OMNICELL, INC. [OMCL] Filings

10-Q 1 omcl-20220630.htm 10-Q omcl-20220630

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 June 30, 2022


☐			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.)

2625 Augustine Drive, Suite 301

Santa Clara, CA 95054

(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 July 29, 2022, there were 44,288,764 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 June 30, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2022 and 2021	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2022 and 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

Signature		52

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OMNICELL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	June 30, 2022		December 31, 2021

	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	244,953	$	349,051
Accounts receivable and unbilled receivables, net of allowances of $4,752 and $5,272, respectively	310,520		240,894
Inventories	150,461		119,924
Prepaid expenses	20,856		22,499
Other current assets	60,980		48,334
Total current assets	787,770		780,702
Property and equipment, net	81,834		71,141
Long-term investment in sales-type leases, net	29,209		18,391
Operating lease right-of-use assets	46,240		48,549
Goodwill	734,487		738,900
Intangible assets, net	260,159		277,616
Long-term deferred tax assets	16,134		15,883
Prepaid commissions	57,762		63,795
Other long-term assets	117,863		127,519
Total assets	$	2,131,458	$	2,142,496

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	68,400	$	71,513
Accrued compensation	60,012		71,130
Accrued liabilities	136,523		133,167

Deferred revenues, net	108,579		112,196
Convertible senior notes, net	—		488,152
Total current liabilities	373,514		876,158
Long-term deferred revenues	24,187		20,194
Long-term deferred tax liabilities	23,906		51,705
Long-term operating lease liabilities	43,371		39,911
Other long-term liabilities	8,808		7,839

Convertible senior notes, net	565,035		—
Total liabilities	1,038,821		995,807
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; 54,571 and 54,073 shares issued; 44,288 and 44,179 shares outstanding, respectively	55		54
Treasury stock at cost, 10,283 and 9,894 shares outstanding, respectively	(290,319)		(238,109)
Additional paid-in capital	997,911		1,024,580
Retained earnings	402,362		368,571
Accumulated other comprehensive loss	(17,372)		(8,407)
Total stockholders’ equity	1,092,637		1,146,689
Total liabilities and stockholders’ equity	$	2,131,458	$	2,142,496

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands, except per share data)
Revenues:
Product revenues	$	233,806	$	196,911	$	459,681	$	375,036
Services and other revenues	97,580		75,828		190,533		149,546
Total revenues	331,386		272,739		650,214		524,582
Cost of revenues:
Cost of product revenues	121,814		100,227		240,152		192,854
Cost of services and other revenues	51,480		36,214		101,923		73,147
Total cost of revenues	173,294		136,441		342,075		266,001
Gross profit	158,092		136,298		308,139		258,581
Operating expenses:
Research and development	26,355		18,213		51,385		34,293
Selling, general, and administrative	119,252		89,169		239,185		175,762

Total operating expenses	145,607		107,382		290,570		210,055
Income from operations	12,485		28,916		17,569		48,526
Interest and other income (expense), net	(1,711)		(5,959)		(1,825)		(12,650)
Income before provision for income taxes	10,774		22,957		15,744		35,876
Provision for (benefit from) income taxes	1,705		2,533		(1,538)		1,325
Net income	$	9,069	$	20,424	$	17,282	$	34,551
Net income per share:
Basic	$	0.21	$	0.47	$	0.39	$	0.80

Diluted	$	0.20	$	0.43	$	0.37	$	0.74
Weighted-average shares outstanding:
Basic	44,219		43,262		44,234		43,113
Diluted	46,260		47,106		47,121		46,765

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
Net income	$	9,069	$	20,424	$	17,282	$	34,551
Other comprehensive income (loss):

Foreign currency translation adjustments	(6,410)		652		(8,965)		31
Other comprehensive income (loss)	(6,410)		652		(8,965)		31
Comprehensive income	$	2,659	$	21,076	$	8,317	$	34,582

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, 2021	54,073	$	54	(9,894)	$	(238,109)	$	1,024,580	$	368,571	$	(8,407)	$	1,146,689
Net income	—	—		—	—		—		8,213		—		8,213
Other comprehensive loss	—	—		—	—		—		—		(2,555)		(2,555)

Share-based compensation	—	—		—	—		16,208		—		—		16,208
Issuance of common stock under employee stock plans	384	—		—	—		18,951		—		—		18,951
Tax payments related to restricted stock units	—	—		—	—		(4,322)		—		—		(4,322)
Stock repurchases	—	—		(389)	(52,210)		—		—		—		(52,210)
Cumulative effect of a change in accounting principle related to convertible debt	—	—		—	—		(72,742)		16,509		—		(56,233)
Balances as of March 31, 2022	54,457	54		(10,283)	(290,319)		982,675		393,293		(10,962)		1,074,741
Net income	—	—		—	—		—		9,069		—		9,069
Other comprehensive loss	—	—		—	—		—		—		(6,410)		(6,410)

Share-based compensation	—	—		—	—		17,213		—		—		17,213
Issuance of common stock under employee stock plans	114	1		—	—		2,171		—		—		2,172
Tax payments related to restricted stock units	—	—		—	—		(4,148)		—		—		(4,148)
Balances as of June 30, 2022	54,571	$	55	(10,283)	$	(290,319)	$	997,911	$	402,362	$	(17,372)	$	1,092,637

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, 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

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)


	Six Months Ended June 30,
	2022		2021

	(In thousands)
Operating Activities
Net income	$	17,282	$	34,551
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	43,017		34,965




Share-based compensation expense	33,421		24,811



Deferred income taxes	(9,506)		453
Amortization of operating lease right-of-use assets	6,801		5,791
Impairment and abandonment of operating lease right-of-use assets related to facilities	5,093		—
Amortization of debt issuance costs	2,079		1,707
Amortization of discount on convertible senior notes	—		9,195
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables	(71,418)		(19,662)
Inventories	(32,625)		(6,569)
Prepaid expenses	1,660		(1,415)
Other current assets	(1,996)		188
Investment in sales-type leases	(12,465)		2,423
Prepaid commissions	6,033		1,852
Other long-term assets	1,455		1,559
Accounts payable	(3,130)		15,684
Accrued compensation	(11,118)		(7,263)
Accrued liabilities	4,682		10,142
Deferred revenues	1,395		27,454
Operating lease liabilities	(7,176)		(6,247)
Other long-term liabilities	969		(431)
Net cash provided by (used in) operating activities	(25,547)		129,188
Investing Activities

Software development for external use	(6,543)		(15,415)
Purchases of property and equipment	(21,099)		(11,067)
Business acquisition, net of cash acquired	(3,392)		—
Purchase price adjustments from business acquisitions	5,484		—
Net cash used in investing activities	(25,550)		(26,482)
Financing Activities







Proceeds from issuances under stock-based compensation plans	21,123		32,343
Employees’ taxes paid related to restricted stock units	(8,470)		(6,667)
Change in customer funds, net	5,986		(3,263)
Stock repurchases	(52,210)		—
Net cash provided by (used in) financing activities	(33,571)		22,413
Effect of exchange rate changes on cash and cash equivalents	(2,123)		(74)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(86,791)		125,045
Cash, cash equivalents, and restricted cash at beginning of period	355,620		489,920
Cash, cash equivalents, and restricted cash at end of period	$	268,829	$	614,965
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	244,953	$	614,236
Restricted cash included in other current assets	23,876		729
Cash, cash equivalents, and restricted cash at end of period	$	268,829	$	614,965
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment	$	1,444	$	607
Transfers between inventory and property and equipment, net	$	314	$	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 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” refer to Omnicell, Inc. and its subsidiaries, collectively.

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 June 30, 2022 and December 31, 2021, the results of operations and comprehensive income for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021. 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, 2021, filed with the SEC on February 25, 2022, 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 six months ended June 30, 2022, and cash flows for the six months ended June 30, 2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2022, 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 January 10, 2022, the Company completed its acquisition of Hub and Spoke Innovations Limited (“Hub and Spoke Innovations”). 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.

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. These estimates are based on historical experience and various other assumptions that management believes 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 June 30, 2022, 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 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.

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Recently Adopted Authoritative Guidance

In August 2020, the Financial Accounting Standards Board (“FASB“) issued Accounting Standards Update (“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. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method is no longer permitted for convertible instruments. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective method of transition. Upon adoption of ASU 2020-06, the previously separated equity component and associated debt issuance costs for the Company’s outstanding convertible senior notes were reclassified to the liability component, thereby eliminating the subsequent amortization of the debt discount as interest expense. In addition, the Company derecognized the deferred tax liability related to the equity component.

In December 2021, the Company made an irrevocable election under the indenture to require the principal portion of the Company’s convertible senior notes to be settled in cash and any conversion consideration in excess of the principal portion in cash and/or shares of the Company’s common stock at the Company’s option upon conversion. Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

The Company’s adoption of the update impacted the Condensed Consolidated Balance Sheets at the beginning of the period of adoption as follows:


	January 1, 2022
	Pre-ASU 2020-06 Balances		ASU 2020-06 Adoption Impact		Post-ASU 2020-06 Balances

	(In thousands)
Long-term deferred tax assets	$	15,883	$	(452)	$	15,431
Convertible senior notes, net	488,152		75,353		563,505
Long-term deferred tax liabilities	51,705		(19,572)		32,133
Additional paid-in capital	1,024,580		(72,742)		951,838
Retained earnings	368,571		16,509		385,080

Adoption of the update did not have an impact on the Company’s Condensed Consolidated Statements of Operations or Condensed Consolidated Statements of Cash Flows as of January 1, 2022. Refer to Note 10, Convertible Senior Notes, for further information regarding the Company’s convertible senior notes.

Recently Issued Authoritative Guidance

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The update addresses diversity in practice by requiring that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. ASU 2021-08 will be effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company is currently evaluating the impact ASU 2021-08 will have on its Condensed Consolidated Financial Statements.

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

Note 2. Business Combinations

The Company accounted for its acquisitions in accordance with ASC 805, Business Combinations. The tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the respective acquisition dates. Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion, each as set forth in the accounting guidance. The preliminary fair values reflect management’s best estimates based on information available at the respective acquisition dates and may change as additional information is received over the measurement period, which will end no later than one year from the respective acquisition date. The Company

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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’s Condensed Consolidated Financial Statements include the results of operations of each acquired company, commencing as of their respective acquisition dates. Acquisition-related costs were expensed as incurred, and are included in selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

2022 Acquisition

Hub and Spoke Innovations

On January 10, 2022, the Company completed the acquisition of all of the outstanding equity interests in Hub and Spoke Innovations, pursuant to the terms and conditions of the Share Purchase Agreement, dated January 10, 2022, by and among Omnicell Limited (a wholly-owned subsidiary of the Company), Hub and Spoke Innovations Limited, and certain beneficial stockholders specified therein for a base purchase price of £2.5 million (approximately $3.4 million based on the exchange rate in effect at the acquisition date), prior to customary adjustments for closing cash, net working capital, and assumed indebtedness. The preliminary purchase price transferred for the transaction, net of cash acquired, was £2.5 million (approximately $3.4 million based on the exchange rate in effect at the acquisition date). Of the purchase price transferred, £1.9 million (approximately $2.5 million based on the exchange rate in effect at the acquisition date) was allocated to goodwill; £0.8 million (approximately $1.1 million based on the exchange rate in effect at the acquisition date) was allocated to intangible assets, which included customer relationships; and the remainder was allocated to net assets acquired. The Hub and Spoke Innovations acquisition is expected to complement Omnicell’s total solution technology portfolio for retail pharmacy in the United Kingdom to help pharmacies improve workflows, offer patients 24/7 access to their medications and provide enhanced patient care.

2021 Acquisitions

MarkeTouch Media

On December 31, 2021, the Company completed the acquisition of all of the outstanding equity interests in MarkeTouch Media, LLC (“MarkeTouch Media”) pursuant to the terms and conditions of the Unit Purchase Agreement, dated December 31, 2021, by and among ateb, Inc. (a wholly-owned subsidiary of the Company), MarkeTouch Media, LLC, MarkeTouch Holdings, Inc., Toucan Enterprises, Inc., and certain beneficial stockholders specified therein for a base purchase price of $82.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness. The MarkeTouch Media acquisition adds mobile and web-based technology and patient engagement solutions, which is expected to expand the footprint of EnlivenHealth® across the retail pharmacy sector, while enhancing potential growth opportunities in new market segments like specialty pharmacy and pharmacy benefits management.

ReCept

On December 29, 2021, the Company completed the acquisition of all outstanding equity securities of ReCept Holdings, Inc. (“ReCept”) pursuant to the terms and conditions of the Agreement and Plan of Merger, dated December 1, 2021, by and among Omnicell, Inc., ReCept Holdings, Inc., Redfish Acquisition Corp, and the representative of the securityholders for a base purchase price of $100.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness. The addition of ReCept’s specialty pharmacy management services for health systems, provider groups, and federally qualified health centers expands Omnicell’s Advanced Services portfolio in an effort to address the growing and complex specialty pharmacy market.

FDS Amplicare

On September 9, 2021, the Company completed the acquisition of all of the outstanding equity interests in RxInnovation, Inc., operating as FDS Amplicare (“FDS Amplicare”), pursuant to the terms and conditions of the Agreement and Plan of Merger, dated July 25, 2021, by and among RxInnovation Inc., Omnicell, Inc., Fleming Acquisition Corp., and the representative of the securityholders for a base purchase price of $177.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness. The FDS Amplicare® acquisition adds a comprehensive and complementary suite of Software-as-a-Service (“SaaS”) financial management, analytics, and population health solutions to the Company’s EnlivenHealth offering.

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The following tables represent the preliminary allocation of the respective purchase price to the assets acquired and the liabilities assumed by the Company as part of each acquisition included in the Company’s Consolidated Balance Sheets, and is reconciled to the respective purchase price transferred:


	FDS Amplicare (1)		ReCept (2) (3)		MarkeTouch Media (4)

	(In thousands)
Purchase price transferred:
Base purchase price	$	177,000	$	100,000	$	82,000
Add: Closing cash	465		6,569		237
Add: Net working capital adjustment	1,654		(7,357)		147
Less: Assumed indebtedness	(653)		(1,973)		(15)
Total purchase price transferred	$	178,466	$	97,239	$	82,369

	FDS Amplicare (Preliminary) (1)		ReCept (Preliminary) (2) (3)		MarkeTouch Media (Preliminary) (4)
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	$	465	$	—	$	237
Accounts receivable and unbilled receivables	5,330		2,383		2,302
Prepaid expenses	506		192		96
Other current assets	45		12,223		—
Total current assets	6,346		14,798		2,635
Property and equipment	444		172		177
Operating lease right-of-use assets	2,252		773		602
Goodwill	117,675		78,098		42,273
Intangible assets	70,000		28,100		38,000
Other long-term assets	51		195		2,850
Total assets	196,768		122,136		86,537
Accounts payable	950		219		473
Accrued compensation	1,312		1,756		—
Accrued liabilities	1,396		18,499		292
Deferred revenues	1,916		222		347
Long-term deferred tax liabilities	11,678		3,587		—
Long-term operating lease liabilities	920		614		206
Other long-term liabilities	130		—		2,850
Total liabilities	18,302		24,897		4,168
Total purchase price	$	178,466	$	97,239	$	82,369
Total purchase price, net of cash acquired	$	178,001	$	90,670	$	82,132

_________________________________________________

(1) During the fourth quarter of 2021, the Company recorded measurement period adjustments of $1.5 million to goodwill, consisting of an increase in intangible assets, accounts receivable and unbilled receivables, and long-term deferred tax liabilities of $0.4 million, $1.1 million, and $0.1 million, respectively, and a net working capital adjustment of $0.1 million. During the second quarter of 2022, the Company recorded a measurement period adjustment of $0.3 million to goodwill, consisting of an increase in long-term deferred tax liabilities.

(2) Closing cash is included in other current assets due to its restrictive nature as cash held for customers.

(3) During the second quarter of 2022, the Company recorded measurement period adjustments of $3.5 million to goodwill, consisting of a purchase price adjustment of $5.2 million, partially offset by a decrease to other current assets of $1.7 million.

(4) During the second quarter of 2022, the Company recorded a measurement period adjustment of $0.3 million to goodwill related to a purchase price adjustment.

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The $117.7 million of goodwill arising from the FDS Amplicare acquisition is primarily attributed to future sales of SaaS solutions and FDS Amplicare’s assembled workforce. The $78.1 million of goodwill arising from the ReCept acquisition is primarily attributed to future sales of its offerings and services and ReCept’s assembled workforce. None of the FDS Amplicare and ReCept goodwill is expected to be deductible for tax purposes as these acquisitions were treated as stock acquisitions for U.S. Federal tax purposes. The $42.3 million of goodwill arising from the MarkeTouch Media acquisition is primarily attributed to future sales of SaaS solutions and MarkeTouch Media’s assembled workforce. The full amount of the MarkeTouch Media goodwill is expected to be deductible for tax purposes as this acquisition was treated as an asset acquisition for U.S. Federal tax purposes.

The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:


	FDS Amplicare (1)			ReCept			MarkeTouch Media
	Fair value		Useful life (years)	Fair value		Useful life (years)	Fair value		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	59,900	23	$	28,100	23	$	34,100	26
Acquired technology	7,700		5 - 7	—		—	2,100		4
Backlog	—		—	—		—	1,800		2
Trade names	2,400		5	—		—	—		—


Total purchased intangible assets	$	70,000		$	28,100		$	38,000

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(1) During the fourth quarter of 2021, the Company recorded a measurement period adjustment of $0.4 million in customer relationships.

The customer relationships intangible assets represent the fair values of the underlying relationships and agreements with each acquired company’s customers. The acquired technology intangible assets represent the fair values of the portfolio of SaaS solutions that have reached technological feasibility and were part of the respective acquired company’s offerings at their respective acquisition dates. The backlog intangible asset represents contractually committed future billings associated with MarkeTouch Media customer contracts. 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 values of the customer relationships and backlog intangible assets were 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 rate of 10.0% for the acquired technology intangible assets for both FDS Amplicare and MarkeTouch Media; royalty rate of 2.0% for the FDS Amplicare trade names intangible asset; discount rate of 13.0% for the FDS Amplicare acquisition; discount rate of 15.0% for the ReCept acquisition; discount rate of 11.5% for the MarkeTouch Media acquisition; 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 backlog and trade names intangible assets are being amortized over their respective estimated useful lives using the straight-line method of amortization.

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Pro Forma Financial Information

The following table presents certain unaudited pro forma consolidated financial information for the three and six months ended June 30, 2021 as if the FDS Amplicare, ReCept, and MarkeTouch Media acquisitions had been completed on January 1, 2020. The pro forma effects of the Hub and Spoke Innovations acquisition were not material to the Company’s consolidated results of operations. The unaudited pro forma financial information is presented for informational purposes only, and is not indicative of what would have occurred had the acquisitions taken place on those respective dates. 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; and certain acquisition-related costs incurred.


	Three Months Ended June 30,		Six Months Ended June 30,
	2021			2021

	(In thousands)
Pro forma revenues	$	290,970		$	559,891
Pro forma net income	$	20,827		$	33,893

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, IVX Station 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 inclusive of FDS Amplicare and MarkeTouch Media, 340B solutions, ReCept management services, and services associated with Omnicell One™, Central Pharmacy Dispensing Services, including the XR2 Automated Central Pharmacy System, and Central Pharmacy Compounding Services, including IVX Station and 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

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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 fully or partially owned 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 $4.0 million and $4.2 million for the three months ended June 30, 2022 and 2021, respectively, and $8.5 million and $7.6 million for the six months ended June 30, 2022 and 2021, respectively.

Disaggregation of Revenues

The following table summarizes the Company’s revenues disaggregated by revenue type for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
Connected devices, software licenses, and other	$	215,632	$	179,044	$	423,710	$	338,762
Technical services	53,303		51,932		102,472		102,792
Consumables	18,174		17,867		35,971		36,274
SaaS, subscription software, and technology-enabled services	44,277		23,896		88,061		46,754
Total revenues	$	331,386	$	272,739	$	650,214	$	524,582

The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
United States	$	294,937	$	242,859	$	582,514	$	467,135
Rest of world (1)	36,449		29,880		67,700		57,447
Total revenues	$	331,386	$	272,739	$	650,214	$	524,582

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(1) No individual country represented more than 10% of total revenues.

Contract Assets and Contract Liabilities

The following table reflects the Company’s contract assets and contract liabilities:


	June 30, 2022		December 31, 2021

	(In thousands)
Short-term unbilled receivables, net (1)	$	19,567	$	17,208
Long-term unbilled receivables, net (2)	16,185		18,084
Total contract assets	$	35,752	$	35,292

Short-term deferred revenues, net	$	108,579	$	112,196
Long-term deferred revenues	24,187		20,194
Total contract liabilities	$	132,766	$	132,390

_________________________________________________

(1) Included in accounts receivable and unbilled receivables in the Condensed Consolidated Balance Sheets.

(2) Included in other long-term assets in the Condensed Consolidated Balance Sheets.

The portion of the transaction price allocated to the Company’s unsatisfied performance obligations for which invoicing has occurred is recorded as deferred revenues.