Omnicell, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited results; comparisons are with the corresponding 2019 periods. Omnicell provides medication-management automation and adherence solutions to healthcare systems and pharmacies.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $199.6m (-8%) | $217.4m | $429.3m (+2%) | $419.9m |
| Product revenue | $138.9m (-12%) | $158.4m | $309.0m (+2%) | $304.0m |
| Services and other revenue | $60.7m (+3%) | $59.0m | $120.3m (+4%) | $115.9m |
| Gross profit / margin | $83.2m / 42% | $104.0m / 48% | $192.8m / 45% | $201.2m / 48% |
| Operating income (loss) | ($7.0m) | $18.8m | $5.2m | $31.5m |
| Net income (loss) | ($4.3m); diluted EPS ($0.10) | $16.0m; diluted EPS $0.37 | $7.0m; diluted EPS $0.16 | $19.3m; diluted EPS $0.45 |
Q2 revenue weakness reflected COVID-related delays and customers’ focus on pandemic response. Product revenue fell while services revenue increased, supported by a larger installed base. For the six-month period, XT Series upgrades, competitive conversions and add-on equipment contributed to product growth, partly offset by pandemic effects.
Q2 gross margin fell to 42% from 48%; management attributed the decline to lower revenue, fixed labor and overhead costs, restructuring expenses and investment in service offerings, partly offset by cost savings. Operating expenses rose 6% in Q2 and 11% year to date, including higher R&D investment and employee-related costs.
Cash flow, liquidity and debt
- Six-month operating cash flow was $72.7m, versus $53.8m in 2019. Investing cash use was $33.2m, including $20.0m of external-use software development and $13.2m of property and equipment purchases.
- Financing cash use was $32.3m, including repayment of $50.0m of revolving debt. Cash increased $6.4m to $133.6m during the six months.
- At June 30, cash was $133.6m, working capital was $228.6m, and the current ratio was 2.0. No borrowings were outstanding under the $500m revolving credit facility; the company reported compliance with its covenants.
- Purchase commitments totaled $66.3m, with $64.7m expected to be paid during the remainder of 2020. Operating lease liabilities were $57.2m.
Outlook, risks and unusual items
- Management expected 2020 bookings and revenue to be below expectations before COVID-19, but said Q2 likely represented the lowest quarter of 2020 and expected bookings and revenue to increase sequentially in Q3 and Q4. This was not a quantified full-year forecast; management said the pandemic’s full impact could not be estimated.
- COVID-19 risks include customer spending and installation delays, reduced hospital capital budgets, workforce and supplier disruption, and uncertainty in the broader economy. Manufacturing and distribution facilities remained open, and no material supply-chain disruption had occurred by the filing date.
- The company recorded $10.0m of restructuring costs in the first half, including $6.4m in Q2, as it continued organizational realignment and introduced a plan to mitigate pandemic impacts. The unpaid restructuring balance was $6.6m at quarter-end.
- Legal matters include a pending Illinois biometric-privacy class action and a product-liability case. The company said potential losses were reasonably possible but not probable, recorded no related accrual, and could not reasonably estimate a loss range. A separate insurance-coverage action was dismissed with prejudice after settlement.
- Other risks include competition, product development and acceptance, cybersecurity and privacy, supplier concentration, and healthcare-sector regulation. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether bookings, installations and revenue improved sequentially in the second half, as management expected, and how durable the recovery was.
- Whether gross margins recover as revenue levels and restructuring or cost-saving measures change.
- How much of operating cash flow reflects sustainable earnings versus working-capital timing, including receivable collections and deferred revenue.
- Developments in the Illinois biometric-privacy and product-liability matters, including any change in probability or estimability of loss.
- Whether COVID-related customer delays, supplier conditions or restructuring costs materially affect later-period results and liquidity.