OMNICELL, INC.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933 (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). The forward-looking
statements are contained throughout this report, including in the sections
entitled "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Forward-looking statements include, but
are not limited to, statements about:
•our expectations about the continuing impact of the ongoing global novel
coronavirus (COVID-19) pandemic (including efforts to contain the spread of the
pandemic) on our workforce and operations, as well as the continuing impacts on
our customers and suppliers, and the anticipated continuing effects of the
pandemic and associated containment measures on our business, financial
condition, liquidity, and results of operations;
•our expectations regarding our future pipeline and product bookings;
•the extent and timing of future revenues, including the amounts of our current
backlog;
•the size or growth of our market or market share;
•our beliefs about drivers of demand for our solutions, market opportunities in
certain product categories and continued expansion in these product categories,
as well as our belief that our technology, services, and solutions within these
categories position us well to address the needs of retail, acute, and
post-acute pharmacy providers;
•our ability to acquire companies, businesses, products or technologies on
commercially reasonable terms and integrate such acquisitions effectively;
•our goal of advancing our platform with new product introductions annually;
•our ability to deliver on the autonomous pharmacy vision, as well as our plan
to integrate our current offerings and technologies on a cloud infrastructure
and invest in broadening our solutions across certain key areas as we execute on
this vision;
•continued investment in the autonomous pharmacy vision, our beliefs about the
anticipated benefits of such investments, and our expectations regarding
continued growth in subscription and cloud-based offerings as we execute on this
vision;
•our belief that our solutions and vision for fully autonomous medication
management are strongly aligned with long-term trends in the healthcare market
and well-positioned to address the evolving needs of the healthcare
institutions;
•planned new products and services;
•the bookings, revenue, and margin opportunities presented by new products,
emerging markets, and international markets;
•our ability to align our cost structure and headcount with our current business
expectations;
•the operating margins or earnings per share goals we may set;
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Table of Contents •the outcome of any legal proceedings to which we are a party; •our projected target long-term revenues and revenue growth rate, long-term operating margins, and free cash flow conversion; •our ability to protect our intellectual property and operate our business without infringing the intellectual property rights of others; •the expected impacts of new accounting standards or changes to existing accounting standards; •our expected future uses of cash and the sufficiency of our sources of funding; and •our ability to generate cash from operations and our estimates regarding the sufficiency of our cash resources. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "seeks," "may," "plans," "potential," "predicts," "projects," "should," "will," "would," and variations of these terms and similar expressions. Forward-looking statements are based on our current expectations and assumptions and are subject to known and unknown risks and uncertainties, which may cause our actual results, performance, or achievements to be materially different from those expressed or implied in the forward-looking statements. Such risks and uncertainties include those described throughout this quarterly report, including in Part II - Item 1A. "Risk Factors" below and Part I - Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" below. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. You should carefully read this quarterly report and the documents that we reference in this quarterly report and have filed as exhibits, as well as other documents we file from time to time with theSecurities and Exchange Commission , with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in this quarterly report represent our estimates and assumptions only as of the date of this quarterly report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those expressed or implied in any forward-looking statements, even if new information becomes available in the future. All references in this report to "Omnicell ," "our," "us," "we," or the "Company" collectively refer toOmnicell, Inc. , aDelaware corporation, and its subsidiaries. The term "Omnicell, Inc. ," refers only toOmnicell, Inc. , excluding its subsidiaries. We own various trademarks and service marks used in our business, including the following registered and unregistered marks which appear in this report: Omnicell®, theOmnicell logo, Ateb®, InPharmics®, Aesynt®, and Performance CenterTM. This report also includes the trademarks and service marks of other companies. All other trademarks and service marks used in this report are the marks of their respective holders. OVERVIEW
Our Business
We are a leading provider of medication management automation solutions and
adherence tools for healthcare systems and pharmacies. As we build on the vision
of the autonomous pharmacy - a more fully automated and digitized system of
medication management - we believe we will further help enable healthcare
providers to improve patient safety, increase efficiency, lower costs, tighten
regulatory compliance, and address population health challenges.
Over 6,000 facilities worldwide use our automation and analytics solutions to
help increase operational efficiency, reduce medication errors, deliver
actionable intelligence, and improve patient safety. More than
40,000 institutional and retail pharmacies across
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Table of Contents and other than sales based on subscription services, generally recorded as revenue upon customer receipts of goods or acceptance of the installation. In addition to product solution sales, we provide services to our customers. We provide installation planning and consulting as part of most product sales which is included in the initial price of the solution. To help assure the maximum availability of our systems, our customers typically purchase maintenance and support contracts in increments of one to five years. As a result of the growth of our installed base of customers, our service revenues have also grown. Our full-time headcount was approximately 2,780 and 2,700 onJune 30, 2020 andDecember 31, 2019 , respectively. We have not in the past sold, and have no future plans to sell, our products, either directly or indirectly, to customers located in countries that are identified as state sponsors of terrorism by theU.S. Department of State , or those subject to economic sanctions and export controls. Operating Segments We manage our operations as a single segment for the purposes of assessing performance and making operating decisions. Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer. The CODM allocates resources and evaluates the performance ofOmnicell 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 ofOmnicell as one operating segment, which is the same as our reporting segment. Strategy We are committed to being the care provider's most trusted partner and executing on the vision of the autonomous pharmacy by delivering automation, intelligence, and services designed to transform the pharmacy care delivery model, helping to dramatically improve outcomes and lower costs for our healthcare partners. We believe there are significant challenges in pharmacy that drive the demand for our solutions and represent large market opportunities in three product categories: •Point of Care. As a market leader, we expect to continue expansion of this product category as customers increase use of our dispensing systems in more areas within their hospitals. In addition, we are early in the replacement cycle of our XT Series automated dispensing systems which we believe is a significant market opportunity and we expect to continue to focus on further penetrating markets through competitive conversion. We believe our current portfolio within the Point of Care market and new innovation and services will continue to drive improved outcomes and lower costs for our customers. •Central Pharmacy. This market represents the beginning of the medication management process in Acute Care Settings, and, we believe, the next big automation opportunity to replace manual and repetitive processes which are common in the pharmacy today. Manual processes are prone to significant errors, and products such as our IV sterile compounding solutions andXR2 Automated Central Pharmacy system automate these manual processes and are designed to reduce the risk of error for our healthcare partners. We believe new products and innovation in theCentral Pharmacy market create opportunities to replace prior generationCentral Pharmacy robotics and carousels.The Central Pharmacy also represents an opportunity to provide technology enabled services designed to reduce the administrative burden on the pharmacy and allow clinicians to operate at the top of their license. •Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a large opportunity as the majority of drugs are distributed in the non-acute sector. New technology is leading to innovation at traditional retail providers, which combined with the move to value-based care results, we believe will incentivize the market to adopt solutions to help providers and payers engage patients in new ways that lower the total cost of care. We believe adoption of our Population Health Solutions portfolio of software products and services, along with medication adherence packaging, will increase adherence performance rates, increase prescription volume for our customers and reduce hospital and emergency room visits due to improved adherence. We believe our technology, services, and solutions within these three product categories position us well to address the needs of retail, acute, and post-acute pharmacy providers.Omnicell's Response to Coronavirus (COVID-19) InMarch 2020 , the COVID-19 outbreak was declared a global pandemic by theWorld Health Organization and aU.S national emergency. Efforts to contain the spread of COVID-19 continue, with the implementation of travel restrictions, shelter-in-place orders, business closures and suspensions, cancelled events, and social distancing. Countries and territories are in varying stages of restrictions and re-opening in response to the COVID-19 pandemic, and certain jurisdictions have begun re-opening only to return to restrictions due to increasing levels of COVID-19 cases. 29
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Table of Contents Keeping in mind our role in the healthcare industry, we are continuing to closely monitor the COVID-19 pandemic. Our top priorities remain protecting the health and well-being of our customers, their patients, and our employees, while maintaining business continuity to meet the needs of our customers. In order to operate in a safe manner, we are following the health and safety guidelines of theU.S. Centers for Disease Control and Prevention , and local and state public health departments in each of the regions where we operate. All of our manufacturing, distribution, and other facilities are operating under these guidelines. Our manufacturing and distribution facilities have remained open due to our qualification as an essential business and to date, we have not experienced disruptions in our manufacturing activities. In addition to increased cleaning and disinfection processes at our manufacturing facilities, we continue to adhere to alternative scheduling procedures to enhance social distancing protocols. We have also procured and distributed personal protective equipment ("PPE") to our customer-facing and manufacturing personnel consistent with guidelines we developed to help ensure proper distribution and use of such PPE. The vast majority of our non-manufacturing and non-customer facing personnel have transitioned to a work from home environment. To support the needs of our customers on the frontline of the pandemic, during the first quarter of 2020, we launched a Rapid Response program to fast-track production and deployment of our XT Series automated dispensing systems to our customers. We streamlined our ordering and installation processes with preconfigured XT Series medication and supply dispensing systems designed to offer our customers flexibility and maximum emergency impact. We believe these models have ample capacity and flexibility to meet a wide variety of needs of our customers, while maintaining security, safety, and workflow efficiency. In addition, to minimize the need for on-site visits and respect social distancing protocols, we are providing remote service options, training programs, and product demonstrations for our customers, leveraging technology to enable our sales team to operate in a remote sales environment, as well as providing our customers with options to self-install certain automation products. From a supply chain perspective, we are working closely with our vendors to help ensure we are able to source key components and maintain appropriate inventory levels to meet customer demand. Although we have not experienced disruptions in our supply chain to date, we cannot predict how long the pandemic and measures intended to contain the spread of COVID-19 will continue and what effect COVID-19 and the associated containment measures will have on our suppliers and vendors, in particular for any of our suppliers and vendors that may not qualify as essential businesses and suffer more significant disruptions to their business operations. Health systems, particularly in areas experiencing higher levels of COVID-19 cases, continue to face increased costs due to large surge expenditures to cover COVID-19 caseload and increasing prices for needed equipment, decreased revenue due to cancelled or postponed elective procedures and other reduced demand, as well as cash flow challenges. We believe these financial pressures have led our customers to delay or defer purchasing decisions and/or implementation of our solutions and expect that our customers may continue such delays and deferrals for the near to medium-term future. Moreover, the COVID-19 pandemic and measures to contain its impact have caused material disruptions in both national and global financial markets and economies. During the second quarter of 2020, we continued to see some delays in product bookings and expect to see lower product bookings and revenues during the fiscal year 2020 compared to management's expectations prior to the COVID-19 outbreak. Additionally, our ability to access hospitals in order to perform implementations of capital equipment has been delayed in some cases, as many hospitals are consumed with treating sick patients. While the environment continues to change rapidly, we are beginning to see more positive indicators for our business in terms of both product bookings and revenues. In many regions, elective surgeries have resumed, and we have been able to resume some on-site sales activities in regions less impacted by COVID-19. Additionally, the overall level of system implementations has also been increasing. Based on management's current expectations, we believe that the product bookings and revenues in the second quarter of 2020 represent the lowest quarter of 2020, and we expect that product bookings and revenues will increase sequentially through the third and fourth quarters of 2020. In response to the COVID-19 pandemic, we have implemented and continue to focus on cost reduction initiatives in all aspects of our business, including, but not limited to, reduced travel costs, decreases certain in employee-related expenses, negotiating discounts with vendors, and delayed hiring and capital expenditures. Furthermore, during the second quarter of 2020, in addition to continuing our previously announced organizational realignment initiative to further align our organizational infrastructure and operations with the strategic vision of the autonomous pharmacy, we initiated a restructuring plan to help mitigate the adverse impact of the COVID-19 pandemic on our business and financial results. In addition, onMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law in response to the COVID-19 pandemic, and provides tax relief to businesses. The CARES Act includes deferral of certain payroll taxes, relief for retaining employees, and certain other provisions. Although the provisions of the CARES Act did not have a material impact on our income taxes, we are currently benefiting from the deferral of certain payroll taxes through the end of fiscal year 2020. While our fiscal year 2020 results will be impacted by the challenges and opportunities brought on by the COVID-19 pandemic, we remain confident in the overall health of our business, in our ability to navigate through these unusual times, and 30
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Table of Contents in our ability to continue to execute on our long-term strategy, as we believe our customers and potential customers are increasingly embracing the vision of a fully autonomous pharmacy. However, the full impact of the COVID-19 pandemic and related containment measures cannot be predicted and to date, the COVID-19 pandemic and related containment measures have adversely affected and we expect they may continue to adversely affect, perhaps materially, our business, results of operations, financial condition, and liquidity.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based on our Condensed Consolidated Financial Statements, which have been
prepared in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"). The preparation of these financial statements requires us to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. We regularly review our estimates and assumptions,
which are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of certain assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates and assumptions.
We believe the following critical accounting policies are affected by
significant judgments and estimates used in the preparation of our Condensed
Consolidated Financial Statements:
•Revenue recognition;
•Allowance for credit losses for accounts receivable, unbilled receivables, and
net investment in sales-type leases;
•Leases;
•Inventory;
•Software development costs;
•Impairment of goodwill and intangible assets;
•Share-based compensation; and
•Accounting for income taxes.
There were no material changes in the matters for which we make critical
accounting estimates in the preparation of our Condensed Consolidated Financial
Statements during the six months ended June 30, 2020 as compared to those
disclosed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our annual report on Form 10-K for the year
ended December 31, 2019 , except as discussed in "Recently Adopted Authoritative
Guidance" in Note 1, Organization and Summary of Significant Accounting
Policies, of the Notes to Condensed Consolidated Financial Statements included
in this quarterly report.
Recently Issued Authoritative Guidance
Refer to Note 1, Organization and Summary of Significant Accounting Policies, of
the Notes to Condensed Consolidated Financial Statements in this quarterly
report for a description of recently issued accounting pronouncements, including
the expected dates of adoption and estimated effects on our results of
operations, financial position, and cash flows.
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RESULTS OF OPERATIONS
Total Revenues
Three Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Product revenues $ 138,942 $ 158,379 $ (19,437) (12)%
Percentage of total revenues 70% 73%
Services and other revenues 60,679 59,034 1,645 3%
Percentage of total revenues 30% 27%
Total revenues $ 199,621 $ 217,413 $ (17,792) (8)%
Product revenues represented 70% and 73% of total revenues for the three months
ended June 30, 2020 and 2019, respectively. Product revenues decreased by $19.4
million , primarily due to the impact of the COVID-19 pandemic as health systems
have been focusing resources on COVID-19 essential activities during the second
quarter of 2020.
Services and other revenues represented 30% and 27% of total revenues for the
three months ended June 30, 2020 and 2019, respectively. Services and other
revenues include revenues from service and maintenance contracts, and rentals of
automation systems. Services and other revenues increased by $1.6 million ,
primarily due to an increase in our installed customer base for our XT Series
automated dispensing systems and IV solutions.
Our international sales represented 11% and 10% of total revenues for the three
months ended June 30, 2020 and 2019, respectively, and are expected to be
affected by foreign currency exchange rate fluctuations. We are unable to
predict the extent to which revenues in future periods will be impacted by
changes in foreign currency exchange rates.
Six Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Product revenues $ 309,015 $ 303,989 $ 5,026 2%
Percentage of total revenues 72% 72%
Services and other revenues 120,292 115,941 4,351 4%
Percentage of total revenues 28% 28%
Total revenues $ 429,307 $ 419,930 $ 9,377 2%
Product revenues represented 72% of total revenues for both the six months ended
June 30, 2020 and 2019. Product revenues increased by $5.0 million , primarily
due to the growth of XT Series automated dispensing systems as a result of
increased XT Series upgrades from the previous generation of product,
competitive conversions, and other add-on equipment, partially offset by lower
revenues due to the impact of the COVID-19 pandemic as health systems have been
focusing resources on COVID-19 essential activities during the second quarter of
2020.
Services and other revenues represented 28% of total revenues for both the six
months ended June 30, 2020 and 2019. Services and other revenues include
revenues from service and maintenance contracts, and rentals of automation
systems. Services and other revenues increased by $4.4 million , primarily due to
an increase in our installed customer base for our XT Series automated
dispensing systems and IV solutions.
Our international sales represented 10% and 11% of total revenues for the six
months ended June 30, 2020 and 2019, respectively, and are expected to be
affected by foreign currency exchange rate fluctuations. We are unable to
predict the extent to which revenues in future periods will be impacted by
changes in foreign currency exchange rates.
Our ability to continue to grow revenues is dependent on our ability to continue
to obtain orders from customers, our ability to produce quality products and
consumables to fulfill customer demand, the volume of installations we are able
to complete, our ability to meet customer needs by providing a quality
installation experience, and our flexibility in manpower allocations among
customers to complete installations on a timely basis. The timing of our product
revenues for equipment is primarily dependent on when our customers' schedules
allow for installations.
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The effects of the COVID-19 pandemic have had an adverse impact on our revenues
for the three months ended
Three Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Cost of revenues:
Cost of product revenues $ 85,779 $ 84,583 $ 1,196 1%
As a percentage of related revenues 62% 53%
Cost of services and other revenues 30,617 28,785 1,832 6%
As a percentage of related revenues 50% 49%
Total cost of revenues $ 116,396 $ 113,368 $ 3,028 3%
As a percentage of total revenues 58% 52%
Gross profit $ 83,225 $ 104,045 $ (20,820) (20)%
Gross margin 42% 48%
Cost of revenues for the three months ended
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Six Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Cost of revenues:
Cost of product revenues $ 176,051 $ 163,394 $ 12,657 8%
As a percentage of related revenues 57% 54%
Cost of services and other revenues 60,409 55,374 5,035 9%
As a percentage of related revenues 50% 48%
Total cost of revenues $ 236,460 $ 218,768 $ 17,692 8%
As a percentage of total revenues 55% 52%
Gross profit $ 192,847 $ 201,162 $ (8,315) (4)%
Gross margin 45% 48%
Cost of revenues for the six months ended June 30, 2020 compared to the six
months ended June 30, 2019 increased by $17.7 million , of which $12.7 million
was attributed to the increase in cost of product revenues and $5.0 million was
attributed to the increase in cost of services and other revenues. The increase
in cost of product revenues is reflective of investments made to support
expected annual revenue levels which were impacted by the COVID-19 pandemic.
While product revenues increased by $5.0 million for the six months ended
June 30, 2020 , cost of product revenues increased by $12.7 million primarily
driven by certain fixed costs, such as labor and overhead. The increase in cost
of product revenues was also driven by an increase in employee-related expenses
related to restructuring initiatives, partially offset by cost-saving
initiatives. The increase in cost of services and other revenues was primarily
driven by the increase in services and other revenues of $4.4 million for the
six months ended June 30, 2020 compared to the six months ended June 30, 2019 ,
as well as additional investments in our service business to support new product
offerings.
The overall decrease in gross margin primarily relates to lower revenues during
the three months ended June 30, 2020 due to the impact of the COVID-19 pandemic,
employee-related expenses related to restructuring initiatives, and additional
investments in our service business, partially offset by lower costs associated
with cost-saving initiatives. Our gross profit for the six months ended June 30,
2020 was $192.8 million , as compared to $201.2 million for the six months ended
June 30, 2019 .
The effects of the COVID-19 pandemic have had an adverse impact on our cost of
revenues and gross margins for the three months ended June 30, 2020 . We continue
to expect to incur additional costs related to the COVID-19 pandemic including,
but not limited to, additional compensation for certain essential employees and
the purchase of personal protective equipment for our customer-facing and
manufacturing personnel. However, the full impact the COVID-19 pandemic will
have on gross margins cannot be estimated.
Operating Expenses and Interest and Other Income (Expense), Net
Three Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Operating expenses:
Research and development $ 20,830 $ 16,848 $ 3,982 24%
As a percentage of total revenues 10% 8%
Selling, general, and administrative 69,386 68,434 952 1%
As a percentage of total revenues 35% 31%
Total operating expenses $ 90,216 $ 85,282 $ 4,934 6%
As a percentage of total revenues 45% 39%
Interest and other income (expense), net
Research and Development. Research and development expenses increased by
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million in employee-related expenses related to restructuring initiatives, as
well as an increase of
Six Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Operating expenses:
Research and development $ 39,482 $ 32,926 $ 6,556 20%
As a percentage of total revenues 9% 8%
Selling, general, and administrative 148,205 136,712 11,493 8% As a percentage of total revenues
35% 33%
Total operating expenses $ 187,687 $ 169,638 $ 18,049 11%
As a percentage of total revenues 44% 40%
Interest and other income (expense), net
Research and Development. Research and development expenses increased by$6.6 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . The increase was primarily attributed to an increase of$3.7 million in employee-related expenses related to restructuring initiatives, as well as an increase of$1.8 million in other employee-related expenses in the research and development function. The increased spend is a result of our continued investments into automation, intelligence, and the cloud data platform. Selling, General, and Administrative. Selling, general, and administrative expenses increased by$11.5 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily due to overall growth of operations and increase in overall headcount. The increase was primarily due to an increase of$10.5 million in employee-related expenses primarily related to increased headcount, an increase of$3.7 million in employee-related expenses related to restructuring initiatives, and an increase of$1.5 million in consulting expenses, partially offset by certain cost savings, including reduced travel costs, and lower commission expenses attributable to lower bookings and revenues. In response to the COVID-19 pandemic, we have implemented and continue to focus on cost reduction initiatives in all aspects of our business, including, but not limited to, reduced travel costs, decreases in employee-related expenses, negotiating discounts with vendors, and delayed hiring and capital expenditures. However, we cannot predict the full impact of the COVID-19 pandemic on our operating expenses. Interest and Other Income (Expense), Net. Interest and other income (expense), net changed by$2.4 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , primarily driven by a$1.9 million decrease in other expenses and a$0.5 million increase in other income. The decrease in other expenses was primarily due to lower interest expense as a result of lower outstanding debt balance during the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . The increase in other income was primarily attributable to rebates and benefits from certain arrangements outside of our normal course of business. 35
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Provision for (Benefit from) Income Taxes
Three Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Provision for (benefit from) income taxes
Six Months Ended June 30,
Change in
2020 2019 $ %
(Dollars in thousands)
Provision for (benefit from) income taxes
Our annual effective tax rate before discrete items was 28.0% and 24.8% for the six months endedJune 30, 2020 and 2019, respectively. The increase in the estimated annual effective tax rate for the six months endedJune 30, 2020 compared to the same period in 2019 was primarily due to state income taxes and non-deductible equity charges, partially offset by an increase in research and development credits. Provision for income taxes for the six months endedJune 30, 2020 included net discrete income tax benefit of$3.8 million , primarily due to a$3.3 million tax benefit from equity compensation. Provision for income taxes for the six months endedJune 30, 2019 included net discrete income tax expense of$2.2 million . The net discrete income tax expense is primarily related to recognized gain on the sale of certain intellectual property rights byAesynt B.V. toOmnicell, Inc. in the first quarter of 2019, offset by a discrete income tax benefit of$7.0 million related to equity compensation. InMarch 2020 ,Aesynt B.V. subsequently merged with and intoAesynt Holding B.V. , withAesynt Holding B.V. surviving and changing its name toOmnicell B.V. Refer to Note 12, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in this quarterly report for more details.
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