Omnicell, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Omnicell provides medication-management automation, pharmacy technology and related services, and reports as one operating segment.
Financial results and liquidity
Amounts in millions, except per-share data and percentages.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $251.8 | $229.7 | +10% |
| Gross profit / gross margin | $122.3 / 48.6% | $109.6 / 47.7% | Margin +0.9 percentage points |
| Operating income | $19.6 | $12.2 | +61% |
| Net income | $14.1 | $11.3 | +25% |
| Diluted EPS | $0.30 | $0.26 | +$0.04 |
| Cash from operations | $57.4 | $25.2 | +$32.2 |
| Cash, cash equivalents and restricted cash at quarter end | $549.4 | $104.1 | Up $59.5 from year-end 2020 |
- Revenue growth included product revenue of $178.1 million (+5%) and services and other revenue of $73.7 million (+24%). Services growth included $10.9 million from the acquired 340B Link business and growth in the installed base. SaaS, subscription software and technology-enabled services revenue rose to $22.9 million from $10.1 million.
- Operating expenses were $102.7 million (+5%); R&D declined 14% to $16.1 million, while SG&A rose 10% to $86.6 million, primarily reflecting employee-related costs, added headcount and acquisition-related staffing. Interest and other expense increased to $6.7 million, largely due to the convertible notes.
- Cash from operations benefited in part from a $21.7 million increase in deferred revenue and $10.4 million increase in accounts payable, offset by a $17.9 million reduction in accrued compensation and a $15.4 million increase in receivables. Investing cash outflow was $13.1 million, including $8.0 million of software development and $5.1 million of property and equipment purchases.
- At March 31, cash and cash equivalents were $548.1 million; working capital was $611.7 million and the current ratio was 3.1:1. The $500 million revolving facility had no borrowings outstanding, and the company reported compliance with its covenants.
- Convertible senior notes had $575 million principal and a $472.3 million net carrying value; their reported fair value was $816.8 million. The notes bear 0.25% coupon interest and mature in September 2025. The notes became convertible at holders’ option during Q2 2021 after the stock-price conversion condition was met. The company may settle conversions in cash, shares or a combination, at its election.
Material changes and business developments
- Revenue rose 10%, with services growing faster than product revenue. Product revenue growth was attributed primarily to demand for automated dispensing systems; gross margin improved to 48.6% from 47.7%.
- The October 2020 acquisition of 340B Link for $225 million added software-enabled services for eligible healthcare organizations. Its results are included from the acquisition date; Q1 2021 services revenue included $10.9 million from the business.
- Deferred revenue was $127.5 million at quarter end, versus $105.7 million at December 31, 2020. The filing says remaining performance obligations are generally recognized over contract terms, typically no longer than ten years.
- Q1 restructuring expense was $2.0 million, down from $3.6 million a year earlier; $1.2 million remained unpaid at quarter end.
Outlook, risks and contingencies
- The filing does not provide a clear numerical revenue or earnings forecast for 2021. Management said it expects available cash, operating cash flows, employee equity-plan proceeds and credit-facility availability to meet needs for at least the next twelve months, including working capital, capital expenditures, potential acquisitions and other obligations.
- Management described a strategy centered on the “autonomous pharmacy”: integrating automation, intelligence and advanced services on a cloud-based platform. It identified opportunities in point-of-care dispensing, central pharmacy automation, 340B software-enabled services, and retail, institutional and payer markets.
- COVID-19 effects remain uncertain. Management said customers had returned toward pre-pandemic purchasing patterns beginning in Q3 2020, but renewed customer spending delays, implementation constraints, workforce disruption, supplier interruptions or limited customer access to capital could hurt results.
- Legal matters include an Illinois biometric privacy class action and a trade-secret/unfair-competition suit brought by Becton, Dickinson and Company. Omnicell said it intends to defend both; it recorded no material accrual, stating potential losses were not considered probable and any range could not be reasonably estimated or was not deemed material.
- Non-cancelable purchase commitments totaled $82.8 million, of which $78.8 million were expected to be paid in the remainder of 2021. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the strong operating cash flow is sustained, given the contribution from deferred revenue and payables and the timing-related working-capital movements.
- How much future services growth and margin performance depend on 340B Link, subscription offerings and investment in expanded service capacity.
- The potential cash, share dilution and earnings effects if holders convert the notes while they are convertible in Q2 2021; also monitor the notes’ fair value relative to carrying value.
- Developments in the COVID-19 environment, customer installation schedules, supply-chain capacity and healthcare customers’ budgets.
- Updates to the legal matters, purchase commitments and any changes in management’s liquidity assessment or forward outlook.