Omnicell, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. Omnicell sells medication and medical-supply automation, analytics, packaging, and related services, principally to healthcare providers. Its reporting segments are Acute Care and Non-Acute Care.
Financial performance
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $380.6 million | $314.0 million | +21% |
| Gross profit / margin | $203.4 million / 53.4% | $170.6 million / 54.3% | +19%; margin down 0.9 percentage points |
| Operating income / margin | $35.3 million / 9.3% | $27.1 million / 8.6% | +30%; margin up 0.7 points |
| Net income | $24.0 million | $16.2 million | +48% |
| Diluted EPS | $0.67 | $0.47 | +$0.20 |
| Operating cash flow | $55.3 million | $39.5 million | +$15.8 million |
Product revenue was $307.2 million, up 24%; service and other revenue was $73.4 million, up 11%. Acute Care revenue was $284.7 million, with a 10.6% operating margin. Non-Acute Care revenue was $95.9 million, with a 5.5% operating margin. Segment comparisons reflect the MTS acquisition, completed in May 2012; 2013 includes a full year of MTS operations.
Fourth quarter: Revenue was $105.8 million versus $90.2 million a year earlier; gross profit was $56.6 million versus $49.4 million; operating income was $11.1 million versus $9.8 million; net income was $6.8 million versus $5.5 million. Diluted EPS was $0.19 versus $0.16.
Financial position and liquidity
- Cash and cash equivalents were $104.5 million at year-end, up from $62.3 million. Current assets were $233.8 million and current liabilities $92.4 million.
- Omnicell reported no borrowings under its $75 million revolving credit facility at December 31, 2013. The facility matures in September 2018 and is subject to financial and other covenants; the company reported compliance.
- Net cash used in investing was $20.5 million, versus $168.7 million in 2012, when the MTS acquisition drove significant outflow. Capital expenditures were $12.3 million.
- Long-term obligations, net of current portion, were $51.1 million; this balance-sheet measure is not described in the filing excerpt as drawn credit-facility debt. Contractual commitments included $41.8 million of operating leases and $7.4 million of supplier and contract-manufacturer commitments.
Changes, outlook, and notable items
- Product bookings increased 23% to $328 million; year-end backlog increased 16% to $180 million. The company cautions backlog may not predict future sales because customers can change configurations or installation timing.
- Management expected 2014 revenue to increase as existing orders were fulfilled and targeted operating margins similar to 2013. It expected R&D spending to rise while remaining relatively flat as a percentage of revenue, SG&A as a percentage of revenue to remain stable, and service revenue and related costs to grow with the installed base.
- Management attributed growth to product differentiation, the G4 platform, broader market penetration, and the full-year contribution from MTS. Non-Acute Care’s lower gross margin mix contributed to the consolidated gross-margin decline.
- A $1.8 million write-off of capitalized software development costs was recorded in R&D after the company changed the product roadmap and reassessed technological feasibility. The filing reported no goodwill impairment.
- In December 2013, Omnicell agreed to acquire UK-based Surgichem Limited; the transaction had not been completed by the filing date. The company also repurchased $21.0 million of shares during 2013 and had $29.1 million of authorized repurchase capacity remaining at year-end.
- A putative class action arising from a 2012 theft of a device containing customer medication-dispensing logs and patient information was dismissed without prejudice in December 2013; no appeal was filed by the deadline. Omnicell recorded no contingency accrual, stating loss was not probable and a possible loss range could not be estimated.
- Principal risks include customer capital-spending delays and long installation cycles, competition and pricing pressure, product and software defects, supplier concentration, acquisition integration, privacy and cybersecurity exposure, and credit-agreement covenant compliance. Management and the auditor reported effective internal control over financial reporting; the financial statement audit opinion was unqualified.
Important facts for investors to verify
- Whether bookings and backlog convert to timely installations and recognized revenue, given long sales cycles and customer-controlled installation schedules.
- How much of 2013 growth came from MTS’s full-year inclusion versus underlying organic growth; review comparable segment results and acquisition effects.
- Whether Non-Acute Care profitability and consolidated gross margins improve or remain pressured by product mix.
- Cash deployment, any future revolver borrowings, covenant headroom, share repurchases, and the funding and integration of the proposed Surgichem acquisition.
- Developments in privacy, product-liability, supplier, and other legal exposures, including any recurrence of unauthorized access to customer or patient data.