Segments

Beginning with the acquisition of MTS in May, 2012, we have organized our business into two operating business segments: Acute Care, which primarily includes products and services sold to hospital customers and Non-Acute Care, which primarily includes products and services sold to customers outside of hospital settings.

The Acute Care segment is organized around the design, manufacturing, selling and servicing of medication and supply dispensing systems. The Non-Acute Care segment includes primarily the manufacturing and selling of consumable medication blister cards, packaging equipment and ancillary products and services, but also includes medication dispensing systems sold to non-acute care pharmacies and facilities. We report segment information based on the management approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (the "CODM") for making decisions and assessing performance as the source of our operating segments. The CODM is our Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment, using information about its revenues, gross profit and income (loss) from operations.

Since 1992, Omnicell has provided automation and business information solutions to acute care hospitals. We have developed product solutions that help optimize various workflows utilized in hospitals. We have also developed sophisticated sales, installation, and service capabilities to serve the specific and special needs of the acute care environment in hospitals. As the acute care market evolves, we see opportunities to provide medication adherence solutions, which were added to our product line through the acquisition of MTS. A portion of our organization structure and management processes will continue to be structured to optimize sales and service of solutions to the acute care market.

Since 1984, MTS has provided medication adherence solutions to the non-acute care market. These solutions provide automated and semi-automated equipment to assist institutional and retail pharmacists in filling medication orders into blister cards, the primary method of medication control in non-acute care settings. Completing the product solution are the consumables used by institutional and retail pharmacists to make the medication adherence package. MTS has developed process manufacturing capabilities as well as sales capabilities to market medication adherence solutions to institutional and retail pharmacies. A portion of our organization structure and management processes will continue to be structured to optimize the product, sales, and service of solutions to the non-acute care market.

During 2012, we realigned our management reporting structure to report sales of Omnicell's dispensing systems and other related business transactions to long-term care pharmacies and facilities. Accordingly, the operations of this portion of our activities are now being reflected as a part of the Non-Acute Care segment for three and nine months ended September 30, 2013.

We believe that legislative changes and economic pressures to manage costs will cause healthcare organizations to manage the health of patients across the continuum of care regardless of the setting in which the care is provided. We believe we have the capabilities and market position to provide the tools needed by our customers to manage medications across the continuum of care. But we also believe that the inherent differences between medication management workflows in acute care settings and non-acute care settings will cause our product solutions and marketing strategies to be managed separately for these two customer segments.

Effective in the second quarter of 2013, our management changed its methodology for allocating certain expenses to our reportable segments. We have reclassified segment operating results for the three and nine months ended September 30, 2012 to conform to the 2013 presentation. For the three and nine months ended September 30, 2013 and 2012, the contributions of our segments to net revenues and income from operations, and the reconciliation to total net income, were as follows (amounts in thousands):



	Three Months Ended September 30, 2013									Three Months Ended September 30, 2012
	Acute Care			Non-Acute Care			Total			Acute Care			Non-Acute Care (1)			Total
Net revenues from external customers	$	70,640		$	23,399		$	94,039		$	64,394		19,937			$	84,331
Cost of revenues	28,662			13,337			41,999			26,920			11,324			38,244
Gross profit	$	41,978		$	10,062		$	52,040		$	37,474		$	8,613		$	46,087
Gross margin %	59.4		%	43.0		%	55.3		%	58.2		%	43.2		%	54.7		%

Operating expenses	32,908			8,415			41,323			29,070			5,791			34,861
Income from operations	$	9,070		$	1,647		$	10,717		$	8,404		2,822			$	11,226
Operating margin %	12.8		%	7.0		%	11.4		%	13.1		%	14.2		%	13.3		%

Interest and other income (expense), net							25									34
Income before provision for income taxes							10,742									11,260
Provision for income taxes							2,987									4,340
Net income							$	7,755								$	6,920

(1) Non-Acute Care segment includes MTS results from May 21, 2012, the date of acquisition.



	Nine Months Ended September 30, 2013									Nine Months Ended September 30, 2012
	Acute Care			Non-Acute Care			Total			Acute Care			Non-Acute Care (1)			Total
Net revenues from external customers	$	204,750		$	70,085		$	274,835		$	191,295		$	32,563		$	223,858
Cost of revenues	87,784			40,276			128,060			82,859			19,787			102,646
Gross profit	$	116,966		$	29,809		$	146,775		$	108,436		$	12,776		$	121,212
Gross margin %	57.1		%	42.5		%	53.4		%	56.7		%	39.2		%	54.1		%

Operating expenses	96,048			26,483			122,531			94,167			9,753			103,920
Income from operations	$	20,918		$	3,326		$	24,244		$	14,269		3,023			$	17,292
Operating margin %	10.2		%	4.7		%	8.8		%	7.5		%	9.3		%	7.7		%

Interest and other income (expense), net							(134		)							57
Income before provision for income taxes							24,110									17,349
Provision for income taxes							6,954									6,703
Net income							$	17,156								$	10,646

(1) Non-Acute Care segment includes MTS results from May 21, 2012, the date of acquisition.

At September 30, 2013, segment assets were as follows (amounts in thousands):



	September 30, 2013						December 31, 2012
	Acute Care		Non-Acute Care		Total		Acute Care		Non-Acute Care (1)		Total
Segment Assets	$	284,067	$	221,917	$	505,984	$	235,186	$	206,633	$	441,819

At three and nine months ended September 30, 2013 and 2012, segment depreciation/amortization, and capital expenditures were as follows (amounts in thousands):



	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
	Acute Care		Non-Acute Care		Total		Acute Care		Non-Acute Care (1)		Total
Depreciation/Amortization	$	2,805	$	1,683	$	4,488	$	2,072	$	1,842	$	3,914
Capital Expenditures	1,311		745		2,056		$	4,940	$	532	$	5,472

(1) Non-Acute Care segment includes MTS results from May 21, 2012, the date of acquisition.



	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
	Acute Care		Non-Acute Care		Total		Acute Care		Non-Acute Care (1)		Total
Depreciation/Amortization	$	8,351	$	5,381	$	13,732	$	6,538	$	2,709	9,247
Capital Expenditures	3,329		4,478		7,807		$	8,947	$	612	$	9,559

(1) Non-Acute Care segment includes MTS results from May 21, 2012, the date of acquisition.