OMNICELL, Inc [OMCL] Filings

10-Q 1 omcl-20210930.htm 10-Q omcl-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________________________

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 000-33043

OMNICELL, INC.

(Exact name of registrant as specified in its charter)


Delaware			94-3166458
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

590 East Middlefield Road

Mountain View, CA 94043

(Address of registrant’s principal executive offices, including zip code)

(650) 251-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

OMCL

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transitions period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of October 29, 2021, there were 43,942,668 shares of the registrant’s common stock, $0.001 par value, outstanding.

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OMNICELL, INC.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2021 and 2020	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2021 and 2020	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	47

PART II	OTHER INFORMATION	48

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

Signature		53

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OMNICELL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30, 2021		December 31, 2020

	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	481,549	$	485,928
Accounts receivable and unbilled receivables, net of allowances of $4,396 and $4,286, respectively	233,729		190,117
Inventories	104,259		96,298
Prepaid expenses	24,762		16,027
Other current assets	44,417		41,044
Total current assets	888,716		829,414
Property and equipment, net	64,955		59,073
Long-term investment in sales-type leases, net	19,187		22,156
Operating lease right-of-use assets	48,973		55,114
Goodwill	616,387		499,309
Intangible assets, net	218,956		168,211
Long-term deferred tax assets	15,866		15,019
Prepaid commissions	57,949		56,919
Other long-term assets	120,482		119,289
Total assets	$	2,051,471	$	1,824,504

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	74,656	$	40,309
Accrued compensation	45,044		55,750
Accrued liabilities	104,236		80,311

Deferred revenues, net	114,726		100,053
Total current liabilities	338,662		276,423
Long-term deferred revenues	14,141		5,673
Long-term deferred tax liabilities	53,313		39,633
Long-term operating lease liabilities	40,436		48,897
Other long-term liabilities	10,761		19,174

Convertible senior notes, net	482,822		467,201
Total liabilities	940,135		857,001
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued	—		—
Common stock, $0.001 par value, 100,000 shares authorized; 53,763 and 52,677 shares issued; 43,869 and 42,783 shares outstanding, respectively	54		53
Treasury stock at cost, 9,894 outstanding, respectively	(238,109)		(238,109)
Additional paid-in capital	1,002,591		920,359
Retained earnings	354,590		290,722
Accumulated other comprehensive loss	(7,790)		(5,522)
Total stockholders’ equity	1,111,336		967,503
Total liabilities and stockholders’ equity	$	2,051,471	$	1,824,504

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands, except per share data)
Revenues:
Product revenues	$	213,970	$	151,337	$	589,006	$	460,352
Services and other revenues	82,432		62,362		231,978		182,654
Total revenues	296,402		213,699		820,984		643,006
Cost of revenues:
Cost of product revenues	110,743		86,689		303,597		262,740
Cost of services and other revenues	38,880		30,219		112,027		90,628
Total cost of revenues	149,623		116,908		415,624		353,368
Gross profit	146,779		96,791		405,360		289,638
Operating expenses:
Research and development	19,477		15,197		53,770		54,679
Selling, general, and administrative	97,910		71,442		273,672		219,647

Total operating expenses	117,387		86,639		327,442		274,326
Income from operations	29,392		10,152		77,918		15,312
Interest and other income (expense), net	(6,065)		809		(18,715)		161
Income before provision for income taxes	23,327		10,961		59,203		15,473
Provision for (benefit from) income taxes	(5,990)		2,156		(4,665)		(344)
Net income	$	29,317	$	8,805	$	63,868	$	15,817
Net income per share:
Basic	$	0.67	$	0.21	$	1.48	$	0.37

Diluted	$	0.61	$	0.20	$	1.35	$	0.36
Weighted-average shares outstanding:
Basic	43,648		42,802		43,293		42,606
Diluted	48,341		43,691		47,195		43,651

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands)
Net income	$	29,317	$	8,805	$	63,868	$	15,817
Other comprehensive income (loss):

Foreign currency translation adjustments	(2,299)		3,510		(2,268)		(733)
Other comprehensive income (loss)	(2,299)		3,510		(2,268)		(733)
Comprehensive income	$	27,018	$	12,315	$	61,600	$	15,084

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount

	(In thousands)
Balances as of December 31, 2020	52,677	$	53	(9,894)	$	(238,109)	$	920,359	$	290,722	$	(5,522)	$	967,503
Net income	—	—		—	—		—		14,127		—		14,127
Other comprehensive loss	—	—		—	—		—		—		(621)		(621)

Share-based compensation	—	—		—	—		11,772		—		—		11,772
Issuance of common stock under employee stock plans	388	—		—	—		20,826		—		—		20,826
Tax payments related to restricted stock units	—	—		—	—		(2,596)		—		—		(2,596)

Balances as of March 31, 2021	53,065	53		(9,894)	(238,109)		950,361		304,849		(6,143)		1,011,011
Net income	—	—		—	—		—		20,424		—		20,424
Other comprehensive income	—	—		—	—		—		—		652		652

Share-based compensation	—	—		—	—		13,039		—		—		13,039
Issuance of common stock under employee stock plans	265	—		—	—		11,517		—		—		11,517
Tax payments related to restricted stock units	—	—		—	—		(4,071)		—		—		(4,071)
Balances as of June 30, 2021	53,330	53		(9,894)	(238,109)		970,846		325,273		(5,491)		1,052,572
Net income	—	—		—	—		—		29,317		—		29,317
Other comprehensive loss	—	—		—	—		—		—		(2,299)		(2,299)

Share-based compensation	—	—		—	—		13,666		—		—		13,666
Issuance of common stock under employee stock plans	433	1		—	—		21,573		—		—		21,574
Tax payments related to restricted stock units	—	—		—	—		(3,494)		—		—		(3,494)





Balances as of September 30, 2021	53,763	$	54	(9,894)	$	(238,109)	$	1,002,591	$	354,590	$	(7,790)	$	1,111,336

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - CONTINUED


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount

	(In thousands)
Balances as of December 31, 2019	51,277	$	51	(9,145)	$	(185,074)	$	780,931	$	258,792	$	(9,446)	$	845,254
Net income	—	—		—	—		—		11,311		—		11,311
Other comprehensive loss	—	—		—	—		—		—		(4,694)		(4,694)

Share-based compensation	—	—		—	—		10,659		—		—		10,659
Issuance of common stock under employee stock plans	474	1		—	—		17,658		—		—		17,659
Tax payments related to restricted stock units	—	—		—	—		(1,425)		—		—		(1,425)
Cumulative effect of a change in accounting principle related to credit losses	—	—		—	—		—		(264)		—		(264)
Balances as of March 31, 2020	51,751	52		(9,145)	(185,074)		807,823		269,839		(14,140)		878,500
Net loss	—	—		—	—		—		(4,299)		—		(4,299)
Other comprehensive income	—	—		—	—		—		—		451		451

Share-based compensation	—	—		—	—		11,351		—		—		11,351
Issuance of common stock under employee stock plans	151	—		—	—		3,503		—		—		3,503
Tax payments related to restricted stock units	—	—		—	—		(2,045)		—		—		(2,045)
Balances as of June 30, 2020	51,902	52		(9,145)	(185,074)		820,632		265,540		(13,689)		887,461
Net income	—	—		—	—		—		8,805		—		8,805
Other comprehensive income	—	—		—	—		—		—		3,510		3,510
Share-based compensation	—	—		—	—		11,024		—		—		11,024
Issuance of common stock under employee stock plans	266	—		—	—		12,064		—		—		12,064
Tax payments related to restricted stock units	—	—		—	—		(631)		—		—		(631)
Stock repurchases	—	—		(749)	(53,035)		—		—		—		(53,035)
Equity component of convertible senior note issuance, net of issuance costs	—	—		—	—		97,830		—		—		97,830
Purchase of convertible note hedge	—	—		—	—		(100,625)		—		—		(100,625)
Sale of warrants related to convertible senior notes	—	—		—	—		51,290		—		—		51,290
Tax benefits related to convertible senior notes	—	—		—	—		706		—		—		706
Balances as of September 30, 2020	52,168	$	52	(9,894)	$	(238,109)	$	892,290	$	274,345	$	(10,179)	$	918,399

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
	2021		2020

	(In thousands)
Operating Activities
Net income	$	63,868	$	15,817
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	53,140		43,903
Loss on disposal of property and equipment	297		—



Share-based compensation expense	38,477		33,034



Deferred income taxes	2,042		(3,643)
Amortization of operating lease right-of-use assets	8,764		7,692
Amortization of debt issuance costs	2,570		754
Amortization of discount on convertible senior notes	13,874		249
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables	(39,561)		29,653
Inventories	(10,138)		4,570
Prepaid expenses	(8,229)		(6,272)
Other current assets	(1,059)		(6,617)
Investment in sales-type leases	2,686		(3,273)
Prepaid commissions	(1,030)		2,213
Other long-term assets	2,567		(4,023)
Accounts payable	33,111		(8,659)
Accrued compensation	(12,018)		(8,377)
Accrued liabilities	20,149		3,281
Deferred revenues	21,225		8,827
Operating lease liabilities	(9,392)		(7,764)
Other long-term liabilities	(9,166)		8,057
Net cash provided by operating activities	172,177		109,422
Investing Activities

Software development for external use	(24,141)		(25,909)
Purchases of property and equipment	(17,892)		(17,265)
Business acquisition, net of cash acquired	(178,080)		—
Net cash used in investing activities	(220,113)		(43,174)
Financing Activities
Proceeds from revolving credit facility	—		150,000
Repayment of revolving credit facility	—		(200,000)
Payments for debt issuance costs for revolving credit facility	—		(550)
Proceeds from issuance of convertible senior notes, net of issuance costs	—		559,665
Purchase of convertible note hedge	—		(100,625)
Proceeds from sale of warrants	—		51,290

Proceeds from issuances under stock-based compensation plans	53,917		33,226
Employees’ taxes paid related to restricted stock units	(10,161)		(4,101)
Change in customer funds, net	(3,059)		—
Stock repurchases	—		(53,035)
Net cash provided by financing activities	40,697		435,870
Effect of exchange rate changes on cash and cash equivalents	(492)		(157)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(7,731)		501,961
Cash, cash equivalents, and restricted cash at beginning of period	489,920		127,210
Cash, cash equivalents, and restricted cash at end of period	$	482,189	$	629,171

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED


	Nine Months Ended September 30,
	2021		2020

	(In thousands)
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	481,549	$	629,171
Restricted cash included in Other current assets	640		—
Cash, cash equivalents, and restricted cash at end of period	$	482,189	$	629,171
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment	$	691	$	319
Transfers between inventory and property and equipment, net	$	1,876	$	—

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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OMNICELL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Organization and Summary of Significant Accounting Policies

Business

Omnicell, Inc. was incorporated in California in 1992 under the name Omnicell Technologies, Inc. and reincorporated in Delaware in 2001 as Omnicell, Inc. The Company’s major products and related services are medication management automation solutions and adherence tools for healthcare systems and pharmacies, which are sold in its principal market, the healthcare industry. The Company’s market is primarily located in the United States and Europe. “Omnicell” or the “Company” collectively refer to Omnicell, Inc. and its subsidiaries.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the financial position of the Company as of September 30, 2021 and December 31, 2020, the results of operations and comprehensive income for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 24, 2021, except as discussed in the section entitled “Recently Adopted Authoritative Guidance” below. The Company’s results of operations and comprehensive income for the three and nine months ended September 30, 2021, and cash flows for the nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021, or for any future period.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

On September 9, 2021, the Company completed its acquisition of RxInnovation Inc., operating as FDS Amplicare (“FDS Amplicare”). The Condensed Consolidated Financial Statements include the results of operations of this recently acquired company, commencing as of the acquisition date. The significant accounting policies of the acquired business have been aligned to conform to the accounting policies of Omnicell.

Reclassifications and Adjustments

Certain prior-year amounts have been reclassified to conform with current-period presentation. This reclassification was a change in the presentation of certain items in the disaggregation of revenues for the three and nine months ended September 30, 2020 in Note 3, Revenues. This change was not deemed material and was included to conform with current-period classification and presentation.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s Condensed Consolidated Financial Statements and accompanying Notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results may be different from the estimates.

The Company’s critical accounting policies are those that affect its financial statements materially and involve difficult, subjective, or complex judgments by management. As of September 30, 2021, the Company is not aware of any events or circumstances that would require an update to its estimates, judgments, or revisions to the carrying value of its assets or liabilities.

Segment Reporting

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company's Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The CODM

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allocates resources and evaluates the performance of the Company at the consolidated level using information about its revenues, gross profit, income from operations, and other key financial data. All significant operating decisions are based upon an analysis of the Company as one operating segment, which is the same as its reporting segment.

Recently Adopted Authoritative Guidance

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, Income Taxes, as well as improves consistent application of and simplifies the guidance for other areas of ASC 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12 on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Authoritative Guidance

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company will adopt ASU 2020-06 on January 1, 2022, and expects to use the modified retrospective method of transition. The Company’s adoption of the update is estimated to result in an increase in convertible senior notes, net of issuance costs, of $75.4 million; a decrease in additional paid-in capital of $72.7 million; a decrease of long-term deferred tax liabilities of $19.8 million; a decrease in long-term deferred tax assets of $0.5 million; and an increase in retained earnings of $16.7 million, all as of January 1, 2022.

There was no other recently issued and effective authoritative guidance that is expected to have a material impact on the Company’s Condensed Consolidated Financial Statements through the reporting date.

Note 2. Business Combinations

FDS Amplicare Acquisition

On September 9, 2021, the Company completed its acquisition of all of the outstanding equity interests in FDS Amplicare, pursuant to the terms and conditions of the Agreement and Plan of Merger, dated July 25, 2021, by and among FDS Amplicare, Omnicell, Inc., Fleming Acquisition Corp., and the representative of the securityholders for a base purchase price of $177.0 million, prior to post-closing adjustments for closing cash, net working capital, and assumed indebtedness, which is expected to be finalized in the fourth quarter of 2021. The following table summarizes the preliminary purchase price for the FDS Amplicare acquisition:


	FDS Amplicare

	(In thousands)
Base purchase price	$	177,000
Add: Estimated closing cash	859
Add: Estimated net working capital adjustment	1,333
Less: Assumed indebtedness	(647)
Total purchase price transferred	$	178,545

The FDS Amplicare acquisition adds a comprehensive and complementary suite of software-as-a-services (“SaaS”) financial management, analytics, and population health solutions to Omnicell’s EnlivenHealthTM offering. The results of FDS Amplicare’s operations have been included in the Company’s consolidated results of operations, commencing as of the acquisition date.

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The Company accounted for the acquisition of FDS Amplicare in accordance with ASC 805, Business Combinations. The tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The preliminary fair values assume management’s best estimates based on information available at the acquisition date and may change over the measurement period, which will end no later than one year from the acquisition date, as additional information is received. The following table represents the preliminary allocation of the purchase price to the assets acquired and the liabilities assumed by the Company as part of the acquisition included in the Company’s Condensed Consolidated Balance Sheets, and is reconciled to the purchase price transferred:


	FDS Amplicare (Preliminary)

	(In thousands)
Cash and cash equivalents	$	465
Accounts receivable and unbilled receivables	4,235
Prepaid expenses	506
Other current assets	45
Total current assets	5,251
Property and equipment	444
Operating lease right-of-use assets	2,252
Goodwill	118,846
Intangible assets	69,600
Other long-term assets	51
Total assets	196,444
Accounts payable	950
Accrued compensation	1,312
Accrued liabilities	1,396
Deferred revenues	1,916
Long-term deferred tax liabilities	11,275
Long-term operating lease liabilities	920
Other long-term liabilities	130
Total liabilities	17,899
Total purchase price	$	178,545
Total purchase price, net of cash acquired	$	178,080

The $118.8 million of goodwill arising from the FDS Amplicare acquisition is primarily attributed to sales of future SaaS solutions and FDS Amplicare’s assembled workforce. None of the goodwill is expected to be deductible for tax purposes.

Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:


	FDS Amplicare
	Fair value		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	59,500	23
Acquired technology	7,700		5 - 7

Trade names	2,400		5


Total purchased intangible assets	$	69,600

The customer relationships intangible asset represents the fair value of the underlying relationships and agreements with FDS Amplicare’s customers. The acquired technology intangible assets represent the fair value of FDS Amplicare’s portfolio of SaaS solutions that have reached technological feasibility and were part of FDS Amplicare’s offerings at the

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acquisition date. The trade names intangible asset represents the fair value of brand and name recognition associated with the marketing of certain FDS Amplicare SaaS solutions.

The fair value of the customer relationships intangible asset was determined based on the excess earnings method, and the fair values of the acquired technology and trade names intangible assets were determined based on the relief-from-royalty method. The key assumptions used in estimating the fair values of intangible assets included forecasted financial information; customer attrition rates; royalty rates of 10.0% and 2.0% for the acquired technology and trade names intangible assets, respectively; a discount rate of 13.0% for all intangible assets; and certain other assumptions.

The customer relationships and acquired technology intangible assets are being amortized using a double-declining method of amortization as such method better represents the economic benefits to be obtained. The trade names intangible asset is being amortized over its estimated useful life using the straight-line method of amortization.

The Company believes that the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions.

The Company incurred approximately $4.6 million and $6.6 million in acquisition-related costs related to the FDS Amplicare acquisition during the three and nine months ended September 30, 2021, respectively. These costs were expensed as incurred, and are included in selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

340B Link Business Acquisition

On October 1, 2020, the Company completed the acquisition of all of the outstanding equity of the 340B Link business (the “340B Link Business”) of Pharmaceutical Strategies Group, LLC pursuant to the terms and conditions of the Equity Purchase Agreement, dated August 11, 2020, as amended, by and among Omnicell, Inc., PSGH, LLC, BW Apothecary Holdings, LLC, the sellers identified therein, and the sellers’ representative for total cash consideration of $225.0 million. The 340B Link Business acquisition adds a comprehensive and differentiated suite of software-enabled services and solutions used by certain eligible hospitals, health systems, clinics, and entities to manage compliance and capture 340B drug cost savings on outpatient prescriptions filled through the eligible entity’s pharmacy or a contracted pharmacy partner. The results of the 340B Link Business’s operations have been included in the Company’s consolidated results of operations, commencing as of the acquisition date.

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The Company accounted for the acquisition of the 340B Link Business in accordance with ASC 805. The tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The following table represents the allocation of the purchase price to the assets acquired and the liabilities assumed by the Company as part of the acquisition included in the Company’s Condensed Consolidated Balance Sheets, and is reconciled to the purchase price transferred:


	340B Link Business

	(In thousands)

Accounts receivable and unbilled receivables	$	8,197
Prepaid expenses	232
Other current assets (1)	23,040
Total current assets	31,469
Property and equipment	531
Operating lease right-of-use assets	3,138
Goodwill (1)	160,268
Intangible assets	62,800
Total assets	258,206
Accounts payable	568
Accrued liabilities (1)	23,715
Long-term deferred tax liabilities (1)	6,334
Long-term operating lease liabilities	2,589
Total liabilities	33,206
Total purchase price	$	225,000

_________________________________________________

(1) During the third quarter of 2021, the Company recorded measurement period adjustments of $0.9 million to goodwill, consisting of an increase in other current assets, a decrease in accrued liabilities, and a decrease in long-term deferred tax liabilities of $0.3 million, $0.1 million, and $0.5 million, respectively.

The $160.3 million of goodwill arising from the 340B Link Business acquisition is primarily attributed to sales of future software-enabled services and solutions and the 340B Link Business’s assembled workforce. Goodwill that is expected to be deductible for tax purposes is approximately $93.7 million.


	340B Link Business
	Fair value		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	53,000	21
Acquired technology	9,000		5

Trade names	200		1
Non-compete agreements	600		3

Total purchased intangible assets	$	62,800

The customer relationships intangible asset represents the fair value of the underlying relationships and agreements with the 340B Link Business’s customers. The acquired technology intangible asset represents the fair value of the 340B Link Business’s portfolio of software and solutions that have reached technological feasibility and were part of the 340B Link Business’s offerings at the acquisition date. The trade names intangible asset represents the fair value of brand and name recognition associated with the marketing of the 340B Link Business’s software-enabled services and solutions. The non-compete agreements intangible asset represents the fair value of non-compete agreements with former key members of the 340B Link Business’s management.

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The fair value of the customer relationships intangible asset was determined based on the excess earnings method; the fair values of the acquired technology and trade names intangible assets were determined based on the relief-from-royalty method; and the fair value of the non-compete agreements intangible asset was determined based on the lost profits method. The key assumptions used in estimating the fair values of intangible assets included forecasted financial information; customer attrition rates; royalty rates of 10.0% and 0.5% for the acquired technology and trade names intangible assets, respectively; a discount rate of 14.0% for all intangible assets; and certain other assumptions.

The customer relationships and acquired technology intangible assets are being amortized using a double-declining method of amortization as such method better represents the economic benefits to be obtained. The trade names and non-compete agreements are being amortized over their estimated useful lives using the straight-line method of amortization.

The Company incurred approximately $3.9 million in acquisition-related costs related to the 340B Link Business acquisition during the nine months ended September 30, 2020. These costs were expensed as incurred, and are included in selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

Pro Forma Financial Information

The following table presents certain unaudited pro forma consolidated financial information for the three and nine months ended September 30, 2021 and 2020 as if the FDS Amplicare acquisition had been completed on January 1, 2020 and the 340B Link Business acquisition had been completed on January 1, 2019. The unaudited pro forma financial information is presented for informational purposes only, and is not indicative of what would have occurred had the FDS Amplicare acquisition and the 340B Link Business acquisition taken place on January 1, 2020 and January 1, 2019, respectively. The unaudited pro forma financial information combines the historical results of the acquisitions with the Company’s consolidated historical results and includes certain adjustments including, but not limited to, amortization and depreciation of intangible assets and property and equipment acquired; imputed interest, interest expense, and amortization of debt issuance costs related to acquisitions, as applicable; and certain acquisition-related costs incurred.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands)
Pro forma revenues	$	302,114	$	230,099	$	840,896	$	689,208
Pro forma net income	$	32,050	$	10,350	$	65,194	$	8,476

Note 3. Revenues

Revenue Recognition

The Company earns revenues from sales of its products and related services, which are sold in the healthcare industry, its principal market. The Company’s customer arrangements typically include one or more of the following revenue categories:

Connected devices, software licenses, and other. Software-enabled connected devices and software licenses that manage and regulate the storage and dispensing of pharmaceuticals, consumables blister cards, and packaging equipment and other supplies. This revenue category is often sold through long-term, sole-source agreements with multi-year co-development plans. Solutions in this category include, but are not limited to, XT Series automated dispensing systems, the XR2 Automated Central Pharmacy System, and IV compounding automation solutions.

Technical services. Post-installation technical support and other related services, including phone support, on-site service, parts, and access to unspecified software updates and enhancements, if and when available. This revenue category is often supported by multi-year or annual contractual agreements.

Consumables. Medication adherence packaging, labeling, and other one-time use packaging including multimed adherence packaging and single dose blister cards which are used by retail, community, and outpatient pharmacies, as well as by institutional pharmacies serving long-term care and other sites outside the acute care hospital, and are designed to improve patient engagement and adherence to prescriptions.

SaaS, subscription software, and technology-enabled services. Emerging software and service solutions which are offered on a subscription basis with fees typically based either on transaction volume or a fee over a specified period of time. Solutions in this category include, but are not limited to, EnlivenHealth (formerly Population Health

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Solutions) inclusive of newly acquired FDS Amplicare, 340B solutions, and services associated with Omnicell One™ (formerly Performance Center), Central Pharmacy Dispensing Services, including the XR2 Automated Central Pharmacy System, and Central Pharmacy Compounding Services, including IV compounding automation solutions.

The following table summarizes revenue recognition for each revenue category:

Revenue Category

Timing of Revenue Recognition

Income Statement Classification

Connected devices, software licenses, and other

Point in time, as transfer of control occurs, generally upon installation and acceptance by the customer

Product

Technical services

Over time, as services are provided, typically ratably over the service term

Service

Consumables

Point in time, as transfer of control occurs, generally upon shipment to or receipt by customer

Product

SaaS, subscription software, and technology-enabled services

Over time, as services are provided

Service

A portion of the Company’s sales are made to customers who are members of Group Purchasing Organizations (“GPOs”) and Federal agencies that purchase under a Federal Supply Schedule contract with the Department of Veterans Affairs (the “GSA Contract”). GPOs are often owned fully or in part by the Company’s customers, and the Company pays fees to the GPO on completed contracts. The Company also pays the Industrial Funding Fee (“IFF”) to the Department of Veterans Affairs under the GSA Contract. The Company considers these fees consideration paid to customers and records them as reductions to revenue. Fees to GPOs and the IFF were $4.4 million and $2.3 million for the three months ended September 30, 2021 and 2020, respectively, and $12.0 million and $6.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Disaggregation of Revenues

The following table summarizes the Company’s revenues disaggregated by revenue type for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands)
Connected devices, software licenses, and other	$	195,820	$	135,037	$	534,582	$	403,761
Technical services	53,529		51,380		156,321		151,077
Consumables	18,150		16,300		54,424		56,591
SaaS, subscription software, and technology-enabled services	28,903		10,982		75,657		31,577
Total revenues	$	296,402	$	213,699	$	820,984	$	643,006

The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In thousands)
United States	$	271,276	$	193,639	$	738,411	$	579,425
Rest of world (1)	25,126		20,060		82,573