Omnicell, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filing dated February 27, 2018. The company provides medication and supply automation, analytics, and medication-adherence solutions. Its two segments are Automation and Analytics and Medication Adherence.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $716.2 million | $692.6 million |
| Gross profit / margin | $322.1 million / 45% | $313.8 million / 45% |
| Operating income / margin | $5.8 million / 1% | $6.5 million / 1% |
| Net income | $20.6 million | $0.6 million |
| Diluted EPS | $0.53 | $0.02 |
| Cash from operating activities | $24.8 million | $49.9 million |
- Revenue rose 3%. Product revenue declined 2% to $506.2 million, while service and other revenue increased 20% to $210.0 million.
- Automation and Analytics revenue was $590.4 million, down 1%; Medication Adherence revenue was $125.8 million, up 27%. The latter’s growth included the contribution from Ateb, acquired in December 2016.
- Product bookings increased 5% to $568 million; year-end product backlog rose to $345 million from $301 million.
- Operating margin remained 1%, despite gross margin holding at 45%. Medication Adherence reported an operating loss of $1.6 million, compared with operating income of $6.3 million in 2016.
- FY2017 operating cash flow fell by half. Management cited working-capital outflows, including increases in receivables and inventory.
- Cash and cash equivalents were $32.4 million at year-end, down from $54.5 million. Working capital was $154.6 million; the current ratio was 1.7.
- Debt under the credit facilities totaled $217.0 million before deferred issuance costs ($210.1 million net carrying amount). The company reported covenant compliance. The revolving facility was increased to $315 million in December 2017.
Quarterly results and material changes
- Fourth-quarter 2017 revenue was $197.9 million, versus $172.0 million in Q4 2016. Operating income was $15.7 million, versus an operating loss of $0.2 million; net income was $24.3 million, versus $0.2 million.
- Automation and Analytics product revenue was affected by slower conversion of bookings and backlog to installations as customers transitioned from G4 products to the XT Series. Management said larger deal sizes were occurring, but the conversion process delayed revenue recognition.
- Service revenue growth reflected a larger installed base and higher renewals; Medication Adherence service growth included Ateb.
- The company acquired InPharmics in April 2017 for $5.0 million, net of cash acquired. It also established Centers of Excellence, reduced headcount by about 100 employees (approximately 4%), and closed facilities in Nashville and Slovenia. The restructuring plan cost $4.2 million.
- FY2017 net income included a $13.4 million one-time tax benefit from revaluing deferred tax balances under the Tax Cuts and Jobs Act. The company reported a pretax loss of $0.9 million, so the reported net income should not be viewed as indicative of operating profitability.
Outlook, risks and contingencies
- No specific revenue, earnings, or margin guidance is provided. Management expects to continue investing in differentiated products, new markets, acquisitions and partnerships, and stated that available cash, operating cash flows, and credit availability should meet needs for at least the next 12 months.
- Key execution risks include customer acceptance and timely installation of newer products, lengthy sales cycles, revenue timing tied to installation and customer acceptance, and the shift of some offerings toward subscription revenue.
- Other principal risks include acquisition integration, competition and pricing pressure, healthcare-provider budget constraints, reliance on certain suppliers, cybersecurity and interoperability risks, and foreign exchange and interest-rate exposure. A 1% interest-rate increase was estimated to add approximately $1.2 million in annual interest expense on debt exposed to rate changes.
- A lawsuit filed in January 2018 names the company and Aesynt and includes product-liability and related claims. The company intends to defend the matter; it recorded no accrual because a loss was considered reasonably possible, not probable, and the potential range could not be estimated.
- The company expects to adopt the new revenue-recognition standard using the full retrospective method in 2018. It estimated $19–$20 million of contract acquisition costs, primarily commissions, would be capitalized, with additional adjustments still being finalized.
Most important facts for investors to verify
- Whether XT Series conversions and installation capacity translate backlog and bookings into recognized revenue on schedule.
- Whether operating cash flow recovers as receivables and inventory growth moderate, and how liquidity holds up against debt service and investment needs.
- Whether Medication Adherence returns to operating profitability and whether growth depends materially on acquired businesses.
- The extent to which FY2017 earnings benefited from the one-time tax adjustment and other tax-related items, and the final impact of adopting the revenue standard.
- Any material developments in the lawsuit, acquisition integration, credit-agreement covenant headroom, or customer and supplier concentration.