Omnicell, Inc. OMCL reported third-quarter 2015 adjusted earnings per share of 25 cents (considering stock-based compensation as a regular expense), up 13.6% from the year-ago number. Adjusted earnings, however, lagged the Zacks Consensus Estimate by a couple of cents.
Revenues in Detail
Revenues increased 11% year over year to $125.2 million in the quarter, but missed the Zacks Consensus Estimate of $129 million.
Omnicell witnessed that an average of 42% of its orders in the last three quarters were owing to new and competitive conversion customers making first time installations – much higher than its 10-year historical trend ranging between 33% and 40%. The makeover backlog has remained high owing to a greater share of new customers who generally take longer to install a product compared to existing ones.
On a segmental basis, during the quarter, Omnicell’s Automation and Analytics segment’s revenues increased 15% to $102.9 million. The recent acquisition of Avantec is also included in this segment. According to Omnicell, the core fundamentals of the company’s Automation and Analytics business stands on highly differentiated products, as reflected by the 98% retention rate of existing customers.
However, it must be noted that, although progress was made in converting backlog into revenues relative to the second quarter, bookings in the third quarter still lagged the company’s expectations. This resulted in lesser opportunity to convert bookings into revenues in the reported quarter. This will naturally have a percolating impact on Omnicell’s revenues in the fourth quarter of 2015.
Meanwhile, revenues from the Medication Adherence segment dropped 3% to $22.3 million.
Operational Update
Omnicell's adjusted gross profit during the reported quarter improved 10.8% to $64.3 million (considering stock-based compensation as a regular expense). However, adjusted gross margin contracted 10 basis points (bps) to 51.3%.
Adjusted operating expenses in the third quarter increased 2.6% to $48.4 million. Adjusted operating profit surged 41.3% to $17.8 million, with adjusted operating margin expanding 27 bps to 14.2% in the quarter.
Acquisitions
In a parallel press release, Omnicell also announced that, it has reached a definitive agreement with private equity firm, Francisco Partners, to acquire Pennsylvania-based Aesynt for $275 million. Aesynt is a leading player in enterprise medication management with specific products in IV compounding, Central Pharmacy automation, point of care solutions and enterprise software products.
Financial Update
Omnicell exited the third quarter with cash and cash equivalents of $57.8 million, compared with $88 million at the end of second-quarter 2015.
Outlook
Omnicell lowered its revenue guidance for full year 2015. The company currently expects its full year revenues in the range of $478−$482 million, compared to the earlier provided range of $495−$510 million. Omnicell, however, retained its 2015 adjusted EPS projection in the band of $1.31–$1.36.
Our Take
Omnicell delivered disappointing third quarter results missing the Zack Consensus Estimate on both lines. Lower-than-expected installations and booking related issues in the Automation and Analytics segment are expected to continue in the fourth quarter as well, as evident from the company’s reduced revenue guidance for 2015.
However, strategic acquisitions are expected to add value to the company’s growth profile. Omnicell’s recent acquisitions of MACH4 and Avantec contributed approximately $6.5 million to revenues in the reported quarter. We are also positive on the company’s impending buyout of Aesynt.
Zacks Rank
Omnicell currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector are Streamline Health Solutions, Inc. STRM, Digirad Corporation DRAD and Quality Systems Inc. QSII. While Streamline Health and Digirad sport a Zacks Rank #1 (Strong Buy), Quality Systems holds a Zacks Rank #2 (Buy).
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