Omnicell(US:OMCL)2023-08-03 16:00PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Omnicell's unaudited financial statements for the period ended June 30, 2023, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, with accompanying notes Condensed Consolidated Balance Sheets As of June 30, 2023, total assets slightly decreased to $2.19 billion, cash and equivalents increased to $399.5 million, total liabilities decreased to $1.03 billion, and total stockholders' equity rose to $1.16 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $399,464 | $330,362 | | Total current assets | $881,361 | $881,812 | | Goodwill | $735,523 | $734,274 | | Total assets | $2,193,872 | $2,210,758 | | Liabilities & Equity | | | | Total current liabilities | $370,157 | $428,446 | | Convertible senior notes, net | $568,114 | $566,571 | | Total liabilities | $1,030,307 | $1,080,621 | | Total stockholders' equity | $1,163,565 | $1,130,137 | Condensed Consolidated Statements of Operations Q2 2023 total revenues decreased 10% to $299.0 million, with net income falling to $3.5 million, while the six-month period reported a net loss of $11.5 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $298,973 | $331,386 | $589,602 | $650,214 | | Gross profit | $134,443 | $158,092 | $259,472 | $308,139 | | Income (loss) from operations | $7,748 | $12,485 | $(15,215) | $17,569 | | Net income (loss) | $3,451 | $9,069 | $(11,549) | $17,282 | | Diluted EPS | $0.08 | $0.20 | $(0.26) | $0.37 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $85.7 million for H1 2023, driven by better working capital management, with net cash used in investing at $28.5 million and provided by financing at $7.5 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $85,673 | $(25,547) | | Net cash used in investing activities | $(28,457) | $(25,550) | | Net cash provided by (used in) financing activities | $7,465 | $(33,571) | | Net increase (decrease) in cash | $64,829 | $(86,791) | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail revenue recognition, debt, leases, goodwill, share-based compensation, and restructuring, confirming the company operates as a single segment focused on medication management solutions - The company manages its operations as a single segment for assessing performance and making operating decisions, with the CEO as the Chief Operating Decision Maker (CODM)32 Disaggregation of Revenues by Type (in thousands) | Revenue Type | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Connected devices, software licenses, and other | $167,475 | $215,632 | $332,622 | $423,710 | | Consumables | $20,961 | $18,174 | $41,529 | $35,971 | | Technical services | $57,191 | $53,303 | $110,548 | $102,472 | | Advanced Services | $53,346 | $44,277 | $104,903 | $88,061 | | Total revenues | $298,973 | $331,386 | $589,602 | $650,214 | - As of June 30, 2023, the company had remaining performance obligations not yet included in deferred revenue of $288.7 million, primarily from non-cancellable technical and Advanced Services contracts45 - The company has a $575.0 million principal amount of 0.25% convertible senior notes due in 2025, with a carrying value of $568.1 million and a fair value of $581.6 million as of June 30, 2023694977 - In connection with a restructuring plan initiated in November 2022, the company incurred $6.0 million in employee severance costs during the first six months of 2023117120 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, business strategy, and liquidity, attributing Q2 2023 revenue decline to lower product sales due to health system constraints, while affirming sufficient liquidity for the next twelve months Business Strategy The company's strategy focuses on the Autonomous Pharmacy vision, addressing pharmacy challenges through technology and intelligence across four key market categories - Omnicell is focused on delivering solutions to drive positive medication management outcomes across four key market categories137 - Point of Care: Expanding use of dispensing systems within hospitals, capitalizing on the replacement cycle of older models, and pursuing competitive conversions137138 - Central Pharmacy and IV Compounding: Automating manual, error-prone processes to reallocate labor, enhance safety, and reduce waste, an area with nascent adoption137138 - Specialty Pharmacy and 340B Program: Investing in revenue-generating activities for health systems to manage complex specialty drugs and optimize 340B programs137138 - Retail, Institutional, and Payer: Capitalizing on the shift of care to non-acute settings by providing solutions that improve patient engagement and reduce total care costs137138 Results of Operations Total revenues declined 10% in Q2 2023 and 9% in H1 2023 due to lower product sales, while services revenue grew 13%, and gross margin contracted due to fixed costs Revenue Performance (in thousands) | Revenue Type | Q2 2023 | Q2 2022 | Change | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Product revenues | $188,436 | $233,806 | (19)% | $374,151 | $459,681 | (19)% | | Services and other revenues | $110,537 | $97,580 | 13% | $215,451 | $190,533 | 13% | | Total revenues | $298,973 | $331,386 | (10)% | $589,602 | $650,214 | (9)% | - The decrease in product revenues was primarily due to lower revenues from the automated dispensing systems business, resulting from ongoing health systems' capital budget and labor constraints144147 Gross Margin Performance | Period | 2023 | 2022 | | :--- | :--- | :--- | | Q2 Gross Margin | 45% | 48% | | H1 Gross Margin | 44% | 47% | - The decrease in gross margin was primarily due to lower product revenues, as the decrease in cost of product revenues did not decrease proportionally due to fixed costs like labor and overhead155158 - Selling, general, and administrative (SG&A) expenses decreased by $15.7 million (13%) in Q2 2023, primarily due to lower headcount-related expenses, commissions, and consulting costs, as well as the absence of prior-year ransomware-related expenses160161 Liquidity and Capital Resources Liquidity strengthened with cash increasing to $399.5 million and working capital to $511.2 million, driven by $85.7 million in operating cash flow, with a $500 million revolving credit facility available Liquidity Position (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $399,464 | $330,362 | | Working capital | $511,204 | $453,366 | - Net cash provided by operating activities was $85.7 million for the first six months of 2023, compared to net cash used of $25.5 million in the same period of 2022, with improvement driven by a decrease in accounts receivable and inventories179181182 - As of June 30, 2023, the company had $417.7 million available under its $500.0 million revolving credit facility with no outstanding balance175 - There were no stock repurchases during the six months ended June 30, 2023, with $2.7 million remaining available under the 2016 Repurchase Program177 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from foreign currency and interest rates, with no significant changes reported, and no foreign exchange forward contracts outstanding as of June 30, 2023 - The company is exposed to foreign currency exchange rate fluctuations, primarily with the British Pound and the Euro, and had no outstanding foreign exchange forward contracts as of June 30, 2023191 - Interest rate risk exposure comes from borrowing activities, with fixed-rate convertible senior notes having a carrying amount of $568.1 million and a fair market value of $581.6 million as of June 30, 2023, and no outstanding balance on the variable-rate A&R Credit Agreement192 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting identified during the quarter - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report196 - There were no changes in internal control over financial reporting during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls198 PART II OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 13 for legal proceedings, highlighting the settlement and final court approval of the Heard Action class action lawsuit on April 6, 2023 - The company settled the 'Heard Action' class action lawsuit for a total payment of $4.3 million, with final court approval on April 6, 2023, and final payment by April 21, 202393 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, have been reported - There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022202 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Omnicell did not repurchase any shares of its common stock under its existing repurchase program during the second quarter of 2023 - The company did not repurchase any shares of its common stock during the three months ended June 30, 2023203 Item 5. Other Information No Rule 10b5-1 trading plans were adopted or terminated, and a correction was disclosed for an inadvertent exclusion of $87.6 million in remaining performance obligations as of March 31, 2023 - The company identified that approximately $87.6 million in remaining performance obligations were inadvertently excluded from the amount previously reported as of March 31, 2023, with the corrected balance being $286.8 million207