Omnicell Sets the Record Straight on GlassHouse Research Report
Our financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). As is noted in the proxy, the Company’s financial statements are audited annually by one of the big four accounting firms. Further, the Audit Committee of the Board of Directors regularly reviews Omnicell’s processes, controls, and financial statements with management and the Company’s auditors.
- Omnicell’s revenue is properly recognized and accounted for in accordance with U.S. GAAP, including ASC606 and ASC842. Our revenue recognition policies and controls are carefully and thoughtfully applied and are intended to prevent premature revenue recognition.We recognize revenue upon documented customer acceptance of installation for the majority of our products. Neither the timing of invoice nor customer payment affect the timing of revenue recognition for these products. We invoice products upon shipment and increase both accounts receivable and deferred revenue at that time. Deferred revenue is reduced as installation is accepted and revenue is then recognized. The timing of customer payment after acceptance can vary and accounts receivable is not reduced until payment is received. As our deal sizes have grown, some customers accept product installation in batches over multiple time periods, but do not pay as quickly as installations are completed. Therefore, as order sizes increase, accounts receivable can grow disproportionately to deferred revenue as each are impacted by different activities. In addition, over the last several years the Company’s software revenue has significantly increased as Omnicell’s business has evolved. Software revenue by nature does not flow through deferred revenue.
- DSO has increased as a result of the evolution of our business and following the adoption of new accounting standards. As mentioned earlier, our business has grown and we have expanded our product and service offerings; our average deal size has increased in both dollar amount and complexity. For example, average deal size of our bookings from the top 10 accounts in the fourth quarter of 2018 averaged
$10.3 million, compared to $2.7 millionin the fourth quarter of 2015. As is typical with the large hospital networks and similar organizations that purchase our products, payment cycles can be elongated. While this increases DSO, the timing of cash collections has no impact on revenue recognition. As GlassHouse acknowledges, our customers are creditworthy and have a long and consistent track record of paying their outstanding balances, underscored by the fact that our write-offs have been less than 0.5% of revenue per year since 2014.
- Inventory levels have increased as a result of the requirements to service our increasingly diverse product lines and growing installed base.
Omnicellregularly reviews its inventory levels and considers its value in accordance with U.S. GAAP.We have a large installed base of equipment and maintain sufficient inventory levels required to meet customers’ expectations of continued support of prior-generation automation. In addition, multiple new products that we have launched or added to our offering through strategic acquisitions over the past several years have materially increased our inventory, as our products now have less commonality of manufacturing and service parts compared to our prior offerings.
- Capitalized software development costs have increased as we have invested in more platform features and software-based services. We have made these investments to enhance products and increase the value of our platform for our customers, and we continue to invest in the platform and solution set to support the growth of our business. Capitalized software development costs are documented and accounted for in accordance with U.S. GAAP.
- We account for our sales commissions in accordance with U.S. GAAP. In 2018, we adopted ASC340-40, which requires the Company to capitalize prepaid commissions as long-term assets and amortize them over a period that covers the maintenance portion of the contract, including expected renewal periods. Prior to the adoption of ASC340-40, all prepaid commissions were recorded as current and expensed at the time automation products were installed. As a result of adopting the new standard, the amortization of commissions better matches the corresponding revenue. The impact of this change was disclosed in our Form 10-K filed with the
U.S. Securities and Exchange Commissionon February 27, 2019.
We have a long history of operating with integrity and adhering to the highest ethical and professional standards. We remain focused on and committed to enhancing value for our shareholders and executing our strategy to deliver improved outcomes for healthcare providers and patients.
To the extent any statements contained in this release deal with information that is not historical, these statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. As such, they are subject to the occurrence of many events outside Omnicell’s control and are subject to various risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Such statements include, but are not limited to, statements about Omnicell’s strategy, vision and long-term objectives; investments in new products and solutions; and expectations of future financial and operational performance. Risks that contribute to the uncertain nature of the forward-looking statements include (i)
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