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 ~~September 30, 2022~~March 31, 2023


☐			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)


Delaware			94-3166458
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

~~2625 Augustine Drive, Suite 301~~4220 North Freeway

~~Santa Clara, CA 95054~~Fort Worth, TX 76137

(Address of registrant’s principal executive offices, including zip code)

~~(650) 251-6100~~(877) 415-9990

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

OMCL

NASDAQ 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 Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended ~~transitions~~transition 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 ~~October~~April 28, ~~2022,~~2023, there were ~~44,649,842~~45,080,618 shares of the registrant’s common stock, $0.001 par value, outstanding.

Table of Contents

OMNICELL, INC.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets (Unaudited) as of ~~September~~ ~~30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations (Unaudited) for the three ~~and~~ ~~nine~~months ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three ~~and~~ ~~nine~~months ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September~~ ~~30,~~March 31, 2023 and 2022 ~~and 2021~~	87

	Notes to Condensed Consolidated Financial Statements (Unaudited)	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3126

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4536

Item 4.	Controls and Procedures	4637

PART II	OTHER INFORMATION	4738

Item 1.	Legal Proceedings	4738

Item 1A.	Risk Factors	4738

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5138

Item 3.	Defaults Upon Senior Securities	5138

Item 4.	Mine Safety Disclosures	5138

Item 5.	Other Information	5138

Item 6.	Exhibits	5239

Signature		5340

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OMNICELL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands, except par value)					(In thousands, except par value)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	266,402	$	349,051	Cash and cash equivalents	$	340,413	$	330,362
Accounts receivable and unbilled receivables, net of allowances of $5,012 and $5,272, respectively		354,098		240,894
Accounts receivable and unbilled receivables, net of allowances of $5,373 and $5,153, respectively						Accounts receivable and unbilled receivables, net of allowances of $5,373 and $5,153, respectively	322,073		299,469
Inventories	Inventories	147,096		119,924		Inventories	141,156		147,549
Prepaid expenses	Prepaid expenses	24,862		22,499		Prepaid expenses	27,963		27,070
Other current assets	Other current assets	56,674		48,334		Other current assets	103,364		77,362
Total current assets	Total current assets	849,132		780,702		Total current assets	934,969		881,812
Property and equipment, net	Property and equipment, net	88,356		71,141		Property and equipment, net	98,373		93,961
Long-term investment in sales-type leases, net	Long-term investment in sales-type leases, net	33,807		18,391		Long-term investment in sales-type leases, net	32,744		32,924
Operating lease right-of-use assets	Operating lease right-of-use assets	44,133		48,549		Operating lease right-of-use assets	28,228		38,052
Goodwill	Goodwill	731,294		738,900		Goodwill	734,895		734,274
Intangible assets, net	Intangible assets, net	251,004		277,616		Intangible assets, net	234,689		242,906
Long-term deferred tax assets	Long-term deferred tax assets	16,619		15,883		Long-term deferred tax assets	29,562		22,329
Prepaid commissions	Prepaid commissions	54,994		63,795		Prepaid commissions	56,909		59,483
Other long-term assets	Other long-term assets	110,346		127,519		Other long-term assets	100,469		105,017
Total assets	Total assets	$	2,179,685	$	2,142,496	Total assets	$	2,250,838	$	2,210,758

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	73,517	$	71,513	Accounts payable	$	63,407	$	63,389
Accrued compensation	Accrued compensation	42,799		71,130		Accrued compensation	48,284		73,455
Accrued liabilities	Accrued liabilities	146,440		133,167		Accrued liabilities	198,979		172,655

Deferred revenues, net	Deferred revenues, net	113,925		112,196		Deferred revenues, net	143,298		118,947
Convertible senior notes, net		—		488,152

Total current liabilities	Total current liabilities	376,681		876,158		Total current liabilities	453,968		428,446
Long-term deferred revenues	Long-term deferred revenues	34,519		20,194		Long-term deferred revenues	42,438		37,385
Long-term deferred tax liabilities	Long-term deferred tax liabilities	16,140		51,705		Long-term deferred tax liabilities	1,558		2,095
Long-term operating lease liabilities	Long-term operating lease liabilities	41,862		39,911		Long-term operating lease liabilities	36,855		39,405
Other long-term liabilities	Other long-term liabilities	9,285		7,839		Other long-term liabilities	6,136		6,719

Convertible senior notes, net	Convertible senior notes, net	565,803		—		Convertible senior notes, net	567,342		566,571
Total liabilities	Total liabilities	1,044,290		995,807		Total liabilities	1,108,297		1,080,621
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued	Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued	—		—		Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued	—		—
Common stock, $0.001 par value, 100,000 shares authorized; 54,929 and 54,073 shares issued; 44,646 and 44,179 shares outstanding, respectively		55		54
Treasury stock at cost, 10,283 and 9,894 shares outstanding, respectively		(290,319)		(238,109)
Common stock, $0.001 par value, 100,000 shares authorized; 55,352 and 55,030 shares issued; 45,069 and 44,747 shares outstanding, respectively						Common stock, $0.001 par value, 100,000 shares authorized; 55,352 and 55,030 shares issued; 45,069 and 44,747 shares outstanding, respectively	55		55
Treasury stock at cost, 10,283 shares outstanding, respectively						Treasury stock at cost, 10,283 shares outstanding, respectively	(290,319)		(290,319)
Additional paid-in capital	Additional paid-in capital	1,030,665		1,024,580		Additional paid-in capital	1,072,685		1,046,760
Retained earnings	Retained earnings	419,136		368,571		Retained earnings	375,728		390,728
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(24,142)		(8,407)		Accumulated other comprehensive loss	(15,608)		(17,087)
Total stockholders’ equity	Total stockholders’ equity	1,135,395		1,146,689		Total stockholders’ equity	1,142,541		1,130,137
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,179,685	$	2,142,496	Total liabilities and stockholders’ equity	$	2,250,838	$	2,210,758

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands, except per share data)									(In thousands, except per share data)
Revenues:	Revenues:									Revenues:
Product revenues	Product revenues	$	246,565	$	213,970	$	706,246	$	589,006	Product revenues	$	185,715	$	225,875
Services and other revenues	Services and other revenues	101,494		82,432		292,027		231,978		Services and other revenues	104,914		92,953
Total revenues	Total revenues	348,059		296,402		998,273		820,984		Total revenues	290,629		318,828
Cost of revenues:	Cost of revenues:									Cost of revenues:
Cost of product revenues	Cost of product revenues	134,023		110,743		374,175		303,597		Cost of product revenues	109,527		118,338
Cost of services and other revenues	Cost of services and other revenues	54,941		38,880		156,864		112,027		Cost of services and other revenues	56,073		50,443
Total cost of revenues	Total cost of revenues	188,964		149,623		531,039		415,624		Total cost of revenues	165,600		168,781
Gross profit	Gross profit	159,095		146,779		467,234		405,360		Gross profit	125,029		150,047
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	25,171		19,477		76,556		53,770		Research and development	22,878		25,030
Selling, general, and administrative	Selling, general, and administrative	115,459		97,910		354,644		273,672		Selling, general, and administrative	125,114		119,933

Total operating expenses	Total operating expenses	140,630		117,387		431,200		327,442		Total operating expenses	147,992		144,963
Income from operations		18,465		29,392		36,034		77,918
Income (loss) from operations										Income (loss) from operations	(22,963)		5,084
Interest and other income (expense), net	Interest and other income (expense), net	(1,148)		(6,065)		(2,973)		(18,715)		Interest and other income (expense), net	1,781		(114)
Income before provision for income taxes		17,317		23,327		33,061		59,203
Provision for (benefit from) income taxes		543		(5,990)		(995)		(4,665)
Net income		$	16,774	$	29,317	$	34,056	$	63,868
Net income per share:
Income (loss) before benefit from income taxes										Income (loss) before benefit from income taxes	(21,182)		4,970
Benefit from income taxes										Benefit from income taxes	(6,182)		(3,243)
Net income (loss)										Net income (loss)	$	(15,000)	$	8,213
Net income (loss) per share:										Net income (loss) per share:
Basic	Basic	$	0.38	$	0.67	$	0.77	$	1.48	Basic	$	(0.33)	$	0.19

Diluted	Diluted	$	0.37	$	0.61	$	0.73	$	1.35	Diluted	$	(0.33)	$	0.17
Weighted-average shares outstanding:	Weighted-average shares outstanding:									Weighted-average shares outstanding:
Basic	Basic	44,441		43,648		44,304		43,293		Basic	44,887		44,249
Diluted	Diluted	45,819		48,341		46,759		47,195		Diluted	44,887		47,918

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Net income $ 16,774 $ 29,317 $ 34,056 $ 63,868
Other comprehensive loss:
Foreign currency translation adjustments (6,770) (2,299) (15,735) (2,268)
Other comprehensive loss (6,770) (2,299) (15,735) (2,268)
Comprehensive income $ 10,004 $ 27,018 $ 18,321 $ 61,600


	Three Months Ended March 31,
	2023		2022

	(In thousands)
Net income (loss)	$	(15,000)	$	8,213
Other comprehensive income (loss):

Foreign currency translation adjustments	1,479		(2,555)
Other comprehensive income (loss)	1,479		(2,555)
Comprehensive income (loss)	$	(13,521)	$	5,658

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Common Stock Treasury Stock Additional
Paid-In Capital Accumulated
Earnings Accumulated Other
Comprehensive Income (Loss) Stockholders’
Equity
Shares Amount Shares Amount
(In thousands)
Balances as of December 31, 2021 54,073 $ 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 plans 384 — — — 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, 2022 54,457 54 (10,283) (290,319) 982,675 393,293 (10,962) 1,074,741
Net income — — — — — 9,069 — 9,069
Other comprehensive loss — — — — — — (6,410) (6,410)
Share-based compensation — — — — 17,213 — — 17,213
Issuance of common stock under employee stock plans 114 1 — — 2,171 — — 2,172
Tax payments related to restricted stock units — — — — (4,148) — — (4,148)
Balances as of June 30, 2022 54,571 55 (10,283) (290,319) 997,911 402,362 (17,372) 1,092,637
Net income — — — — — 16,774 — 16,774
Other comprehensive loss — — — — — — (6,770) (6,770)
Share-based compensation — — — — 17,310 — — 17,310
Issuance of common stock under employee stock plans 358 — — — 18,416 — — 18,416
Tax payments related to restricted stock units — — — — (2,972) — — (2,972)
Balances as of September 30, 2022 54,929 $ 55 (10,283) $ (290,319) $ 1,030,665 $ 419,136 $ (24,142) $ 1,135,395


	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount

	(In thousands)
Balances as of December 31, 2022	55,030	$	55	(10,283)	$	(290,319)	$	1,046,760	$	390,728	$	(17,087)	$	1,130,137
Net loss	—	—		—	—		—		(15,000)		—		(15,000)
Other comprehensive income	—	—		—	—		—		—		1,479		1,479

Share-based compensation	—	—		—	—		15,180		—		—		15,180
Issuance of common stock under employee stock plans	322	—		—	—		12,114		—		—		12,114
Tax payments related to restricted stock units	—	—		—	—		(1,369)		—		—		(1,369)


Balances as of March 31, 2023	55,352	$	55	(10,283)	$	(290,319)	$	1,072,685	$	375,728	$	(15,608)	$	1,142,541


	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount

	(In thousands)
Balances as of December 31, 2021	54,073	$	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 plans	384	—		—	—		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, 2022	54,457	$	54	(10,283)	$	(290,319)	$	982,675	$	393,293	$	(10,962)	$	1,074,741

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS (UNAUDITED) ~~- CONTINUED~~

Common Stock Treasury Stock Additional
Paid-In Capital Accumulated
Earnings Accumulated Other
Comprehensive Income (Loss) Stockholders’
Equity
Shares Amount Shares Amount
(In thousands)
Balances as of December 31, 2020 52,677 $ 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 plans 388 — — — 20,826 — — 20,826
Tax payments related to restricted stock units — — — — (2,596) — — (2,596)
Balances as of March 31, 2021 53,065 53 (9,894) (238,109) 950,361 304,849 (6,143) 1,011,011
Net income — — — — — 20,424 — 20,424
Other comprehensive income — — — — — — 652 652
Share-based compensation — — — — 13,039 — — 13,039
Issuance of common stock under employee stock plans 265 — — — 11,517 — — 11,517
Tax payments related to restricted stock units — — — — (4,071) — — (4,071)
Balances as of June 30, 2021 53,330 53 (9,894) (238,109) 970,846 325,273 (5,491) 1,052,572
Net income — — — — — 29,317 — 29,317
Other comprehensive loss — — — — — — (2,299) (2,299)
Share-based compensation — — — — 13,666 — — 13,666
Issuance of common stock under employee stock plans 433 1 — — 21,573 — — 21,574
Tax payments related to restricted stock units — — — — (3,494) — — (3,494)
Balances as of September 30, 2021 53,763 $ 54 (9,894) $ (238,109) $ 1,002,591 $ 354,590 $ (7,790) $ 1,111,336


	Three Months Ended March 31,
	2023		2022

	(In thousands)
Operating Activities
Net income (loss)	$	(15,000)	$	8,213
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	21,974		21,124
Loss on disposal of property and equipment	802		—



Share-based compensation expense	14,042		16,208



Deferred income taxes	(7,770)		(4,858)
Amortization of operating lease right-of-use assets	2,248		3,307
Impairment and abandonment of operating lease right-of-use assets related to facilities	7,815		1,753

Amortization of debt issuance costs	1,045		1,038
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables	(22,156)		(49,994)
Inventories	6,760		(17,320)
Prepaid expenses	(873)		(1,712)
Other current assets	34		7,950
Investment in sales-type leases	613		(1,097)
Prepaid commissions	2,574		4,152
Other long-term assets	628		2,240
Accounts payable	20		312
Accrued compensation	(25,171)		(23,859)
Accrued liabilities	(689)		769
Deferred revenues	29,135		19,786
Operating lease liabilities	(2,678)		(3,521)
Other long-term liabilities	(583)		(487)
Net cash provided by (used in) operating activities	12,770		(15,996)
Investing Activities

External-use software development costs	(3,499)		(3,852)
Purchases of property and equipment	(10,141)		(11,489)
Business acquisition, net of cash acquired	—		(3,392)

Net cash used in investing activities	(13,640)		(18,733)
Financing Activities







Proceeds from issuances under stock-based compensation plans	12,114		18,951
Employees’ taxes paid related to restricted stock units	(1,369)		(4,322)
Change in customer funds, net	(6,883)		5,462
Stock repurchases	—		(52,210)
Net cash provided by (used in) financing activities	3,862		(32,119)
Effect of exchange rate changes on cash and cash equivalents	176		(411)
Net increase (decrease) in cash, cash equivalents, and restricted cash	3,168		(67,259)
Cash, cash equivalents, and restricted cash at beginning of period	352,835		355,620
Cash, cash equivalents, and restricted cash at end of period	$	356,003	$	288,361
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	340,413	$	265,008
Restricted cash included in other current assets	15,590		23,353
Cash, cash equivalents, and restricted cash at end of period	$	356,003	$	288,361
Supplemental disclosure of non-cash investing activities
Unpaid purchases of property and equipment	$	1,321	$	703

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)~~

Nine Months Ended September 30,
2022 2021
(In thousands)
Operating Activities
Net income $ 34,056 $ 63,868
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 64,843 53,140
Loss on disposal of property and equipment 331 297
Share-based compensation expense 50,731 38,477
Deferred income taxes (17,061) 2,042
Amortization of operating lease right-of-use assets 9,709 8,764
Impairment and abandonment of operating lease right-of-use assets related to facilities 5,390 —
Amortization of debt issuance costs 3,121 2,570
Amortization of discount on convertible senior notes — 13,874
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables (116,895) (39,561)
Inventories (32,269) (10,138)
Prepaid expenses (2,602) (8,229)
Other current assets 6,692 (1,059)
Investment in sales-type leases (17,336) 2,686
Prepaid commissions 8,801 (1,030)
Other long-term assets 4,189 2,567
Accounts payable 2,043 33,111
Accrued compensation (27,940) (12,018)
Accrued liabilities 11,678 20,149
Deferred revenues 17,667 21,225
Operating lease liabilities (10,966) (9,392)
Other long-term liabilities 1,446 (9,166)
Net cash provided by (used in) operating activities (4,372) 172,177
Investing Activities
Software development for external use (9,648) (24,141)
Purchases of property and equipment (33,861) (17,892)
Business acquisitions, net of cash acquired (3,392) (178,080)
Purchase price adjustments from business acquisitions 5,484 —
Net cash used in investing activities (41,417) (220,113)
Financing Activities
Proceeds from issuances under stock-based compensation plans 39,539 53,917
Employees’ taxes paid related to restricted stock units (11,442) (10,161)
Change in customer funds, net (402) (3,059)
Stock repurchases (52,210) —
Net cash provided by (used in) financing activities (24,515) 40,697
Effect of exchange rate changes on cash and cash equivalents (1,425) (492)
Net decrease in cash, cash equivalents, and restricted cash (71,729) (7,731)
Cash, cash equivalents, and restricted cash at beginning of period 355,620 489,920
Cash, cash equivalents, and restricted cash at end of period $ 283,891 $ 482,189
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents $ 266,402 $ 481,549
Restricted cash included in other current assets 17,489 640
Cash, cash equivalents, and restricted cash at end of period $ 283,891 $ 482,189
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment $ 1,473 $ 691
Transfers between inventory and property and equipment, net $ 314 $ 1,876

~~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 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and the results of operations, ~~and~~ comprehensive income ~~for the three and nine months ended September 30, 2022 and 2021,~~(loss), and cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. 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,~~2022, filed with the SEC on ~~February 25, 2022,~~March 1, 2023, except as discussed in the section entitled “Recently Adopted Authoritative Guidance” below. The Company’s results of operations, ~~and~~ comprehensive income ~~for the three and nine months ended September 30, 2022,~~(loss), and cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2022,~~2023, 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 ~~September 30, 2022,~~March 31, 2023, 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,~~October 2021, 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 Balances ASU 2020-06 Adoption Impact Post-ASU 2020-06 Balances
(In thousands)
Long-term deferred tax assets $ 15,883 $ (452) $ 15,431
Convertible senior notes, net 488,152 75,353 563,505
Long-term deferred tax liabilities 51,705 (19,572) 32,133
Additional paid-in capital 1,024,580 (72,742) 951,838
Retained earnings 368,571 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~~Company adopted ASU 2021-08 beginning January 1, 2023 and will ~~be applied~~apply the guidance prospectively to acquisitions occurring on or after the ~~effective~~adoption 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~~

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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.

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

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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 allocatedto 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, now a part of the Company’s Specialty Pharmacy Services (“Specialty Pharmacy 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 (2) (3)
MarkeTouch Media (4)
(In thousands)
Purchase price transferred:
Base purchase price $ 177,000 $ 100,000 $ 82,000
Add: Closing cash 465 6,569 237
Add: Net working capital adjustment 1,654 (7,357) 147
Less: Assumed indebtedness (653) (1,973) (15)
Total purchase price transferred $ 178,466 $ 97,239 $ 82,369
FDS Amplicare (1)
ReCept
(Preliminary) (2) (3)
MarkeTouch Media
(Preliminary) (4)
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents $ 465 $ — $ 237
Accounts receivable and unbilled receivables 5,330 2,383 2,302
Prepaid expenses 506 192 96
Other current assets 45 12,223 —
Total current assets 6,346 14,798 2,635
Property and equipment 444 172 177
Operating lease right-of-use assets 2,252 773 602
Goodwill 117,784 77,394 42,273
Intangible assets 70,000 28,100 38,000
Other long-term assets 51 195 2,850
Total assets 196,877 121,432 86,537
Accounts payable 950 219 473
Accrued compensation 1,312 1,756 —
Accrued liabilities 1,497 18,499 292
Deferred revenues 1,916 222 347
Long-term deferred tax liabilities 11,686 2,883 —
Long-term operating lease liabilities 920 614 206
Other long-term liabilities 130 — 2,850
Total liabilities 18,411 24,193 4,168
Total purchase price $ 178,466 $ 97,239 $ 82,369
Total purchase price, net of cash acquired $ 178,001 $ 90,670 $ 82,132

~~(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. During the nine months ended September 30, 2022, the Company recorded a measurement period adjustments of $0.4 million to goodwill, consisting of an increase in long-term deferred tax liabilities and accrued liabilities of $0.3 million and $0.1 million, respectively.

~~(2)~~ ~~Closing cash is included in other current assets due to its restrictive nature as cash held for customers.~~

~~(3)~~ During the nine months ended September 30, 2022, the Company recorded measurement period adjustments of $4.2 million to goodwill, consisting of a purchase price adjustment of $5.2 million and a decrease in long-term deferred tax liabilities of $0.7 million, partially offset by a decrease to other current assets of $1.7 million.

~~(4)~~ ~~During the second quarter of 2022, the Company recorded a measurement period adjustment of $0.3 million to goodwill related to a purchase price adjustment.~~

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The $117.8 million of goodwill arising from the FDS Amplicare acquisition is primarily attributed to future sales of SaaS solutions and FDS Amplicare’s assembled workforce. The $77.4 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 FDS Amplicare and ReCept goodwill is expected to be deductible for tax purposes as these acquisitions were treated as stock acquisitions for U.S. tax purposes. The $42.3 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 as this acquisition was treated as an asset acquisition for U.S. tax purposes.

~~The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:~~

FDS Amplicare (1)
ReCept MarkeTouch Media
Fair value Useful life
(years) Fair value Useful life
(years) Fair value Useful life
(years)
(In thousands, except for years)
Customer relationships $ 59,900 23 $ 28,100 23 $ 34,100 26
Acquired technology 7,700 5 - 7 — — 2,100 4
Backlog — — — — 1,800 2
Trade names 2,400 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.

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~~Pro Forma Financial Information~~

The following table presents certain unaudited pro forma consolidated financial information for the three and nine months ended September 30, 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 September 30, Nine Months Ended September 30,
2021 2021
(In thousands)
Pro forma revenues $ 313,170 $ 873,061
Pro forma net income $ 31,157 $ 65,050

~~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.~~agreements. Solutions in this category include, but are not limited to, XT Series automated dispensing systems and products related to the ~~XR2 Automated~~ Central Pharmacy ~~System, IVX Station~~Dispensing Service 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.Compounding Service.

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~~Technical services. Post-installation technical support and other related services, including phone support, on-site service, parts, and access to unspecified software updates and ~~technology-enabled services.~~enhancements, if and when available. This revenue category is often supported by multi-year or annual contractual agreements.

Advanced 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,~~®, Specialty Pharmacy Services, 340B solutions, Inventory Optimization Service, other software solutions, and services ~~associated with Omnicell One™,~~related to the Central Pharmacy Dispensing ~~Services, including the XR2 Automated Central Pharmacy System, and Central Pharmacy Compounding Services, including IVX Station~~Service and IV ~~compounding automation solutions.~~Compounding Service.

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~~Consumables

~~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~~Technical services

Over time, as services are provided, typically ratably over the service term

Service

Advanced Services

Over time, as services are provided

Service

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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 ~~$4.8~~$3.1 million and ~~$4.4~~$4.5 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $13.3 million and $12.0 million for the nine months ended September 30, 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 ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands)									(In thousands)
Connected devices, software licenses, and other	Connected devices, software licenses, and other	$	226,415	$	195,820	$	650,125	$	534,582	Connected devices, software licenses, and other	$	165,147	$	208,078
Consumables										Consumables	20,568		17,797
Technical services	Technical services	53,914		53,529		156,386		156,321		Technical services	53,357		49,169
Consumables		20,150		18,150		56,121		54,424
SaaS, subscription software, and technology-enabled services		47,580		28,903		135,641		75,657
Advanced Services										Advanced Services	51,557		43,784
Total revenues	Total revenues	$	348,059	$	296,402	$	998,273	$	820,984	Total revenues	$	290,629	$	318,828

The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands)									(In thousands)
United States	United States	$	315,755	$	271,276	$	898,269	$	738,411	United States	$	255,943	$	287,577
Rest of world (1)	Rest of world (1)	32,304		25,126		100,004		82,573		Rest of world (1)	34,686		31,251
Total revenues	Total revenues	$	348,059	$	296,402	$	998,273	$	820,984	Total revenues	$	290,629	$	318,828

(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:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands)					(In thousands)
Short-term unbilled receivables, net (1)	Short-term unbilled receivables, net (1)	$	28,354	$	17,208	Short-term unbilled receivables, net (1)	$	23,258	$	25,763
Long-term unbilled receivables, net (2)	Long-term unbilled receivables, net (2)	13,815		18,084		Long-term unbilled receivables, net (2)	13,491		14,744
Total contract assets	Total contract assets	$	42,169	$	35,292	Total contract assets	$	36,749	$	40,507

Short-term deferred revenues, net	Short-term deferred revenues, net	$	113,925	$	112,196	Short-term deferred revenues, net	$	143,298	$	118,947
Long-term deferred revenues	Long-term deferred revenues	34,519		20,194		Long-term deferred revenues	42,438		37,385
Total contract liabilities	Total contract liabilities	$	148,444	$	132,390	Total contract liabilities	$	185,736	$	156,332

(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.

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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 ~~$113.9~~$143.3 million and ~~$112.2~~$118.9 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of ~~$12.5~~$15.6 million and ~~$22.4~~$15.8 million, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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 nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company recognized revenues of ~~$15.2~~$55.5 million ~~and $104.2 million, respectively,~~ that were included in the corresponding gross short-term deferred revenues balance of ~~$134.6~~$134.7 million as of December 31, ~~2021.~~

2022. Long-term deferred revenues include deferred revenues from product sales and service contracts of ~~$34.5~~$42.4 million and ~~$20.2~~$37.4 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Deferred revenues from product sales primarily relate to delivered and invoiced products, pending installation and acceptance. Deferred revenues from service contracts primarily relate to services that have been invoiced, where services have not yet been provided. Short-term deferred revenues are expected to be

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recognized within the next twelve months. Long-term deferred revenues substantially consist of deferred revenues on long-term service contracts which have been invoiced and are expected to be recognized as revenue beyond twelve months, generally not more than ten years. The Company generally invoices customers for products upon shipment. Invoicing associated with the service portion of agreements is generally periodic and is billed on a monthly, quarterly, or annual basis, and in certain circumstances, multiple years are billed at one time.

In addition, the Company has remaining performance obligations associated with contracts for which the associated products have been accepted or associated services have started, where invoicing has not yet occurred and therefore are not reflected in deferred revenue. These remaining performance obligations are comprised of the non-variable portions of technical services and Advanced Services provided under non-cancellable contracts with minimum commitments. Remaining performance obligations which are not included in deferred revenues are $199.2 million as of March 31, 2023. Remaining performance obligations are ~~primarily~~expected to be recognized ratably over the remaining term of the contract, which is generally not more than ten years. Remaining performance obligations do not include product obligations, services where the associated product has not been accepted, services which have not yet started, variable portions of services, and certain other obligations.

Significant Customers

There were no customers that accounted for more than 10% of the Company’s total revenues for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Note 4.3. 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, 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 (loss) per share calculations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands, except per share data)									(In thousands, except per share data)
Net income		$	16,774	$	29,317	$	34,056	$	63,868
Net income (loss)										Net income (loss)	$	(15,000)	$	8,213
Weighted-average shares outstanding – basic	Weighted-average shares outstanding – basic	44,441		43,648		44,304		43,293		Weighted-average shares outstanding – basic	44,887		44,249
Effect of dilutive securities from stock award plans	Effect of dilutive securities from stock award plans	943		2,087		1,293		2,086		Effect of dilutive securities from stock award plans	—		1,646
Effect of convertible senior notes	Effect of convertible senior notes	435		2,156		1,162		1,816		Effect of convertible senior notes	—		1,918
Effect of warrants	Effect of warrants	—		450		—		—		Effect of warrants	—		105
Weighted-average shares outstanding – diluted	Weighted-average shares outstanding – diluted	45,819		48,341		46,759		47,195		Weighted-average shares outstanding – diluted	44,887		47,918

Net income per share – basic		$	0.38	$	0.67	$	0.77	$	1.48
Net income per share – diluted		$	0.37	$	0.61	$	0.73	$	1.35
Net income (loss) per share – basic										Net income (loss) per share – basic	$	(0.33)	$	0.19
Net income (loss) per share – diluted										Net income (loss) per share – diluted	$	(0.33)	$	0.17

Anti-dilutive weighted-average shares related to stock award plans	Anti-dilutive weighted-average shares related to stock award plans	810		64		689		199		Anti-dilutive weighted-average shares related to stock award plans	3,634		336
Anti-dilutive weighted-average shares related to convertible senior notes and warrants	Anti-dilutive weighted-average shares related to convertible senior notes and warrants	5,908		—		5,908		5,908		Anti-dilutive weighted-average shares related to convertible senior notes and warrants	11,816		—

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Note 5.4. Cash, ~~and~~ Cash Equivalents, and Restricted Cash and Fair Value of Financial Instruments

Cash and cash equivalents of ~~$266.4~~$340.4 million and ~~$349.1~~$330.4 million, and restricted cash (inclusive of cash equivalents) of $15.6 million and $22.5 million, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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~~institutions of ~~September 30, 2022 and December 31, 2021,~~high credit quality.

The following table reflects the Company’s cash equivalents ~~were $224.7 million~~ and ~~$320.2 million, respectively,~~restricted cash equivalents, which consisted of money market funds held in sweep and asset management ~~accounts.~~accounts:


	March 31, 2023		December 31, 2022

	(In thousands)
Cash equivalents (1)	$	321,230	$	300,969
Restricted cash equivalents (2)	13,873		—
Total cash equivalents and restricted cash equivalents	$	335,103	$	300,969

(1) Included in cash and cash equivalents in the Condensed Consolidated Balance Sheets.

(2) Included in other current assets in the Condensed Consolidated Balance Sheets.

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 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 ~~September 30,~~March 31, 2023 and December 31, 2022, the fair value of the convertible senior notes was ~~$610.1~~$528.4 million and $501.4 million, respectively, compared to their carrying ~~value~~values of ~~$565.8~~$567.3 million and $566.6 million, respectively, which isare net of unamortized debt issuance costs (subsequent to the adoption of ASU 2020-06). As of December 31, 2021, the fair value of the convertible senior notes was $1.085 billion, compared to their carrying value of $488.2 million, which is net of unamortized discount and debt issuance costs and excludes amounts classified within additional paid-in capital (prior to the adoption of ASU 2020-06).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. ~~Refer to Note 1,~~ ~~Organization and Summary of Significant Accounting Policies, for further information regarding the adoption of ASU 2020-06.~~

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Note 6.5. Balance Sheet Components

Balance sheet details as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are presented in the tables below:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands)					(In thousands)
Inventories:	Inventories:					Inventories:
Raw materials	Raw materials	$	73,221	$	48,215	Raw materials	$	67,154	$	75,854
Work in process	Work in process	8,970		11,009		Work in process	10,772		9,280
Finished goods	Finished goods	64,905		60,700		Finished goods	63,230		62,415
Total inventories	Total inventories	$	147,096	$	119,924	Total inventories	$	141,156	$	147,549

Other current assets:	Other current assets:					Other current assets:
Funds held for customers, including restricted cash (1)	Funds held for customers, including restricted cash (1)	$	35,249	$	20,405	Funds held for customers, including restricted cash (1)	$	83,172	$	56,703
Net investment in sales-type leases, current portion	Net investment in sales-type leases, current portion	12,586		10,665		Net investment in sales-type leases, current portion	11,053		11,486
Prepaid income taxes	Prepaid income taxes	1,846		6,656		Prepaid income taxes	112		1,702
Other current assets	Other current assets	6,993		10,608		Other current assets	9,027		7,471
Total other current assets	Total other current assets	$	56,674	$	48,334	Total other current assets	$	103,364	$	77,362

Other long-term assets:	Other long-term assets:					Other long-term assets:
Capitalized software, net		$	85,186	$	96,995
External-use software development costs, net						External-use software development costs, net	$	77,114	$	80,760
Unbilled receivables, net	Unbilled receivables, net	13,815		18,084		Unbilled receivables, net	13,491		14,744
Deferred debt issuance costs	Deferred debt issuance costs	2,333		3,156		Deferred debt issuance costs	1,784		2,058
Other long-term assets	Other long-term assets	9,012		9,284		Other long-term assets	8,080		7,455
Total other long-term assets	Total other long-term assets	$	110,346	$	127,519	Total other long-term assets	$	100,469	$	105,017

Accrued liabilities:	Accrued liabilities:					Accrued liabilities:
Operating lease liabilities, current portion	Operating lease liabilities, current portion	$	10,658	$	12,947	Operating lease liabilities, current portion	$	10,875	$	10,761
Customer fund liabilities	Customer fund liabilities	35,249		31,727		Customer fund liabilities	83,172		56,703
Advance payments from customers	Advance payments from customers	10,214		8,191		Advance payments from customers	11,753		11,556
Rebate liabilities	Rebate liabilities	42,363		44,644		Rebate liabilities	47,432		42,802
Group purchasing organization fees	Group purchasing organization fees	7,623		7,115		Group purchasing organization fees	5,790		7,723
Taxes payable	Taxes payable	11,327		3,771		Taxes payable	9,549		9,642
Other accrued liabilities	Other accrued liabilities	29,006		24,772		Other accrued liabilities	30,408		33,468
Total accrued liabilities	Total accrued liabilities	$	146,440	$	133,167	Total accrued liabilities	$	198,979	$	172,655

(1) Includes restricted cash of~~$17.5~~ $15.6 millionand ~~$6.6~~$22.5 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), which consisted of foreign currency translation adjustments, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands)									(In thousands)
Beginning balance	Beginning balance	$	(17,372)	$	(5,491)	$	(8,407)	$	(5,522)	Beginning balance	$	(17,087)	$	(8,407)
Other comprehensive loss		(6,770)		(2,299)		(15,735)		(2,268)
Other comprehensive income (loss)										Other comprehensive income (loss)	1,479		(2,555)

Ending balance	Ending balance	$	(24,142)	$	(7,790)	$	(24,142)	$	(7,790)	Ending balance	$	(15,608)	$	(10,962)

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Note 7.6. Property and Equipment

The following table represents the property and equipment balances as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands)					(In thousands)
Equipment	Equipment	$	89,429	$	89,272	Equipment	$	94,546	$	91,391
Furniture and fixtures	Furniture and fixtures	5,026		7,580		Furniture and fixtures	4,989		5,154
Leasehold improvements	Leasehold improvements	19,766		20,623		Leasehold improvements	18,828		19,510
Software		73,913		60,856
Purchased software and internal-use software development costs						Purchased software and internal-use software development costs	85,283		76,327
Construction in progress	Construction in progress	23,041		14,757		Construction in progress	26,861		28,223
Property and equipment, gross	Property and equipment, gross	211,175		193,088		Property and equipment, gross	230,507		220,605
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(122,819)		(121,947)		Accumulated depreciation and amortization	(132,134)		(126,644)
Total property and equipment, net	Total property and equipment, net	$	88,356	$	71,141	Total property and equipment, net	$	98,373	$	93,961

Depreciation and amortization expense of property and equipment was ~~$5.8~~$6.3 million and ~~$5.2~~$5.3 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $16.7 million and $14.9 million for the nine months ended September 30, 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands)					(In thousands)
United States	United States	$	84,771	$	66,788	United States	$	94,472	$	89,989
Rest of world (1)	Rest of world (1)	3,585		4,353		Rest of world (1)	3,901		3,972
Total property and equipment, net	Total property and equipment, net	$	88,356	$	71,141	Total property and equipment, net	$	98,373	$	93,961

(1) No individual country represented more than 10% of total property and equipment, net.

Note 7. External-Use Software Development Costs

The carrying amounts of external-use software development costs as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023		December 31, 2022

	(In thousands)
Gross carrying amount	$	228,766	$	225,004
Accumulated amortization	(151,652)		(144,244)
External-use software development costs, net (1)	$	77,114	$	80,760

(1) Included in other long-term assets in the Condensed Consolidated Balance Sheets.

The Company recorded $7.4 million and $6.7 million to cost of revenues for amortization of external-use software development costs for the three months ended March 31, 2023 and 2022, respectively.

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The estimated future amortization expenses for external-use software development costs were as follows:


	March 31, 2023

	(In thousands)
Remaining nine months of 2023	$	21,435
2024	23,544
2025	16,156
2026	10,617
2027	4,662
Thereafter	700
Total	$	77,114

Note 8. Goodwill and Intangible Assets

Goodwill

The following table represents changes in the carrying amount of goodwill:

December 31,
2021
Additions (1)
Measurement Period Adjustments (1)
Foreign currency exchange rate fluctuations September 30,
2022
(In thousands)
Goodwill $ 738,900 2,549 (4,041) (6,114) $ 731,294

~~(1)~~ ~~Refer to Note 2, Business Combinations, for further information.~~

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	(In thousands)






Balance as of December 31, 2022	$	734,274


Foreign currency exchange rate fluctuations	621
Balance as of March 31, 2023	$	734,895

Intangible Assets, Net

The carrying amounts and useful lives of intangible assets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:


		September 30, 2022										March 31, 2023
		Gross carrying amount (1)		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)		Gross carrying amount		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)

		(In thousands, except for years)										(In thousands, except for years)
Customer relationships	Customer relationships	$	311,089	$	(94,108)	$	(1,880)	$	215,101	4 - 30	Customer relationships	$	311,089	$	(104,149)	$	(1,432)	$	205,508	4 - 30
Acquired technology	Acquired technology	92,066		(61,471)		—		30,595		4 - 20	Acquired technology	92,066		(67,033)		—		25,033		4 - 20
Backlog	Backlog	1,800		(675)		—		1,125		2	Backlog	1,800		(1,125)		—		675		2
Trade names	Trade names	9,200		(6,371)		—		2,829		5 - 12	Trade names	9,200		(6,895)		—		2,305		5 - 12
Patents	Patents	2,430		(1,276)		—		1,154		2 - 20	Patents	2,430		(1,362)		—		1,068		2 - 20
Non-compete agreements	Non-compete agreements	600		(400)		—		200		3	Non-compete agreements	600		(500)		—		100		3

Total intangibles assets, net	Total intangibles assets, net	$	417,185	$	(164,301)	$	(1,880)	$	251,004		Total intangibles assets, net	$	417,185	$	(181,064)	$	(1,432)	$	234,689

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December 31, 2021
Gross carrying
amount (1)
Accumulated
amortization Foreign currency exchange rate fluctuations Net carrying
amount Useful life
(years)
(In thousands, except for years)
Customer relationships $ 309,989 $ (78,093) $ (933) $ 230,963 10 - 30
Acquired technology 95,466 (55,859) 6 39,613 4 - 20
Backlog 1,800 — — 1,800 2
Trade names 9,200 (5,600) 14 3,614 5 - 12
Patents 2,462 (1,186) — 1,276 2 - 20
Non-compete agreements 600 (250) — 350 3
Total intangibles assets, net $ 419,517 $ (140,988) $ (913) $ 277,616

~~(1)~~ The differences in gross carrying amounts between periods are primarily due to the write-off of certain fully amortized intangible assets, partially offset by additions of intangible assets in connection with the Hub and Spoke Innovations acquisition.


	December 31, 2022
	Gross carrying amount		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	311,089	$	(99,177)	$	(1,514)	$	210,398	4 - 30
Acquired technology	92,066		(64,299)		—		27,767		4 - 20
Backlog	1,800		(900)		—		900		2
Trade names	9,200		(6,633)		—		2,567		5 - 12
Patents	2,430		(1,306)		—		1,124		2 - 20
Non-compete agreements	600		(450)		—		150		3

Total intangibles assets, net	$	417,185	$	(172,765)	$	(1,514)	$	242,906

Amortization expense of intangible assets was ~~$8.7~~$8.3 million and ~~$6.3~~$9.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $26.7 million and $18.7 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

The estimated future amortization expenses for amortizable intangible assets were as follows:

September 30,
2022
(In thousands)
Remaining three months of 2022 $ 8,463
2023 31,463
2024 23,015
2025 20,970
2026 18,027
Thereafter 149,066
Total $ 251,004


	March 31, 2023

	(In thousands)
Remaining nine months of 2023	$	23,238
2024	23,059
2025	21,043
2026	18,065
2027	16,796
Thereafter	132,488
Total	$	234,689

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Note 9. Debt and Credit Agreement

2019 Revolving Credit Facility

On November 15, 2019, the Company entered into an Amended and Restated Credit Agreement (as subsequently amended as discussed below, the “A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, Citizens Bank, N.A., and JPMorgan Chase Bank, N.A., as joint lead arrangers, and Wells Fargo Bank, National Association, as administrative agent. The A&R Credit Agreement superseded the Company’s 2016 secured credit facility and provides for (a) a five-year revolving credit facility of $500.0 million (the “Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Incremental Facility”). In addition, the A&R Credit Agreement includes a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million. The A&R Credit Agreement has an expiration date of November 15, 2024, upon which date all remaining outstanding borrowings will be due and payable.

~~Loans~~On September 22, 2020, the parties entered into a first amendment to the A&R Credit Agreement to, among other changes, permit the issuance of the convertible senior notes and the purchase of the convertible note hedge transactions, as described in Note 10, Convertible Senior Notes, expand the Company’s flexibility to repurchase its common stock and make other restricted payments, and replace the total net leverage covenant with a new secured net leverage covenant that requires the Company to maintain a consolidated secured net leverage ratio not to exceed 3.50:1 for the calendar quarters ending September 30, 2020, December 31, 2020, and March 31, 2021 and 3.00:1 for the calendar quarters ending thereafter. The availability of funds under the Revolving Credit Facility can be subject to reduction in order to maintain compliance with the financial covenants under the A&R Credit Agreement.

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adjustment of 0.10% per annum) and related SOFR-based mechanics. The replacement of LIBOR did not, and the Company does not anticipate that it will, materially impact its liquidity or financial position.

Following the second amendment to the A&R Credit Agreement, loans under the Revolving Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the ~~LIBOR Rate,~~Adjusted Term SOFR (as defined in the A&R Credit Agreement), plus an applicable margin ranging from 1.25% to 2.00% per annum based on the Company’s Consolidated Total Net Leverage Ratio (as defined in the A&R Credit Agreement), or (b) an alternate base rate equal to the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, and (iii) ~~LIBOR~~Adjusted Term SOFR for ~~an interest period of~~a one month tenor plus 1.00%, plus an applicable margin ranging from 0.25% to 1.00% per annum based on the Company’s Consolidated Total Net Leverage Ratio. Undrawn commitments under the Revolving Credit Facility are subject to a commitment fee ranging from 0.15% to 0.30% per annum based on the Company’s Consolidated Total Net Leverage Ratio on the average daily unused portion of the Revolving Credit Facility. The applicable margin for, and certain other terms of, any term loans under the Incremental Facility will be determined prior to the incurrence of such loans. The Company is permitted to make voluntary prepayments at any time without payment of a premium or penalty.

On September 22, 2020, the parties entered into an amendment to the A&R Credit Agreement to, among other changes, permit the issuance of the convertible senior notes and the purchase of the convertible note hedge transactions, as described in Note 10, ~~Convertible Senior Notes~~, expand the Company’s flexibility to repurchase its common stock and make other restricted payments, and replace the total net leverage covenant with a new secured net leverage covenant that requires the Company to maintain a consolidated secured net leverage ratio not to exceed 3.50:1 for the calendar quarters ending September 30, 2020, December 31, 2020, and March 31, 2021 and 3.00:1 for the calendar quarters ending thereafter.

The A&R Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, dividends, and other distributions. The A&R Credit Agreement contains financial covenants that require the Company and its subsidiaries to not exceed a maximum total secured net leverage ratio (as described above) and maintain a minimum interest coverage ratio. In addition, the A&R Credit Agreement contains certain customary events of default including, but not limited to, failure to pay interest, principal, and fees, or other amounts when due, material misrepresentations or misstatements in any representation or warranty, covenant defaults, certain cross defaults to other material indebtedness, certain judgment defaults, and events of bankruptcy. The Company’s obligations under the A&R Credit Agreement and any swap obligations and banking services obligations owing to a lender (or an affiliate of a lender) are guaranteed by certain of its domestic subsidiaries and secured by substantially all of its and such subsidiary guarantors’ assets. In connection with entering into the A&R Credit Agreement, and as a condition precedent to borrowing loans thereunder, the Company and certain of the Company’s other direct and indirect subsidiaries have entered into certain ancillary agreements, including, but not limited to, a reaffirmation agreement, which amends certain terms of the existing collateral agreement and reaffirms their obligations under the existing guaranty agreement. The Company was in compliance with all covenants as of ~~September 30, 2022.~~March 31, 2023.

As of ~~each of September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was no outstanding balance for the Revolving Credit Facility.

Note 10. Convertible Senior Notes

0.25% Convertible Senior Notes due 2025

On September 25, 2020, the Company completed a private offering of $575.0 million aggregate principal amount of 0.25% convertible senior notes (the “Notes”), including the exercise in full of the initial purchasers’ option to purchase up to an additional $75.0 million principal amount of the Notes. The Company received proceeds from the issuance of the Notes of $559.7 million, net of $15.3 million of transaction fees and other debt issuance costs. The Notes bear interest at a rate of 0.25% per year, payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes were issued pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank

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National Association, as trustee. The Notes are general senior, unsecured obligations of the Company and will mature on September 15, 2025, unless earlier redeemed, repurchased, or converted.

The Notes are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding May 15, 2025, only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ended on December 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the Notes on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the Notes on each such trading day; (iii) if the Company calls such Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; and (iv) upon the occurrence of specified corporate events, as specified in the Indenture. On or after May 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Notes may convert all or any portion of their Notes at any time, regardless of the foregoing conditions.

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During the three months ended March 31, 2023 and December 31, 2021, the conditional conversion feature of the Notes was triggered, based on the price of the Company’s common stock, as the last reported sale price of the Company’s common stock was greater than or equal to 130% of the then applicable conversion price for the Notes for at least 20 trading days during the period of 30 consecutive trading days ending on December 31, 2021, the last trading day of the respective fiscal quarter. Accordingly, the Notes were convertible during the first quarter of 2022 and were classified as a current liability in the Consolidated Financial Statements as of December 31, 2021. During the three months ended September 30, 2022, none of the conditional conversion features of the Notes were triggered, and therefore, the Notes are not convertible during the ~~fourth~~second quarter of ~~2022,~~2023, commencing on ~~October~~April 1, ~~2022.~~2023, and were not convertible during the first quarter of 2023, commencing on January 1, 2023, respectively. Accordingly, the Company classified the Notes as a long-term liability in its Condensed Consolidated Financial Statements as of ~~September 30,~~both March 31, 2023 and December 31, 2022. Whether the Notes will be convertible following the ~~fourth~~second fiscal quarter of ~~2022~~2023 will depend on the satisfaction of the conversion conditions in the future.

Under the original terms of the Indenture, upon conversion, the Company could satisfy its conversion obligation by paying or delivering cash, shares of its common stock, or a combination thereof, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. On December 13, 2021, the Company irrevocably elected to fix its settlement method to a combination of cash and shares of the Company’s common stock with the specified cash amount per $1,000 principal amount of Notes of at least $1,000. As a result, for Notes converted on or after December 13, 2021, a converting noteholder will receive (i) up to $1,000 in cash per $1,000 principal amount of Notes and (ii) cash and/or shares of the Company’s common stock, at the Company’s option for any conversion consideration in excess of $1,000. In addition, the Company continues to have the ability to set the specified cash amount per $1,000 principal amount of Notes above $1,000. The initial conversion rate for the Notes is 10.2751 shares of the Company’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $97.32 per share of the Company’s common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture. In addition, following certain corporate events that could occur prior to the maturity date of the Notes or if the Company delivers a notice of redemption in respect of the Notes, the Company will, under certain circumstances, increase the conversion rate of the Notes for a holder who elects to convert its Notes (or any portion thereof) in connection with such a corporate event or convert its Notes called (or deemed called) for redemption during the related redemption period (as defined in the Indenture), as the case may be.

If the Company undergoes a fundamental change, holders may require, subject to certain exceptions, the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of ~~September 30, 2022,~~March 31, 2023, none of the criteria for a fundamental change or a conversion rate adjustment had been met.

The Company may not redeem the Notes prior to September 20, 2023. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeems less than all of the outstanding Notes, at least $150.0 million aggregate principal amount of Notes must be outstanding and not subject to redemption as of the date of the relevant notice of redemption. No sinking fund is provided for in the Notes.

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~~Prior to the adoption of ASU 2020-06, convertible debt instruments that could be settled in cash were required to be separated into liability and equity components.~~ The ~~allocation to the liability component was based on the fair value of a similar instrument that did not contain an equity conversion option. Based on this debt-to-equity ratio,~~ debt issuance costs were then allocated to the liability and equity components in a similar manner. Accordingly, at issuance, the Company allocated $461.8 million to the debt liability and $72.7 million to additional paid-in capital, net of applicable issuance costs and deferred taxes. The difference between the principal amount ofassociated with the Notes ~~and the liability component, inclusive of issuance costs, represented the debt discount, which the Company~~are being amortized to interest expense over the term of the Notes using an effective interest rate of ~~4.18%~~0.80%. ~~The determination of the discount rate required certain estimates and assumptions.~~

Upon adoption of ASU 2020-06, effective January 1, 2022, the Notes are no longer separated into liability and equity components, and are accounted for as a single liability measured at its amortized cost. Refer to Note 1, ~~Organization and Summary of Significant Accounting Policies, for further information.~~

As of ~~September 30, 2022,~~March 31, 2023, the remaining life of the Notes and the related issuance cost accretion is approximately ~~3.0~~2.5 years.

The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 5.9 million shares. As of ~~September 30, 2022,~~March 31, 2023, the if-converted value of the Notes did not exceed the principal amount.

The Notes consisted of the following balances reported in the Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

September 30,
2022 (2)
December 31,
2021
(In thousands)
Liability:
Principal amount $ 575,000 $ 575,000
Unamortized discount — (77,136)
Unamortized debt issuance costs (9,197) (9,712)
Convertible senior notes, liability component (1)
$ 565,803 $ 488,152
Convertible senior notes, equity component $ — $ 72,732


	March 31, 2023		December 31, 2022

	(In thousands)
Principal amount	$	575,000	$	575,000
Unamortized debt issuance costs	(7,658)		(8,429)
Convertible senior notes, net	$	567,342	$	566,571

~~(1)~~ ~~Classified as a long-term liability as~~Table of ~~September 30, 2022, and a current liability as of December 31, 2021, in the Condensed Consolidated Balance Sheets.~~Contents

~~(2)~~ ~~Refer to Note 1,~~ ~~Organization and Summary of Significant Accounting Policies, for further information regarding the impact of the adoption of ASU 2020-06, effective January 1, 2022.~~

The following table summarizes the components of interest expense resulting from the Notes recognized in interest and other income (expense), net in the Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Three Months Ended September 30, Nine Months Ended September 30,
2022 (1)
2021
2022 (1)
2021
(In thousands)
Contractual coupon interest $ 359 $ 359 $ 1,078 $ 1,078
Amortization of discount $ — $ 4,679 $ — $ 13,874
Amortization of debt issuance costs $ 768 $ 589 $ 2,298 $ 1,747

~~(1)~~ ~~Refer to Note 1,~~ ~~Organization and Summary of Significant Accounting Policies, for further information regarding the impact of the adoption of ASU 2020-06, effective January 1, 2022.~~


	Three Months Ended March 31,
	2023		2022

	(In thousands)
Contractual coupon interest	$	359	$	359
Amortization of debt issuance costs	$	771	$	764

Convertible Note Hedge and Warrant Transactions

In connection with the issuance of the Notes in September 2020, the Company entered into convertible note hedge and warrant transactions with an affiliate of one of the initial purchasers of the Notes and certain other financial institutions (the “option counterparties”) with respect to the Company’s common stock.

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The convertible note hedge consists of an option for the Company to purchase up to approximately 5.9 million shares of the Company’s common stock, which is equal to the number of shares of the Company’s common stock underlying the Notes, at an initial strike price of approximately $97.32 per share. The convertible note hedge will expire upon the maturity of the Notes, if not earlier exercised or terminated. The cost of the convertible note hedge was approximately $100.6 million and was accounted for as an equity instrument, which was recorded in additional paid-in capital in the Condensed Consolidated Balance Sheets. The Company recorded a deferred tax asset of $25.8 million at issuance related to the convertible note hedge transaction. The convertible note hedge is expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes.

Separately from the convertible note hedge, the Company entered into warrant transactions to sell to the option counterparties warrants to acquire, subject to customary anti-dilution adjustments, up to approximately 5.9 million shares of its common stock in the aggregate at an initial strike price of $141.56 per share. The warrants require net share or net cash settlement upon the Company’s election. The Company received aggregate proceeds of approximately $51.3 million for the issuance of the warrants, which was recorded in additional paid-in capital at issuance in the Condensed Consolidated Balance Sheets. The warrants could separately have a dilutive effect to the Company’s common stock to the extent that the market price per share of its common stock exceeds the strike price of the warrants.

Note 11. Lessor Leases

Sales-Type Leases

~~On a recurring basis, the~~The Company enters into multi-year, sales-type lease agreements, with the majority of such leases varying in length from one to five years. Some of the Company’s sales-type leases, mostly those relating to U.S. government hospitals which comprise approximately 39% of the lease receivable balance, and those associated with financed service contracts related to certain Advanced Services products, including Central Pharmacy Dispensing Services and IV compounding automation solutions, are retained in-house. The Company optimizes cash flows by selling ~~many~~a majority of its ~~remaining~~non-U.S. government sales-type leases, other than Advanced Services sales-type leases, to third-party leasing finance companies on a non-recourse basis. The Company has no obligation to the leasing company once the lease has been sold. Some of the Company’s sales-type leases, mostly those relating to U.S. government hospitals which comprised approximately 31% of the lease receivable balance as of March 31, 2023, and those associated with financed service contracts related to certain Advanced Services products, including Central Pharmacy Dispensing Service and IV Compounding Service, are retained in-house by the Company.

The following table presents the Company’s income recognized from sales-type leases for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022

		(In thousands)									(In thousands)
Sales-type lease revenues	Sales-type lease revenues	$	10,115	$	3,892	$	34,033	$	14,503	Sales-type lease revenues	$	5,716	$	6,505
Cost of sales-type lease revenues	Cost of sales-type lease revenues	(5,357)		(1,699)		(16,963)		(5,678)		Cost of sales-type lease revenues	(2,662)		(3,078)
Selling profit on sales-type lease revenues	Selling profit on sales-type lease revenues	$	4,758	$	2,193	$	17,070	$	8,825	Selling profit on sales-type lease revenues	$	3,054	$	3,427

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The receivables as a result of these types of transactions are collateralized by the underlying equipment leased and consist of the following components at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

		(In thousands)					(In thousands)
Net minimum lease payments to be received	Net minimum lease payments to be received	$	52,644	$	31,444	Net minimum lease payments to be received	$	50,356	$	50,755
Less: Unearned interest income portion	Less: Unearned interest income portion	(6,251)		(2,388)		Less: Unearned interest income portion	(6,559)		(6,345)
Net investment in sales-type leases	Net investment in sales-type leases	46,393		29,056		Net investment in sales-type leases	43,797		44,410
Less: Current portion (1)	Less: Current portion (1)	(12,586)		(10,665)		Less: Current portion (1)	(11,053)		(11,486)
Long-term investment in sales-type leases, net	Long-term investment in sales-type leases, net	$	33,807	$	18,391	Long-term investment in sales-type leases, net	$	32,744	$	32,924

(1) The current portion of the net investment in sales-type leases is included in other current assets in the Condensed Consolidated Balance Sheets.

The carrying amount of the Company’s sales-type lease receivables is a reasonable estimate of fair value.

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The maturity schedule of future minimum lease payments under sales-type leases retained in-house and the reconciliation to the net investment in sales-type leases reported on the Condensed Consolidated Balance Sheets was as follows:


		September 30, 2022			March 31, 2023

		(In thousands)			(In thousands)
Remaining three months of 2022		$	3,782
2023		13,314
Remaining nine months of 2023				Remaining nine months of 2023	$	9,810
2024	2024	10,064		2024	10,710
2025	2025	8,171		2025	8,707
2026	2026	6,387		2026	7,073
2027				2027	5,627
Thereafter	Thereafter	10,926		Thereafter	8,429
Total future minimum sales-type lease payments	Total future minimum sales-type lease payments	52,644		Total future minimum sales-type lease payments	50,356
Present value adjustment	Present value adjustment	(6,251)		Present value adjustment	(6,559)
Total net investment in sales-type leases	Total net investment in sales-type leases	$	46,393	Total net investment in sales-type leases	$	43,797

Operating Leases

The Company entered into certain leasing agreements that were classified as operating leases prior to the adoption of ASC 842, Leases. These agreements in place prior to January 1, 2019 continue to be treated as operating leases; however, any leasing agreements entered into on or after January 1, 2019 under these programs are classified and accounted for as sales-type leases in accordance with ASC 842. The operating lease arrangements generally have initial terms of one to seven years.

The following table represents the Company’s income recognized from operating leases for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Rental income $ 2,327 $ 2,474 $ 7,220 $ 8,278


	Three Months Ended March 31,
	2023		2022

	(In thousands)
Rental income	$	2,259	$	2,472

Note 12. Lessee Leases

The Company has operating leases for office buildings, data centers, office equipment, and vehicles. The Company’s leases have initial terms of one to 12twelve years. As of ~~September 30, 2022,~~March 31, 2023, the Company did not have any additional material operating leases that were entered into, but not yet commenced.

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The maturity schedule of future minimum lease payments under operating leases and the reconciliation to the operating lease liabilities reported on the Condensed Consolidated Balance Sheets was as follows:


		September 30, 2022			March 31, 2023

		(In thousands)			(In thousands)
Remaining three months of 2022		$	3,279
2023		13,089
Remaining nine months of 2023				Remaining nine months of 2023	$	10,005
2024	2024	12,041		2024	12,223
2025	2025	9,250		2025	9,417
2026	2026	8,723		2026	8,794
2027				2027	7,167
Thereafter	Thereafter	14,306		Thereafter	7,135
Total operating lease payments	Total operating lease payments	60,688		Total operating lease payments	54,741
Present value adjustment	Present value adjustment	(8,168)		Present value adjustment	(7,011)
Total operating lease liabilities (1)	Total operating lease liabilities (1)	$	52,520	Total operating lease liabilities (1)	$	47,730

(1) Amount consists of a current and long-term portion of operating lease liabilities of ~~$10.7~~$10.9 million and ~~$41.9~~$36.9 million, respectively. The current portion of the operating lease liabilities is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

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Operating lease costs were ~~$4.0~~$3.0 million and ~~$3.8~~$4.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $12.8 million and $11.1 million for the nine months ended September 30, 2022 and 2021,~~ respectively. Short-term lease costs and variable lease costs were ~~immaterial~~not material for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, the Company recorded impairment and abandonment charges to operating lease right-of-use assets of ~~$0.3~~$7.8 million and ~~$5.4~~$1.8 million, respectively, in connection with restructuring activities to reduce its real estate footprint and for optimization of certain leased facilities. The impairment and abandonment charges were recorded to selling, general, and administrative expenses on the Company’s Condensed Consolidated Statements of Operations. Refer to Note 16, Restructuring Expenses, for additional information regarding the Company’s restructuring activities.

The following table summarizes supplemental cash flow information related to the Company’s operating leases for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022

		(In thousands)					(In thousands)
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities	$	13,178	$	11,774	Cash paid for amounts included in the measurement of lease liabilities	$	3,358	$	4,193
Right-of-use assets obtained in exchange for new lease liabilities	Right-of-use assets obtained in exchange for new lease liabilities	$	12,177	$	2,804	Right-of-use assets obtained in exchange for new lease liabilities	$	189	$	497

The following table summarizes the weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating leases as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Weighted-average remaining lease term, years	Weighted-average remaining lease term, years	5.2		5.2		Weighted-average remaining lease term, years	4.8		5.0
Weighted-average discount rate, %	Weighted-average discount rate, %	5.6	%	5.5	%	Weighted-average discount rate, %	5.7	%	5.7	%

Note 13. Commitments and Contingencies

Purchase Obligations

In the ordinary course of business, the Company issues purchase orders based on its current manufacturing needs. As of ~~September 30, 2022,~~March 31, 2023, the Company had non-cancelable purchase commitments of ~~$186.9~~$122.2 million, of which ~~$115.9~~$110.0 million are expected to be paid within the year ending December 31, ~~2022.~~2023.

Ransomware Incident

On May 4, 2022, the Company determined that certain of its information technology systems were affected by ransomware impacting certain internal systems. Upon detecting the security event, the Company took immediate steps designed to contain the incident and implement its business continuity plans to restore and support continued operations. The Company has contained the incident and restored substantially all of its critical information technology systems.

During the three months ended ~~September 30, 2022,~~March 31, 2023, the Company did not incur any material expenses related to the previously disclosed ransomware incident. As of March 31, 2023, the Company has incurred ~~$1.0~~$13.6 million of cumulative expenses related to the ransomware incident ~~and during the nine months ended September 30, 2022, the Company incurred $13.5 million of expenses related to the ransomware incident,~~since it was detected, partially offset by $11.1 million of ~~expected~~ insurance ~~recoveries.~~recoveries, of

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which $9.6 million have been received as of March 31, 2023. Expenses ~~include~~included costs to investigate and remediate the ransomware incident, as well as legal and other professional services, all of which were expensed as incurred. For the three and nine months ended September 30, 2022, the Company included net expenses related to the ransomware incident in cost of revenues of $0.1 million and $0.3 million, respectively; in research and development of $0.2 million and $0.2 million, respectively; and in selling general and administrative expenses of $0.7 million and $1.9 million, respectively, in the Company’s Condensed Consolidated Statements of Operations.

Legal Proceedings

The Company is currently involved in various legal proceedings.

A class action lawsuit was filed against the Company, on June 5, 2019, in the Circuit Court of Cook County, Illinois, Chancery Division, captioned Corey Heard, individually and on behalf of all others similarly situated v. Omnicell, Inc., Case No. 2019-CH-06817 (the “Heard Action”). The complaint seeks class certification, monetary damages in the form of statutory damages for willful and/or reckless or, in the alternative, negligent violation of the Illinois Biometric Information Privacy Act (“BIPA”), and certain declaratory, injunctive, and other relief based on causes of action directed to allegations of violation of BIPA by the Company. The complaint was served on the Company on June 13, 2019. On July 31, 2019, the Company filed a motion to stay or consolidate the case with the action Yana Mazya, et al. v. Northwestern Lake Forest Hospital, et al., Case No. 2018-CH-07161, pending in the Circuit Court of Cook County, Illinois, Chancery Division (the “Mazya Action”). The Court

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subsequently, on October 10, 2019, denied the motion, without prejudice, as being moot in view of the dismissal of the claims against the Company in the Mazya Action. The Company filed a motion to dismiss the complaint in the Heard Action on October 31, 2019. The hearing on the Company’s motion to dismiss was held on September 2, 2020. The Court ruled from the bench and dismissed the complaint without prejudice giving plaintiff leave to file an amended complaint by September 30, 2020. Plaintiff filed an amended complaint on September 30, 2020 and the Company subsequently filed a motion to dismiss the amended complaint on October 28, 2020, which was fully briefed, but the Court had not heard oral argument on the motion. The parties entered into a settlement agreement on January 25, 2022, (the “Settlement Agreement”). On February 1, 2022, the Court granted preliminary approval of the settlement. Following preliminary approval, plaintiff conducted discovery to identify class members and to determine the class size. Pursuant to the terms of the Settlement Agreement, and following class size discovery, the parties ~~will participate~~participated in non-binding mediation ~~which is currently scheduled for~~on November 21, 2022. A settlement was reached at the mediation and the parties executed an addendum to the Settlement Agreement (the “Addendum”) reflecting the changes to the original settlement terms. On November 30, 2022, ~~to determine if~~the Court granted preliminary approval of the settlement ~~will move forward.~~contemplated by the Settlement Agreement, as amended by the Addendum. The Addendum required Omnicell to make a total settlement payment of $4.3 million. On April 6, 2023, the Court ~~has scheduled an interim status conference for November 30, 2022. Subject to~~granted final approval of the settlement, including the Addendum, and entered judgment in the matter dismissing all claims against Omnicell with prejudice. The Company ~~intends to defend~~made its final required settlement payment installment on or before the ~~lawsuit vigorously.~~April 21, 2023 due date.

As required under ASC 450, Contingencies, the Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss. ~~The~~Outside of the matter discussed above, the Company has not recorded any material accrual for contingent liabilities associated with ~~the~~its current legal ~~proceeding described above~~proceedings based on its belief that any potential material loss, while reasonably possible, is not probable. ~~Further,~~Furthermore, any possible range of loss in ~~this matter~~these matters cannot be reasonably estimated at this ~~time or is not deemed material.~~time. The Company believes that it has valid defenses with respect to ~~the~~ legal ~~proceeding~~proceedings pending against it. However, litigation is inherently unpredictable, and it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of ~~the~~ legal ~~proceeding~~proceedings or because of the diversion of management’s attention and the creation of significant ~~expenses.~~expenses, regardless of outcome.

The Company is not a party to any legal proceedings that management believes may have a material impact on the Company’s financial position or results of operations.

Note 14. Income Taxes

The Company generally provides for income taxes in interim periods based on the estimated annual effective tax rate for the year, adjusting for discrete items in the quarter in which they arise. The annual effective tax rate before discrete items was ~~17.8%~~36.8% and ~~28.2%~~26.4% for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

The Company has executed various global operational centralization activities and legal entity rationalization in recent years. The Company did not recognize any gains or losses from such activities duringFor the ~~nine~~three months ended ~~September 30, 2022, and recognized an immaterial gain from such activities during~~March 31, 2023, the ~~nine months ended September 30, 2021. The~~ Company recognized a discrete income tax ~~benefit~~expense related to equity compensation inof $1.6 million. For the ~~amount of $6.2 million and $14.5 million for the nine~~three months ended ~~September 30,~~March 31, 2022, ~~and 2021, respectively.~~the Company recognized a net discrete income tax benefit of $4.6 million, primarily due to a $4.4 million tax benefit from equity compensation.

The ~~2022~~2023 annual effective tax rate before discrete items differed from the statutory rate of 21% primarily due to the favorable ~~impact~~benefit of the research and development credits, state income taxes, and foreign-derived intangible income ~~benefit~~ (“FDII”) deduction, partially offset by unfavorable impact of ~~state income taxes,~~ non-deductible compensation and equity charges, and Global Intangible Low-Taxed Income (“GILTI”) tax inclusion. The ~~2021~~2022 annual effective tax rate before discrete items differed from the statutory rate of 21% primarily due to the unfavorable impact of state income taxes, non-deductible compensation and equity charges, and ~~non-deductible transaction costs related to merger and acquisition activities,~~GILTI tax inclusion, partially offset by the favorable impact of research and development credits and an FDII deduction.

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On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”), was signed into ~~law. Among other things, the IRA imposes~~law and introduced a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022 and levies a 1% excise tax on net stock repurchases after December 31, ~~2022, and provides tax incentives to promote clean energy. The Company is in the process of analyzing the potential impacts of the IRA’s provisions. However, these~~2022. These provisions ~~are~~did not ~~currently expected to~~ have ~~a material~~an impact on the Company’s ~~results of operations or financial position.~~

Onprovision for income taxes for the three months ended March 11, 2021, the President of the United States signed into law the “American Rescue Plan Act of 2021” (the “ARP Act”), which provides additional economic stimulus and tax credits, including the expansion and modification of the employee retention tax credit enacted by the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the refundable tax credits for COVID-related paid sick and family leave enacted by the Family First Act. The ARP Act further expands the “covered employees” definition for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, used in determining the limitation on the deduction for excessive employee remuneration rules to be applicable for taxable years beginning after December 31, ~~2026. The provisions of the ARP Act did not have a material impact on the Company’s income taxes.~~2023.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had gross unrecognized tax benefits of ~~$9.4~~$9.7 million and ~~$9.0~~$9.3 million, respectively. ~~It is the Company’s policy to classify accrued~~The Company recognizes interest and penalties ~~as part of unrecognized~~related to uncertain tax ~~benefits, but to record them~~positions in interest and other income (expense), net in the Condensed Consolidated Statements of

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Operations. Accrued interest and penalties are included within other long-term liabilities on the Condensed Consolidated Balance Sheets. As of ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021,~~2022, the amount of accrued interest and penalties was ~~$0.4 million and $0.6 million, respectively.~~$0.2 million.

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 examinations by taxing authorities, including major jurisdictions such as the United States, Germany, Italy, ~~Netherlands,~~France, and the United Kingdom. With few exceptions, as of ~~September 30, 2022,~~March 31, 2023, the Company was no longer subject to U.S., state, and foreign tax examinations for years before 2019, 2018, ~~2017,~~ and ~~2017,~~2018, respectively.

Although the Company believes it has adequately provided for unrecognized tax benefits, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. It is not possible at this time to reasonably estimate changes in the unrecognized tax benefits within the next twelve months.

Note 15. Employee Benefits and Share-Based Compensation

~~Stock-Based Plans~~

~~For a detailed explanation of the Company’s stock plans, refer to Note 14,~~ ~~Employee Benefits and Share-Based Compensation~~, of 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.

Share-Based Compensation Expense

The following table sets forth the total share-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022

	(In thousands)
Cost of product and service revenues	$	2,008	$	2,244
Research and development	1,606		2,264
Selling, general, and administrative	10,428		11,700
Total share-based compensation expense	$	14,042	$	16,208

During the three months ended March 31, 2023, the Company capitalized approximately $1.1 million of non-cash share-based compensation expense to internal-use and external-use software development costs related to internal labor. The Company did not capitalize any material share-based compensation expense to inventory during the three months ended March 31, 2023 and 2022, or any material share-based compensation expense to internal-use and ~~2021:~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Cost of product and service revenues $ 2,203 $ 1,909 $ 6,607 $ 5,890
Research and development 3,054 1,998 7,912 5,429
Selling, general, and administrative 12,053 9,759 36,212 27,158
Total share-based compensation expense $ 17,310 $ 13,666 $ 50,731 $ 38,477
external-use software development costs during the three months ended March 31, 2022.

Employee Stock Purchase Plan (“ESPP”)

The following assumptions were used to value shares under the ESPP for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Expected life, years	Expected life, years	0.5 - 2.0		0.5 - 2.0		0.5 - 2.0		0.5 - 2.0		Expected life, years	0.5 - 2.0		0.5 - 2.0
Expected volatility, %	Expected volatility, %	28.8% - 44.8%		27.4% - 46.6%		28.8% - 45.6%		27.4% - 53.5%		Expected volatility, %	31.7% - 63.9%		28.8% - 45.6%
Risk-free interest rate, %	Risk-free interest rate, %	0.1% - 3.2%		0.1% - 1.5%		0.1% - 3.2%		0.1% - 2.6%		Risk-free interest rate, %	0.1% - 5.1%		0.1% - 1.5%
Dividend yield, %	Dividend yield, %	—	%	—	%	—	%	—	%	Dividend yield, %	—	%	—	%

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ employees purchased approximately ~~316,000~~209,000 and ~~287,000~~175,000 shares of common stock, respectively, under the ESPP at a weighted-average price of ~~$67.63~~$46.96 and ~~$62.14,~~$66.81, respectively. As of ~~September 30, 2022,~~March 31, 2023, the unrecognized compensation cost related to the shares to be purchased under the ESPP was approximately ~~$3.9~~$4.1 million and is expected to be recognized over a weighted-average period of 1.5 years.

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Stock Options

The following assumptions were used to value stock options granted pursuant to the Company’s 2009 Equity Incentive Plan, as amended, (the “2009 Plan”) for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2023. There were no stock options granted during the three ~~and nine~~ months ended ~~September 30, 2022, and the three months ended September 30, 2021.~~March 31, 2022.

~~Nine~~Three Months Ended ~~September 30,~~March 31,

~~2021~~2023

Expected life, years

~~4.9~~3.2

Expected volatility, %

~~30.1~~44.8

Risk-free interest rate, %

~~0.6~~3.7

Estimated forfeiture rate, %

~~7.9~~10.0

Dividend yield, %

—

The following table summarizes the stock option activity under the 2009 Plan during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Years	Aggregate Intrinsic Value			Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Years	Aggregate Intrinsic Value

		(In thousands, except per share data)							(In thousands, except per share data)
Outstanding at December 31, 2021		2,954	$	67.35	6.9	$	334,119
Outstanding at December 31, 2022								Outstanding at December 31, 2022	2,434	$	68.65	6.1	$	7,887
Granted	Granted	—	—					Granted	200	55.60
Exercised	Exercised	(341)	53.24					Exercised	(65)	35.74
Expired	Expired	(6)	74.37					Expired	(12)	75.27
Forfeited	Forfeited	(109)	85.49					Forfeited	(41)	80.43
Outstanding at September 30, 2022		2,498	$	68.47	6.3	$	53,660
Exercisable at September 30, 2022		1,792	$	62.36	5.8	$	47,120
Vested and expected to vest at September 30, 2022 and thereafter		2,446	$	68.08	6.3	$	53,202
Outstanding at March 31, 2023								Outstanding at March 31, 2023	2,516	$	68.24	5.7	$	13,054
Exercisable at March 31, 2023								Exercisable at March 31, 2023	1,899	$	65.73	5.5	$	12,440
Vested and expected to vest at March 31, 2023 and thereafter								Vested and expected to vest at March 31, 2023 and thereafter	2,466	$	68.12	5.7	$	12,986

The weighted-average fair value per share of options granted during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2023 was ~~$33.89.~~$19.48. The intrinsic value of options exercised during the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$7.6~~$1.3 million and ~~$26.0 million, respectively, and during the nine months ended September 30, 2022 and 2021 was $23.1 million and $56.8~~$12.7 million, respectively.

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation cost related to unvested stock options was ~~$20.1~~$16.2 million, which is expected to be recognized over a weighted-average vesting period of ~~1.6~~1.3 years.

Restricted Stock Units (“RSUs”)

The following table summarizes the RSU activity under the 2009 Plan during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Number of Shares	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Years	Aggregate Intrinsic Value			Number of Shares	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Years	Aggregate Intrinsic Value

		(In thousands, except per share data)							(In thousands, except per share data)

Outstanding at December 31, 2021		763	$	119.93	1.6	$	137,696
Outstanding at December 31, 2022								Outstanding at December 31, 2022	1,117	$	115.75	1.6	$	56,297
Granted (Awarded)	Granted (Awarded)	663	117.63					Granted (Awarded)	74	55.41
Vested (Released)	Vested (Released)	(197)	107.82					Vested (Released)	(63)	128.15
Forfeited	Forfeited	(90)	124.71					Forfeited	(116)	117.91
Outstanding and unvested at September 30, 2022		1,139	$	120.30	1.7	$	99,156
Outstanding and unvested at March 31, 2023								Outstanding and unvested at March 31, 2023	1,012	$	110.36	1.5	$	59,372

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation cost related to RSUs was ~~$111.1~~$95.8 million, which is expected to be recognized over the remaining weighted-average vesting period of ~~3.2~~2.9 years.

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Restricted Stock Awards (“RSAs”)

The following table summarizes the RSA activity under the 2009 Plan during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value

		(In thousands, except per share data)				(In thousands, except per share data)

Outstanding at December 31, 2021		11	$	137.36
Outstanding at December 31, 2022					Outstanding at December 31, 2022	13	$	109.39
Granted (Awarded)	Granted (Awarded)	13	109.39		Granted (Awarded)	—	—
Vested (Released)	Vested (Released)	(11)	137.36		Vested (Released)	—	—

Outstanding and unvested at September 30, 2022		13	$	109.39
Outstanding and unvested at March 31, 2023					Outstanding and unvested at March 31, 2023	13	$	109.39

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation cost related to RSAs was ~~$0.8~~$0.2 million, which is expected to be recognized over the remaining weighted-average vesting period of ~~0.6~~0.2 years.

Performance-Based Stock Unit Awards (“PSUs”)

The following table summarizes the PSU activity under the 2009 Plan during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Number of Shares	Weighted-Average Grant Date Fair Value Per Unit			Number of Shares	Weighted-Average Grant Date Fair Value Per Unit

		(In thousands, except per share data)				(In thousands, except per share data)
Outstanding at December 31, 2021		144	$	118.71
Outstanding at December 31, 2022					Outstanding at December 31, 2022	135	$	147.42
Granted	Granted	78	155.27		Granted	—	—
Additional granted based on performance achievement		51	156.79

Vested	Vested	(87)	119.09		Vested	(10)	164.48
Forfeited	Forfeited	(14)	145.80		Forfeited	(63)	153.89
Outstanding and unvested at September 30, 2022		172	$	144.30
Outstanding and unvested at March 31, 2023					Outstanding and unvested at March 31, 2023	62	$	138.00

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation cost related to PSUs was approximately ~~$8.8~~$3.4 million, which is expected to be recognized over the remaining weighted-average vesting period of ~~1.2~~0.8 years.

Summary of Shares Reserved for Future Issuance under Equity Incentive Plans

The Company had the following ordinary shares reserved for future issuance under its equity incentive plans as of ~~September 30, 2022:~~March 31, 2023:


			Number of Shares

			(In thousands)
~~Share~~Stock options outstanding			~~2,498~~2,516
Non-vested restricted stock awards			~~1,324~~1,087
Shares authorized for future issuance			1,433
ESPP shares available for future issuance			~~603~~394
Total shares reserved for future issuance			~~5,858~~5,430

Stock Repurchase Programs

On August 2, 2016, the Company’s Board of Directors (the “Board”) authorized a stock repurchase program providing for the repurchase of up to $50.0 million of the Company’s common stock (the “2016 Repurchase Program”). The 2016 Repurchase Program is in addition to the stock repurchase program approved by the Board on November 4, 2014 providing for the repurchase of up to $50.0 million of the Company’s common stock (the “2014 Repurchase Program”). During the first quarter of 2022, the 2014 Repurchase Program was completed, and as of ~~September 30, 2022,~~March 31, 2023, the maximum dollar value of shares that may yet be purchased under the 2016 Repurchase Program was $2.7 million. The 2016 Repurchase Program does

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not obligate the Company to repurchase any specific number of shares, and the Company may terminate or suspend the 2016 Repurchase Program at any time.

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During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, the Company repurchased approximately 389,300 shares of its common stock under the repurchase programs at an average price of $134.11 per share for an aggregate purchase price of approximately $52.2 million. During the three months ended ~~September 30, 2022 and three and nine months ended September 30, 2021,~~March 31, 2023, the Company did not repurchase any of its outstanding common stock under the ~~repurchase programs.~~2016 Repurchase Program.

Note 16. Restructuring Expenses

During 2020, the Company announced a company-wide organizational realignment initiative in order to more effectively align its organizational infrastructure and operations with the industry vision of the Autonomous Pharmacy. In the first quarter of 2021, the Company continued its organizational realignment initiative, incurring $2.0 million of employee severance costs and related expenses.

During the first quarter of 2022, the Company initiated certain domestic and international restructuring initiatives, in order to enhance and streamline certain engineering functions for its domestic operations, and to realign its international sales organization to better serve its customers in various international markets. During the ~~third quarter of~~three months ended March 31, 2022, the Company initiated restructuring initiatives associated with the integration and functionalization of certain acquisitions, primarily the 340B Link business acquisition, to further accelerate the expansion of the Company’s pharmacy inventory management capabilities. During the three and nine months ended September 30, 2022, the restructuring plans incurred ~~$1.8~~$3.5 million ~~and $5.3 million, respectively,~~ of employee severance costs and related ~~expenses.~~expenses in connection with this restructuring plan. As of ~~September 30,~~March 31, 2023, there was no material unpaid balance related to this restructuring plan.

On November 23, 2022, the Company committed to a plan to reduce the Company’s headcount (the “Plan”), as part of the Company’s expense containment efforts being implemented due to ongoing macroeconomic headwinds. During the first quarter of 2023, as a result of continued exploration of expense containment measures, the Company committed to further reduce its headcount across many of its functions, and also committed to reduce its real estate footprint to align with its broader hybrid work strategy and in an effort to further reduce costs. During the three months ended March 31, 2023, the Company incurred $5.3 million of employee severance costs and related expenses in connection with the Plan. As of March 31, 2023, the Company has incurred $22.8 million of cumulative restructuring expense related to employee severance costs and related expenses since the inception of the Plan. As of March 31, 2023 and December 31, 2022, the unpaid balance related to ~~these~~the Plan was $8.1 million and $18.2 million, respectively.

Refer to Note 12, Lessee Leases, for information regarding the Company’s restructuring ~~plans was $2.2 million.~~activities for the reduction of its real estate footprint and optimization of certain leased facilities.

The following table summarizes the total employee-related restructuring expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~the nine months ended September 30, 2022 and 2021:~~2022:


		Three Months Ended September 30,		Nine Months Ended September 30,						Three Months Ended March 31,
		2022			2022			2021				2023		2022

		(In thousands)					(In thousands)
Cost of product and service revenues	Cost of product and service revenues	$	444		$	600		$	389		Cost of product and service revenues	$	144	$	156
Research and development	Research and development	272			1,866			105			Research and development	485		1,594
Selling, general, and administrative	Selling, general, and administrative	1,078			2,855			1,526			Selling, general, and administrative	4,685		1,777
Total restructuring expense	Total restructuring expense	$	1,794		$	5,321		$	2,020		Total restructuring expense	$	5,314	$	3,527

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements are contained throughout this Quarterly 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 COVID-19 pandemic on our workforce and operations (including new variants of the virus) and associated efforts to contain the spread of the pandemic, as well as the continuing impacts on our customers and suppliers, and the anticipated continuing effects of the COVID-19 pandemic and associated containment measures on our business, financial condition, liquidity, and results of operations;

•~~our statements relating to the Company’s containment of the impacts of the recent ransomware incident and any further impact on the Company;~~

•~~our expectations~~ regarding our future sales pipeline and ~~product~~ bookings;

•the extent and timing of future revenues, including the amounts of our current backlog;

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•the size or growth of our market or market share;

•our beliefs about drivers of demand for our products, services, and solutions, ~~market~~ opportunities in certain ~~product~~market categories, and continued expansion in these ~~product~~market categories, as well as our belief that our technology, services, and solutions within these market categories position us well to address the needs of retail, acute, post-acute, and ~~post-acute~~specialty pharmacy providers;

•~~our expectation to continue to acquire companies, businesses, products, or technologies;~~Table of Contents

•~~our goal of advancing our platform with new product introductions;~~

•our goal to deliver on the industry vision of the Autonomous Pharmacy, 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 industry vision of the Autonomous Pharmacy, our beliefs about the anticipated benefits of such investments, and our expectations regarding continued growth in current and future subscription and cloud-based offerings as we execute on this vision;

•our goal of advancing our platform with the development of new products, services, or solutions or the enhancement of existing products, services, or solutions;

•growth opportunities presented by new products, services, solutions, and markets;

•our projected target revenues, operating costs, and cash flows;

•our ability to align our intelligent infrastructure development and global workforce headcount with our current business expectations;

•our goal to deliver on the industry vision of the Autonomous Pharmacy, as well as our plan to migrate our customers from an on-premise infrastructure to our cloud-based platform;

•our belief that our solutions ~~and~~that support the industry vision ~~for fully autonomous medication management~~of the Autonomous Pharmacy, are strongly aligned with ~~long-term~~ trends in the healthcare market, and are well-positioned to address the evolving needs of healthcare institutions;

•~~opportunities presented by new~~our expectation to continue to acquire companies, businesses, products, services, or technologies and ~~markets;~~to effectively integrate or manage these acquired companies, businesses, products, services, or technologies;

•our ability to secure adequate supplies of raw materials and components utilized in the manufacture of our products of a quality that we require, on a timely basis, and at acceptable prices;

•our ~~ability to align our cost structure~~containment of the impacts of the ransomware incident we experienced in May 2022, and ~~headcount with our current~~any further impacts on the Company, including its business, ~~expectations;~~

•~~the bookings, revenues, non-GAAP EBITDA, non-GAAP~~ operating ~~margin,~~results, cash flow, or ~~non-GAAP earnings per share goals we may set;~~financial condition;

•our ~~projected target long-term revenues~~expectations about the impact of epidemics, pandemics, or other major public health crises, such as the ongoing COVID-19 pandemic (including new variants of the virus) and ~~revenue growth rates, long-term non-GAAP~~associated efforts to contain the spread of the pandemic on our workforce and operations as well as those of our customers and suppliers, and the anticipated continuing effects of the COVID-19 pandemic and associated containment measures on our business, operating ~~margin targets, long-term non-GAAP EBITDA margin targets, and free~~results, cash flow, ~~conversion;~~or financial condition;

•our expected future uses of cash ~~including our expected uses for the remaining proceeds of our convertible senior notes,~~ 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,~~“forecasts,” ~~“seeks,~~“goals,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “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, many of which are beyond our control, 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 on Form 10-Q, including ~~in Part II - Item 1A. “Risk Factors” and~~ Part I - Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” below.~~ Operations,” as well as in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2023. Given these risks and uncertainties, you ~~should~~are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements should be considered in light of these risks and uncertainties. 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 with, or furnish to, the ~~U.S. Securities and Exchange Commission (“SEC”)~~SEC from time to time, 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 current estimates and assumptions and speak 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, whether as a result of changed circumstances, future events, even if new information becomes available in the ~~future.~~future, or otherwise.

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Other Information

All references in this Quarterly Report on Form 10-Q to “Omnicell,” “our,” “us,” “we,” or “the Company” collectively refer to Omnicell, Inc., a Delaware corporation, and its ~~subsidiaries, collectively.~~subsidiaries. The term “Omnicell, Inc.” refers only to Omnicell, Inc., excluding its subsidiaries.

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We own various registered and unregistered trademarks and service marks used in our business, some of which appear in this Quarterly Report on Form 10-Q, including Omnicell®. This Quarterly Report on Form 10-Q may also include the trademarks and service marks of other companies. Such trademarks and service marks are the marks of their respective owners.

OVERVIEW

Our Business

Omnicell, a leader in transforming the pharmacy care delivery model, is committed to solving the critical challenges inherent in medication management and elevating the role of ~~pharmacy~~clinicians within healthcare ~~and transforming medication management~~ as an essential component of care delivery. Omnicell is focused on not only helping its customers optimize medication management in each setting of care, but also placing the ~~pharmacy~~patient at the center and helping its customers optimize medication management across all care ~~delivery model.~~settings from inpatient to outpatient. We are doing so with an industry-leading ~~comprehensive~~medication management intelligent infrastructure ~~bringing together technology, analytics, and expert services~~ to equip and empower pharmacists and pharmacies with the ability to focus on clinical care rather than administrative tasks. ~~We believe this~~This intelligent infrastructure provides the critical foundation for ~~realizing~~customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management.

Facilities worldwide use our automation and analytics solutions to increase operational efficiency, reduce medication errors, deliver actionable intelligence, and improve patient safety. Institutional and retail pharmacies across North America and the United Kingdom ~~Germany, and Australia~~ leverage our innovative medication adherence and population health solutions to improve patient engagement and adherence to prescriptions, helping to reduce costly hospital readmissions. We sell our product and consumable solutions together with related service offerings. Revenues generated in the United States represented ~~91%~~88% and ~~92%~~90% of our total revenues for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 90% of our total revenues for both the nine months ended September 30, 2022 and 2021.~~respectively.

Over the past several years, our business has expanded from a single-point solution to a platform of products and services that ~~we believe~~ will help to further advance the industry vision of the Autonomous Pharmacy. This expansion has resulted in larger deal sizes across multiple products, services, and implementations for customers and, we believe, more comprehensive, valuable, and enduring relationships.As our business evolves, we continue to evaluate the metrics and methods we use to measure the success of our business.

We utilize ~~product~~ bookings as an indicator of the success of our business. ~~Product~~We define bookings generally ~~consist~~as: (i) the value of ~~firm~~non-cancelable contracts for our connected devices, software products, and Advanced Services (although, for those Advanced Services contracts without a minimum commitment, bookings only include the amount of revenue that has been recognized once the services have been provided); and (ii) for our consumables, the value of orders ~~other than for~~placed through our Omnicell Storefront online platform or through written or telephonic orders. We typically exclude technical services and other less significant items ~~as evidenced generally by a non-cancelable contract and purchase order for equipment, software~~ancillary to our products and ~~Advanced Services,~~services, such as freight revenue from bookings. As noted, the portfolio of products, solutions and byservices we offer has evolved. As a result, the ordering process for certain of our solutions has also evolved. For example, orders for certain of our solutions may not include a purchase ~~order or through our Omnicell Storefront online ordering platform for consumables. A significant portion of our connected~~order. Connected devices and software license ~~product~~ bookings ~~are installable within twelve months of booking, and~~ are recorded as revenue upon customer acceptance of the installation or receipt of goods. Revenues from ~~software-as-a-service (“SaaS”), subscription software, and technology-enabled services product~~Advanced Services bookings are recorded over the contractual term.

We generally provide installation planning and consulting as part of most connected device product sales, which is typically included in the initial price of the solution. To help ensure the maximum availability of our systems, our customers typically purchase technical services contracts (maintenance and support) in increments of one to five years. In addition to connected device product ~~solution~~ sales, we provide a range of services to our customers. We ~~provide installation planning and consulting as part of most product sales, which is generally included in the initial price of the solution. We~~ also provide Advanced Services such as ~~Omnicell One,~~Central Pharmacy Dispensing Service (service portion), IV Compounding Service (service portion), EnlivenHealth, ~~340B solutions,~~ Specialty Pharmacy Services, ~~Central Pharmacy Dispensing Services,~~340B solutions, Inventory Optimization Service, and ~~Central Pharmacy Compounding Services. To help assure the maximum availability~~other software solutions, which typically are provided over 2-7 years.

Table 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 and expanded service offerings, our service revenues have also grown.Contents

The following table summarizes each revenue category:

Revenue Category

Revenue Type~~(1)~~

Income Statement Classification

Included in ~~Product~~ Bookings

Connected devices, software licenses, and other

~~High visibility/~~

Nonrecurring

Product

Yes ~~(2)~~(1)

~~Technical services~~

~~High visibility/~~

~~Recurring~~

~~Service~~

Consumables

~~High visibility/~~

Recurring

Product

Yes

~~SaaS, subscription software, and technology-enabled~~Technical services

Recurring

Service

~~High visibility/~~Advanced Services (2) (3)

Recurring

Service

Yes

(1) ~~All~~Certain other insignificant revenue ~~types~~streams ancillary to our products and services, such as freight revenue, are ~~highly visible from long-term, sole-source agreements, backlog, or the recurring nature of the revenue stream.~~not included in bookings.

(2) ~~Freight~~Includes Central Pharmacy Dispensing Service (service portion), IV Compounding Service (service portion), EnlivenHealth, Specialty Pharmacy Services, 340B solutions, Inventory Optimization Service, and other software solutions.

(3) For those Advanced Services contracts without a minimum commitment, bookings only include the amount of revenue ~~and certain other insignificant revenue streams are not included in product bookings.~~that has been recognized once the services have been provided.

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Our full-time employee headcount was approximately ~~4,160~~3,830 and ~~3,800~~4,230 on ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The decrease in employee headcount reflects the impact of the restructuring plan announced in November 2022.

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 of Omnicell at the consolidated level using information about our revenues, gross profit, income from operations, and other key financial data. All significant operating decisions are based upon an analysis of Omnicell as one operating segment, which is the same as our reporting segment.

Business Strategy

~~We are committed to being~~The U.S. spent a total of $577 billion on prescription drugs that accounted for 14% of National Health Expenditures in 2021, and prescription drugs impact the ~~care providers’ and retail pharmacies’ most trusted partner and executing on the industry vision~~vast majority of ~~the Autonomous Pharmacy by developing and delivering an intelligent medication management infrastructure composed~~patients in virtually all settings of ~~devices, digital workflows, analytics, and experts, all powered by the cloud.~~care. We believe there are significant challenges facing the practice of pharmacy ~~practice~~ today including, but not limited to, labor shortages, medication errors, drug shortages, medication loss due to drug diversion, significant medication waste and expiration costs, a high level of manual ~~steps in the medication management process,~~processes, complexity around compliance requirements, high ~~pharmacy employee~~healthcare worker turnover rates affecting tenure and expertise, hospitalizations from adverse drug events in outpatient settings, high variability in outcomes, and limited inventory visibility. Each of these challenges can translate into a major economic impact for hospitals and health systems. We believe that these significant challenges to the practice of pharmacy ~~practice~~ drive ~~the~~ demand for increased digitization, visibility, and insights that our solutions enable, and ~~represent~~that our solutions therefore present large ~~opportunities~~opportunities.

In an effort to address these challenges and deliver solutions to help drive positive medication management outcomes, we believe a combination of technology, expertise and intelligence is needed in each care setting and across the entire continuum of care. We are focused on delivering solutions to help drive these medication management outcomes with outstanding customer experience through a mature channel in four market categories:

•Point of Care. As a market leader, we expect to continue expansion ofinto this product ~~category~~market as customers increase use of our dispensing systems in more areas within their hospitals. Should labor shortages continue to challenge the delivery of healthcare services, we believe that deploying solutions and workflows that are intended to save nursing time is essential. We are more than halfway through the replacement, upgrade, and expansion cycle of older models of automated dispensing systems with our XT Series ~~automated dispensing systems~~ within our ~~own~~ customer base, which we believe isremains a significant market opportunity. We have been successful ~~penetrating markets~~in market expansion through competitive conversions and we expect this success to continue. We also believe there is an opportunity for us to expand the offering and define a new standard ~~of care~~ for dispensing systems in perioperative settings. We believe our current ~~portfolio~~solutions within the Point of Care market and new innovation and services will continue to help customers drive improved ~~outcomes and lower costs for our customers.~~outcomes.

•Central ~~Pharmacy.~~Pharmacy and IV Compounding. This market represents the beginning of the medication management process in acute care settings, and, we believe, ~~the next big~~it is a significant automation opportunity ~~to replace~~for high volumes of manual, repetitive, and ~~repetitive~~error-prone processes that are often common in pharmacies today. Manual medication dispensing processes are ~~prone~~usually labor intensive, error-prone, and may lead to ~~significant errors,~~excess medication waste and products such as IVX Workflow, our IV Sterile Compounding Service (including IV robotics), and our Central Pharmacy Dispensing Service (including the XR2 Automated Central Pharmacy System), automate these manual processes and are designed to reduce the risk of errorexpirations for our healthcare partners. Automating the central pharmacy dispensing process should enable customers to reallocate pharmacy labor, enhance dispensing accuracy and patient safety, and reduce medication

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waste and expirations. Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs. As a result, we believe IV automation provides a significant opportunity to enhance patient safety and reduce costs.Because ~~automation~~ adoption ~~in the~~of our Central Pharmacy and IV automation solution is still nascent, we believe that the ~~adoption~~implementation of new solutions (as well as upgrading older technology) will be accelerated by ~~bundling those solutions with technology-enabled services~~combining technology, expertise, and intelligence into a comprehensive offering that ~~are~~is designed to deliver specific outcomes and leverage intelligence across the enterprise for more actionable insights, and are expected to reduce administrative burden, allowing clinicians to operate at the top of their license.improved outcomes. We ~~think~~anticipate that these bundled solutions ~~are becoming~~will become more critical ~~than ever~~ as health systems continue to face ~~increasing~~ labor shortages, increased financial pressure, and supply chain disruptions. Additionally, we believe new products, innovations and our expertise in the Central Pharmacy market create opportunities to replace prior generation Central Pharmacy robotics, especially when combining those robotics with carousels and technology-enabled services to increase the percentage of medication managed through the intelligent infrastructure.

•Specialty Pharmacy and 340B Program. We believe that health systems will invest in more ~~revenue generating~~revenue-generating activities that are intended to improve patient outcomes ~~and pharmacy will be at the center with~~by utilizing specialty pharmacies and the 340B Drug Pricing ~~Program.~~

~~Studies have shown that specialty medications represent over 50% of the country’s total spending on retail, mail-order,~~Program, which allow hospitals and ~~provider-administered drugs. Used~~health systems to stretch federal resources and expand patient access to healthcare by requiring manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations. Specialty drugs are used for treatment of complex conditions ~~these medications~~and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty ~~pharmacies~~medications are projected to account for 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025. Specialty pharmacies serve as the connection between patients, prescribing physicians, and ~~payors~~payers and work to ~~ensure streamlined~~streamline access and adherence to these specialty ~~drugs, helping~~drugs. We believe a solution that addresses start-up and managed services for health systems that is designed to ~~maintain~~optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care ~~throughout~~and should contribute to the ~~process, and are expected to improve margin~~revenue and profitability ~~for the health system. Specialty Pharmacy Services is~~of those organizations. We believe that a ~~turnkey offering with dedicated services to set up, operate, and optimize a~~fully optimized specialty pharmacy ~~program, and is designed to help health systems launch and/or optimize a fully managed, hospital-owned specialty pharmacy. Our Specialty~~

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Pharmacy Services solution is intended to deliver: (i) improved access to specialty medications to enhance care and support patient outcomes; (ii) financial outcomes for customers through a ‘value-based’ service model that is expected to drive financial results and (iii) a single vendor that provides the technology, services, and broad expertise to support medication management needs from hospital to home.

~~The 340B market is targeted to covered entities participating in Section 340B~~operation represents one of the Public Health Services Act. The Public Health Services Act requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations that carelargest economic opportunities for many uninsured and low-income patients and creates a complex compliance environment. According to the Health Resources and Services Administration, which is responsible for administering the 340B program, enrolled hospitals and other covered entities can achieve an average savings of 25% to 50% in pharmaceutical purchases. Due to the complexities of adhering to the administrative process of the 340B program, as well as potential drug manufacturer actions further complicating the 340B program landscape, we believe that there are significant opportunities for health ~~systems to improve participation benefits and maximize program savings through our 340B technology-enabled services.~~systems.

•Retail, Institutional, and Payer. We believe the ~~retail, institutional,~~Retail, Institutional, and ~~payer~~Payer market represents a significant opportunity as healthcare evolves. A majority of all prescription drugs are distributed in the non-acute sector. The COVID-19 pandemic accelerated the shift of certain primary ~~healthcare settings~~care from hospitals and ~~doctors’~~physician offices to other, more convenient ~~channels like~~settings, such as retail pharmacies and the home ~~digital, and retail pharmacies.~~(including through telehealth technologies). New ~~technology~~technologies and updated state board regulations ~~are leading~~appear to be spurring innovation ~~at traditional~~by retail ~~providers,~~pharmacies, which, combined with the move to value-based care, we believe will ~~incentivize~~drive the ~~market to adopt~~adoption of solutions that are intended to help providers and payers engage patients in new ways that improve patient care, ~~and~~ reduce the total cost of ~~care. We believe adoption of our EnlivenHealth portfolio of software products~~care, 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~~lead to improved adherence. Our EnlivenHealth portfolio has been expanded with two recent acquisitions that will assist in adoption and drive innovation. RxInnovation Inc., operating as FDS Amplicare (“FDS Amplicare”), is a leading provider of financial management, analytics, and population health solutions to the retail pharmacy industry, including independent pharmacies. MarkeTouch Media, LLC (“MarkeTouch Media”) has longstanding pharmacy chain relationships that further broaden EnlivenHealth’s national pharmacy network.

We believe our technology, services, and solutions within these market categories position us well to address the needs of acute, post-acute, ambulatory, and retail pharmacy providers and health plans.

~~COVID-19 Update~~

~~We continue to closely monitor the COVID-19 pandemic and ongoing impacts on the Company. At the outset~~more profitable operations. Because of the ~~COVID-19 pandemic, many health systems faced financial~~complexity of relationships between payers and operational pressures which we believe led our customers to delay or defer purchasing decisions and/or implementation of our solutions. However, our customers have generally returned to pre-pandemic purchasing patterns consistent with long-term strategic investments. We believe that the challenges that our customers have faced during the COVID-19 pandemic, including the need for robust visibility throughout their pharmacy supply chains, have increased the strategic relevance of our products and services.

COVID-19 vaccines are now available and being widely distributed. Despite this, there remains uncertainty regarding the duration and severity of the continuing impact of the pandemic, including the impact of new variants of the COVID-19 virus, on the U.S. and world economies,providers, as well as ~~on our business. We continue to carefully monitor this dynamic situation and may adjust our outlook as appropriate. The ongoing impact~~the large number of ~~the COVID-19 pandemic may adversely affect our business, results~~retail pharmacies, including a significant number of ~~operations, financial condition, and liquidity (including increased borrowing costs or other costs of capital). However, under current circumstances,~~independent pharmacies, we believe ~~that our financial position~~a network of established relationships between payers, providers and ~~resources~~pharmacies will ~~allow us to manage the anticipated impact of the COVID-19 pandemic on our business for the foreseeable future.~~

~~Ransomware Incident~~

On May 4, 2022, we determined that certain of our information technology systems were affected by ransomware impacting certain internal systems. Upon detecting the security event, we took immediate steps designed to contain the incident and implement our business continuity plans to restore and support continued operations. We have contained the incident and restored substantially all of our critical information technology systems. As a result of the ransomware incident, invoicing was delayed, which impacted the timing of cash collections and free cash flow in the second quarter of 2022. In addition, total revenues were slightly below expectations for the second quarter of 2022 as customer implementations were delayed due to the ransomware incident. During the third quarter of 2022, we continued to experience implementation delays as we recovered from the impacts of the ransomware incident. As of the end of the third quarter of 2022, a majority of the delayed implementations from the second quarter of 2022 have been implemented or are expected toalso be ~~implemented in the fourth~~

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quarter of 2022. Furthermore, as of the end of the third quarter of 2022, any delayed or impacted processes have returned to normal operations. We do not believe the security event will have a material adverse effect on our business, results of operations, or financial condition.

~~Acquisitions~~

~~On January 10, 2022, we completed the acquisition of 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 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. ~~The results of the operations of Hub and Spoke Innovations have been included in our consolidated results of operations beginning January 10, 2022.~~

On December 31, 2021, we completed the acquisition of 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. The results of the operations of MarkeTouch Media have been included in our consolidated results of operations beginning December 31, 2021.

On December 29, 2021, we completed the acquisition of 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, now a part of the Company’s Specialty Pharmacy 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. The results of the operations of ReCept have been included in our consolidated results of operations beginning December 29, 2021.

On September 9, 2021, we completed the acquisition of 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 SaaS financial management, analytics, and population health solutions to our EnlivenHealth offering. The results of the operations of FDS Amplicare have been included in our consolidated results of operations beginning September 9, 2021.

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 and unbilled receivables;~~Lessor leases;

•~~Leases;~~Allowance for credit losses;

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•Inventory;

•~~Software~~Internal-use and external-use software development costs;

•Lessee leases;

•Valuation and impairment of goodwill and intangible assets;

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•Business combinations;

•~~Convertible senior notes;~~

•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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 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, ~~2021,~~2022, 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 on Form 10-Q.

Recently Issued Authoritative Guidance

Refer to “Recently Issued Authoritative Guidance” in Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q 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.

RESULTS OF OPERATIONS

Total Revenues


		Three Months Ended September 30,								Three Months Ended March 31,
						Change in								Change in
		2022		2021		$		%		2023		2022		$		%

		(Dollars in thousands)								(Dollars in thousands)
Product revenues	Product revenues	$	246,565	$	213,970	$	32,595	15%	Product revenues	$	185,715	$	225,875	$	(40,160)	(18)%
Percentage of total revenues	Percentage of total revenues	71%		72%					Percentage of total revenues	64%		71%
Services and other revenues	Services and other revenues	101,494		82,432		19,062		23%	Services and other revenues	104,914		92,953		11,961		13%
Percentage of total revenues	Percentage of total revenues	29%		28%					Percentage of total revenues	36%		29%
Total revenues	Total revenues	$	348,059	$	296,402	$	51,657	17%	Total revenues	$	290,629	$	318,828	$	(28,199)	(9)%

Product revenues represented ~~71%~~64% and ~~72%~~71% of total revenues for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Product revenues ~~increased~~decreased by ~~$32.6~~$40.2 million, primarily due to ~~increased customer demand, primarily within~~lower revenues from our automated dispensing systems business ~~and increased revenues from our XR2 Automated Central Pharmacy Systems.~~as a result of ongoing health systems capital budget constraints.

Services and other revenues represented ~~29%~~36% and ~~28%~~29% of total revenues for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Services and other revenues include revenues from technical ~~services; SaaS, subscription software,~~services and ~~technology-enabled services; and other services.~~Advanced Services offerings. Services and other revenues increased by ~~$19.1~~$12.0 million, primarily due to ~~incremental revenues from~~increased customer demand for our ~~recent acquisitions of FDS Amplicare, ReCept,~~Advanced Services and ~~MarkeTouch Media, as well as~~ continued growth in our installed customer base ~~and our expanded portfolio~~as well as the impact of services and solutions. The increase was partially offset by a decrease in revenues from 340B solutions primarily due to impacts from decreasing provider utilization of the 340B program as a result of recent drug manufacturerpricing actions.

Our international sales represented 9%12% and 8%10% of total revenues for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ 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.

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Nine Months Ended September 30,
Change in
2022 2021 $ %
(Dollars in thousands)
Product revenues $ 706,246 $ 589,006 $ 117,240 20%
Percentage of total revenues 71% 72%
Services and other revenues 292,027 231,978 60,049 26%
Percentage of total revenues 29% 28%
Total revenues $ 998,273 $ 820,984 $ 177,289 22%

Product revenues represented 71% and 72% of total revenues for the nine months ended September 30, 2022 and 2021, respectively. Product revenues increased by $117.2 million, due to increased customer demand, primarily within our automated dispensing systems business, as well as increased revenues from our IV solutions and XR2 Automated Central Pharmacy Systems.

Services and other revenues represented 29% and 28% of total revenues for the nine months ended September 30, 2022 and 2021, respectively. Services and other revenues include revenues from technical services; SaaS, subscription software, and technology-enabled services; and other services. Services and other revenues increased by $60.0 million, primarily due to incremental revenues from our recent acquisitions of FDS Amplicare, ReCept, and MarkeTouch Media, as well as continued growth in our installed customer base and our expanded portfolio of services and solutions. The increase was partially offset by a decrease in revenues from 340B solutions primarily due to impacts from decreasing provider utilization of the 340B program as a result of recent drug manufacturer actions.

~~Our international sales represented 10% of total revenues for both the nine months ended September 30, 2022 and 2021,~~ 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, which may be dependent upon customers’ capital equipment budgets and/or capital equipment approval cycles, 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, our ability to develop new or enhance existing solutions, and our flexibility in workforce 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 and/or staffing levels allow for installations.

Cost of Revenues and Gross Profit

Cost of revenues is primarily comprised of three general categories: (i) standard product costs which account for the majority of the product cost of revenues that are provided to customers, and are inclusive of purchased material, labor to build the product, and overhead costs associated with production; (ii) costs of providing services and installation costs, including

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costs of personnel and other expenses; and (iii) other costs, including variances in standard costs and overhead, scrap costs, rework, ~~warranty,~~ provisions for excess and obsolete inventory, and amortization of software development costs and intangibles.

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		Three Months Ended September 30,								Three Months Ended March 31,
						Change in								Change in
		2022		2021		$		%		2023		2022		$		%

		(Dollars in thousands)								(Dollars in thousands)
Cost of revenues:	Cost of revenues:								Cost of revenues:
Cost of product revenues	Cost of product revenues	$	134,023	$	110,743	$	23,280	21%	Cost of product revenues	$	109,527	$	118,338	$	(8,811)	(7)%
As a percentage of related revenues	As a percentage of related revenues	54%		52%					As a percentage of related revenues	59%		52%
Cost of services and other revenues	Cost of services and other revenues	54,941		38,880		16,061		41%	Cost of services and other revenues	56,073		50,443		5,630		11%
As a percentage of related revenues	As a percentage of related revenues	54%		47%					As a percentage of related revenues	53%		54%
Total cost of revenues	Total cost of revenues	$	188,964	$	149,623	$	39,341	26%	Total cost of revenues	$	165,600	$	168,781	$	(3,181)	(2)%
As a percentage of total revenues	As a percentage of total revenues	54%		50%					As a percentage of total revenues	57%		53%

Gross profit	Gross profit	$	159,095	$	146,779	$	12,316	8%	Gross profit	$	125,029	$	150,047	$	(25,018)	(17)%
Gross margin	Gross margin	46%		50%					Gross margin	43%		47%

Cost of revenues for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021 increased~~March 31, 2022 decreased by ~~$39.3~~$3.2 million, ~~of which $23.3~~primarily driven by an $8.8 million ~~was attributed to the increase~~decrease in cost of product revenues, ~~and $16.1~~partially offset by a $5.6 million ~~was attributed to the~~ increase in cost of services and other revenues.

The ~~increase~~decrease in cost of product revenues was primarily driven by the ~~increase~~decrease in product revenues of ~~$32.6~~$40.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021.~~ March 31, 2022. The increase was also driven by inventory-related costs due to inflationary impacts, as well as higher employee-related and travel expenses due to increased headcount. This increase was partially offset bydecrease in cost of product revenues have not decreased proportionally with the ~~benefits associated with economies of scale due to higher volumes during~~decrease in product revenues for the three months ended ~~September 30, 2022 compared~~March 31, 2023, primarily due to ~~the three months ended September 30, 2021.~~

certain fixed costs, such as labor and overhead. The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of ~~$19.1~~$12.0 million ~~including incremental revenues from our recent acquisitions,~~ for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended September 30, 2021. The cost of service and other revenues grew at a faster pace than our service and other revenues primarily due to additional investments in our service business to support new service solutions, the impact of lower 340B solutions revenues, and the mix of service revenues recognized in the quarter.March 31, 2022.

The overall decrease in gross margin primarily relates to ~~additional investments~~lower product revenues for the three months ended March 31, 2023 whereas the decrease in ~~our business, including our service solutions,~~cost of product revenues have not decreased proportionally with the ~~impact of lower 340B solutions~~decrease in product revenues, primarily due to certain fixed costs, such as labor and ~~the mix of service revenues recognized in the quarter, as well as inflationary impacts on inventory-related costs and higher employee-related and travel expenses.~~overhead. The decrease is partially offset by ~~higher revenues for the three months ended September 30, 2022 due to increased customer demand as well as benefits associated with economies of scale due to higher volumes.~~continued growth in our services and other revenues. Our gross profit for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$159.1~~$125.0 million, as compared to ~~$146.8~~$150.0 million for the three months ended ~~September 30, 2021.~~

Nine Months Ended September 30,
Change in
2022 2021 $ %
(Dollars in thousands)
Cost of revenues:
Cost of product revenues $ 374,175 $ 303,597 $ 70,578 23%
As a percentage of related revenues 53% 52%
Cost of services and other revenues 156,864 112,027 44,837 40%
As a percentage of related revenues 54% 48%
Total cost of revenues $ 531,039 $ 415,624 $ 115,415 28%
As a percentage of total revenues 53% 51%
Gross profit $ 467,234 $ 405,360 $ 61,874 15%
Gross margin 47% 49%

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Cost of revenues for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 increased by $115.4 million, of which $70.6 million was attributed to the increase in cost of product revenues and $44.8 million was attributed to the increase in cost of services and other revenues.

The increase in cost of product revenues was primarily driven by the increase in product revenues of $117.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was also driven by increased inventory-related costs due to inflationary impacts, as well as higher employee-related and travel expenses due to increased headcount. This increase was partially offset by the benefits associated with economies of scale due to higher volumes during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of $60.0 million, including incremental revenues from our recent acquisitions, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The cost of service and other revenues grew at a faster pace than our service and other revenues primarily due to additional investments in our service business to support new service solutions, the impact of lower 340B solutions revenues, and the mix of service revenues recognized in the nine months ended September 30,March 31, 2022.

The overall decrease in gross margin primarily relates to additional investments in our business, including our service solutions, the impact of lower 340B solutions revenues, and the mix of service revenues recognized in the quarter, as well as inflationary impacts on inventory-related costs and higher employee-related and travel expenses. The decrease is partially offset by higher revenues for the nine months ended September 30, 2022 due to increased customer demand as well as benefits associated with economies of scale due to higher volumes. Our gross profit for the nine months ended September 30, 2022 was $467.2 million, as compared to $405.4 million for the nine months ended September 30, 2021.

Operating Expenses and Interest and Other Income (Expense), Net


		Three Months Ended September 30,								Three Months Ended March 31,
						Change in								Change in
		2022		2021		$		%		2023		2022		$		%

		(Dollars in thousands)								(Dollars in thousands)
Operating expenses:	Operating expenses:								Operating expenses:
Research and development	Research and development	$	25,171	$	19,477	$	5,694	29%	Research and development	$	22,878	$	25,030	$	(2,152)	(9)%
As a percentage of total revenues	As a percentage of total revenues	7%		7%					As a percentage of total revenues	8%		8%
Selling, general, and administrative	Selling, general, and administrative	115,459		97,910		17,549		18%	Selling, general, and administrative	125,114		119,933		5,181		4%
As a percentage of total revenues	As a percentage of total revenues	33%		33%					As a percentage of total revenues	43%		38%
Total operating expenses	Total operating expenses	$	140,630	$	117,387	$	23,243	20%	Total operating expenses	$	147,992	$	144,963	$	3,029	2%
As a percentage of total revenues	As a percentage of total revenues	40%		40%					As a percentage of total revenues	51%		45%

Interest and other income (expense), net	Interest and other income (expense), net	$	(1,148)	$	(6,065)	$	4,917	(81)%	Interest and other income (expense), net	$	1,781	$	(114)	$	1,895	(1,662)%

Research and Development. Research and development expenses ~~increased~~decreased by ~~$5.7~~$2.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease was primarily attributed to ~~an increase~~a decrease of $1.1 million in employee-related expenses for restructuring initiatives and decrease in consulting expenses of approximately ~~$4.0 million due to increased headcount to support the continued development~~$1.3 million.

Table of ~~our intelligent infrastructure and incremental headcount from recent acquisitions.~~Contents

Selling, General, and Administrative. Selling, general, and administrative expenses increased by ~~$17.5~~$5.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase of ~~approximately $8.3~~$6.7 million for impairment and abandonment charges of operating lease right-of-use and other assets in ~~employee-related expenses primarily related to increased headcount, including the incremental headcount from recent acquisitions, as well as an increase~~connection with restructuring activities of ~~$1.1 million of employee-related expenses related to restructuring initiatives.~~certain leased facilities. The increase was also driven by an increase of $2.9 million in shipping and handling costs of $2.5 million, an increase in intangible asset amortization expense of $2.0 million, an increase in spending on travel and meetings of $1.4 million, an increase in spending on software of $1.4 million, and increases in other operating expenses.employee-related expenses for restructuring initiatives. The increase ~~was~~is partially offset by a decrease in commission expense of ~~$4.6~~$1.4 million, a decrease in ~~acquisition-related expenses.~~travel expense of $1.3 million as well as other cost savings initiatives.

Interest and Other Income (Expense), Net. Interest and other income (expense), net changed by ~~$4.9~~$1.9 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021,~~March 31, 2022, primarily driven by a ~~$3.9 million decrease in other expenses and a $1.0~~$1.9 million increase in other income. ~~The decrease in other expenses during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily due to the adoption~~

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~~of ASU 2020-06, effective January 1, 2022, which eliminated the imputed interest expense recognized on our convertible senior notes (refer to Note 1,~~ ~~Organization and Summary of Significant Accounting Policies~~, ~~for additional information), partially offset by unfavorable foreign currency fluctuations during the three months ended September 30, 2022.~~ The increase in other income during the three months ended ~~September 30, 2022~~March 31, 2023 as compared to the three months ended ~~September 30, 2021~~March 31, 2022 is primarily ~~due~~attributable to higher interest income received due to higher interest ~~rates.~~

Nine Months Ended September 30,
Change in
2022 2021 $ %
(Dollars in thousands)
Operating expenses:
Research and development $ 76,556 $ 53,770 $ 22,786 42%
As a percentage of total revenues 8% 7%
Selling, general, and administrative 354,644 273,672 80,972 30%
As a percentage of total revenues 36% 33%
Total operating expenses $ 431,200 $ 327,442 $ 103,758 32%
As a percentage of total revenues 43% 40%
Interest and other income (expense), net $ (2,973) $ (18,715) $ 15,742 (84)%

~~Research and Development.~~ Research and development expenses increased by $22.8 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily attributed to an increase in employee-related expenses of approximately $17.4 million due to increased headcount to support the continued development of our intelligent infrastructure and incremental headcount from recent acquisitions, as well as an increase of $1.8 million in employee-related expenses for restructuring initiatives.

~~Selling, General, and Administrative~~. Selling, general, and administrative expenses increased by $81.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was primarily due to an increase of approximately $41.9 million in employee-related expenses primarily related to increased headcount, including the incremental headcount from recent acquisitions, as well as an increase of $1.3 million in employee-related expenses for restructuring initiatives. The increase was also driven by an increase in spending on travel and meetings of $6.8 million, an increase in intangible asset amortization expense of $6.2 million, an increase in shipping and handling costs of $4.9 million, an increase in spending on software of $3.2 million, an increase in consulting expenses of $2.2 million, and increases in other operating expenses. In addition, we incurred impairment and abandonment charges to operating lease right-of-use assets of $5.4 million and ransomware-related expenses, net of insurance recoveries, of $1.9 million during the nine months ended September 30, 2022. The increase wasrates, partially offset by ~~a decrease of $6.5 million in acquisition-related expenses.~~

~~Interest and Other Income (Expense), Net.~~ Interest and other income (expense), net changed by $15.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by a $13.4 million decrease in other expenses and a $2.3 million increase in other income. The decrease in other expenses during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is primarily due to the adoption of ASU 2020-06, effective January 1, 2022, which eliminated the imputed interest expense recognized on our convertible senior notes (refer to Note 1, ~~Organization and Summary of Significant Accounting Policies~~, ~~for additional information). The increase in other income during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is primarily attributable to~~ benefits from certain arrangements outside of our normal course of business ~~as well as higher interest income received due to higher interest rates.~~recognized during the three months ended March 31, 2022.

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Provision for (Benefit from) Income Taxes

Three Months Ended September 30,
Change in
2022 2021 $ %
(Dollars in thousands)
Provision for (benefit from) income taxes $ 543 $ (5,990) $ 6,533 (109)%


	Three Months Ended March 31,
					Change in
	2023		2022		$		%

	(Dollars in thousands)
Benefit from income taxes	$	(6,182)	$	(3,243)	$	(2,939)	91%

Nine Months Ended September 30,
Change in
2022 2021 $ %
(Dollars in thousands)
Provision for (benefit from) income taxes $ (995) $ (4,665) $ 3,670 (79)%

~~Our annual effective tax rate before discrete items was 17.8% and 28.2% for~~For the ~~nine~~three months ended ~~September 30, 2022 and 2021, respectively. The decrease in the~~March 31, 2023, we recognized a benefit from income taxes of $6.2 million as we applied our estimated annual effective tax rate of 36.8% to our year-to-date measure of ordinary income and adjusted for $1.6 million of discrete income tax expense from equity compensation. Benefit from income taxes for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 was $3.2 million and included a net discrete income tax benefit of $4.6 million, primarily due to a $4.4 million tax benefit from equity compensation. The increase in the income tax benefit for the three months ended March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to a decrease in ~~non-deductible expenses,~~profit before taxes and an increase in research and development ~~credits and FDII benefit.~~

~~Benefit from income taxes for the nine months ended September 30, 2022 included net discrete income tax benefit of $6.9 million, primarily due to a $6.2 million tax benefit from equity compensation.~~

Benefit from income taxes for the nine months ended September 30, 2021 included net discrete income tax benefit of $21.4 million, primarily due to a $14.5 million tax benefit from equity compensation.

Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct research and development expenditures and required those expenditures to be amortized. While this change has not materially impacted our effective tax rate, the provision may impact our cash flows and increase the amount of cash taxes we pay.credits.

Refer to Note 14, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of ~~$266.4~~$340.4 million at ~~September 30, 2022~~March 31, 2023 compared to ~~$349.1~~$330.4 million at December 31, ~~2021.~~2022. All of our cash and cash equivalents are invested in bank accounts and money market funds held in sweep and asset management accounts with major financial ~~institutions.~~institutions of high credit quality.

Our cash position and working capital at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

September 30,
2022 December 31,
2021
(In thousands)
Cash and cash equivalents $ 266,402 $ 349,051
Working capital (deficit) (1)
$ 472,451 $ (95,456)

~~(1)~~ ~~The working capital deficit balance as of December 31, 2021 was primarily due to the classification of our convertible senior notes as a current rather than long-term liability. Refer to Note 10,~~ ~~Convertible Senior Notes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.~~


	March 31, 2023		December 31, 2022

	(In thousands)
Cash and cash equivalents	$	340,413	$	330,362
Working capital	$	481,001	$	453,366

Our ratio of current assets to current liabilities was ~~2.3:1 and 0.9:~~2.1:1 at ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021, respectively.~~2022.

Sources of Cash

Revolving Credit Facility

On November 15, 2019, we entered into an Amended and Restated Credit Agreement (as subsequently amended, as discussed below, the “A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, Citizens Bank, N.A., and JPMorgan Chase Bank, N.A., as joint lead arrangers, and Wells Fargo Bank, National Association, as

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administrative agent. The A&R Credit Agreement superseded our 2016 senior secured credit facility and provides for (a) a five-year revolving credit facility of $500.0 million (the “Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million. In addition, the A&R Credit Agreement includes a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million.

On September 22, 2020, the parties entered into ana first amendment to the A&R Credit Agreement to, among other changes, permit the issuance of the convertible senior notes and the purchase of the convertible note hedge transactions

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described below, expand our flexibility to repurchase our common stock and make other restricted payments, and replace the total net leverage covenant with a new secured net leverage covenant that required us to maintain a consolidated secured net leverage ratio not to exceed 3.50:1 for the calendar quarters ending September 30, 2020, December 31, 2020, and March 31, 2021 and requires us to maintain a consolidated secured net leverage ratio not to exceed 3.00:1 for the calendar quarters ending thereafter. The availability of funds under the Revolving Credit Facility can be subject to reduction in order to maintain compliance with the financial covenants under the A&R Credit Agreement.

On March 29, 2023, the parties entered into a second amendment to the A&R Credit Agreement to remove and replace the interest rate benchmark based on the London interbank offered rate (“LIBOR”) and related LIBOR-based mechanics applicable to borrowings under the A&R Credit Agreement with an interest rate benchmark based on the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York (including a customary credit spread adjustment of 0.10% per annum) and related SOFR-based mechanics. The replacement of LIBOR did not, and the Company does not anticipate that it will, materially impact its liquidity or financial position.

As of ~~September 30, 2022,~~March 31, 2023, there was no outstanding balance for the Revolving Credit Facility and we were in compliance with all covenants. Refer to Note 9, Debt and Credit Agreement, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information. We expect to use future loans under the Revolving Credit Facility, if any, for working capital, potential acquisitions, and other general corporate purposes.

Uses of Cash

Our future uses of cash are expected to be primarily for working capital, capital expenditures, and other contractual obligations. We also expect a continued use of cash for potential acquisitions and acquisition-related activities, as well as repurchases of our common stock.

The 2016 Repurchase Program has a total of $2.7 million remaining for future repurchases as of ~~September 30, 2022,~~March 31, 2023, which may result in additional use of cash. ~~During~~There were no stock repurchases during the ~~first quarter of 2022, the 2014 Repurchase Program was completed. During the nine~~three months ended September 30, 2022, we repurchased approximately 389,300 shares of our common stock under our repurchase programs at an average price of $134.11 per share for an aggregate purchase price of approximately $52.2 million.March 31, 2023. Refer to “Stock Repurchase Programs” under Note 15, Employee Benefits and Share-Based Compensation, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

Based on our current business plan and ~~product~~ backlog, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations, cash generated from the exercise of employee stock options and purchases under our Employee Stock Purchase Plan (“ESPP”), along with the availability of funds under the Revolving Credit Facility will be sufficient to meet our cash needs for working capital, capital expenditures, potential acquisitions, and other contractual obligations for at least the next twelve months. For periods beyond the next twelve months, we also anticipate that our net operating cash flows plus existing balances of cash and cash equivalents will suffice to fund the continued growth of our business.

Cash Flows

The following table summarizes, for the periods indicated, selected items in our Condensed Consolidated Statements of Cash Flows:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022

		(In thousands)					(In thousands)
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	(4,372)	$	172,177	Operating activities	$	12,770	$	(15,996)
Investing activities	Investing activities	(41,417)		(220,113)		Investing activities	(13,640)		(18,733)
Financing activities	Financing activities	(24,515)		40,697		Financing activities	3,862		(32,119)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(1,425)		(492)		Effect of exchange rate changes on cash and cash equivalents	176		(411)
Net decrease in cash, cash equivalents, and restricted cash		$	(71,729)	$	(7,731)
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	$	3,168	$	(67,259)

Operating Activities

We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, and the timing of other liability payments.

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Net cash ~~used in~~provided by operating activities was ~~$4.4~~$12.8 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, primarily consisting of a net ~~income~~loss of ~~$34.1~~$15.0 million ~~adjusted for non-cash items of $117.1 million, offset by~~and changes in assets and liabilities of ~~$155.6~~$12.4 million, offset by non-cash items of $40.2 million. The non-cash items primarily consisted of depreciation and amortization expense of ~~$64.8~~$22.0 million, share-based

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compensation expense of ~~$50.7~~$14.0 million, amortization of operating lease right-of-use assets of ~~$9.7~~$2.2 million, impairment and abandonment of operating lease right-of-use assets related to facilities of ~~$5.4~~$7.8 million, amortization of debt issuance costs of ~~$3.1~~$1.0 million, and a change in deferred income taxes of ~~$17.1~~$7.8 million. Changes in assets and liabilities include cash outflows primarily from (i) a decrease in accrued compensation of $25.2 million primarily due to a decrease in the accrual for restructuring initiatives, lower commissions, as well as timing of payroll and ESPP purchases, (ii) an increase in accounts receivable and unbilled receivables of $22.2 million primarily due to the timing of billings, shipments and collections, and (iii) a decrease in operating lease liabilities of $2.7 million. These cash outflows were partially offset by (i) an increase in deferred revenues of $29.1 million primarily due to an increase in billings for certain service and subscription offerings, (ii) a decrease in inventories of $6.8 million primarily due to management of inventory levels to align with the current forecasted demand, and (iii) a decrease in prepaid commissions of $2.6 million.

Net cash used in operating activities was $16.0 million for the three months ended March 31, 2022, primarily consisting of net income of $8.2 million adjusted for non-cash items of $38.6 million, offset by changes in assets and liabilities of $62.8 million. The non-cash items primarily consisted of depreciation and amortization expense of $21.1 million, share-based compensation expense of $16.2 million, amortization of operating lease right-of-use assets of $3.3 million, impairment of operating lease right-of-use assets of $1.8 million, amortization of debt issuance costs of $1.0 million, and a change in deferred income taxes of $4.9 million. Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of ~~$116.9~~$50.0 million primarily due to an increase in billings driven by overall business growth and the timing of shipments and collections, (ii) an increase in inventories of $32.3 million primarily to support forecasted sales, including advanced purchases of certain components, such as semiconductors, as well as higher costs of inventory and timing of shipments, (iii) a decrease in accrued compensation of ~~$27.9~~$23.9 million primarily due to a decrease in accrued commissions and bonuses as well as timing of ~~payroll and~~ ESPP purchases, (iii) an increase in inventories of $17.3 million to support forecasted sales, including advanced purchases of certain components, as well as higher costs of inventory, (iv) a decrease in operating lease liabilities of $3.5 million, (v) an increase in prepaid expenses of $1.7 million, and (vi) an increase in investment in sales-type leases of $17.3 million primarily due to the increase in sales-type lease revenues associated with certain Advanced Services products, (v) a decrease in operating lease liabilities of $11.0 million, and (vi) an increase in prepaid expenses of $2.6$1.1 million. These cash outflows were partially offset by (i) an increase in deferred revenues of ~~$17.7~~$19.8 million primarily due to an increase in billings driven by the timing of annual maintenance renewals, the billing of other ongoing service commitments, and shipments ~~in order to meet customers' implementation schedules and recognition~~ of revenues for products requiring installation, (ii) an increase in accrued liabilities of $11.7 million primarily due to an increase in taxes payable, (iii) a decrease in prepaid commissions of $8.8 million, (iv) a decrease in other current assets, net of funds held for customers, of $6.7 million primarily due to a decrease in prepaid income taxes, (v) a decrease in other long-term assets of $4.2 million, (vi) an increase in accounts payable of $2.0 million, and (vii) an increase in other long-term liabilities of $1.4 million.

Net cash provided by operating activities was $172.2 million for the nine months ended September 30, 2021, primarily consisting of net income of $63.9 million adjusted for non-cash items of $119.2 million, offset by changes in assets and liabilities of $10.9 million. The non-cash items primarily consisted of depreciation and amortization expense of $53.1 million, share-based compensation expense of $38.5 million, amortization of discount on convertible senior notes of $13.9 million, amortization of operating lease right-of-use assets of $8.8 million, amortization of debt issuance costs of $2.6 million, and a change in deferred income taxes of $2.0 million. Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of $39.6 million primarily due to an increase in billings driven by overall business growth and the timing of shipments as well as collections, (ii) a decrease in accrued compensation of $12.0 million primarily due to a decrease in accrued commissions and bonuses, (iii) an increase in inventories of $10.1 million to support forecasted sales, including advanced purchases of certain components, and as well as higher costs of inventory, (iv) a decrease in operating lease liabilities of $9.4 million, (v) a decrease in other long-term liabilities of $9.2 million primarily due to a $6.2 million release of a certain net unrecognized tax benefit as a result of effective settlement with the tax authorities, (vi) an increase in prepaid expenses of $8.2 million primarily as a result of timing of certain insurance policies and other subscription obligations, (vii) an increase in other current assets of $1.1 million, and (viii) an increase in prepaid commissions of $1.0 million. These cash outflows were partially offset by (i) an increase in accounts payable of $33.1 million primarily due to an overall increase in spending, as well as timing of payments, (ii) an increase in deferred revenues of $21.2 million primarily due to an increase in billings driven by the timing of shipmentsproduct in order to meet customers’ implementation schedules and recognition of revenues for products requiring installation, ~~(iii) an increase in accrued liabilities of $20.1 million primarily due to an increase in rebates and lease buyout liabilities, (iv)~~(ii) a decrease in ~~investment~~other current assets, net of funds held for customers, of $8.0 million, (iii) a decrease in ~~sales-type leases~~prepaid commissions of ~~$2.7~~$4.2 million, and ~~(vi)~~(iv) a decrease in other long-term assets of ~~$2.6~~$2.2 million.

Investing Activities

Net cash used in investing activities was ~~$41.4~~$13.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023, which consisted of capital expenditures of $10.1 million for property and equipment, and $3.5 million for external-use software development costs.

Net cash used in investing activities was $18.7 million for the three months ended March 31, 2022, which consisted of $3.4 million consideration paid for the acquisition of Hub and Spoke Innovations, net of cash acquired, capital expenditures of ~~$33.9~~$11.5 million for property and equipment, and ~~$9.6~~$3.9 million for ~~costs of~~external-use software development costs.

Financing Activities

Net cash provided by financing activities was $3.9 million for ~~external use,~~the three months ended March 31, 2023, primarily due to $12.1 million in proceeds from employee stock option exercises and ESPP purchases, partially offset by ~~purchase price adjustments from business acquisitions~~$1.4 million in employees’ taxes paid related to restricted stock unit vesting and a net change in the customer funds balances of ~~$5.5~~$6.9 million.

Net cash used in investing activities was $220.1 million for the nine months ended September 30, 2021, which consisted of $178.1 million consideration paid for the acquisition of FDS Amplicare, net of cash acquired, capital expenditures of $17.9 million for property and equipment, and $24.1 million for costs of software development for external use.

~~Financing Activities~~

Net cash used in financing activities was ~~$24.5~~$32.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, primarily due to $52.2 million for repurchases of our stock and ~~$11.4~~$4.3 million in employees’ taxes paid related to restricted stock unit vesting, partially offset by ~~$39.5 million in proceeds from employee stock option exercises and ESPP purchases.~~

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~~Net cash provided by financing activities was $40.7 million for the nine months ended September 30, 2021, primarily due to $53.9~~$19.0 million in proceeds from employee stock option exercises and ESPP purchases, ~~partially offset by $10.2 million in employees’ taxes paid related to restricted stock unit vesting,~~ and a net ~~decrease~~change in the customer funds balances of ~~$3.1~~$5.5 million.

Contractual Obligations

There have been no significant changes during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 to the contractual obligations disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” set forth in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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Contractual obligations as of ~~September 30, 2022~~March 31, 2023 were as follows:


		Payments Due By Period											Payments Due By Period
		Total		Remainder of 2022		2023 - 2024		2025 - 2026		2027 and thereafter			Total		Remainder of 2023		2024 - 2025		2026 - 2027		2028 and thereafter

		(In thousands)											(In thousands)
Operating leases (1)	Operating leases (1)	$	60,688	$	3,279	$	25,130	$	17,973	$	14,306	Operating leases (1)	$	54,741	$	10,005	$	21,640	$	15,961	$	7,135
Purchase obligations (2)	Purchase obligations (2)	186,949		115,913		70,777		230		29		Purchase obligations (2)	122,211		110,005		12,103		103		—
Convertible senior notes (3)	Convertible senior notes (3)	579,313		—		2,875		576,438		—		Convertible senior notes (3)	578,594		719		577,875		—		—
Other (4)		750		62		440		248		—

Total ~~(5)~~(4)	Total ~~(5)~~(4)	$	827,700	$	119,254	$	99,222	$	594,889	$	14,335	Total ~~(5)~~(4)	$	755,546	$	120,729	$	611,618	$	16,064	$	7,135

(1)Commitments under operating leases relate primarily to leased office buildings, data centers, office equipment, and vehicles. Refer to Note 12, Lessee Leases, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

(2)We purchase components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products. During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates. These amounts are associated with agreements that are enforceable and legally binding. The amounts under such contracts are included in the table above because we believe that cancellation of these contracts is unlikely and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.

(3)We issued convertible senior notes in September 2020 that are due in September 2025. The obligations presented above include both principal and interest for these notes. Although these notes mature in 2025, they may be converted into cash and shares of our common stock prior to maturity if certain conditions are met. Any conversion prior to maturity can result in repayment of the principal amounts sooner than the scheduled repayment as indicated in the table above. Refer to Note 10, Convertible Senior Notes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

(4)~~Other commitments include various finance leases and other financing arrangements.~~

~~(5)~~Refer to Note 13, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks related to fluctuations in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Risk

We operate in foreign countries which expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, the most significant of which are the British Pound and the Euro. In order to manage foreign currency risk, at times we ~~may~~ enter into foreign exchange forward contracts to mitigate risks associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities of our foreign subsidiaries. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We do not enter into derivative contracts for trading purposes. As of ~~September 30, 2022,~~March 31, 2023, we did not have any outstanding foreign exchange forward contracts.

Interest Rate Fluctuation Risk

We are exposed to interest rate risk through our borrowing activities. As of ~~September 30, 2022,~~March 31, 2023, there was no outstanding balance under the A&R Credit Agreement, and the net carrying amount under our convertible senior notes was ~~$565.8~~$567.3 million. Although our convertible senior notes are based on a fixed rate, changes in interest rates could impact the fair value of such notes. As of ~~September 30, 2022,~~March 31, 2023, the fair market value of our convertible senior notes was ~~$610.1~~$528.4 million. Refer

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to Note 5,4, Cash, ~~and~~ Cash Equivalents, and Restricted Cash and Fair Value of Financial Instruments, and Note 10, Convertible Senior Notes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

We have used, and in the future we may use, interest rate swap agreements to protect against adverse fluctuations in interest rates by reducing our exposure to variability in cash flows relating to interest payments on a portion of our outstanding debt. Our interest rate swaps, which were designated as cash flow hedges, involved the receipt of variable amounts from counterparties in exchange for us making fixed-rate payments over the life of the agreements. We do not hold or issue any derivative financial instruments for speculative trading purposes. As of ~~September 30, 2022,~~March 31, 2023, we did not have any outstanding interest rate swap agreements.

There were no significant changes in our market risk exposures during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the market risk exposures disclosed in “Quantitative and Qualitative Disclosures About Market Risk,” set forth in

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Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on ~~February 25, 2022.~~March 1, 2023.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in this Quarterly Report was (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.

Limitations on Effectiveness of Controls

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance that the objectives of the internal control system are met.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended ~~September 30, 2022.~~March 31, 2023.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under “Legal Proceedings” in Note 13, Commitments and Contingencies, of the Notes accompanying the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

~~Other than~~There are no material changes to the ~~updates provided below, please refer to Part I - Item 1A. “Risk Factors”~~risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which was filed with the U.S. Securities and Exchange Commission ~~(“SEC”)~~ on ~~February 25, 2022, for a description of the risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operations.~~

In assessing these risks, you should also refer to other information contained in this Quarterly Report on Form 10-Q, including Part I - Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Condensed Consolidated Financial Statements and accompanying Notes included in this report.

~~Risk Factors Related to our Business and Industry~~

~~Unfavorable economic and market conditions and a decreased demand in the capital equipment market could adversely affect our operating results.~~

Customer demand for our products is significantly linked to the strength of the economy. If decreases in demand for capital equipment caused by weak economic conditions and decreased corporate and government spending, any effects of fiscal budget balancing at the federal level or proposed legislative changes, deferrals or delays (including due to customer labor shortages) of capital equipment projects, longer timeframes for capital equipment purchasing decisions, or generally reduced expenditures for capital solutions occur, we will experience decreased revenues and lower revenue growth rates, and our operating results could be materially and adversely affected. Furthermore, the broader U.S. and global economy has experienced higher than expected inflationary pressures related to continued supply chain disruptions, labor shortages and geopolitical instability. We are unable to predict future changes in the state of the U.S. or global economy or whether inflationary pressures will continue to intensify or subside. If the current inflationary trends continue or fail to improve it could adversely affect our profits, margins or results of operations as a result of increasing costs.

We are subject to laws, regulations, and other legal obligations related to privacy, data protection, and information security, and the costs of compliance with, and potential liability associated with, our actual or perceived failure to comply with such obligations could harm our business.

We receive, store, and process personal information and other data from and about customers, in addition to our employees and services providers. In addition, our customers use our solutions to obtain and store personal information, including personal health information. For example, our customers use our EnlivenHealth Patient Engagement platform to guide and track patient notes, interventions, and appointments, which involves the collection of personal health information of patients. Our handling of data is subject to a variety of laws and regulations by federal, state, local, and foreign agencies, as well as contractual obligations and industry standards. Regulatory focus on data privacy and security concerns continues to increase globally, and laws and regulations concerning the collection, use, and disclosure of personal information are expanding and becoming more complex. In the United States, these include federal health information privacy laws (such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), discussed below), security breach notification laws, and consumer protection laws, as well as state laws addressing privacy and data security (such as the California Consumer Privacy Act of 2018 (“CCPA”) and the California Privacy Rights Act of 2020 (“CPRA”)).

While HIPAA does not create a private right of action, its standards have been used as the basis for civil suits and HIPAA is enforced by the Department of Health and Human Services Office for Civil Rights (“OCR”), which can bring actions against entities for noncompliance, including for failures to implement security measures sufficient to reduce risks to electronic protected health information or to conduct an accurate and thorough risk analysis, among other violations. HIPAA enforcement actions may lead to monetary penalties and costly and burdensome corrective action plans. We are also required to report known breaches of protected health information consistent with applicable breach reporting requirements set forth in applicable laws and regulations. Finally, on December 10, 2020, OCR issued proposed revisions to the Privacy Rule aimed at reducing regulatory burdens that may exist in discouraging coordination of care and patient access to their health information, among other changes. While a final rule has not yet been issued, if adopted, these proposed changes may require us to update our HIPAA policies and procedures to comply with the new requirements. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches which is expected to increase data breach litigation. Additionally, the CPRA,

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which goes into effect in January 2023, and imposes additional data protection obligations on companies doing business in California, created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required. Laws similar to those in California have passed in Virginia and Colorado, and have been proposed in other states and at the federal level that may ultimately have conflicting requirements that would further complicate compliance. Furthermore, new health information standards, whether implemented pursuant to HIPAA, the HITECH Act, congressional action or otherwise could have a significant effect on the manner in which we handle health-related information, and the cost of complying with these standards could be significant. If we do not comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions.

Internationally, various foreign jurisdictions in which we operate have established, or are developing, their own data privacy and security legal frameworks with which we or our customers must comply. In certain cases, these international laws and regulations are more restrictive than many regulations in the United States. For example, within the European Union, the General Data Protection Regulation (“EU GDPR”) grants individuals various data protection rights (e.g., the right to erasure of personal data) and imposes stringent data protection requirements on U.S.-based companies, such as ours, which fall within its scope, including inter alia: (i) accountability and transparency requirements; (ii) obligations to consider data protection as any new products or services are developed and to limit the amount of personal data processed; and (iii) obligations to report certain personal data breaches to the supervisory authority without undue delay (and no later than 72 hours where feasible). In addition, the EU GDPR prohibits the transfer of personal data from the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws unless a data transfer mechanism has been put in place. In July 2020, the Court of Justice of the European Union limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-US Privacy Shield for purposes of international transfers and imposed further restrictions on use of standard contractual clauses (“SCCs”) (i.e., an EU-style data transfer agreement), including a requirement for companies to carry out a transfer privacy impact assessment, which among other things, assesses laws governing access to personal data in the recipient country and considers whether supplementary measures that provide privacy protections additional to those provided under SCCs will need to be implemented to ensure an essentially equivalent level of data protection to that afforded in the EEA. Moreover, new versions of the SCCs (new “EU SCCs”) have recently been published requiring additional compliance and implementation efforts.

Administrative fines for non-compliance with the EU GDPR can be significant and can amount to fines of up to the greater of €20.0 million or 4% of global annual revenues. The EU GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the EU GDPR.

Relatedly, following the United Kingdom’s withdrawal from the EU (i.e., “Brexit”), the EU GDPR has been implemented in the United Kingdom (as the “UK GDPR”). The UK GDPR site alongside the UK Data Protection Act 2018 which implements certain derogations in the EU GDPR into UK law. The requirements of the UK GDPR are (at this time) largely aligned with those under the EU GDPR and as such, may lead to similar compliance and operational costs with potential fines for non-compliance of up to £17.5 million or 4% of annual worldwide turnover. As a result, we are potentially exposed to two parallel data protection regimes, each of which authorizes fines and the potential for divergent enforcement actions. It should also be noted that the new EU SCCs do not automatically apply in the UK since Brexit, and the UK Government has not yet formally acknowledged the new EU SCCs, (i.e., as a valid data transfer mechanism under the UK GDPR). Indeed, on August 11, 2021, the UK Information Commissioner’s Office launched a public consultation on its draft international data transfer agreement and guidance. This included the publication of a draft UK addendum that can be used with the new EU SCCs – however, this is not (at this time) finalized and as such, for the time being transfers from the UK to a third country should continue to be made in reliance on the “old” SCCs.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may legally or contractually apply to us, and other regulatory protections may lose their applicability to our business as regulations and legal proceedings continue to evolve globally. We also expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data protection, and information security, including in the United Kingdom (see above), where we have business operations. We cannot predict the scope of any such future laws, regulations, and standards that may be applicable to us, or how courts, agencies, or data protection authorities might interpret current ones. It is possible that these laws and other obligations may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the functionality of our solutions.

Compliance with privacy, data protection, and information security laws, regulations, and other obligations is costly, and we may encounter difficulties, delays, or significant expenses in connection with our compliance, or because of our customers’ need to comply or our customers’ interpretation of their own legal requirements. As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2022, in connection with the cybersecurity event we

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experienced on May 4, 2022, we provided breach notification to fewer than 350 individuals as required by applicable law. In addition, any future event that results in the failure or perceived failure by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security could result in governmental investigations and enforcement actions, litigation, fines and penalties, exposure to indemnification obligations or other liabilities, and adverse publicity, all of which could have an adverse effect on our reputation, as well as our business, financial condition, and results of operations. For example, as discussed further in the section entitled “~~Legal Proceedings” in Note 13,~~ ~~Commitments and Contingencies~~, of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K, we are currently and have in the past been subject to certain class action lawsuits asserting, among other allegations, claims of violation of the Illinois Biometric Information Privacy Act.

~~Significant disruptions in our information technology systems, breaches of data security, or cyber-attacks on our systems or solutions, could adversely impact our business.~~

We rely on information technology (“IT”) systems to keep financial records and corporate records, communicate with staff and external parties, and operate other critical functions, including sales and manufacturing processes. As our business needs change, we may need to expand or update our IT systems. We also utilize third-party cloud services in connection with our operations, which also may need to be expanded or updated as our business needs change. Our IT systems and third-party cloud services are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses, public health crises such as the ongoing COVID-19 pandemic, other catastrophic events or environmental impact, as well as due to system upgrades and/or new system implementations. Our systems may also experience vulnerabilities from third-party or open source software code that may be incorporated into our own or our vendors’ systems. Any prolonged system disruption in our IT systems or third-party services could negatively impact the coordination of our sales, planning, and manufacturing activities, which could harm our business. In addition, in order to maximize our information technology efficiency, we have physically consolidated our primary corporate data and computer operations. This concentration, however, exposes us to a greater risk of disruption to our internal IT systems. Although we maintain offsite back-ups of our data, a disruption of operations at our facilities could materially disrupt our business if we are not capable of restoring function within an acceptable time frame.

Our IT systems and third-party cloud services are potentially vulnerable to cyber-attacks, including ransomware, or other data security incidents, by employees or others, which may expose sensitive data to unauthorized persons. On May 4, 2022, we determined that certain of our information technology systems were affected by ransomware impacting certain internal systems. Upon detecting the security event, the Company took immediate steps designed to contain the incident and implement its business continuity plans to restore and support continued operations. The Company has contained the incident and restored substantially all of its critical information technology systems. The Company does not believe the security event will have a material adverse effect on its business, results of operations, or financial condition.

~~In addition, future d~~ata security incidents could lead to the loss of trade secrets or other intellectual property, or to the public exposure of sensitive and confidential information of our employees, customers, suppliers, and others, any of which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, the current and/or a future security breach or privacy violation that leads to disclosure or modification of, or prevents access to, patient information, including personally identifiable information or protected health information, could harm our reputation, result in litigation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents, and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenues. For additional information, see the risk factor captioned “We are subject to laws, regulations, and other legal obligations related to privacy, data protection, and information security, and the costs of compliance with, and potential liability associated with, our actual or perceived failure to comply with such obligations could harm our business~~” above for additional information.~~

In addition, we sell certain solutions that receive, store, and process our customers’ data. For example, our Omnicell One solution combines a cloud-based predictive intelligence platform with expert services designed to monitor pharmacy operations and recommend opportunities to help improve efficiency, regulatory compliance, and patient outcomes. As another example, our EnlivenHealth Patient Engagement platform is a private cloud-based solution that supports improving patient adherence goals through a single web-based platform that hosts functionality to guide and track patient notes, interventions, and appointments. An effective attack on our solutions could disrupt the proper functioning of our solutions, allow unauthorized access to sensitive and confidential information of our customers (including protected health information), and disrupt our customers’ operations. In addition to the risks and impacts noted above, any of these events could cause our solutions to be perceived as having security vulnerabilities and reduce demand for our solutions, which could have a material adverse effect on our business, financial condition, and results of operations. These risks are likely to increase as we continue to grow our cloud-based offerings, including in support of the industry vision of the Autonomous Pharmacy, and as we receive, store, and process more of our customers’ data.

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While we have implemented a number of security measures designed to protect our systems and data, including firewalls, antivirus and malware detection tools, patches, log monitors, routine back-ups, system audits, routine password modifications, and disaster recovery procedures, and have designed certain security features into our solutions, we and our third party service providers regularly defend against and respond to data security incidents and such measures may not be adequate or implemented properly to prevent or fully address the adverse effect of such events. In some cases we may be unaware of an incident or its magnitude and effects as breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm. In addition, while we possess insurance that currently includes coverage for cyber-attacks, we have seen a trend where the amount of coverage being offered by insurance providers for such cyber-attacks is decreasing while the cost of obtaining such coverage is increasing. If this trend continues the insurance coverage we possess may not be adequate or the cost to obtain such coverage may become prohibitive.

We use third-party cloud providers in connection with certain of our cloud-based offerings or third-party providers to host our own data, in which case we rely on the processes, controls, and security such third parties have in place to protect the infrastructure. We also may acquire companies, products, services, and technologies and inherit such risks when we integrate these acquisitions within Omnicell.

Any failure to prevent such security breaches or privacy violations, or implement satisfactory remedial measures, could require us to expend significant resources to remediate any damage, disrupt our operations or the operations of our customers, damage our reputation, damage our relationships with our customers, or expose us to a risk of financial loss, litigation, regulatory penalties, contractual indemnification obligations, or other liability.

~~Government regulation of the healthcare industry could reduce demand for our products or services, or substantially increase the cost to produce our products or deliver our services.~~

The manufacture and sale of most of our current medication management solutions products and services are not directly regulated by the U.S. Food and Drug Administration (“FDA”) or the U.S. Drug Enforcement Administration (“DEA”), although such products and services are used by other persons (our customers) whose pharmacy, dispensing, and compounding activities may be subject to regulation by those agencies and by state boards of pharmacy. We have both Class I and Class II products classified as medical devices, which are subject to FDA regulation and require compliance with the FDA Quality System Regulation as well as medical device reporting, including a sterile disposable product that required FDA 510(k) review and clearance prior to market and distribution. Medical devices are also subject to various other regulatory requirements, including as applicable, premarket clearance or approval, clinical trial requirements, establishment registration and device listing, complaint handling, notification and repair, replace, refund, mandatory recalls, unique device identifier (UDI) requirements, reports of removals and corrections, post-marketing surveillance, and device tracking. Additional products and services may require us to observe U.S. Department of Health and Human Services (“HHS”) regulations for credentialing of providers (pharmacists) or be subject to DEA regulations concerning the management, storing, dispensing, and disposal of, and accounting for, controlled substances, and may be regulated in the future by the FDA, DEA, or other federal agencies due to future legislative and regulatory initiatives or reforms. In addition, certain provisions of the Federal Food, Drug and Cosmetic Act related to the handling, distribution and compounding of pharmaceuticals, govern all parts of the drug distribution chain, which our customers may be required to comply with and which may influence customer demand for our products. Direct regulation of our business and products by the FDA, DEA, or other federal agencies could substantially increase the cost to produce our products or deliver our services and increase the time required to bring those products and services to market, reduce the demand for our products and services, and reduce our revenues. In addition, our customers include healthcare providers and facilities subject to regulation by the DEA, pharmacies subject to regulation by the FDA and individual state boards of pharmacy and hospitals subject to accreditation by accrediting organizations approved by the CMS, such as the Joint Commission, and the rules, regulations, and standards of such regulators and accrediting organizations. Any failure of our customers to comply with the applicable rules, regulations, and standards could reduce demand for our products or services and harm our competitive position, results of operations, and financial condition. Given our customers, products, services, and industry relationships, we may also be subject to rules, regulations, standards, and enforcement imposed by HHS, the U.S. Department of Justice, the HHS Office of Inspector General, CMS, the Health Resources and Services Administration, and state attorney generals, among others. As such, from time to time, we may be subject to various state or federal governmental, inspections, reviews, audits and investigations to verify our compliance with governmental rules and regulations to the extent governing certain of our products and services. The costs to respond to or defend any such reviews, audits and investigations can be significant and are likely to increase in the current enforcement environment. These audits and investigations may result in other adverse consequences, particularly if the underlying conduct is found to be pervasive or systemic. These consequences may include, but are not limited to: (1) refunding or retroactively adjusting amounts that have been paid under the relevant government program or from other payers; (2) state or federal agencies imposing significant fines, penalties and other sanctions on us; (3) losing our right to participate in certain governmental programs; and (4) damaging our reputation in various markets, which could adversely affect our ability to attract customers and employees. If these were to occur, the consequences could have a material adverse effect on our business, financial position and results of operations.

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While we have implemented a Privacy and Use of Information Policy and adhere to established privacy principles, use of customer information guidelines, and related federal and state statutes, we cannot assure you that we will be in compliance with all international, federal and state healthcare information privacy and security laws that we are directly or indirectly subject to, including, without limitation, HIPAA. Under HIPAA, we are considered a “business associate” in relation to many of our customers that are covered entities, and, as such, most of these customers have required that we enter into written agreements governing the way we handle and safeguard certain patient health information we may encounter in providing our products and services, and may impose liability on us for failure to meet our contractual obligations. Furthermore, pursuant to changes in HIPAA under the American Recovery and Reinvestment Act of 2009, we are covered under HIPAA similar to other covered entities and, in some cases, subject to the same civil and criminal penalties as a covered entity. A number of states and countries have also enacted privacy and security statutes and regulations that, in some cases, are more stringent than HIPAA and may also apply directly to us. If our past or present operations are found to violate any of these laws, we may be subject to fines, penalties, and other sanctions.

In addition, we cannot predict the potential impact of future privacy standards and other federal, state, and international privacy and security laws that may be enacted at any time on our customers or on Omnicell. These laws could restrict the ability of Omnicell and/or our customers to obtain, use, or disseminate patient information, which could reduce the demand for our products or services or force us to redesign our products or services in order to meet regulatory requirements. For more information, you should also refer to the risk factor above captioned “We are subject to laws, regulations, and other legal obligations related to privacy, data protection, and information security, and the costs of compliance with, and potential liability associated with, our actual or perceived failure to comply with such obligations could harm our business”.

~~Changes to the 340B Program could negatively impact our 340B Program-related services.~~

Any changes to the 340B Drug Pricing Program, such as changes to the scope of, or requirements for participation in, the 340B Program, could negatively impact our 340B Program-related services. Current litigation brought by multiple manufacturers is challenging the Health Resources and Services Administration’s requirement to offer the 340B ceiling price on drugs dispensed at contract pharmacies. The decisions that have been issued to date have been narrowly tailored and appeals have been filed in some of the cases. While the litigation is ongoing, a number of manufacturers have restricted access to the 340B ceiling price for drugs dispensed at contract pharmacies. It is not yet clear how the litigation will resolve. If 340B ceiling prices are not required to be offered for drugs dispensed at contract pharmacies or the requirements for participation by 340B covered entities make participation in the program less beneficial, our 340B Program-related offerings may become less useful to 340B covered entities, and our 340B Program-related businesses could decline, which could materially adversely affect our business, financial condition, and results of operations. Furthermore, uncertainty around the 340B Program could lead to lower levels of participation by 340B covered entities, which could reduce demand for our 340B Program-related businesses and could adversely affect our business. In addition, Congress has considered legislative changes to the 340B Program. Any legislative changes to the 340B Program could also affect our 340B Program-related services.March 1, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

During the three months ended ~~September 30, 2022,~~March 31, 2023, we did not repurchase any shares of our common stock under our repurchase program. Refer to “Stock Repurchase Programs” under Note 15, Employee Benefits and Share-Based Compensation, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Incorporated By Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date
3.1
Third Amended and Restated Bylaws of Omnicell, Inc.
8-K 3.1 10/21/2022
10.1*
Letter agreement between Omnicell, Inc. and Dan S. Johnston, dated July 29, 2022
10-Q 10.2 8/9/2022
31.1+
Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
31.2+
Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
32.1+
Certification of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)
101.INS+
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+
Inline XBRL Taxonomy Extension Schema Document
101.CAL+
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+
Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE+
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104+
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

Incorporated By Reference

Exhibit Number

Exhibit Description

Form

Exhibit

Filing Date

10.1

Second Amendment to Amended and Restated Credit Agreement, dated as of March 29, 2023, by and among Omnicell, Inc., the subsidiary guarantors party thereto, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.

8-K

10.1

4/3/2023

31.1+

Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)

31.2+

Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)

32.1+

Certification of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)

101.INS+

Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH+

Inline XBRL Taxonomy Extension Schema Document

101.CAL+

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF+

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB+

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE+

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104+

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

* Indicates a management contract, compensation plan, or arrangement.

+ Filed herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OMNICELL, INC.

Date:

~~November 4, 2022~~May 5, 2023

By:

/s/ Peter J. Kuipers

Peter J. Kuipers,

Executive Vice President & Chief Financial Officer

(principal financial officer and duly authorized officer)

5340


	January 1, 2022
	Pre-ASU 2020-06 Balances		ASU 2020-06 Adoption Impact		Post-ASU 2020-06 Balances

	(In thousands)
Long-term deferred tax assets	$	15,883	$	(452)	$	15,431
Convertible senior notes, net	488,152		75,353		563,505
Long-term deferred tax liabilities	51,705		(19,572)		32,133
Additional paid-in capital	1,024,580		(72,742)		951,838
Retained earnings	368,571		16,509		385,080


	FDS Amplicare (1)		ReCept (2) (3)		MarkeTouch Media (4)

	(In thousands)
Purchase price transferred:
Base purchase price	$	177,000	$	100,000	$	82,000
Add: Closing cash	465		6,569		237
Add: Net working capital adjustment	1,654		(7,357)		147
Less: Assumed indebtedness	(653)		(1,973)		(15)
Total purchase price transferred	$	178,466	$	97,239	$	82,369

	FDS Amplicare (1)		ReCept (Preliminary) (2) (3)		MarkeTouch Media (Preliminary) (4)
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	$	465	$	—	$	237
Accounts receivable and unbilled receivables	5,330		2,383		2,302
Prepaid expenses	506		192		96
Other current assets	45		12,223		—
Total current assets	6,346		14,798		2,635
Property and equipment	444		172		177
Operating lease right-of-use assets	2,252		773		602
Goodwill	117,784		77,394		42,273
Intangible assets	70,000		28,100		38,000
Other long-term assets	51		195		2,850
Total assets	196,877		121,432		86,537
Accounts payable	950		219		473
Accrued compensation	1,312		1,756		—
Accrued liabilities	1,497		18,499		292
Deferred revenues	1,916		222		347
Long-term deferred tax liabilities	11,686		2,883		—
Long-term operating lease liabilities	920		614		206
Other long-term liabilities	130		—		2,850
Total liabilities	18,411		24,193		4,168
Total purchase price	$	178,466	$	97,239	$	82,369
Total purchase price, net of cash acquired	$	178,001	$	90,670	$	82,132


	FDS Amplicare (1)			ReCept			MarkeTouch Media
	Fair value		Useful life (years)	Fair value		Useful life (years)	Fair value		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	59,900	23	$	28,100	23	$	34,100	26
Acquired technology	7,700		5 - 7	—		—	2,100		4
Backlog	—		—	—		—	1,800		2
Trade names	2,400		5	—		—	—		—


Total purchased intangible assets	$	70,000		$	28,100		$	38,000


	December 31, 2021		Additions (1)	Measurement Period Adjustments (1)	Foreign currency exchange rate fluctuations	September 30, 2022

	(In thousands)
Goodwill	$	738,900	2,549	(4,041)	(6,114)	$	731,294


	December 31, 2021
	Gross carrying amount (1)		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)

	(In thousands, except for years)
Customer relationships	$	309,989	$	(78,093)	$	(933)	$	230,963	10 - 30
Acquired technology	95,466		(55,859)		6		39,613		4 - 20
Backlog	1,800		—		—		1,800		2
Trade names	9,200		(5,600)		14		3,614		5 - 12
Patents	2,462		(1,186)		—		1,276		2 - 20
Non-compete agreements	600		(250)		—		350		3

Total intangibles assets, net	$	419,517	$	(140,988)	$	(913)	$	277,616


	September 30, 2022 (2)		December 31, 2021

	(In thousands)
Liability:
Principal amount	$	575,000	$	575,000
Unamortized discount	—		(77,136)
Unamortized debt issuance costs	(9,197)		(9,712)
Convertible senior notes, liability component (1)	$	565,803	$	488,152





Convertible senior notes, equity component	$	—	$	72,732


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022 (1)		2021		2022 (1)		2021

	(In thousands)
Contractual coupon interest	$	359	$	359	$	1,078	$	1,078
Amortization of discount	$	—	$	4,679	$	—	$	13,874
Amortization of debt issuance costs	$	768	$	589	$	2,298	$	1,747