Omnicell, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited fourth-quarter results. Omnicell supplies medication and medical-supply automation, analytics, and medication-adherence packaging solutions to healthcare providers.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $314.0 million | $245.5 million |
| Gross profit / margin | $170.6 million / 54.3% | $135.8 million / 55.3% |
| Operating income / margin | $27.1 million / 8.6% | $16.2 million / 6.6% |
| Net income | $16.2 million | $10.4 million |
| Diluted EPS | $0.47 | $0.30 |
| Cash from operations | $39.5 million | $31.2 million |
Revenue increased 27.9%; product revenue rose 33.2% and service and other revenue rose 11.2%. Gross margin declined by 1.0 percentage point, primarily due to the lower margins of the acquired Non-Acute Care business. The effective tax rate was 40.25%, versus 35.4% in 2011.
Fourth-quarter revenue was $90.2 million, compared with $62.9 million in Q4 2011. Operating income was $9.8 million versus $6.2 million; net income was $5.5 million versus $4.1 million; diluted EPS was $0.16 versus $0.12.
Liquidity, cash flow, and obligations
Cash and cash equivalents were $62.3 million at year-end, down from $191.8 million; short-term investments were zero, versus $8.1 million in 2011. Operating cash flow was positive at $39.5 million. Investing cash outflow was $168.7 million, principally reflecting the MTS acquisition; financing cash outflow was $0.2 million. Current assets were $180.8 million and current liabilities $83.1 million, a current ratio of approximately 2.2.
The filing does not present conventional borrowings as a separate balance-sheet debt item. It reports $45.6 million of operating lease commitments and $7.1 million of commitments to contract manufacturers and suppliers. Management said existing cash and anticipated operating cash flow should meet needs for at least the next 12 months. No off-balance-sheet arrangements were reported.
Material changes and business developments
- Omnicell acquired MedPak, parent of MTS Medication Technologies, on May 21, 2012, for approximately $158.3 million in cash. MTS added medication packaging products and the Non-Acute Care segment. From acquisition through year-end, MTS contributed approximately $47.2 million in revenue and $2.9 million in net income.
- FY 2012 segment revenue was $260.2 million for Acute Care and $53.9 million for Non-Acute Care. Segment operating income was $21.1 million and $6.0 million, respectively. Non-Acute Care results include MTS only from the acquisition date.
- Year-end backlog increased to $155 million from $134 million. Management described the expected operating backlog as approximately six to nine months, with variation possible.
- The acquisition increased goodwill to $111.4 million and finite-lived intangible assets to $85.6 million. Purchase-price allocation remained preliminary, including unresolved potential contingent payroll-tax withholding obligations.
Outlook, risks, and unusual items
Management expected revenue to increase significantly in 2013, citing a full year of MTS contribution, fulfillment of backlog, and customer upgrades to the G4 platform. It expected positive operating cash flow, R&D spending to rise but remain relatively flat as a share of revenue, and SG&A as a share of revenue to stabilize and decline. No specific EPS or revenue target was provided.
- Demand depends partly on healthcare customers’ capital budgets; economic weakness, healthcare reform uncertainty, and lengthy purchasing and installation cycles can delay orders and revenue recognition.
- Competition, product acceptance, interoperability with hospital information systems, supplier concentration, and execution of the MTS integration could affect results. Consumable packaging demand is time-sensitive.
- In November 2012, an employee’s stolen device contained medication-dispensing log files with protected health information from three health-system customers. The company cited possible indemnification, reputational, demand, and HIPAA penalty exposure; the filing does not quantify a loss or liability.
- Omnicell reported no legal proceedings management believed would materially affect financial position or results. It reported effective disclosure controls and internal financial controls, but the internal-control assessment excluded MTS.
- Acquisition-related items included $3.2 million of acquisition costs and approximately $1.7 million of acquired-inventory step-up charges. The 2012 tax provision did not include the federal R&D credit; management expected a $0.6–$0.8 million benefit in Q1 2013 after the credit’s retroactive extension.
Important facts for investors to verify
- Whether the expected 2013 growth materialized and how much came from organic growth versus the full-year MTS contribution.
- Integration progress, final MTS purchase-price allocation, and performance of the Non-Acute Care segment given its lower gross margin.
- Backlog conversion, installation timing, and whether the six-to-nine-month backlog objective was sustained.
- Cash generation and liquidity after the acquisition, including lease obligations and remaining share-repurchase authorization of $50 million.
- Any financial, regulatory, customer, or reputational consequences from the disclosed protected-health-information incident.