Omnicell, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports fourth-quarter results. Omnicell provides medication and supply dispensing automation, pharmacy analytics, and medication-adherence products and services through Automation and Analytics and Medication Adherence segments. Its strategy centers on the “Autonomous Pharmacy” vision, including automation, analytics, cloud-based offerings, and services.
Financial performance
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $787.3 million | $712.7 million | +10% |
| Gross profit / margin | $372.3 million / 47% | $318.6 million / 45% | +17% gross profit |
| Operating income / margin | $44.4 million / 6% | $11.1 million / 2% | Improved |
| Net income | $37.7 million | $30.5 million | +24% |
| Diluted EPS | $0.93 | $0.79 | +18% |
| Operating cash flow | $104.0 million | $24.8 million | More than quadrupled |
- Revenue growth reflected a $59.4 million increase in product revenue and a $15.2 million increase in services and other revenue. Automation and Analytics revenue grew 12% to $655.7 million; Medication Adherence revenue grew 5% to $131.6 million.
- Automation and Analytics gross margin increased to 51% from 47%, aided by XT product efficiencies and higher-margin Performance Center sales. Medication Adherence gross margin declined to 27% from 32%, including a $2.1 million reserve for slower-moving inventory; the segment reported a $5.5 million operating loss.
- Net income included an income tax benefit of $2.1 million. The prior year’s $26.0 million tax benefit included a one-time $20.0 million benefit from U.S. tax reform, limiting comparability of reported earnings.
- Fourth-quarter revenue was $211.8 million versus $196.4 million a year earlier. Q4 operating income was $18.9 million versus $16.2 million; net income was $14.8 million versus $31.2 million, with the prior-year quarter benefiting from a large tax benefit.
Cash, debt, and liquidity
- Cash and cash equivalents were $67.2 million at year-end, up from $32.4 million. Working capital was $192.6 million, and the current ratio was 1.9:1, compared with 1.7:1.
- Operating cash flow was $104.0 million; investing cash outflow was $54.4 million, including $30.7 million of capitalized software development and $23.7 million of property and equipment purchases. Financing cash outflow was $13.6 million.
- Debt under the credit facilities was $140.0 million before unamortized issuance costs; reported net long-term debt was $135.4 million. The $315 million revolving facility had no borrowings outstanding. The company reported covenant compliance at year-end.
- Management said cash, expected operating cash flows, employee-plan proceeds, and available credit were expected to meet needs for at least the next 12 months. Contractual obligations included $87.4 million of operating lease payments and $52.2 million of purchase commitments.
Material changes, outlook, and notable items
- Product bookings rose 26% to $716 million from $568 million; backlog increased to $478 million from $345 million. Management cautioned that backlog is not necessarily indicative of future sales because customers may change configurations or installation timing.
- Management expects continued investment in differentiated products, new markets, acquisitions, and partnerships. The filing provides no specific numerical revenue or earnings guidance. It describes plans to expand subscription and cloud-based offerings; subscription revenue recognition may defer revenue compared with equipment sales.
- In Q4, Omnicell recorded out-of-period adjustments related to prior periods. The quarterly disclosure says these increased pretax income by $3.7 million and net income by $2.9 million, including a $2.6 million SG&A reduction and $1.1 million of revenue. A separate annual note reports an increase of $3.2 million in pretax income and $2.5 million in net income; management stated the adjustments were not material to the periods involved.
- The company adopted ASC 606 using full retrospective application, adjusting prior-year comparisons. It also expected 2019 lease-accounting adoption to add approximately $66 million of right-of-use assets and $70 million of lease liabilities, with no material effect expected on earnings or cash flows.
- Contingencies include a product-liability lawsuit and an Illinois biometric-privacy class action. The company recorded no accrual, stating potential loss was reasonably possible but not probable and that any loss range could not be estimated. An insurer separately sought a declaration that it had no duty to defend or indemnify the company in the biometric-privacy matter.
Key investor verification points
- Reconcile the different out-of-period adjustment totals disclosed in the quarterly and annual notes, and assess their impact on reported 2018 and prior-period results.
- Evaluate whether backlog and bookings convert into installations and recognized revenue on schedule, given long sales cycles and customer-controlled installation timing.
- Monitor the Medication Adherence segment’s margin decline, inventory reserve, and operating loss.
- Review debt repayment and covenant headroom, interest-rate exposure, and the impact of lease liabilities recognized in 2019.
- Track the legal proceedings, potential insurance coverage, and privacy and cybersecurity exposure as cloud-based services expand.
- Assess dilution from equity compensation and at-the-market stock sales: Omnicell sold approximately 557,000 shares for $40.3 million gross proceeds in 2018.