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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)
Delaware94-3166458
(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)

(650251-6100
(Registrant’s telephone number, including area code)
    Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueOMCLNASDAQ 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 FilerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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.


OMNICELL, INC.
TABLE OF CONTENTS
Page

2

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 
Inventories104,259 96,298 
Prepaid expenses24,762 16,027 
Other current assets44,417 41,044 
Total current assets888,716 829,414 
Property and equipment, net64,955 59,073 
Long-term investment in sales-type leases, net19,187 22,156 
Operating lease right-of-use assets48,973 55,114 
Goodwill616,387 499,309 
Intangible assets, net218,956 168,211 
Long-term deferred tax assets15,866 15,019 
Prepaid commissions57,949 56,919 
Other long-term assets120,482 119,289 
Total assets$2,051,471 $1,824,504 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$74,656 $40,309 
Accrued compensation45,044 55,750 
Accrued liabilities104,236 80,311 
Deferred revenues, net114,726 100,053 
Total current liabilities338,662 276,423 
Long-term deferred revenues14,141 5,673 
Long-term deferred tax liabilities53,313 39,633 
Long-term operating lease liabilities40,436 48,897 
Other long-term liabilities10,761 19,174 
Convertible senior notes, net482,822 467,201 
Total liabilities940,135 857,001 
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 capital1,002,591 920,359 
Retained earnings354,590 290,722 
Accumulated other comprehensive loss(7,790)(5,522)
Total stockholders’ equity1,111,336 967,503 
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.
3

OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(In thousands, except per share data)
Revenues:
Product revenues$213,970 $151,337 $589,006 $460,352 
Services and other revenues82,432 62,362 231,978 182,654 
Total revenues296,402 213,699 820,984 643,006 
Cost of revenues:
Cost of product revenues110,743 86,689 303,597 262,740 
Cost of services and other revenues38,880 30,219 112,027 90,628 
Total cost of revenues149,623 116,908 415,624 353,368 
Gross profit146,779 96,791 405,360 289,638 
Operating expenses:
Research and development19,477 15,197 53,770 54,679 
Selling, general, and administrative97,910 71,442 273,672 219,647 
Total operating expenses117,387 86,639 327,442 274,326 
Income from operations29,392 10,152 77,918 15,312 
Interest and other income (expense), net(6,065)809 (18,715)161 
Income before provision for income taxes23,327 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:
Basic43,648 42,802 43,293 42,606 
Diluted48,341 43,691 47,195 43,651 
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4

OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(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.
5

OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Common StockTreasury StockAdditional
Paid-In Capital
Accumulated
Earnings
Accumulated Other
Comprehensive Income (Loss)
Stockholders’
Equity
SharesAmountSharesAmount
(In thousands)
Balances as of December 31, 202052,677 $53 (9,894)$(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 plans388 — — — 20,826 — — 20,826 
Tax payments related to restricted stock units— — — — (2,596)— — (2,596)
Balances as of March 31, 202153,065 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 plans265 — — — 11,517 — — 11,517 
Tax payments related to restricted stock units— — — — (4,071)— — (4,071)
Balances as of June 30, 202153,330 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 plans433 1 — — 21,573 — — 21,574 
Tax payments related to restricted stock units— — — — (3,494)— — (3,494)
Balances as of September 30, 202153,763 $54 (9,894)$(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.
6

OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - CONTINUED
Common StockTreasury StockAdditional
Paid-In Capital
Accumulated
Earnings
Accumulated Other
Comprehensive Income (Loss)
Stockholders’
Equity
SharesAmountSharesAmount
(In thousands)
Balances as of December 31, 201951,277 $51 (9,145)$(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 plans474 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, 202051,751 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 plans151 — — — 3,503 — — 3,503 
Tax payments related to restricted stock units— — — — (2,045)— — (2,045)
Balances as of June 30, 202051,902 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 plans266 — — — 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, 202052,168 $52 (9,894)$(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,
20212020
(In thousands)
Operating Activities
Net income$63,868 $15,817 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization53,140 43,903 
Loss on disposal of property and equipment297  
Share-based compensation expense38,477 33,034 
Deferred income taxes2,042 (3,643)
Amortization of operating lease right-of-use assets8,764 7,692 
Amortization of debt issuance costs2,570 754 
Amortization of discount on convertible senior notes13,874 249 
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 leases2,686 (3,273)
Prepaid commissions(1,030)2,213 
Other long-term assets2,567 (4,023)
Accounts payable33,111 (8,659)
Accrued compensation(12,018)(8,377)
Accrued liabilities20,149 3,281 
Deferred revenues21,225 8,827 
Operating lease liabilities(9,392)(7,764)
Other long-term liabilities(9,166)8,057 
Net cash provided by operating activities172,177 109,422 
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 plans53,917 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 activities40,697 435,870 
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 period489,920 127,210 
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,
20212020
(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 assets640  
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.
9

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 cash859 
Add: Estimated net working capital adjustment1,333 
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 receivables4,235 
Prepaid expenses506 
Other current assets45 
Total current assets5,251 
Property and equipment444 
Operating lease right-of-use assets2,252 
Goodwill118,846 
Intangible assets69,600 
Other long-term assets51 
Total assets196,444 
Accounts payable950 
Accrued compensation1,312 
Accrued liabilities1,396 
Deferred revenues1,916 
Long-term deferred tax liabilities11,275 
Long-term operating lease liabilities920 
Other long-term liabilities130 
Total liabilities17,899 
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 valueUseful life
(years)
(In thousands, except for years)
Customer relationships$59,500 23
Acquired technology7,700 
5 - 7
Trade names2,400 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 expenses232 
Other current assets (1)
23,040 
Total current assets31,469 
Property and equipment531 
Operating lease right-of-use assets3,138 
Goodwill (1)
160,268 
Intangible assets62,800 
Total assets258,206 
Accounts payable568 
Accrued liabilities (1)
23,715 
Long-term deferred tax liabilities (1)
6,334 
Long-term operating lease liabilities2,589 
Total liabilities33,206 
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.
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:
340B Link Business
Fair valueUseful life
(years)
(In thousands, except for years)
Customer relationships$53,000 21
Acquired technology9,000 5
Trade names200 1
Non-compete agreements600 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 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 $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,
2021202020212020
(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,
2021202020212020
(In thousands)
Connected devices, software licenses, and other$195,820 $135,037 $534,582 $403,761 
Technical services53,529 51,380 156,321 151,077 
Consumables18,150 16,300 54,424 56,591 
SaaS, subscription software, and technology-enabled services28,903 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,
2021202020212020
(In thousands)
United States$271,276 $193,639 $738,411 $579,425 
Rest of world (1)
25,126 20,060 82,573