Omnicell Q2 Earnings Miss; Revs Beat

Zacks

Omnicell Inc. (OMCL) reported second-quarter 2013 adjusted earnings of 19 cents per share, which remained flat year over year. However, the result missed the Zacks Consensus Estimate by 2 cents.

On a reported basis, Omnicell’s net income was $6 million (or 17 cents per share), higher than $1.4 million (or 4 cents per share) in the year-ago quarter.

Quarter under Review

Revenues in the second quarter (including the results of MTS Medication Technologies) jumped 24.3% year over year to $93.7 million edging past the Zacks Consensus Estimate of $92 million. Growth was led by contributions from the MTS acquisition. Omnicell also witnessed higher competitive wins in the quarter and healthy sales growth for legacy products. As per management, about 30% of quarterly bookings were driven by competitive conversions.

Product revenue, contributing 80.7% of total revenues, surged 27.5% to $75.6 million in the quarter, while Services and Others (contributing the rest) witnessed an upside of 12.3% to $18.1 million. On a segment basis, Acute Care business recorded revenues of $68.1 million while Non-Acute Care segment revenues were $25.6 million.

Cost of product sales shot up 26.9% year over year to $36.3 million in the quarter while cost of services and others revenues increased 8.4% to $8 million. However, gross profit improved 25.4% to $49.4 million. Consequently, gross margin expanded about 50 basis points (bps) to 52.7% in the quarter.

Omnicell’s research and development (R&D) expenses climbed 30% to $7.2 million while selling, general and administrative (SG&A) expenses increased 4.5% to $32.9 million. Despite declining gross margin and higher operating expenses, operating margin jumped a whopping 680 bps to 10% in the quarter.

Omnicell exited the quarter with cash and cash equivalents of $87.3 million, compared with $62.3 million at the end of 2012.

Outlook

Omnicell continues to envisage revenue in the range of $370–$380 million (up 18%-21%) for 2013. The current Zacks Consensus Estimate of $375 million lies in the midpoint of the range. While the expected revenue growth for Acute Care segment is 10%-12% (organic growth), the same for Non-Acute segment is 60%-70%.

The company’s adjusted EPS (excluding stock-based compensation) forecast lies in the band of 99 cents–$1.07 (14%-22%). The Zacks Consensus Estimate is pegged at 84 cents, considering stock-based compensation as a regular expense.

At the end of 2013, Omnicell expects backlog to come in at $160–$165 million while it projects product bookings of $305–$315 million.

Our Take

Omnicell reported a mixed second-quarter 2013. While the bottom line missed the Zacks Consensus Estimate, revenues topped the mark. Despite escalating costs, the company recorded substantial margin expansion. We note that constrained hospital spending might hamper Omnicell’s market penetration in the U.S. Tough competitive landscape also remains an overhang.

However, Omnciell serves a niche industry and stands to gain from its three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion. The company’s foray into the highly profitable and underpenetrated non-acute care market with the MTS acquisition is yielding positive results.

The recent contract wins are also encouraging. Given the substantial demand in the overseas market and the low penetration rate, international contract wins are likely to accelerate growth for Omnicell.

The stock carries a Zacks Rank #3 (Hold). On the other hand, medical sector stocks that warrant a look are Affymetrix Inc. (AFFX), Medivation, Inc. (MDVN) and Hanger, Inc. (HGR). These stocks carry Zacks Rank #1 (Strong Buy).

Read the Full Research Report on OMCL

Read the Full Research Report on HGR

Read the Full Research Report on AFFX

Read the Full Research Report on MDVN

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