Omnicell, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015, with unaudited fourth-quarter results. Omnicell provides medication and supply automation, analytics, and medication-adherence products and services to healthcare providers and pharmacies. The business reports two segments: Automation and Analytics and Medication Adherence.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $484.6 million | $440.9 million |
| Gross profit / margin | $247.9 million / 51% | $233.9 million / 53% |
| Income from operations | $48.6 million | $49.6 million |
| Net income | $30.8 million | $30.5 million |
| Diluted EPS | $0.84 | $0.83 |
| Cash from operating activities | $33.8 million | $65.2 million |
Revenue grew 10%, while gross margin declined about 2 percentage points and operating income slipped about 2%. Product revenue rose 8% to $388.4 million; service and other revenue rose 19% to $96.2 million. Product bookings increased 8% to $392.3 million. International sales represented 17% of revenue, compared with 11% in 2014.
Automation and Analytics generated $390.3 million in revenue and $104.3 million in segment operating income; Medication Adherence generated $94.2 million and $5.3 million, respectively. These segment operating results exclude corporate costs, which were $61.0 million. Medication Adherence gross margin fell to 31% from 36%; Automation and Analytics gross margin was 56% versus 57%.
Fourth quarter: Revenue was $130.3 million, gross profit $65.1 million, operating income $12.0 million, net income $7.7 million, and diluted EPS $0.21. In Q4 2014, the comparable amounts were $121.5 million, $63.8 million, $13.5 million, $9.2 million, and $0.25, respectively.
Liquidity, cash flow and debt
At December 31, 2015, cash and cash equivalents were $82.2 million, working capital was $139.5 million, and the current ratio was 2.1:1. Cash declined $43.7 million during the year. Operating cash flow fell to $33.8 million, with increases in receivables and inventory among the principal cash uses. Investing activities used $45.6 million, including $25.5 million for acquisitions; financing activities used $31.8 million, including $50.0 million for share repurchases. No borrowings were outstanding under the then-existing facility at year-end.
After year-end, Omnicell completed its Aesynt acquisition on January 5, 2016, for approximately $275 million, including repayment of Aesynt debt and subject to purchase-price adjustments. It funded the transaction with cash and a new secured facility, borrowing $200 million of term loans and $55 million from a $200 million revolving facility. The facility includes a maximum leverage ratio of 3.00:1 and minimum fixed-charge coverage ratio of 1.50:1. These are post-period-end obligations, not December 31, 2015 balance-sheet debt.
Changes, outlook and notable matters
- FY 2015 revenue growth reflected larger Automation and Analytics transactions, service renewals, and contributions from Mach4 and Avantec, acquired in April 2015. Medication Adherence growth included a full year of Surgichem compared with roughly four months in 2014.
- Despite higher revenue, operating income declined slightly. Management cited lower margins at acquired Mach4 and Avantec, and product mix, manufacturing costs and higher operating expenses in Medication Adherence.
- Management expected 2016 revenue to increase from 2015 and planned to manage operating profit margins at levels similar to 2015. It expected R&D spending to rise to approximately 8% of revenue and SG&A as a percentage of revenue to remain stable.
- Aesynt adds central-pharmacy robotics and IV-compounding capabilities, but integration, retention of key personnel, realization of expected benefits, and the added debt are significant execution and financial risks.
- FY 2015 included a $3.4 million gain from revaluing Omnicell’s prior Avantec investment. The company repurchased $50.0 million of stock. The pending MV Circuit patent inventorship and related claims had no recorded accrual because a loss was considered reasonably possible but not probable; the possible loss range was not estimable.
- The company reported that an internal investigation into alleged customer “side-letter” arrangements was concluded with no required financial-statement changes and that internal controls were effective. Management and the auditor excluded Mach4 and Avantec from the respective 2015 internal-control assessments; the auditor issued an unqualified opinion on the financial statements and on controls within the scope of its audit.
Investor verification points
- Review Aesynt’s final purchase-price allocation, integration costs and operating contribution, along with debt repayment, interest expense and covenant headroom.
- Track whether bookings convert to installed revenue on schedule; equipment revenue depends on installation and customer acceptance, and installation timing can be lengthy.
- Investigate the causes and sustainability of the cash-flow decline and increases in accounts receivable and inventory.
- Assess whether Medication Adherence margins stabilize and whether acquired operations deliver expected growth and efficiencies.
- Follow the status and potential exposure of the MV Circuit litigation, and monitor internal-control integration at acquired businesses.