Omnicell, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016; comparisons are to the same 2015 periods. Unaudited consolidated results. Omnicell supplies medication and supply automation, analytics, and medication-adherence products and services. Results include Aesynt from its January 5, 2016 acquisition.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $172.9m | $112.8m | $343.9m | $229.0m |
| Gross profit / margin | $78.0m / 45% | $57.5m / 51% | $158.0m / 47% | $119.1m / 52% |
| Operating income (loss) | $(0.1)m | $12.4m | $1.7m | $22.8m |
| Net income (loss) | $(1.2)m | $8.8m | $(1.5)m | $15.1m |
| Diluted EPS | $(0.03) | $0.24 | $(0.04) | $0.41 |
| Cash from operating activities | — | $16.0m | $10.2m |
- Revenue grew 53% in Q2 and 50% in the first half. Product revenue rose 47% and 41%, respectively; services and other revenue rose 79% and 87%.
- Automation and Analytics revenue grew 68% in Q2 and 64% in the first half. Medication Adherence revenue was nearly flat in Q2 and down 3% in the first half.
- Cash and cash equivalents were $41.0m at June 30, down from $82.2m at year-end 2015. Working capital was $120.6m versus $139.5m; the current ratio was 1.6 versus 2.1.
- Debt under the credit facilities was $232.5m gross, including $197.5m term debt and $35.0m revolving borrowings; carrying value net of issuance costs was $225.3m. The company reported covenant compliance.
- First-half investing cash outflow was $285.3m, including $271.5m for Aesynt. Financing activities provided $229.6m, primarily from borrowing.
Material changes and drivers
- Aesynt materially expanded the business and contributed to reported growth alongside the 2015 acquisitions Mach4 and Avantec. Management attributed the remaining Automation and Analytics growth to customer conversions, larger orders, implementations, lease renewals, and service renewals.
- Growth did not translate into improved profitability: gross margin fell 6 percentage points in Q2 and 5 points in the first half. The company cited product mix and lower acquired-business margins, including purchase-accounting effects from deferred revenue, inventory step-up, and amortization of acquired technology and backlog.
- Operating expenses increased 73% in Q2 and 62% in the first half. Higher acquisition-related costs, staffing and share-based compensation contributed; Q2 also included approximately $1.7m of restructuring expense.
- Aesynt was acquired for $271.5m net of cash received. From acquisition through June 30, it recorded $82.0m revenue and $20.2m operating losses, including $14.0m of intangible-asset amortization. Purchase-price allocation remained preliminary.
Outlook, risks and unusual items
- Management anticipated revenue would continue to increase in 2016 versus comparable 2015 periods, citing backlog and bookings. This was not a quantified revenue or earnings forecast. Results depend on orders, product supply, installation capacity and timing, and customer acceptance.
- Management stated existing cash, operating cash flow and available credit should meet needs for at least the next 12 months. The filing also identifies debt service, leverage and fixed-charge covenants, acquisition integration, goodwill and intangible impairment, competitive pressure, healthcare capital spending, foreign exchange, and installation delays as risks.
- The Aesynt integration was ongoing, including integration of systems and controls. Management reported disclosure controls were effective; no other material change in internal control over financial reporting was reported.
- The company settled a patent inventorship dispute in May 2016; the case was dismissed with prejudice in June. Omnicell assigned certain mobile-cart patents but retained rights to continue its mobile-cart product lines. No related litigation accrual was recorded.
- On August 2, after quarter-end, the board authorized a new $50m stock-repurchase program. The existing program had $4.9m remaining at June 30. No shares were repurchased in the first half of 2016.
- Other items include $39.6m of non-cancelable purchase commitments expected within 12 months, $52.9m of operating-lease commitments, and $10.1m of unrecognized tax benefits. The filing notes potential Brexit-related uncertainty for the company’s international business.
Important facts for investors to verify
- How much of future growth is organic, and whether Aesynt integration delivers expected sales, cost efficiencies and margins.
- Whether gross margins recover as acquisition-related purchase-accounting charges and acquired intangible amortization affect results.
- Debt repayment, interest costs, covenant headroom and liquidity as cash balances declined and leverage increased.
- Execution of installations and conversion of deferred revenue and backlog into recognized revenue and operating cash flow.
- Final Aesynt purchase accounting, including goodwill and intangible valuations, and any subsequent impairment indicators.