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Table of Contents

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, 2020
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 July 24, 2020, there were 42,763,115 shares of the registrant’s common stock, $0.001 par value, outstanding.



Table of Contents
OMNICELL, INC.
TABLE OF CONTENTS
Page

2

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OMNICELL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30,
2020
December 31,
2019
(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents$133,583  $127,210  
Accounts receivable and unbilled receivables, net of allowances of $3,204 and $3,227, respectively
188,918  218,362  
Inventories114,245  108,011  
Prepaid expenses13,297  14,478  
Other current assets15,122  15,177  
Total current assets465,165  483,238  
Property and equipment, net57,866  54,246  
Long-term investment in sales-type leases, net20,961  19,750  
Operating lease right-of-use assets52,537  56,130  
Goodwill335,034  336,539  
Intangible assets, net115,710  124,867  
Long-term deferred tax assets14,154  14,142  
Prepaid commissions44,822  48,862  
Other long-term assets116,197  103,036  
Total assets$1,222,446  $1,240,810  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$34,587  $46,380  
Accrued compensation41,057  44,155  
Accrued liabilities52,979  55,567  
Deferred revenues, net107,940  90,894  
Total current liabilities236,563  236,996  
Long-term deferred revenues6,101  7,083  
Long-term deferred tax liabilities29,561  39,090  
Long-term operating lease liabilities46,690  50,669  
Other long-term liabilities16,070  11,718  
Long-term debt  50,000  
Total liabilities334,985  395,556  
Commitments and contingencies (Note 11)
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; 51,902 and 51,277 shares issued; 42,757 and 42,132 shares outstanding, respectively
52  51  
Treasury stock at cost, 9,145 shares outstanding, respectively
(185,074) (185,074) 
Additional paid-in capital820,632  780,931  
Retained earnings265,540  258,792  
Accumulated other comprehensive loss(13,689) (9,446) 
Total stockholders’ equity887,461  845,254  
Total liabilities and stockholders’ equity$1,222,446  $1,240,810  
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,
2020201920202019
(In thousands, except per share data)
Revenues:
Product revenues$138,942  $158,379  $309,015  $303,989  
Services and other revenues60,679  59,034  120,292  115,941  
Total revenues199,621  217,413  429,307  419,930  
Cost of revenues:
Cost of product revenues85,779  84,583  176,051  163,394  
Cost of services and other revenues30,617  28,785  60,409  55,374  
Total cost of revenues116,396  113,368  236,460  218,768  
Gross profit83,225  104,045  192,847  201,162  
Operating expenses:
Research and development20,830  16,848  39,482  32,926  
Selling, general, and administrative69,386  68,434  148,205  136,712  
Total operating expenses90,216  85,282  187,687  169,638  
Income (loss) from operations(6,991) 18,763  5,160  31,524  
Interest and other income (expense), net174  (1,629) (648) (3,039) 
Income (loss) before provision for income taxes(6,817) 17,134  4,512  28,485  
Provision for (benefit from) income taxes(2,518) 1,158  (2,500) 9,225  
Net income (loss)$(4,299) $15,976  $7,012  $19,260  
Net income (loss) per share:
Basic $(0.10) $0.39  $0.16  $0.47  
Diluted$(0.10) $0.37  $0.16  $0.45  
Weighted-average shares outstanding:
Basic42,659  41,371  42,509  41,033  
Diluted42,659  42,945  43,616  42,646  
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 (LOSS) (UNAUDITED)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Net income (loss)$(4,299) $15,976  $7,012  $19,260  
Other comprehensive income (loss), net of reclassification adjustments and taxes:
Unrealized losses on interest rate swap contracts  (103)   (420) 
Foreign currency translation adjustments451  (971) (4,243) (302) 
Other comprehensive income (loss)451  (1,074) (4,243) (722) 
Comprehensive income (loss)$(3,848) $14,902  $2,769  $18,538  
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 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  
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 StockTreasury StockAdditional
Paid-In Capital
Accumulated
Earnings
Accumulated Other
Comprehensive Income (Loss)
Stockholders’
Equity
SharesAmountSharesAmount
(In thousands)
Balances as of December 31, 201849,480  $50  (9,145) $(185,074) $678,041  $197,454  $(10,854) $679,617  
Net income—  —  —  —  —  3,284  —  3,284  
Other comprehensive income—  —  —  —  —  —  352  352  
At the market equity offering, net of costs243  —  —  —  20,216  —  —  20,216  
Share-based compensation—  —  —  —  8,410  —  —  8,410  
Issuance of common stock under employee stock plans628    —  —  20,526  —  —  20,526  
Tax payments related to restricted stock units—  —  —  —  (1,920) —  —  (1,920) 
Balances as of March 31, 201950,351  50  (9,145) (185,074) 725,273  200,738  (10,502) 730,485  
Net income—  —  —  —  —  15,976  —  15,976  
Other comprehensive loss—  —  —  —  —  —  (1,074) (1,074) 
At the market equity offering, net of costs217    —  —  17,590  —  —  17,590  
Share-based compensation—  —  —  —  8,260  —  —  8,260  
Issuance of common stock under employee stock plans216  1  —  —  4,806  —  —  4,807  
Tax payments related to restricted stock units—  —  —  —  (2,802) —  —  (2,802) 
Balances as of June 30, 201950,784  $51  (9,145) $(185,074) $753,127  $216,714  $(11,576) $773,242  
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,
20202019
(In thousands)
Operating Activities
Net income$7,012  $19,260  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization28,779  25,874  
Loss on disposal of property and equipment  399  
Share-based compensation expense22,010  16,670  
Deferred income taxes(9,409) 3,810  
Amortization of operating lease right-of-use assets5,157  5,226  
Amortization of debt issuance costs482  1,145  
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables28,236  (9,244) 
Inventories(7,271) (4,466) 
Prepaid expenses1,181  1,021  
Other current assets219  (830) 
Investment in sales-type leases(1,375) (4,412) 
Prepaid commissions4,040  1,536  
Other long-term assets(4,580) 3,061  
Accounts payable(11,254) 2,066  
Accrued compensation(3,098) (8,041) 
Accrued liabilities(2,824) 1,810  
Deferred revenues16,264  253  
Operating lease liabilities(5,186) (5,269) 
Other long-term liabilities4,352  3,891  
Net cash provided by operating activities72,735  53,760  
Investing Activities
Software development for external use(20,002) (22,581) 
Purchases of property and equipment(13,211) (9,369) 
Net cash used in investing activities(33,213) (31,950) 
Financing Activities
Repayment of debt and revolving credit facility(50,000) (60,000) 
At the market equity offering, net of offering costs  37,806  
Proceeds from issuances under stock-based compensation plans21,162  25,333  
Employees’ taxes paid related to restricted stock units(3,470) (4,722) 
Net cash used in financing activities(32,308) (1,583) 
Effect of exchange rate changes on cash and cash equivalents(841) 63  
Net increase in cash and cash equivalents6,373  20,290  
Cash and cash equivalents at beginning of period127,210  67,192  
Cash and cash equivalents at end of period$133,583  $87,482  
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment$366  $711  
Transfers between inventory and property and equipment, net$  $1,428  
Right-of-use assets obtained in exchange for new operating lease liabilities$1,335  $557  
 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 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 June 30, 2020 and December 31, 2019, the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. 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 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, 2019 filed with the SEC on February 26, 2020, except as discussed in the sections entitled “Allowance for Credit Losses” and “Recently Adopted Authoritative Guidance” below. The Company’s results of operations and comprehensive income (loss) for the three and six months ended June 30, 2020 and cash flows for the six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020, 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.
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 product revenues for the three and six months ended June 30, 2019 in Note 2, Revenues, of the Notes to Condensed Consolidated Financial Statements. 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 U.S. 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, including any potential impacts arising from the novel coronavirus (“COVID-19”) pandemic. 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, 2020, 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. Given the ongoing uncertainty surrounding the COVID-19 pandemic, events or circumstances may arise that could result in a change in estimates, judgments, or revisions to the carrying value of the Company’s 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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Allowance for Credit Losses
The Company is exposed to credit losses primarily through sales of its products and services, as well as its sales-type leasing arrangements. The Company performs credit evaluations of its customers’ financial condition in order to assess each customer’s ability to pay. These evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, payment history, and a financial review of the customer. The Company continues to monitor customers’ creditworthiness on an ongoing basis.
The Company maintains an allowance for credit losses for accounts receivable, unbilled receivables, and net investment in sales-type leases based on expected credit losses resulting from the inability of its customers to make required payments. The allowance for credit losses is measured using a loss rate method, considering factors such as customers’ credit risk, historical loss experience, current conditions, and forecasts. The allowance for credit losses is measured on a collective (pool) basis by aggregating customer balances with similar risk characteristics. The Company also records a specific allowance based on an analysis of individual past due balances or customer-specific information, such as a decline in creditworthiness or bankruptcy. Actual collection losses may differ from management’s estimates, and such differences could be material to the Company’s financial position and results of operations.
The allowance for credit losses is presented in the Condensed Consolidated Balance Sheets as a deduction from the respective asset balance. The following table summarizes the Company’s allowance for credit losses by asset type:
June 30,
2020
December 31,
2019
(In thousands)
Allowance for credit losses:
Accounts receivable and unbilled receivables$3,204  $3,227  
Long-term unbilled receivables (1)
33    
Net investment in sales-type leases (2)
248  225  
_________________________________________________
(1) Included in other long-term assets in the Condensed Consolidated Balance Sheets.
(2) Includes both current and long-term portions presented in other current assets and long-term investment in sales-type leases, net, respectively.
Changes in the allowances for credit losses were not significant for the three and six months ended June 30, 2020 and 2019.
Recently Adopted Authoritative Guidance
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted ASU 2018-15 on January 1, 2020 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, that modifies or replaces existing models for trade and other receivables, debt securities, loans, and certain other financial instruments. For instruments measured at amortized cost, including trade and lease receivables, loans, and held-to-maturity debt securities, the standard replaced the current “incurred loss” approach with an “expected loss” model. Entities are required to estimate expected credit losses over the life of the instrument, considering available relevant information about the collectibility of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The Company adopted the new standard on January 1, 2020 using the modified retrospective transition method, which resulted in the recognition of an immaterial cumulative-effect adjustment to retained earnings.
Recently Issued Authoritative Guidance
There was no 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.
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Note 2. 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 performance obligations:
Products. Software-enabled equipment that manages and regulates the storage and dispensing of pharmaceuticals, consumable blister cards and packaging equipment and other medical supplies.
Software. On premise or cloud-based subscription solutions that improve medication management and adherence outcomes or enable incremental functionality of the Company’s equipment.
Installation. Installation of equipment as integrated systems at customer sites.
Post-installation technical support. Phone support, on-site service, parts, and access to unspecified software updates and enhancements, if and when available.
Professional services. Other customer services, such as technology-enabled services, training, and consulting.
A portion of the Company’s sales are made to customers who are members of Group Purchasing Organizations (“GPOs”). 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 considers these fees consideration paid to customers and records them as reductions to revenue. Fees to GPOs were $1.7 million and $2.6 million for the three months ended June 30, 2020 and 2019, respectively, and $4.6 million and $4.8 million for the six months ended June 30, 2020 and 2019, respectively.
Disaggregation of Revenues
The following table summarizes the Company’s product revenues disaggregated by revenue type for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Hardware and software$116,919  $133,005  $259,352  $251,819  
Consumables18,063  21,795  41,333  45,502  
Other3,960  3,579  8,330  6,668  
Total product revenues$138,942  $158,379  $309,015  $303,989  
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, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
United States$178,052  $195,811  $385,786  $375,831  
Rest of world (1)
21,569  21,602  43,521  44,099  
Total revenues$199,621  $217,413  $429,307  $419,930  
_________________________________________________
(1) No individual country represented more than 10% of total revenues.
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Contract Assets and Contract Liabilities
The following table reflects the Company’s contract assets and contract liabilities:
June 30,
2020
December 31,
2019
(In thousands)
Short-term unbilled receivables, net (1)
$9,602  $11,707  
Long-term unbilled receivables, net (2)
16,132  12,260  
Total contract assets$25,734  $23,967  
Short-term deferred revenues, net$107,940  $90,894  
Long-term deferred revenues6,101  7,083  
Total contract liabilities$114,041  $97,977  
_________________________________________________
(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 $107.9 million and $90.9 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of $19.6 million and $13.1 million, as of June 30, 2020 and December 31, 2019, 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 and six months ended June 30, 2020, the Company recognized revenues of $20.9 million and $64.3 million, respectively, that were included in the corresponding gross short-term deferred revenues balance of $104.0 million as of December 31, 2019.
Long-term deferred revenues include deferred revenues from service contracts of $6.1 million and $7.1 million as of June 30, 2020 and December 31, 2019, respectively. Remaining performance obligations primarily relate to maintenance contracts and are recognized ratably over the remaining term of the contract, generally not more than five years.
Significant Customers
There were no customers that accounted for more than 10% of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of June 30, 2020 and December 31, 2019.
Note 3. Net Income (Loss) 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. Potential common stock includes the effect of outstanding dilutive stock options, restricted stock awards, and restricted stock units computed using the treasury stock method. Any anti-dilutive weighted-average dilutive shares related to stock award plans are excluded from the computation of the diluted net income per share.
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The basic and diluted net income (loss) per share calculations for the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2020