Omnicell, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited. Omnicell provides medication and supply dispensing automation, pharmacy automation, analytics software, and medication-adherence solutions. Effective January 1, 2019, the company began reporting as one operating segment following an organizational realignment.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $228.8 million | $204.3 million | $648.7 million | $575.6 million |
| Gross profit / margin | $112.1 million / 49% | $98.9 million / 48% | $313.3 million / 48% | $270.1 million / 47% |
| Operating income | $24.6 million | $17.5 million | $56.2 million | $25.5 million |
| Net income | $20.0 million | $13.6 million | $39.2 million | $22.9 million |
| Diluted EPS | $0.46 | $0.33 | $0.92 | $0.57 |
- Q3 revenue rose 12%; nine-month revenue rose 13%. Product revenue grew 13% in Q3 and 14% year to date, principally from Automated Dispensing Cabinet demand, including XT series growth. Services revenue increased 11% and 10%, respectively, supported by renewals and a larger installed base.
- Management attributed improved gross margin to XT manufacturing ramp efficiencies, economies of scale, and product mix. Operating expenses rose 7% in Q3 and 5% year to date, reflecting growth, consulting and employee costs, and higher commissions.
- Nine-month income taxes were $12.7 million, compared with a $3.9 million tax benefit in 2018. The 2019 period included a $9.6 million discrete tax expense related to an intellectual-property transfer and an $8.1 million equity-compensation tax benefit; 2018 included a $4.2 million tax benefit from a tax election and a $4.8 million equity-compensation benefit.
Cash, liquidity, debt, and other balance-sheet items
- Cash and cash equivalents were $137.3 million at September 30, 2019, versus $67.2 million at year-end 2018. Working capital was $248.9 million; the current ratio was 2.1:1.
- Nine-month operating cash flow was $110.2 million, up from $56.5 million. Investing cash outflow was $46.8 million, including $34.1 million for externally marketed software development and $12.6 million for property and equipment. Cash increased by $70.1 million during the period.
- Debt under the credit facilities was $80.0 million gross ($77.1 million net of financing costs), down from $140.0 million gross at December 31, 2018 after $60.0 million of repayments. No revolving-credit borrowings were outstanding; the company reported covenant compliance. The facilities mature in January 2021.
- Operating lease liabilities were $63.0 million, recognized following adoption of the new lease standard. The standard added right-of-use assets and lease liabilities but did not affect opening equity or previously reported operating results and cash flows.
- The company raised $38.5 million gross through its at-the-market share offering during the first nine months, selling approximately 460,000 shares; no shares were sold in Q3. Approximately $31.5 million remained available under the offering.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided in the supplied filing text. Management said existing cash, expected operating cash flows, employee-plan proceeds, and credit availability should meet cash needs for at least the next 12 months.
- Management’s strategy centers on the Autonomous Pharmacy vision, continued product development, expansion into new markets, and acquisitions or partnerships. It identified customer orders, manufacturing quality and supply, installation capacity and timing, and customer implementation experience as important to revenue growth.
- Key disclosed risks include lengthy or delayed installations that can defer revenue recognition; adoption and execution risks for new products and subscription offerings; customer capital-spending constraints; competition; supplier and inventory risks; foreign-exchange and tariff exposure; cybersecurity, privacy, and regulatory risks; and debt covenants and refinancing exposure.
- Legal matters include a securities class action alleging misleading statements about revenue recognition, implementation concerns, and inventory; a BIPA class action; and a product-liability suit. The company reported no accrual for the described proceedings because losses were considered reasonably possible, not probable, and said potential losses could not be reasonably estimated. It also disclosed an SEC request for information about accounting processes and procedures, and said it was cooperating.
- Purchase commitments totaled $75.3 million, including $57.1 million expected to be paid in the remainder of 2019. The company reported no off-balance-sheet arrangements. Foreign-currency translation reduced other comprehensive income during the period.
Important facts for investors to verify
- Review subsequent developments in the SEC inquiry and the securities, BIPA, and product-liability cases, including potential financial or operational consequences.
- Assess whether XT-series demand, installation throughput, and customer acceptance support continued growth and margin improvement.
- Track operating cash conversion, receivables and inventory, capitalized software spending, and the sustainability of the increase in operating cash flow.
- Monitor debt repayment and refinancing before the January 2021 facility maturity, covenant compliance, and the effect of lease obligations on fixed commitments.
- Evaluate tax-rate comparability and the effects of discrete tax items, equity issuance, and share-based compensation on per-share results and dilution.