10-Q 1 omcl-20220331.htm 10-Q omcl-20220331
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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 March 31, 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)
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 April 29, 2022, there were 44,198,195 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)
March 31,
2022
December 31,
2021
(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents$265,008 $349,051 
Accounts receivable and unbilled receivables, net of allowances of $5,278 and $5,272, respectively
290,469 240,894 
Inventories137,056 119,924 
Prepaid expenses24,228 22,499 
Other current assets58,843 48,334 
Total current assets775,604 780,702 
Property and equipment, net77,062 71,141 
Long-term investment in sales-type leases, net19,051 18,391 
Operating lease right-of-use assets43,204 48,549 
Goodwill740,426 738,900 
Intangible assets, net269,427 277,616 
Long-term deferred tax assets16,054 15,883 
Prepaid commissions59,643 63,795 
Other long-term assets122,117 127,519 
Total assets$2,122,588 $2,142,496 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$71,645 $71,513 
Accrued compensation47,271 71,130 
Accrued liabilities139,829 133,167 
Deferred revenues, net127,998 112,196 
Convertible senior notes, net564,269 488,152 
Total current liabilities951,012 876,158 
Long-term deferred revenues24,037 20,194 
Long-term deferred tax liabilities28,173 51,705 
Long-term operating lease liabilities37,273 39,911 
Other long-term liabilities7,352 7,839 
Total liabilities1,047,847 995,807 
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; 54,457 and 54,073 shares issued; 44,174 and 44,179 shares outstanding, respectively
54 54 
Treasury stock at cost, 10,283 and 9,894 shares outstanding, respectively
(290,319)(238,109)
Additional paid-in capital982,675 1,024,580 
Retained earnings393,293 368,571 
Accumulated other comprehensive loss(10,962)(8,407)
Total stockholders’ equity1,074,741 1,146,689 
Total liabilities and stockholders’ equity$2,122,588 $2,142,496 
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 March 31,
20222021
(In thousands, except per share data)
Revenues:
Product revenues$225,875 $178,125 
Services and other revenues92,953 73,718 
Total revenues318,828 251,843 
Cost of revenues:
Cost of product revenues118,338 92,627 
Cost of services and other revenues50,443 36,933 
Total cost of revenues168,781 129,560 
Gross profit150,047 122,283 
Operating expenses:
Research and development25,030 16,080 
Selling, general, and administrative119,933 86,593 
Total operating expenses144,963 102,673 
Income from operations5,084 19,610 
Interest and other income (expense), net(114)(6,691)
Income before provision for income taxes4,970 12,919 
Benefit from income taxes(3,243)(1,208)
Net income$8,213 $14,127 
Net income per share:
Basic $0.19 $0.33 
Diluted$0.17 $0.30 
Weighted-average shares outstanding:
Basic44,249 42,962 
Diluted47,918 46,367 
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 March 31,
20222021
(In thousands)
Net income$8,213 $14,127 
Other comprehensive loss:
Foreign currency translation adjustments(2,555)(621)
Other comprehensive loss(2,555)(621)
Comprehensive income$5,658 $13,506 
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, 202154,073 $54 (9,894)$(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 plans384 — — — 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, 202254,457 $54 (10,283)$(290,319)$982,675 $393,293 $(10,962)$1,074,741 
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 
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
6

OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
20222021
(In thousands)
Operating Activities
Net income$8,213 $14,127 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization21,124 17,575 
Share-based compensation expense16,208 11,772 
Deferred income taxes(4,858)(862)
Amortization of operating lease right-of-use assets3,307 2,895 
Impairment of operating lease right-of-use assets1,753  
Amortization of debt issuance costs1,038 849 
Amortization of discount on convertible senior notes 4,571 
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables(49,994)(15,427)
Inventories(17,320)(1,035)
Prepaid expenses(1,712)(1,095)
Other current assets7,950 3,128 
Investment in sales-type leases(1,097)925 
Prepaid commissions4,152 2,710 
Other long-term assets2,240 2,177 
Accounts payable312 10,368 
Accrued compensation(23,859)(17,899)
Accrued liabilities769 4,661 
Deferred revenues19,786 21,749 
Operating lease liabilities(3,521)(3,142)
Other long-term liabilities(487)(632)
Net cash provided by (used in) operating activities(15,996)57,415 
Investing Activities
Software development for external use(3,852)(8,043)
Purchases of property and equipment(11,489)(5,089)
Business acquisition, net of cash acquired(3,392) 
Net cash used in investing activities(18,733)(13,132)
Financing Activities
Proceeds from issuances under stock-based compensation plans18,951 20,826 
Employees’ taxes paid related to restricted stock units(4,322)(2,596)
Change in customer funds, net5,462 (2,631)
Stock repurchases(52,210) 
Net cash provided by (used in) financing activities(32,119)15,599 
Effect of exchange rate changes on cash and cash equivalents(411)(386)
Net increase (decrease) in cash, cash equivalents, and restricted cash(67,259)59,496 
Cash, cash equivalents, and restricted cash at beginning of period355,620 489,920 
Cash, cash equivalents, and restricted cash at end of period$288,361 $549,416 
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents$265,008 $548,055 
Restricted cash included in Other current assets23,353 1,361 
Cash, cash equivalents, and restricted cash at end of period$288,361 $549,416 
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment$703 $487 
Transfers between inventory and property and equipment, net$ $1,269 
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
7

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 March 31, 2022 and December 31, 2021, and the results of operations, comprehensive income, and cash flows for the three months ended March 31, 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, comprehensive income, and cash flows for the three months ended March 31, 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 March 31, 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 BalancesASU 2020-06 Adoption ImpactPost-ASU 2020-06 Balances
(In thousands)
Long-term deferred tax assets$15,883 $(452)$15,431 
Convertible senior notes, net488,152 75,353 563,505 
Long-term deferred tax liabilities51,705 (19,572)32,133 
Additional paid-in capital1,024,580 (72,742)951,838 
Retained earnings368,571 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
9

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
(Preliminary) (2)
MarkeTouch Media
(Preliminary)
(In thousands)
Purchase price transferred:
Base purchase price$177,000 $100,000 $82,000 
Add: Closing cash465 6,664 191 
Add: Net working capital adjustment1,654 (2,296)448 
Less: Assumed indebtedness(653)(1,902)(13)
Total purchase price transferred$178,466 $102,466 $82,626 
FDS Amplicare (Preliminary) (1)
ReCept
(Preliminary) (2)
MarkeTouch Media
(Preliminary)
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents$465 $ $237 
Accounts receivable and unbilled receivables5,330 2,383 2,302 
Prepaid expenses506 192 96 
Other current assets45 13,955  
Total current assets6,346 16,530 2,635 
Property and equipment444 172 177 
Operating lease right-of-use assets2,252 773 602 
Goodwill117,374 81,588 42,530 
Intangible assets70,000 28,100 38,000 
Other long-term assets51 200 2,850 
Total assets196,467 127,363 86,794 
Accounts payable950 219 473 
Accrued compensation1,312 1,756  
Accrued liabilities1,396 18,499 292 
Deferred revenues1,916 222 347 
Long-term deferred tax liabilities11,377 3,587  
Long-term operating lease liabilities920 614 206 
Other long-term liabilities130  2,850 
Total liabilities18,001 24,897 4,168 
Total purchase price$178,466 $102,466 $82,626 
Total purchase price, net of cash acquired$178,001 $95,897 $82,389 
_________________________________________________
(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.
(2)    Closing cash is included in other current assets due to its restrictive nature as cash held for customers.
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The $117.4 million of goodwill arising from the FDS Amplicare acquisition is primarily attributed to future sales of SaaS solutions and FDS Amplicare’s assembled workforce. None of the FDS Amplicare goodwill is expected to be deductible for tax purposes. The $81.6 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 ReCept goodwill is expected to be deductible for tax purposes. The $42.5 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.
The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:
FDS Amplicare (1)
ReCeptMarkeTouch Media
Fair valueUseful life
(years)
Fair valueUseful life
(years)
Fair valueUseful life
(years)
(In thousands, except for years)
Customer relationships$59,900 23$28,100 23$34,100 26
Acquired technology7,700 
5 - 7
— 2,100 4
Backlog— — 1,800 2
Trade names2,400 5— — 
Total purchased intangible assets$70,000 $28,100 $38,000 
_________________________________________________
(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.
Pro Forma Financial Information
The following table presents certain unaudited pro forma consolidated financial information for the three months ended March 31, 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 March 31,
2021
(In thousands)
Pro forma revenues$268,921 
Pro forma net income$13,066 
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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 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 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 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 $4.5 million and $3.4 million for the three months ended March 31, 2022 and 2021, respectively.
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Disaggregation of Revenues
The following table summarizes the Company’s revenues disaggregated by revenue type for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(In thousands)
Connected devices, software licenses, and other$208,078 $159,718 
Technical services49,169 50,860 
Consumables17,797 18,407 
SaaS, subscription software, and technology-enabled services43,784 22,858 
Total revenues$318,828 $251,843 
The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(In thousands)
United States$287,577 $224,276 
Rest of world (1)
31,251 27,567 
Total revenues$318,828 $251,843 
_________________________________________________
(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:
March 31,
2022
December 31,
2021
(In thousands)
Short-term unbilled receivables, net (1)
$17,348 $17,208 
Long-term unbilled receivables, net (2)
16,316 18,084 
Total contract assets$33,664 $35,292 
Short-term deferred revenues, net$127,998 $112,196 
Long-term deferred revenues24,037 20,194 
Total contract liabilities$152,035 $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.
Short-term deferred revenues of $128.0 million and $112.2 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of $20.3 million and $22.4 million, as of March 31, 2022 and December 31, 2021, respectively. The short-term deferred revenues from product sales relate to delivered and invoiced products, pending installation and acceptance, expected to occur within the next twelve months. During the three months ended March 31, 2022, the Company recognized revenues of $66.6 million, that were included in the corresponding gross short-term deferred revenues balance of $134.6 million as of December 31, 2021.
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Long-term deferred revenues include deferred revenues from product and service contracts of $24.0 million and $20.2 million as of March 31, 2022 and December 31, 2021, respectively. Remaining performance obligations are primarily recognized ratably over the remaining term of the contract, generally not more than ten years.
Significant Customers
There were no customers that accounted for more than 10% of the Company’s total revenues for the three months ended March 31, 2022 and 2021. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of March 31, 2022 and December 31, 2021.
Note 4. Net Income Per Share
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares outstanding during the period. In periods of net loss, all potential common shares are anti-dilutive, so diluted net loss per share equals the basic net loss per share. In periods of net income, diluted net income per share is computed by dividing net income for the period by the basic weighted-average number of shares plus any dilutive potential common stock outstanding during the period, using the treasury stock method. Potential common stock includes the effect of outstanding dilutive stock options, restricted stock awards, and restricted stock units, as well as shares the Company could be obligated to issue from its convertible senior notes and warrants, as described in Note 10, Convertible Senior Notes (pre-ASU 2020-06 adoption). For periods prior to the adoption of ASU 2020-06 on January 1, 2022, the Company applied the treasury stock method to calculate the dilutive impact of the convertible senior notes. Upon adoption of ASU 2020-06, effective January 1 2022, the Company is required to apply the if-converted method for calculating the dilutive impact of the convertible senior notes. Refer to Note 1, Organization and Summary of Significant Accounting Policies, for further information. Any anti-dilutive weighted-average dilutive shares related to stock award plans, convertible senior notes, and warrants are excluded from the computation of the diluted net income per share.
The basic and diluted net income per share calculations for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31,
20222021
(In thousands, except per share data)
Net income$8,213 $14,127 
Weighted-average shares outstanding – basic44,249 42,962 
Effect of dilutive securities from stock award plans1,646 1,980 
Effect of convertible senior notes1,918 1,425 
Effect of warrants105  
Weighted-average shares outstanding – diluted47,918 46,367 
Net income per share – basic$0.19 $0.33 
Net income per share – diluted$0.17 $0.30 
Anti-dilutive weighted-average shares related to stock award plans336 287 
Anti-dilutive weighted-average shares related to convertible senior notes and warrants 5,908 
Note 5. Cash and Cash Equivalents and Fair Value of Financial Instruments
Cash and cash equivalents of $265.0 million and $349.1 million as of March 31, 2022 and December 31, 2021, respectively, consisted of bank accounts and highly-liquid U.S. Government money market funds held in sweep and asset management accounts with major financial institutions. As of March 31, 2022 and December 31, 2021, cash equivalents were $224.8 million and $320.2 million, respectively, which consisted of money market funds held in sweep and asset management accounts.
Fair Value Hierarchy
The Company measures its financial instruments at fair value. The Company’s cash, cash equivalents, and restricted cash are classified within Level 1 of the fair value hierarchy as they are valued primarily using quoted market prices utilizing market observable inputs. The Company’s credit facility is classified within Level 2 as the valuation inputs are based on quoted
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prices or market observable data of similar instruments. The Company’s convertible senior notes are classified within Level 2 as the valuation inputs are based on quoted prices in an inactive market on the last day in the reporting period. As of March 31, 2022, the fair value of the convertible senior notes was $810.5 million, compared to their carrying value of $564.3 million, which is net of unamortized debt issuance costs. Refer to Note 9, Debt and Credit Agreement, for further information regarding the Company’s credit facility and Note 10, Convertible Senior Notes, for further information regarding the Company’s convertible senior notes.
Note 6. Balance Sheet Components
Balance sheet details as of March 31, 2022 and December 31, 2021 are presented in the tables below:
March 31,
2022
December 31,
2021
(In thousands)
Inventories:
Raw materials$60,238 $48,215 
Work in process9,483 11,009 
Finished goods67,335 60,700 
Total inventories$137,056 $119,924 
Other current assets:
Funds held for customers, including restricted cash (1)
$38,426 $20,405 
Net investment in sales-type leases, current portion11,103 10,665 
Prepaid income taxes5,265 6,656 
Other current assets4,049 10,608 
Total other current assets$58,843 $48,334 
Other long-term assets:
Capitalized software, net$94,108 $96,995 
Unbilled receivables, net16,316 18,084 
Deferred debt issuance costs2,882 3,156 
Other long-term assets8,811 9,284 
Total other long-term assets$122,117 $127,519 
Accrued liabilities:
Operating lease liabilities, current portion$11,809 $12,947 
Customer fund liabilities38,426 31,727 
Advance payments from customers10,337 8,191 
Rebate liabilities40,344 44,644 
Group purchasing organization fees6,503 7,115 
Taxes payable5,487 3,771 
Other accrued liabilities26,923 24,772 
Total accrued liabilities$139,829 $133,167 
_________________________________________________
(1)    Includes restricted cash of $23.4 million and $6.6 million as of March 31, 2022 and December 31, 2021, respectively.
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The following table summarizes the changes in accumulated balances of other comprehensive income (loss), which consisted of foreign currency translation adjustments, for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(In thousands)
Beginning balance$(8,407)$(5,522)
Other comprehensive loss(2,555)(621)
Ending balance$(10,962)$(6,143)
Note 7. Property and Equipment
The following table represents the property and equipment balances as of March 31, 2022 and December 31, 2021:
March 31,
2022
December 31,
2021
(In thousands)
Equipment$90,930 $89,272 
Furniture and fixtures7,432 7,580 
Leasehold improvements20,913 20,623 
Software67,795 60,856 
Construction in progress16,217 14,757 
Property and equipment, gross203,287 193,088 
Accumulated depreciation and amortization(126,225)(121,947)
Total property and equipment, net$77,062 $71,141 
Depreciation and amortization expense of property and equipment was $5.3 million and $4.8 million for the three months ended March 31, 2022 and 2021, respectively.
The geographic location of the Company’s property and equipment, net, is based on the physical location in which it is located. The following table summarizes the geographic information for property and equipment, net, as of March 31, 2022 and December 31, 2021:
March 31,
2022
December 31,
2021
(In thousands)
United States$72,803 $66,788 
Rest of world (1)
4,259 4,353 
Total property and equipment, net$77,062 $71,141 
_________________________________________________
(1)    No individual country represented more than 10% of total property and equipment, net.
Note 8. Goodwill and Intangible Assets
Goodwill
The following table represents changes in the carrying amount of goodwill:
December 31,
2021
Additions (1)
Foreign currency exchange rate fluctuationsMarch 31,
2022
(In thousands)
Goodwill$738,900 2,549 (1,023)$740,426 
_________________________________________________
(1)     Refer to Note 2, Business Combinations, for further information.
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Intangible Assets, Net