Omnicell Announces Second Quarter 2018 Results

Q3'18

Total Year 2018

Product Bookings

Not provided

$630 million - $665 million

Non-GAAP Revenues

$200 million - $206 million

$780 million - $800 million

Non-GAAP EPS

$0.52 - $0.57

$1.90 - $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

June 30, 2018

June 30, 2017

As Adjusted*

As Reported

Change

Revenues:

Product revenues

$

134,636

$

130,205

$

128,056

$

2,149

Services and other revenues

54,037

50,837

52,829

(1,992)

Total revenues

188,673

181,042

180,885

157

Cost of revenues:

Cost of product revenues

75,076

81,738

81,738

—

Cost of services and other revenues

24,814

21,172

21,172

—

Total cost of revenues

99,890

102,910

102,910

—

Gross profit

88,783

78,132

77,975

157

Operating expenses:

Research and development

15,512

16,911

16,911

—

Selling, general, and administrative

65,937

61,922

63,468

(1,546)

Total operating expenses

81,449

78,833

80,379

(1,546)

Income (loss) from operations

7,334

(701)

(2,404)

1,703

Interest and other income (expense), net

(896)

196

196

—

Income (loss) before provision for income taxes

6,438

(505)

(2,208)

1,703

Provision for (benefit from) income taxes

(150)

(2,385)

(3,045)

660

Net income (loss)

$

6,588

$

1,880

$

837

$

1,043

Net income (loss) per share:

Basic

$

0.17

$

0.05

$

0.02

$

0.03

Diluted

$

0.16

$

0.05

$

0.02

$

0.03

Weighted average shares outstanding:

Basic

38,970

37,250

37,250

Diluted

40,000

38,370

38,370

*

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)

Six Months Ended

June 30, 2018

June 30, 2017

As Adjusted*

As Reported

Change

Revenues:

Product revenues

$

265,295

$

228,996

$

226,986

$

2,010

Services and other revenues

105,997

100,599

104,453

(3,854)

Total revenues

371,292

329,595

331,439

(1,844)

Cost of revenues:

Cost of product revenues

150,493

145,326

145,326

—

Cost of services and other revenues

49,561

43,946

43,946

—

Total cost of revenues

200,054

189,272

189,272

—

Gross profit

171,238

140,323

142,167

(1,844)

Operating expenses:

Research and development

32,049

33,714

33,714

—

Selling, general, and administrative

131,222

123,862

128,093

(4,231)

Total operating expenses

163,271

157,576

161,807

(4,231)

Income (loss) from operations

7,967

(17,253)

(19,640)

2,387

Interest and other income (expense), net

(3,625)

(2,260)

(2,260)

—

Income (loss) before provision for income taxes

4,342

(19,513)

(21,900)

2,387

Provision for (benefit from) income taxes

(4,966)

(11,058)

(11,983)

925

Net income (loss)

$

9,308

$

(8,455)

$

(9,917)

$

1,462

Net income (loss) per share:

Basic

$

0.24

$

(0.23)

$

(0.27)

$

0.04

Diluted

$

0.23

$

(0.23)

$

(0.27)

$

0.04

Weighted average shares outstanding:

Basic

38,804

37,046

37,046

Diluted

39,854

37,046

37,046

*

As adjusted for full retrospective adoption of ASC 606, "Revenue from Contracts with Customers." The adjustment also includes a $0.3 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)

June 30, 2018

December 31, 2017

As Adjusted*

As Reported

Change

ASSETS

Current assets:

Cash and cash equivalents

$

46,168

$

32,424

$

32,424

$

—

Accounts receivable and unbilled, net

174,570

190,046

189,227

819

Inventories, net

103,732

96,137

96,137

—

Prepaid expenses

18,266

20,392

36,060

(15,668)

Other current assets

16,122

13,273

13,273

—

Total current assets

358,858

352,272

367,121

(14,849)

Property and equipment, net

50,884

42,595

42,595

—

Long-term investment in sales-type leases, net

16,707

15,435

15,435

—

Goodwill

336,550

337,751

337,751

—

Intangible assets, net

155,750

168,107

168,107

—

Long-term deferred tax assets

9,451

9,454

9,454

—

Prepaid commissions

38,620

41,432

—

41,432

Other long-term assets

59,655

49,316

39,841

9,475

Total assets

$

1,026,475

$

1,016,362

$

980,304

$

36,058

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

35,261

$

48,290

$

48,290

$

—

Accrued compensation

31,168

27,241

27,241

—

Accrued liabilities

31,721

35,693

35,693

—

Long-term debt, current portion, net

17,708

15,208

15,208

—

Deferred revenues, net

85,776

78,774

86,104

(7,330)

Total current liabilities

201,634

205,206

212,536

(7,330)

Long-term, deferred revenues

8,957

10,623

17,244

(6,621)

Long-term deferred tax liabilities

34,788

41,446

28,579

12,867

Other long-term liabilities

11,394

9,829

9,829

—

Long-term debt, net

181,062

194,917

194,917

—

Total liabilities

437,835

462,021

463,105

(1,084)

Total stockholders' equity

588,640

554,341

517,199

37,142

Total liabilities and stockholders' equity

$

1,026,475

$

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)

Six months ended June 30,

2018

2017*

Operating Activities

Net income (loss)

$

9,308

$

(8,455)

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

Depreciation and amortization

24,829

25,942

Loss on disposal of fixed assets

—

79

Share-based compensation expense

13,766

11,056

Income tax benefits from employee stock plans

—

11

Deferred income taxes

(6,655)

(11,722)

Amortization of debt financing fees

1,145

795

Changes in operating assets and liabilities:

Accounts receivable and unbilled

15,476

(1,058)

Inventories

(9,789)

(12,226)

Prepaid expenses

2,126

128

Other current assets

(2,283)

202

Investment in sales-type leases

(1,838)

5,482

Prepaid commissions

2,812

1,554

Other long-term assets

(2,797)

(622)

Accounts payable

(12,229)

23,357

Accrued compensation

3,927

4,529

Accrued liabilities

(2,574)

2,165

Deferred revenues

5,336

(3,412)

Other long-term liabilities

167

1,119

Net cash provided by operating activities

40,727

38,924

Investing Activities

Purchases of intangible assets, intellectual property, and patents

—

(160)

Software development for external use

(13,091)

(6,748)

Purchases of property and equipment

(14,985)

(6,493)

Business acquisition, net of cash acquired

—

(4,446)

Net cash used in investing activities

(28,076)

(17,847)

Financing Activities

Proceeds from debt

—

10,000

Repayment of debt and revolving credit facility

(12,500)

(70,500)

Proceeds from issuances under stock-based compensation plans

16,117

15,783

Employees' taxes paid related to restricted stock units

(3,062)

(2,638)

Net cash provided by (used in) financing activities

555

(47,355)

Effect of exchange rate changes on cash and cash equivalents

538

(1,274)

Net increase (decrease) in cash and cash equivalents

13,744

(27,552)

Cash and cash equivalents at beginning of period

32,424

54,488

Cash and cash equivalents at end of period

$

46,168

$

26,936

*

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

Six Months Ended

June 30,
2018

June 30,
2017*

June 30,
2018

June 30,
2017*

Reconciliation of GAAP revenues to non-GAAP revenues:

GAAP revenues

$

188,673

$

181,042

$

371,292

$

329,595

Acquisition accounting impact related to deferred revenues

—

313

—

626

Non-GAAP revenues

$

188,673

$

181,355

$

371,292

$

330,221

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

GAAP gross profit

$

88,783

$

78,132

$

171,238

$

140,323

GAAP gross margin

47.1

%

43.2

%

46.1

%

42.6

%

Share-based compensation expense

1,177

864

2,196

1,846

Amortization of acquired intangibles

2,756

2,848

5,547

5,685

Acquisition accounting impact related to deferred revenues

—

313

—

626

Severance and other expenses

—

—

—

1,697

Non-GAAP gross profit

$

92,716

$

82,157

$

178,981

$

150,177

Non-GAAP gross margin

49.1

%

45.3

%

48.2

%

45.5

%

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

GAAP operating expenses

$

81,449

$

78,833

$

163,271

$

157,576

GAAP operating expenses % to total revenues

43.2

%

43.5

%

44.0

%

47.8

%

Share-based compensation expense

(6,061)

(4,681)

(11,570)

(9,210)

Amortization of acquired intangibles

(3,126)

(3,626)

(6,364)

(7,279)

Acquisition-related expenses

—

—

—

(126)

Severance and other expenses

(1,735)

(970)

(3,247)

(3,302)

Non-GAAP operating expenses

$

70,527

$

69,556

$

142,090

$

137,659

Non-GAAP operating expenses % to total revenues

37.4

%

38.4

%

38.3

%

41.7

%

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

Three Months Ended

Six Months Ended

June 30,
2018

June 30,
2017*

June 30,
2018

June 30,
2017*

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

GAAP income (loss) from operations

$

7,334

$

(701)

$

7,967

$

(17,253)

GAAP operating income (loss) % to total revenues

3.9

%

(0.4)

%

2.1

%

(5.2)

%

Share-based compensation expense

7,238

5,545

13,766

11,056

Amortization of acquired intangibles

5,882

6,474

11,911

12,964

Acquisition accounting impact related to deferred revenues

—

313

—

626

Acquisition-related expenses

—

—

—

126

Severance and other expenses

1,735

970

3,247

4,999

Non-GAAP income (loss) from operations

$

22,189

$

12,601

$

36,891

$

12,518

Non-GAAP operating income (loss) % to total Non-GAAP revenues

11.8

%

6.9

%

9.9

%

3.8

%

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

GAAP net income (loss)

$

6,588

$

1,880

$

9,308

$

(8,455)

Tax benefit for restructuring activity

—

—

(4,205)

—

Share-based compensation expense

7,238

5,545

13,766

11,056

Amortization of acquired intangibles

5,882

6,474

11,911

12,964

Acquisition accounting impact related to deferred revenues

—

313

—

626

Acquisition-related expenses^(c)

397

397

794

920

Severance and other expenses

1,911

970

3,599

4,999

Contingent gain

(2,456)

—

(2,456)

—

Tax effect of the adjustments above^(a)

(1,204)

(2,817)

(2,907)

(6,836)

Non-GAAP net income

$

18,356

$

12,762

$

29,810

$

15,274

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

Shares - diluted GAAP

40,000

38,370

39,854

37,046

Shares - diluted Non-GAAP

40,000

38,370

39,854

38,103

GAAP net income (loss) per share - diluted

$

0.16

$

0.05

$

0.23

$

(0.23)

Tax benefit for restructuring activity

—

—

(0.11)

—

Share-based compensation expense

0.18

0.14

0.35

0.29

Amortization of acquired intangibles

0.15

0.17

0.30

0.34

Acquisition accounting impact related to deferred revenues

—

0.01

—

0.02

Acquisition-related expenses

0.01

0.01

0.02

0.03

Severance and other expenses

0.05

0.02

0.09

0.13

Contingent gain

(0.06)

—

(0.06)

—

Tax effect of the adjustments above^(a)

(0.03)

(0.07)

(0.07)

(0.18)

Non-GAAP net income per share - diluted

$

0.46

$

0.33

$

0.75

$

0.40

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

GAAP net income (loss)

$

6,588

$

1,880

$

9,308

$

(8,455)

Share-based compensation expense

7,238

5,545

13,766

11,056

Interest (income) and expense, net

1,615

1,311

3,387

2,743

Depreciation and amortization expense

12,519

13,494

24,829

25,942

Acquisition accounting impact related to deferred revenues

—

313

—

626

Acquisition-related expenses

397

397

794

920

Severance and other expenses

1,911

728

3,599

4,493

Contingent gain

(2,456)

—

(2,456)

—

Income tax expense (benefit)

(150)

(2,385)

(4,966)

(11,058)

Non-GAAP Adjusted EBITDA

$

27,662

$

21,283

$

48,261

$

26,267

^(a)

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.

^(b)

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

^(c)

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

Omnicell, Inc.

Segmented Information

(Unaudited, in thousands, except for percentages)

Three Months Ended June 30, 2018

Three Months Ended June 30, 2017

Automation and
Analytics

Medication
Adherence

Total

Automation and
Analytics*

Medication
Adherence

Total*

Revenues

$

158,365

$

30,308

$

188,673

$

148,584

$

32,458

$

181,042

Cost of revenues

78,686

21,204

99,890

80,716

22,194

102,910

Gross profit

79,679

9,104

88,783

67,868

10,264

78,132

Gross margin %

50.3

%

30.0

%

47.1

%

45.7

%

31.6

%

43.2

%

Operating expenses

48,167

10,296

58,463

47,508

10,099

57,607

Income (loss) from segment operations

$

31,512

$

(1,192)

$

30,320

$

20,360

$

165

$

20,525

Operating margin %

19.9

%

(3.9)

%

16.1

%

13.7

%

0.5

%

11.3

%

Corporate costs

22,986

21,226

Income (loss) from operations

$

7,334

$

(701)

*

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

Omnicell, Inc.

Segmented Information

(Unaudited, in thousands, except for percentages)

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

Automation and
Analytics

Medication
Adherence

Total

Automation and
Analytics*

Medication
Adherence

Total*

Revenues

$

309,771

$

61,521

$

371,292

$

270,754

$

58,841

$

329,595

Cost of revenues

156,928

43,126

200,054

149,477

39,795

189,272

Gross profit

152,843

18,395

171,238

121,277

19,046

140,323

Gross margin %

49.3

%

29.9

%

46.1

%

44.8

%

32.4

%

42.6

%

Operating expenses

96,558

20,495

117,053

95,570

21,295

116,865

Income (loss) from segment operations

$

56,285

$

(2,100)

$

54,185

$

25,707

$

(2,249)

$

23,458

Operating margin %

18.2

%

(3.4)

%

14.6

%

9.5

%

(3.8)

%

7.1

%

Corporate costs

46,218

40,711

Income (loss) from operations

$

7,967

$

(17,253)

*

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 June 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

$

158,365

$

30,308

$

188,673

Non-GAAP Revenues

$

158,365

$

30,308

$

188,673

GAAP Gross profit

$

79,679

50.3

%

$

9,104

30.0

%

$

88,783

47.1

%

Share-based compensation expense

1,004

0.6

%

0.6

%

173

0.6

%

0.6

%

1,177

0.6

%

0.6

%

Amortization expense of acquired intangible assets

2,232

1.4

%

1.4

%

524

1.7

%

1.7

%

2,756

1.5

%

1.5

%

Non-GAAP Gross profit

$

82,915

52.4

%

$

9,801

32.3

%

$

92,716

49.1

%

GAAP Operating income (loss)

$

31,512

19.9

%

$

(1,192)

(3.9)

%

$

30,320

16.1

%

Share-based compensation expense

3,148

2.0

%

2.0

%

489

1.6

%

1.6

%

3,637

1.9

%

1.9

%

Amortization expense of acquired intangible assets

4,204

2.7

%

2.7

%