Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following is a geographical breakdown of income (loss) before the provision for income taxes:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
Domestic	$	34,714	$	81,641	$	46,528
Foreign	(5,365)		(7,708)		(10,912)
Income (loss) before provision for income taxes	$	29,349	$	73,933	$	35,616

The provision for (benefit from) income taxes consisted of the following:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
Current:
Federal	$	1,874	$	8,006	$	1,404
State	1,733		4,549		1,832
Foreign	647		1,240		768
Total current income taxes	4,254		13,795		4,004
Deferred:
Federal	(3,868)		(1,292)		5,455
State	(2,494)		(1,609)		(909)
Foreign	(737)		1,701		(10,663)
Total deferred income taxes	(7,099)		(1,200)		(6,117)
Total provision for (benefit from) income taxes	$	(2,845)	$	12,595	$	(2,113)

The provision for (benefit from) income taxes differs from the amount computed by applying the statutory federal tax rate as follows:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
U.S. federal tax provision at statutory rate	$	6,163	$	15,525	$	7,479
State taxes	(601)		2,258		651
Section 162(m) limitation	2,550		2,279		738
Non-deductible expenses	325		619		686
Uncertain tax positions	(394)		(2,472)		(412)
Share-based compensation tax benefit	(6,929)		(7,892)		(4,005)
Research tax credits	(4,038)		(3,805)		(3,230)
Restructuring impact	—		7,432		(4,205)
Foreign derived intangible income deduction	(204)		(449)		(349)
Foreign rate differential	(102)		(1,424)		561
Other	385		524		(27)
Total provision for (benefit from) income taxes	$	(2,845)	$	12,595	$	(2,113)

As a result of global operational centralization activities during the year ended December 31, 2018, the Company recognized $4.2 million of tax benefit associated with making a check-the-box election to treat Aesynt Holding Coöperatief U.A. (Netherlands) as the U.S. disregarded entity beginning in the first quarter of 2018. Subsequently, during the year ended December 31, 2019, the Company recognized gain on the sale of certain intellectual property rights by Aesynt B.V. to Omnicell, Inc. and by Mach4 Automatisierungstechnik GmbH ("Mach4") to Omnicell, Inc., which resulted in a tax expense, net of tax benefit, of $7.4 million. As the Company continued with global operational centralization activities during the year ended December 31, 2020, Aesynt B.V. merged with and into Aesynt Holding B.V., with Aesynt Holding B.V. surviving and changing its name to Omnicell B.V., Aesynt Holding Coöperatief U.A. liquidated into Omnicell, Inc., and Omnicell GmbH merged with and into Mach4, with Mach4 surviving and changing its name to Omnicell GmbH. During the year ended December 31, 2020, the Company also recognized a gain on Omnicell Limited’s transferring shares of Omnicell GmbH to Omnicell International, LLC, which resulted in an immaterial tax expense.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act, among other provisions, includes provisions related to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating losses carryback periods, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation, and technical amendments to tax depreciation methods for qualified improvement property placed in service after December 31, 2017. The provisions of the CARES Act did not have a material impact on the Company’s income taxes.

Significant components of the Company’s deferred tax assets (liabilities) were as follows:

	December 31,
	2020		2019
	(In thousands)
Deferred tax assets (liabilities):
Deferred revenues	$	5,910	$	4,129
Share-based compensation	8,094		6,483
Inventory-related items	4,953		3,507
Tax credit carryforwards	12,105		13,472
Reserves and accruals	8,160		5,712
Loss carryforwards	8,461		9,484
Lease liability	15,465		15,471
Other, net	1,578		543
Gross deferred tax assets	64,726		58,801
Valuation allowance	(1,199)		(1,186)
Total net deferred tax assets	63,527		57,615
Intangibles	(22,010)		(18,941)
Depreciation and amortization	(36,528)		(35,941)
Prepaid expenses	(15,654)		(13,395)
Right-of-use assets	(13,949)		(14,286)
Total deferred tax liabilities	(88,141)		(82,563)
Net deferred tax liabilities	$	(24,614)	$	(24,948)

Deferred income tax assets (liabilities) are provided for temporary differences that will result in future tax deductions or future taxable income, as well as the future benefit of tax credit carryforwards. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. On the basis of this evaluation, as of December 31, 2020, $1.2 million of valuation allowance was recorded on certain foreign net operating losses carried forward, as the Company believes that such deferred tax assets are not more likely than not to be realized.

As of December 31, 2020, the Company had $6.0 million of state net operating loss carryforwards expiring at various dates beginning in 2024, and $29.7 million of foreign net operating losses carried forward indefinitely. For income tax purposes, the Company has federal and California research tax credits carryforwards of $1.3 million and $17.0 million, respectively. Federal research tax credit carryforwards from prior years will begin to expire in 2035. California credits are available indefinitely to reduce cash taxes payable.

It is the Company's practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2020, the Company has not made a provision for U.S. federal income, withholding, and state income taxes on the outside basis difference related to certain foreign subsidiaries because earnings are intended to be indefinitely reinvested in operations outside the U.S.

The Company files income tax returns in the United States and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including major jurisdictions such as the United States, Germany, Italy, Netherlands, and the United Kingdom. With few exceptions, as of December 31, 2020, the Company was no longer subject to U.S., state, and foreign examination for years before 2017, 2016, and 2016, respectively.

The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the three years ended December 31, 2020 was as follows:

	(In thousands)
Balance as of December 31, 2017	$	10,741
Increases related to tax positions taken during a prior period	19
Decreases related to tax positions taken during the prior period	(1,257)
Increases related to tax positions taken during the current period	870
Decreases related to settlements	—
Decreases related to expiration of statute of limitations	(412)
Balance as of December 31, 2018	9,961
Increases related to tax positions taken during a prior period	10
Decreases related to tax positions taken during the prior period	(6)
Increases related to tax positions taken during the current period	9,282
Decreases related to settlements	—
Decreases related to expiration of statute of limitations	(2,472)
Balance as of December 31, 2019	16,775
Increases related to tax positions taken during a prior period	88
Decreases related to tax positions taken during the prior period	—
Increases related to tax positions taken during the current period	2,294
Decreases related to settlements	—
Decreases related to expiration of statute of limitations	(911)
Balance as of December 31, 2020	$	18,246

The total amounts of gross unrecognized tax benefit that, if realized, would favorably affect the Company's effective income tax rate in future periods, was $18.2 million and $16.8 million as of December 31, 2020 and 2019, respectively. The Company recognizes interest and/or penalties related to uncertain tax positions in interest and other income (expense), net in the Consolidated Statements of Operations, accruing $0.4 million, $0.5 million, and $0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. The combined amount of cumulative accrued interest and penalties was approximately $1.4 million, $1.0 million, and $1.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. The Company does not believe there will be any significant changes in its unrecognized tax positions over the next twelve months.