 basis points compared to the same in the prior year first quarter, and decreased slightly in the previous quarter. I would now like to call upon the strength of our 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 from corporations. The cash flow during the first quarter was strong at $44 million compared to $65 million from investors. previous quarter, and $11 million in the prior year. In terms of accounts receivables, basic sales outstanding for the first quarter were 76 days, an increase of five days over the last quarter, and a decrease of 17 days over the first quarter of 2020. Incentories as of March 31st, 2021 were $96 million, potentially flat in the prior quarter, and a decrease of $17 million compared to the first quarter 2020 as a result of our concerted 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 JP Morgan health care conference earlier this year and that we reiterated on our last famous call. I will now walk through the highlights. Our revenue-based resilience is highly disillusioned And we differentiated the five key drivers. First, 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 now 148 of the top 300 units of health systems. Thirdly, 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 our large installed base of connected devices, which is in the early stages of its upgrade cycles. Lastly, while nearly all of 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-facility revenue, decent-end services. We're forecasting a revenue CAGR of approximately 50% for 2020 to 2025 for decent-end services, with revenues expected to reach 20% to 30% of the total revenue, almost all revenues, by 2025. This is a subscription-based recurring revenue with high margin unit economics. We're targeting a company-level total revenue CAGR reaching $1.9 to $2 billion in total revenue for 2025. We're targeting non-GAAP operating margins 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. We can buy a number of factors, including improved business mix, benefits in long-term, exclusive customer partnerships, economies of scale, manufacturing savings, and process efficiency. As we continue to scale the business, we expect to re-deploy some of these savings into value-creating, growing, and innovation initiatives. Now moving on to our full year 2021 updated guidance. Given a strong start to the year, we are raising our full-year non-GAAP dividend and non-GAAP earnings per share guidance. As a reminder, our full-year 2021 product listings are expected to range between $1,090,000,000 and $1,150,000,000. And we expect total 2021 revenue to range between $1,085,000,000 and $1,105,000,000. We expect product revenue to range between $7.7 million and $7.85 million. And we expect service revenue to be between $315 million and $320 million. We now expect total year 2021 non-GAAP EBITDA to be between $231 million and $243 million. Using the midpoints of the 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 2020. For 2021, we're assuming an effective lending tax rate of approximately 12% in a non-GAAP ETF. We now expect 2021 non-GAAP earnings per share to be between $3.50 per share and $3.70 per share. We believe that our market expansion progress is on track towards a 2025 estimated non-GAAP EBITDA market target of 25%. For the second quarter of 2021, we are providing the following guidance. As you noted last quarter, we continue to invest in scaling our business to support the expected increase in revenue in the timing of customary limitations. A second quarter guide also includes additional freight costs given global market conditions. We expect total second quarter revenues to be between $265 million and $270 million. The product revenue is between $192 million and $195 million, and service revenues between $73 and $75 million. We expect second quarter non-GAAP EBITDA of $53 million to $56 million. Using the midpoints 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. The team has done a fantastic job supporting our customers here in these unprecedented times. And as Randy mentioned, while many of us are on the shelf, in addition to remote work, this is not an option for our supply chain and manufacturing teams. We have remained on site since the start of the pandemic, ensuring that access to our critical and strategic medication management automation management systems were assembled, tested, and transported to our healthcare assistance partners all throughout the I would like to thank them for their active contributions. In summary, I'm very pleased with the commercial operational financial results for the first quarter of 2021, and we look forward to updating you on the progress of the common plans. With that, we would like to open the call for your questions.
spk00: If you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Shawn Weiland with Piper Sandler.
spk01: Hi, thank you guys so much. It's Jess on for Shawn. 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 an incremental revenue driver at existing customers? Any detail on that would be helpful.
spk04: Sure. I'll take that. This is Scott Seidelman. I think the question was really around what was the innovation process around the development of our COVID vaccination solution, which is we launched a care scheduler under the brand name. First off, care scheduler, what that actually is. So Enliven Health's platform is a SaaS platform that we provide to retail pharmacies. It enables pharmacists to automate a variety of workflows, frankly, to let them focus on things and actually treating the patient as opposed to doing any administrative things. Clearly, one of the things that we hear about and clear from our retail pharmacy customers as COVID-19, on bail and frankly the scope of practice for pharmacists has expanded and it became clear that pharmacists were going to have to start providing these vaccinations was that they just simply did not have the tools to do that and they're talking in some cases around pretty basic capabilities like how do I schedule patients and now with COVID do I want those patients queuing up inside the retail pharmacy etc 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 funds. So I think kudos to the team that quite quickly, over about a six-month period, they identified the need, developed the software, and rolled that out. I think one aspect of your question was, did we really roll this out to new customers, new customers on the platform, or was this incremental for existing customers? The short answer is both, but predominantly existing customers, right, which is that, like in typical SaaS platform fashion, we could charge an additional amount for the care scheduler module, and as they upgraded to that and had that capability, they could provide that service to their customers. So it was really quite fast. And, you know, I think like many things during the pandemic, 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 and to the point where it can be used quite widely by that customer base. So anyway, I hope that gives you some of the flavor.
spk01: Yes, that's helpful. Can I just quickly, one follow-up on that? So how is Enliven Health driving patient engagement and communication pre-Twilio, or are these promises essentially going from nothing to a comprehensive omni-channel solution?
spk04: Absolutely. And so, like I said, the Enliven platform automated workflows for pharmacists. And one of those workflows, or one set of those workflows, was enabling pharmacists to engage their patients. And that was voice in the form of IVR, voice in the form of IVR, text message follow-up communication. So we were providing those services. What the partnership with Celia does is enables us to really upgrade the quality of those communication technologies, 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 able to partner with a best-in-class provider and get to market so much faster.
spk06: Yeah, it allows us to put our resources on solving problems, not delivering basic connectivity to people. So it really allows us to work on those complex workflows that
spk00: Thank you.
spk07: Thank you, Jessica. Next question.
spk00: And your next question comes from the line of Iris Long with Baring Bird Capital Management.
spk08: Hello, Iris. Hi, guys. Thanks for taking my question. So I guess a follow-up to the enliven health question. I'm wondering if you guys can talk about how big is the retail pharmacy business as a 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 growth assumption is embedded in the guidance?
spk06: Yeah, thank you, Ari. This is Peter. So 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 a really nice momentum, maybe generally kind of in line with the total company. But we are focusing, I think we discussed before, really on the software platform there to really engage the patients and see the pharmacy stuff in the retail pharmacy, if you will.
spk08: OK, got it. And then the pricing model there, is it just a subscription model based on the number of module? Is that the right way to think about it?
spk06: Yeah, it's a combination. It's a subscription model of technology and services. And it could change that also if it's pure SaaS.
spk08: OK, great. And then the other question.
spk06: OK.
spk08: And then the other question I have is on OmniCell One. So 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's 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?
spk04: Sure. So the question is, how does Omnicel want to compare to some of the other offerings in the market? I think two ways, breadth and depth, right? On the one hand, the vision for Omnicel wants not to be a pure analytics product in the sense that there's a lot of analytics capabilities in healthcare, and the challenge of analytics capabilities in healthcare, I can only speak to healthcare, pretty much the only industry I've worked in. The challenge is that getting an operator in 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 Omnicel One is to really integrate analytics with workflow. So if Omnicel One is predicting that there's a potential for a stockout or a shortage, instead of just creating a dashboard that someone may or may not pay attention to, Omnicel One actually sends a notification to the pharmacy tech to actually do something. or creating a task in a workbook. And so we think that, on the one hand, that connectivity between analytics and workflow is really so important. And I mentioned previously, as you've extended that, is that we have a customer success organization, a former pharmacy informaticist, workflow expert, 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 it with 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, I think on the second dimension, which is breadth of offerings, is that On the Cell 1 optimizes inventory, optimizes provider efficiency, optimizes avoidance of compliance risk. So that threat 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 to offer it as a single subscription service that combines those. And again, like a truly subscription service, we're continuing to add that and add that functionality, and that value will continue to grow for the customers and strive for more demand.
spk08: Great. If I may add one more question. So you guys talk a lot about competitive conversion. So I'm wondering what do you think is the main driver for success there? And then how has that changed maybe compared to last year?
spk06: I'd say it hasn't changed much from last year, but I'd say a couple years ago or a few years ago, it was more product-based. And as we moved to a solution-based company with a broader breadth of products and now tech-enabled services, it really allows us to talk about how are we going to digitize the entire pharmacy workflows so that we can use the better of the best 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 product, but by us working together day-to-day, optimizing and deploying the product together, it's a different sense of success rate that they have not seen in the past with, you know, other ways of doing it. So, you know, people want a better outcome, and the pandemic for sure brought up the shortcomings of, you know, the poor pharmacy supply chain in many of these systems, which in many cases diverted the proper care for some patients because they just didn't have the right kind of drug position in the right place. So with that, I think there's a heightened sense of, look, we've got to digitize the pharmacy in order to really get to where we want to, which is near perfection, getting drugs to the right place, near perfection on regulation and safety and economics and making better decisions. And get pharmacists out of the basin. Get them out behind the counter and get them with the patient where their clinical practice the difference in a big way.
spk00: Great. Thanks so much. And your next question comes from the line of Scott Schoenhaus with Stevens.
spk03: Hi, Randall, Peter, and team. Hey, 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.
spk06: Yeah, so as you know, the backlog going into the year, the backlog for the end of December 31st, because the training is up 57%, right? So we feel very strong in the revenue guidance for the year. We did exceed, in the first quarter, the 12 times of the guidance range. But it's timing. When it falls in, it's fairly early in the year still to look at updating fully the guidance. So we might later in the year. is mostly aligned with customer timing of information. Does that make sense?
spk03: Yeah, 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. Is there any update to these stats in the quarter? and maybe some color on the acceleration of other, you know, software platforms we've been talking about in Lyman Health on the Cell 1. Your guidance assumes more of a ramp in this service revenues in the back half of the year. Thanks for the questions.
spk06: Thank you, Scott. So, multiple questions there. To the people to be, we're very pleased with the addition to the MSL platform. We do have a rich Wi-Fi and a really good momentum in cross-selling. C40B, we did announce the first cross-sell already within now the top 148 local sole source partners within the top 300-year sales systems. There is a really good opportunity there for those local sole source customers that do not have C40B currently or have a different software tender, very positive there, and customers that will be able to announce some more possible views there on additional classroom throughout the year, and this will go through the years as well. And life and health, we talked about in the script quite extensively. We had an early personnel as well, really growing nicely, a lot of momentum. And then also CPDF, as Scott talked about a little bit earlier, we see some great momentum there as well. It's only one, maybe another way to frame it is, and we're very confident in We're making progress to the long-term goal. So this year, we're definitely on track, especially with the polarization as well and the pipeline. Absolutely.
spk03: Great. Thanks. Looking forward to your continued execution, Peter and team. Thanks. Yeah.
spk00: Thanks. Again, if you would like to ask a question, please press R1 on your telephone keypad. Your next question comes from Matt Hewitt with Craig Hallam Capital.
spk02: Good afternoon. Congratulations on a good start to the year. First one, I feel 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... I don't want to say given up, but I just feel like we're not hearing much about the competitive landscape much anymore.
spk06: Well, they're still there. There's always competition, and it just depends on what kinds of things our customers are looking for. But most customers are taking a strategic approach to medication management. You take a strategic approach, 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 going to 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, you know, 7, 10, 15 years, is because it's not necessarily that we have every single product they want today, but they know that we're committed. And that the software as a service and the 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, it allows us to really compete in a different space. But I would never say there's no competition. There's always some. But I think what we're doing is a little different than it must be.
spk02: Understood. And then maybe shifting gears a little bit, with the ramps and 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? Thank you.
spk06: Yeah, I think we're seeing more of that. I mean, if you're vaccinated and under certain conditions where they can meet face-to-face, I'm not saying everybody's there, but certainly a lot are. 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 line of the hospital. This is strategic, something they have to do, they know they need to do. And it's beyond just, you know, always having to meet the annual fashion week face-to-face. So we have a lot of engagement with our account base and with the marketplace. And I just don't feel like this time that's really an entrance to our execution at all. And maybe in some ways getting a few more Zoom calls is a lot more efficient than flying some people around. So we've taken a little bit of advantage of that. feel really good about the pipeline, the momentum, the Salesforce ability to do what they need to do to get the solutions in front of customers if you like that.
spk02: Well, that's great. Thank you for taking the questions.
spk07: Okay. Thanks, Matt. Thank you, Matt. Next question, please.
spk00: You have a question from Bill Sutherland with the Benchmark Company.
spk05: Thanks. Hello, everybody. I apologize up front. 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? It was different than my model in F4Q. I thought there would be a bit more 340B positive impact in it.
spk06: Yeah, of course. So on the service gross margin and looking at that, we're scaling. So most of the attack services, right, that's all the recurring revenue, that is increasing. accountable, of course, in service revenue and just scaling that business. So we have a product investment, 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 quarter directionally, and then also over the next couple of years.
spk05: 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?
spk06: It's scaling and investment, you know, right? As we build out, scale the service offerings as well.
spk05: Oh, I see. Okay.
spk06: You've seen historically the benefit cost, I believe benefit cost in the first half of the year is always higher, right? And just adding a few more people earlier on in the year to deal with demand as we move forward. So that kind of hits a little bit more.
spk05: Yeah, so that's also what kind of threw me because the R&D was lower than I expected. It's percent of revenue. Anyway, one of the thoughts 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?
spk04: Yeah, I think we are looking potentially both ways, right, in the sense that we're looking – our channel certainly is – quite powerful in this ability to introduce this solution to a much broader set of customers that, through the sole source arrangements and, as Randy pointed out, the comprehensive strategic portfolio, there's certainly demand there to have that service. We are certainly, the teams are also working to say, are there customers that 340B has that we don't currently serve? It's going to be a much, much smaller list, just given the breadth and depth of our customer base. but certainly the teams are exploring that.
spk05: Yeah, I was thinking it would mostly go one way, but it occurs to me that it could lead to some sole source deals too. Thanks for taking the questions. We'll catch up later.
spk06: Thank you, Bill.
spk00: I would now like to turn the conference over to Randall Lipps for closing remarks.
spk06: Well, thanks for joining us today. We are certainly pleased with the strong start to 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 continual momentum underscores that Omnifil domain is a partner of choice, and we're excited to continue to build on our platform as we advance the vision of the autonomous market. Thanks for joining us today. See you next time.
spk00: Thanks, everyone. This does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
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