Omnicell Achieves Record Revenue in the Third Quarter 2018

Q4'18

2018

Product bookings

Not provided

$645 million  - $670 million

Non-GAAP revenues

$211 million  - $217 million

$787 million  - $793 million

Non-GAAP EPS

$0.64  - $0.69

$2.00  - $2.05

a) 

Share-based compensation expense. We excluded from our non-GAAP results the expense related to equity-based compensation plans as they represent expenses that do not require cash settlement from Omnicell.

b) 

Amortization of acquired intangible assets. We excluded from our non-GAAP results the intangible assets amortization expense resulting from our past acquisitions. These non-cash charges are not considered by management to reflect the core cash-generating performance of the business and therefore are excluded from our non-GAAP results.

c)

Amortization of debt issuance cost. Debt issuance cost represents costs associated with the issuance of Term Loan and Revolving Line of Credit facilities. The cost includes underwriting fees, original issue discount, ticking fee, and legal fees. This non-cash expense is not considered by management to reflect the core cash-generating performance of the business and therefore is excluded from our non-GAAP results.

d)

Acquisition accounting impact related to deferred revenues. In connection with recent acquisitions, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post-installation support has not been provided in our purchase accounting. The non-GAAP adjustment to our revenues is intended to include the full amounts of such revenues. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business.

e) 

Acquisition-related expenses. We excluded from the non-GAAP results the expenses which are related to recent acquisitions. These expenses are unrelated to our ongoing operations, and we do not expect them to occur in the ordinary course of business. We believe that excluding these acquisition-related expenses provides more meaningful comparisons of the financial results to our historical operations and forward-looking guidance and the financial results of less acquisitive peer companies.

f) 

Severance and other related expenses. We excluded from our non-GAAP results the expenses which are related to restructuring events. These expenses are unrelated to our ongoing operations, and we do not expect them to occur in the ordinary course of business. We believe that excluding these expenses provides more meaningful comparisons of the financial results to our historical operations and forward-looking guidance, and the financial results of peer companies.

g)  

Tax impact from restructuring activity. We excluded from our non-GAAP results the tax impacts related to restructuring activity. These impacts are unrelated to our ongoing operations, and we do not expect them to occur in the ordinary course of business. We believe that excluding these impacts provides more meaningful comparisons of the financial results to our historical operations and forward-looking guidance, and the financial results of peer companies.

h)  

Contingent gain. We excluded from our non-GAAP results the contingent gain related to a settlement agreement associated with the Ateb acquisition. This contingent gain is unrelated to our ongoing operations, and we do not expect it to occur in the ordinary course of business. We believe that excluding this contingent gain provides more meaningful comparisons of the financial results to our historical operations and forward-looking guidance, and the financial results of peer companies.

a)  

Such non-GAAP financial measures provide an additional analytical tool for understanding Omnicell's financial performance by excluding the impact of items which may obscure trends in the core operating results of the business.

b) 

Since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency and enhances investors' ability to compare our performance across financial reporting periods.

c)

These non-GAAP financial measures are employed by Omnicell's management in its own evaluation of performance and are utilized in financial and operational decision making processes, such as budget planning and forecasting.

d) 

These non-GAAP financial measures facilitate comparisons to the operating results of other companies in our industry, which use similar financial measures to supplement their GAAP results, thus enhancing the perspective of investors who wish to utilize such comparisons in their analysis of our performance.

i) 

While share-based compensation calculated in accordance with Accounting Standard Codification ("ASC") 718 constitutes an ongoing and recurring expense of Omnicell, it is not an expense that requires cash settlement by Omnicell. We therefore exclude these charges for purposes of evaluating core operating results. Thus, our non-GAAP measurements are presented exclusive of share-based compensation expense to assist management and investors in evaluating our core operating results.

ii) 

We present ASC 718 share-based payment compensation expense in our reconciliation of non-GAAP financial measures on a pre-tax basis because the exact tax differences related to the timing and deductibility of share-based compensation under ASC 718 are dependent upon the trading price of Omnicell's common stock and the timing and exercise by employees of their stock options. As a result of these timing and market uncertainties, the tax effect related to share-based compensation expense would be inconsistent in amount and frequency and is therefore excluded from our non-GAAP results.

a)

Omnicell's stock option and stock purchase plans are important components of incentive compensation arrangements and will be reflected as expenses in Omnicell's GAAP results for the foreseeable future under ASC 718.

b)

Other companies, including companies in Omnicell's industry, may calculate non-GAAP financial measures differently than Omnicell, limiting their usefulness as a comparative measure.

Omnicell, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

Three Months Ended

September 30, 2018

September 30, 2017

As Adjusted*

As Reported

Change

Revenues:

Product revenues

$

149,709

$

136,838

$

135,103

$

1,735

Services and other revenues

54,558

49,910

51,679

(1,769)

Total revenues

204,267

186,748

186,782

(34)

Cost of revenues:

Cost of product revenues

79,149

79,725

79,725

—

Cost of services and other revenues

26,209

22,204

22,204

—

Total cost of revenues

105,358

101,929

101,929

—

Gross profit

98,909

84,819

84,853

(34)

Operating expenses:

Research and development

15,805

16,414

16,414

—

Selling, general, and administrative

65,609

56,208

58,725

(2,517)

Total operating expenses

81,414

72,622

75,139

(2,517)

Income from operations

17,495

12,197

9,714

2,483

Interest and other income (expense), net

(2,837)

(2,732)

(2,732)

—

Income before provision for income taxes

14,658

9,465

6,982

2,483

Provision for income taxes

1,030

1,717

751

966

Net income

$

13,628

$

7,748

$

6,231

$

1,517

Net income per share:

Basic

$

0.35

$

0.21

$

0.17

$

0.04

Diluted

$

0.33

$

0.20

$

0.16

$

0.04

Weighted average shares outstanding:

Basic

39,432

37,698

37,698

Diluted

40,860

38,973

38,973

* 

As adjusted for full retrospective adoption of Accounting Standard Codification ("ASC") 606, "Revenue from Contracts with Customers." The adjustment also includes a $0.2 million reclassification from services and other revenues to product revenues to conform with current-period presentation.

Omnicell, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

Nine Months Ended

September 30,
2018 ^(a)

September 30, 2017

As Adjusted ^(b)

As Reported

Change

Revenues:

Product revenues

$

415,004

$

365,834

$

362,089

$

3,745

Services and other revenues

160,555

150,509

156,132

(5,623)

Total revenues

575,559

516,343

518,221

(1,878)

Cost of revenues:

Cost of product revenues

229,642

225,051

225,051

—

Cost of services and other revenues

75,770

66,150

66,150

—

Total cost of revenues

305,412

291,201

291,201

—

Gross profit

270,147

225,142

227,020

(1,878)

Operating expenses:

Research and development

47,854

50,128

50,128

—

Selling, general, and administrative

196,831

180,070

186,818

(6,748)

Total operating expenses

244,685

230,198

236,946

(6,748)

Income (loss) from operations

25,462

(5,056)

(9,926)

4,870

Interest and other income (expense), net

(6,462)

(4,992)

(4,992)

—

Income (loss) before provision for income taxes

19,000

(10,048)

(14,918)

4,870

Provision for (benefit from) income taxes

(3,936)

(9,341)

(11,232)

1,891

Net income (loss)

$

22,936

$

(707)

$

(3,686)

$

2,979

Net income (loss) per share:

Basic

$

0.59

$

(0.02)

$

(0.10)

$

0.08

Diluted

$

0.57

$

(0.02)

$

(0.10)

$

0.08

Weighted average shares outstanding:

Basic

39,015

37,266

37,266

Diluted

40,237

37,266

37,266

^(a)

Includes a $0.6 million reclassification from services and other revenues to product revenues to conform with current-period presentation.

^(b)

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers." The adjustment also includes a $0.5 million reclassification from services and other revenues to product revenues to conform with current-period presentation.

Omnicell, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

September 30, 2018

December 31, 2017

As Adjusted*

As Reported

Change

ASSETS

Current assets:

Cash and cash equivalents

$

44,174

$

32,424

$

32,424

$

—

Accounts receivable and unbilled, net

206,225

190,046

189,227

819

Inventories

99,231

96,137

96,137

—

Prepaid expenses

19,618

20,392

36,060

(15,668)

Other current assets

9,871

13,273

13,273

—

Total current assets

379,119

352,272

367,121

(14,849)

Property and equipment, net

50,484

42,595

42,595

—

Long-term investment in sales-type leases, net

17,448

15,435

15,435

—

Goodwill

336,517

337,751

337,751

—

Intangible assets, net

149,968

168,107

168,107

—

Long-term deferred tax assets

9,450

9,454

9,454

—

Prepaid commissions

40,441

41,432

—

41,432

Other long-term assets

68,948

49,316

39,841

9,475

Total assets

$

1,052,375

$

1,016,362

$

980,304

$

36,058

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

38,367

$

48,290

$

48,290

$

—

Accrued compensation

32,953

27,241

27,241

—

Accrued liabilities

35,777

35,693

35,693

—

Long-term debt, current portion, net

17,708

15,208

15,208

—

Deferred revenues, net

87,777

78,774

86,104

(7,330)

Total current liabilities

212,582

205,206

212,536

(7,330)

Long-term, deferred revenues

10,634

10,623

17,244

(6,621)

Long-term deferred tax liabilities

32,593

41,446

28,579

12,867

Other long-term liabilities

10,192

9,829

9,829

—

Long-term debt, net

167,135

194,917

194,917

—

Total liabilities

433,136

462,021

463,105

(1,084)

Total stockholders' equity

619,239

554,341

517,199

37,142

Total liabilities and stockholders' equity

$

1,052,375

$

1,016,362

$

980,304

$

36,058

*

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers."

Omnicell, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Nine months ended September 30,

2018

2017*

Operating Activities

Net income (loss)

$

22,936

$

(707)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

37,490

38,542

Loss on disposal of fixed assets

136

128

Share-based compensation expense

20,851

16,315

Income tax benefits from employee stock plans

—

11

Deferred income taxes

(8,849)

(9,182)

Amortization of debt financing fees

1,718

1,192

Changes in operating assets and liabilities:

Accounts receivable and unbilled

(16,179)

(22,735)

Inventories

(5,288)

(22,942)

Prepaid expenses

774

(972)

Other current assets

3,120

(5,133)

Investment in sales-type leases

(1,732)

6,643

Prepaid commissions

991

217

Other long-term assets

(6,188)

(750)

Accounts payable

(8,439)

23,717

Accrued compensation

5,712

658

Accrued liabilities

1,482

4,021

Deferred revenues

9,014

(9,240)

Other long-term liabilities

(1,035)

865

Net cash provided by operating activities

56,514

20,648

Investing Activities

Purchases of intangible assets, intellectual property, and patents

—

(160)

Software development for external use

(22,213)

(10,121)

Purchases of property and equipment

(19,259)

(9,374)

Business acquisition, net of cash acquired

—

(4,446)

Net cash used in investing activities

(41,472)

(24,101)

Financing Activities

Proceeds from debt

—

37,000

Repayment of debt and revolving credit facility

(27,000)

(100,000)

Payment for contingent consideration

—

(2,400)

Proceeds from issuances under stock-based compensation plans

27,729

26,468

Employees' taxes paid related to restricted stock units

(3,648)

(3,133)

Net cash used in financing activities

(2,919)

(42,065)

Effect of exchange rate changes on cash and cash equivalents

(373)

(1,504)

Net increase (decrease) in cash and cash equivalents

11,750

(47,022)

Cash and cash equivalents at beginning of period

32,424

54,488

Cash and cash equivalents at end of period

$

44,174

$

7,466

* 

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers."

Omnicell, Inc.

Reconciliation of GAAP to Non-GAAP

(Unaudited, in thousands, except per share data and percentage)

Three Months Ended

Nine Months Ended

September 30,
 2018

September 30,

2017*

September 30,
 2018

September 30,
2017*

Reconciliation of GAAP revenues to non-GAAP revenues:

GAAP revenues

$

204,267

$

186,748

$

575,559

$

516,343

Acquisition accounting impact related to deferred revenues

—

313

—

939

Non-GAAP revenues

$

204,267

$

187,061

$

575,559

$

517,282

Reconciliation of GAAP gross profit to non-GAAP gross profit:

GAAP gross profit

$

98,909

$

84,819

$

270,147

$

225,142

GAAP gross margin

48.4

%

45.4

%

46.9

%

43.6

%

Share-based compensation expense

1,150

882

3,346

2,728

Amortization of acquired intangibles

2,728

2,985

8,275

8,670

Acquisition accounting impact related to deferred revenues

—

313

—

939

Severance and other expenses

—

70

—

1,767

Non-GAAP gross profit

$

102,787

$

89,069

$

281,768

$

239,246

Non-GAAP gross margin

50.3

%

47.6

%

49.0

%

46.3

%

Reconciliation of GAAP operating expenses to non-GAAP operating expenses:

GAAP operating expenses

$

81,414

$

72,622

$

244,685

$

230,198

GAAP operating expenses % to total revenues

39.9

%

38.9

%

42.5

%

44.6

%

Share-based compensation expense

(5,935)

(4,377)

(17,505)

(13,587)

Amortization of acquired intangibles

(3,029)

(3,381)

(9,393)

(10,660)

Acquisition-related expenses

—

—

—

(126)

Severance and other expenses

67

(229)

(3,180)

(3,531)

Non-GAAP operating expenses

$

72,517

$

64,635

$

214,607

$

202,294

Non-GAAP operating expenses % to total revenues

35.5

%

34.6

%

37.3

%

39.1

%

* 

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers."

Three Months Ended

Nine Months Ended

September 30,
 2018

September 30,
2017*

September 30,
 2018

September 30,
2017*

Reconciliation of GAAP income (loss) from operations to non-GAAP income (loss) from operations:

GAAP income (loss) from operations

$

17,495

$

12,197

$

25,462

$

(5,056)

GAAP operating income (loss) % to total revenues

8.6

%

6.5

%

4.4

%

(1.0)

%

Share-based compensation expense

7,085

5,259

20,851

16,315

Amortization of acquired intangibles

5,757

6,366

17,668

19,330

Acquisition accounting impact related to deferred revenues

—

313

—

939

Acquisition-related expenses

—

—

—

126

Severance and other expenses

(67)

299

3,180

5,298

Non-GAAP income from operations

$

30,270

$

24,434

$

67,161

$

36,952

Non-GAAP operating income % to total Non-GAAP revenues

14.8

%

13.1

%

11.7

%

7.1

%

Reconciliation of GAAP net income (loss) to non-GAAP net income:

GAAP net income (loss)

$

13,628

$

7,748

$

22,936

$

(707)

Tax benefit for restructuring activity

—

—

(4,205)

—

Share-based compensation expense

7,085

5,259

20,851

16,315

Amortization of acquired intangibles

5,757

6,366

17,668

19,330

Acquisition accounting impact related to deferred revenues

—

313

—

939

Acquisition-related expenses^(a)

397

397

1,191

1,317

Severance and other expenses

109

299

3,708

5,298

Contingent gain

—

—

(2,456)

—

Tax effect of the adjustments above^(b)

(1,315)

(2,579)

(4,222)

(9,415)

Non-GAAP net income

$

25,661

$

17,803

$

55,471

$

33,077

Reconciliation of GAAP net income (loss) per share - diluted to non-GAAP net income per share - diluted:

Shares - diluted GAAP

40,860

38,973

40,237

37,266

Shares - diluted Non-GAAP

40,860

38,973

40,237

38,418

GAAP net income (loss) per share - diluted

$

0.33

$

0.20

$

0.57

$

(0.02)

Tax benefit for restructuring activity

—

—

(0.10)

—

Share-based compensation expense

0.17

0.14

0.52

0.43

Amortization of acquired intangibles

0.15

0.16

0.43

0.50

Acquisition accounting impact related to deferred revenues

—

0.01

—

0.02

Acquisition-related expenses

0.01

0.01

0.03

0.03

Severance and other expenses

—

0.01

0.09

0.14

Contingent gain

—

—

(0.06)

—

Tax effect of the adjustments above^(b)

(0.03)

(0.07)

(0.10)

(0.24)

Non-GAAP net income per share - diluted

$

0.63

$

0.46

$

1.38

$

0.86

Reconciliation of GAAP net income (loss) to non-GAAP Adjusted EBITDA^(c):

GAAP net income (loss)

$

13,628

$

7,748

$

22,936

$

(707)

Share-based compensation expense

7,085

5,259

20,851

16,315

Interest (income) and expense, net

1,561

2,127

4,948

4,870

Depreciation and amortization expense

12,661

12,600

37,490

38,542

Acquisition accounting impact related to deferred revenues

—

313

—

939

Acquisition-related expenses

397

397

1,191

1,317

Severance and other expenses

109

46

3,708

4,539

Contingent gain

—

—

(2,456)

—

Income tax expense (benefit)

1,030

1,717

(3,936)

(9,341)

Non-GAAP Adjusted EBITDA

$

36,471

$

30,207

$

84,732

$

56,474

^(a)

Includes amortization of debt financing fees associated with our debt facilities.

^(b)

Tax effects calculated for all adjustments except tax benefits and share-based compensation expense, using an estimated annual effective tax rate of 21% for fiscal year 2018 and 35% for fiscal year 2017.

^(c)

Defined as earnings before interest income and expense, taxes, depreciation and amortization, as well as excluding certain non-GAAP adjustments.

Omnicell, Inc.

Segmented Information

(Unaudited, in thousands, except for percentages)

Three Months Ended September 30, 2018

Three Months Ended September 30, 2017

Automation and
Analytics

Medication
Adherence

Total

Automation and

Analytics*

Medication

Adherence

Total*

Revenues

$

168,303

$

35,964

$

204,267

$

154,617

$

32,131

$

186,748

Cost of revenues

77,172

28,186

105,358

79,740

22,189

101,929

Gross profit

91,131

7,778

98,909

74,877

9,942

84,819

Gross margin %

54.1

%

21.6

%

48.4

%

48.4

%

30.9

%

45.4

%

Operating expenses

46,015

10,624

56,639

44,332

9,901

54,233

Income (loss) from segment operations

$

45,116

$

(2,846)

$

42,270

$

30,545

$

41

$

30,586

Operating margin %

26.8

%

(7.9)

%

20.7

%

19.8

%

0.1

%

16.4

%

Corporate costs

24,775

18,389

Income from operations

$

17,495

$

12,197

* 

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers."

Omnicell, Inc.

Segmented Information

(Unaudited, in thousands, except for percentages)

Nine Months Ended September 30, 2018

Nine Months Ended September 30, 2017

Automation and
Analytics

Medication
Adherence

Total

Automation and

Analytics*

Medication

Adherence

Total*

Revenues

$

478,074

$

97,485

$

575,559

$

425,371

$

90,972

$

516,343

Cost of revenues

234,100

71,312

305,412

229,217

61,984

291,201

Gross profit

243,974

26,173

270,147

196,154

28,988

225,142

Gross margin %

51.0

%

26.8

%

46.9

%

46.1

%

31.9

%

43.6

%

Operating expenses

142,572

31,119

173,691

139,902

31,196

171,098

Income (loss) from segment operations

$

101,402

$

(4,946)

$

96,456

$

56,252

$

(2,208)

$

54,044

Operating margin %

21.2

%

(5.1)

%

16.8

%

13.2

%

(2.4)

%

10.5

%

Corporate costs

70,994

59,100

Income (loss) from operations

$

25,462

$

(5,056)

* 

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers."

Omnicell, Inc.

Segment Information - Non-GAAP Gross Profit and Non-GAAP Operating Margin

(Unaudited, in thousands, except for percentages)

Three Months Ended September 30, 2018

Automation and
Analytics

Medication
Adherence

Total

Amount

% of
GAAP
Revenues

% of Non-
GAAP
Revenues

Amount

% of
GAAP
Revenues

% of Non-
GAAP
Revenues

Amount

% of
GAAP
Revenues

% of Non-
GAAP
Revenues

Revenues

$

168,303

$

35,964

$

204,267

Non-GAAP Revenues

$

168,303

$

35,964

$

204,267

GAAP Gross profit

$

91,131

54.1

%

$

7,778

21.6

%

$

98,909

48.4

%

Share-based compensation expense

963

0.6

%

0.6

%

187

0.5

%

0.5

%

1,150

0.6

%

0.6

%

Amortization expense of acquired intangible assets

2,223

1.3

%

1.3

%

505

1.4

%

1.4

%

2,728

1.3

%

1.3

%

Non-GAAP Gross profit

$

94,317

56.0

%

$

8,470

23.6

%

$

102,787

50.3

%

GAAP Operating income (loss)

$

45,116

26.8

%

$

(2,846)

(7.9)

%

$

42,270

20.7

%

Share-based compensation expense

3,111

1.8

%

1.8

%

561

1.6

%

1.6

%

3,672

1.8

%

1.8

%

Amortization expense of acquired intangible assets