As part of its restructuring efforts, Omnicell (OMCL: 12.46 -0.17 -1.35%) has decided to close its operations in Bangalore, India and The Woodlands, Texas. Activities at these two locations will be consolidated with the company’s operations in California and Tennessee. Omnicell expects to complete these steps by the end of September 2010.The employees at the affected sites were either redeployed at some other location or terminated. Omnicell expects to incur pre-tax restructuring and other related charges of $1.5 million in the current quarter. However, severance expenses are likely to increase if any of the employees decline the revised employment terms.
Omnicell provides procurement and inventory management systems to more than 1,300 hospitals, integrated delivery networks, and specialty healthcare facilities, including nursing homes, outpatient surgery centers, catheterization labs and clinics. In 2009, product offerings contributed roughly 80% to total revenues with the balance coming from service offerings. Service and other revenues include contribution from service and maintenance contracts and rentals of automation systems.
Omnicell’s products are primarily purchased by hospitals and nursing homes, which are facing budget constraints due to economic uncertainty. This is evident from the first quarter 2010 results, when the company posted revenues of $42.3 million, unchanged from the year-ago period. A recovering economy will help the company going forward.
We also note that Omnicell is likely to benefit in the long term from the Medicare Improvements for Patients and Providers Act of 2008 (H.R. 6331) passed by the US government. The Act provides more than $20 billion in spending on health-information technology.
The majority of the spending will be felt between 2011 and 2015. Beginning 2011, physicians who use electronic records will be eligible for more than $40,000 in Medicare incentive payments. Payments will be made over several years. This is likely to drive Omnicell’s top-line in future.
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