Omnicell, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Omnicell provides medication and medical-supply automation and adherence solutions, organized into Acute Care and Non-Acute Care segments. The Non-Acute Care business includes MTS, acquired in May 2012.
Financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $94.0 million | $84.3 million | $274.8 million | $223.9 million |
| Gross profit / margin | $52.0 million / 55.4% | $46.1 million / 54.7% | $146.8 million / 53.4% | $121.2 million / 54.2% |
| Operating income / margin | $10.7 million / 11.4% | $11.2 million / 13.3% | $24.2 million / 8.9% | $17.3 million / 7.7% |
| Net income | $7.8 million | $6.9 million | $17.2 million | $10.6 million |
| Diluted EPS | $0.21 | $0.20 | $0.48 | $0.31 |
- Q3 revenue increased 11.5% year over year; product revenue rose 12.0% and service and other revenue rose 9.7%. Q3 gross margin improved, while operating income declined and operating margin contracted as operating expenses increased 18.5%.
- Nine-month revenue increased 22.8%, substantially reflecting a full nine months of MTS results in 2013 versus partial-period inclusion in 2012. Net income increased about 61%; year-to-date gross margin decreased 0.8 percentage points, while operating margin improved.
- Q3 segment revenue was $70.6 million in Acute Care and $23.4 million in Non-Acute Care. Segment operating margins were 12.8% and 7.0%, respectively; Non-Acute Care margin was down from 14.2% a year earlier.
- Cash from operations for the nine months was $40.7 million, versus $27.5 million. Net cash used in investing was $13.7 million, compared with $161.2 million in 2012, when the MTS acquisition used $156.3 million. Financing provided $26.8 million, principally reflecting employee stock-plan proceeds and no share repurchases.
Liquidity, debt and commitments
- Cash and cash equivalents were $116.2 million at September 30, 2013, up from $62.3 million at December 31, 2012. Current assets were $247.9 million and current liabilities $99.1 million. The filing reports no short- or long-term investments apart from cash equivalents.
- Omnicell had no borrowings under its new $75 million revolving credit facility, which matures in September 2018; it was in compliance with its covenants at quarter-end. The facility includes a $10 million letter-of-credit sublimit and potential commitments increases of up to $25 million.
- Operating lease commitments totaled $43.2 million; near-term commitments to contract manufacturers and suppliers were $7.5 million. The company said cash, operating cash flow and the available facility should cover anticipated working capital and capital expenditures for at least 12 months.
Outlook, commentary and risks
- Management expected 2013 revenue to continue increasing year over year, supported by existing orders and MTS, and expected service revenue and related gross profit to grow with the installed base. R&D was expected to remain relatively flat as a percentage of revenue; SG&A was expected to grow nominally, with efficiencies intended to reduce it relative to revenue over time. No numerical earnings or revenue guidance was provided.
- Revenue recognition on equipment depends on installation, making results sensitive to customer scheduling, installation capacity, order mix and delays. Management also cited the need to meet demand for consumables and maintain product quality.
- In Q1, the company wrote off $1.8 million of capitalized software development costs after changing the Non-Acute Care product roadmap. It also incurred $0.7 million in severance and related reorganization costs and $0.4 million related to accelerated option vesting.
- A putative class action arising from the 2012 theft of a device containing patient medication-dispensing log files was pending. Omnicell intended to defend the matter; it recorded no accrual because management considered a loss reasonably possible but not probable and could not estimate a loss range. Potential privacy-law, indemnification and reputational consequences remain relevant.
- Key disclosed risks include healthcare-provider budget constraints and delayed capital purchases, competitive and pricing pressure, installation delays, dependence on suppliers and timely consumables production, acquisition integration, privacy and regulatory exposure, and compliance with credit-facility covenants.
Important facts for investors to verify
- How much of reported growth reflects underlying demand versus the additional MTS consolidation period, and how segment margins develop.
- Whether operating-expense growth, particularly in SG&A, moderates and supports operating-margin improvement.
- Whether installation timing, backlog conversion and consumables supply support management’s qualitative growth outlook.
- Developments in the patient-information lawsuit and any related regulatory, customer or financial consequences.
- Future cash generation, use of the revolver, and headroom under its financial covenants.