Omnicell, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Omnicell supplies medication and medical-surgical supply automation, analytics, and medication-adherence solutions to healthcare providers and pharmacies.
Financial performance
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Revenue | $692.6 million | $484.6 million | +43% |
| Gross profit / margin | $313.8 million / 45% | $247.9 million / 51% | Margin down 6 percentage points |
| Operating income / margin | $6.5 million / 1% | $48.6 million / 10% | Down 87% |
| Net income | $0.6 million | $30.8 million | Down 98% |
| Diluted EPS | $0.02 | $0.84 | Down $0.82 |
| Cash provided by operations | $47.9 million | $33.8 million | Up $14.2 million |
- Revenue growth was acquisition-led: Aesynt contributed $155.8 million of revenue after its January 2016 acquisition; Ateb contributed $1.7 million after its December acquisition. Product bookings increased 38% to $541 million, and backlog rose to $301 million from $205 million.
- Automation and Analytics revenue was $593.6 million, up 52%; Medication Adherence revenue was $99.0 million, up 5%. Automation and Analytics operating income fell to $84.1 million from $104.3 million; Medication Adherence operating income increased to $6.3 million from $5.3 million.
- Margin pressure reflected acquired businesses’ lower margins, product mix, and acquisition-related fair-value amortization and inventory step-up costs. Operating expenses also rose substantially, including R&D to $57.8 million and SG&A to $249.5 million.
- Fourth-quarter revenue was $172.0 million versus $130.3 million a year earlier. Fourth-quarter gross profit was $74.3 million; operating loss was $0.2 million and net income was $0.2 million. The filing does not provide a clear comparable Q4 2015 explanation of the year-over-year drivers.
Liquidity, debt, and cash flows
- Cash and cash equivalents were $54.5 million at year-end, down from $82.2 million. Working capital was $134.5 million versus $139.5 million; the current ratio declined to 1.7 from 2.1.
- Gross borrowings under the secured credit facilities were $260.5 million ($192.5 million term loan and $68.0 million revolver); debt net of issuance costs was $254.1 million. The company reported $5.3 million of cash interest paid and compliance with credit covenants at year-end.
- Operating cash flow was $47.9 million. Investing cash outflow was $341.3 million, including $312.2 million for Aesynt and Ateb; financing cash inflow was $265.7 million, largely from debt proceeds.
- Management said cash, expected operating cash flows, and available credit were sufficient for at least the next 12 months. The credit agreement includes a maximum leverage ratio of 3.00:1 and minimum fixed-charge coverage ratio of 1.50:1.
Material changes, outlook, and risks
- Aesynt was acquired for $271.5 million net of cash; Ateb for $40.7 million net of cash. Acquisitions materially expanded the product portfolio and increased reported goodwill and intangible assets. Year-end goodwill and intangible assets totaled approximately $518 million.
- Management expected revenue to increase in 2017 as backlog is installed, and intended to manage operating margins at levels similar to 2016. It expected R&D expense to increase, SG&A as a percentage of revenue to remain stable, and no significant gross-margin fluctuations beyond normal product-mix changes.
- In February 2017, the company announced Centers of Excellence and a workforce reduction of approximately 100 employees, about 4% of headcount, including closures of the Nashville office and Slovenia manufacturing facility. It expected approximately $8 million of restructuring expense in 2017.
- 2016 included a $2.6 million income tax benefit despite a pretax loss of $1.9 million; the reported effective tax rate was 131%. The company cited an IRS settlement and reserve releases, among other items. A $0.6 million contingent-consideration gain also reduced expense.
- Key risks include acquisition integration and anticipated synergies, debt service and covenant compliance, weaker margins, installation delays that defer revenue recognition, customer capital-budget constraints, competition, product adoption and execution, supplier concentration, cybersecurity and privacy, and foreign-exchange exposure. A 1-percentage-point interest-rate increase was estimated to add $1.6 million of annual interest expense on exposed debt.
- Legal proceedings were described as reasonably possible but not probable; no accrual was recorded, and any loss range could not be reasonably estimated. Management stated it was not party to proceedings believed to have a material effect on financial position or results.
Investor verification priorities
- Separate organic growth from acquired revenue and verify the durability of bookings, backlog conversion, and installation capacity.
- Track whether acquired-business integration improves Automation and Analytics margins and whether acquisition-related amortization and other costs normalize.
- Review debt repayment, borrowing availability, interest-rate exposure, and covenant headroom as operating profitability remains low.
- Assess execution and costs of the 2017 restructuring and Centers of Excellence, including any disruption to product development, manufacturing, or customer service.
- Verify the assumptions supporting acquired goodwill and intangible values, and monitor for impairment indicators.
- Review the full financial statements and notes for acquisition accounting, cash conversion, tax benefits and uncertain tax positions, lease commitments, and legal contingencies.