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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________________
FORM 10-Q

(Mark One) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023
OR

☐ | 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.)

4220 North Freeway
Fort Worth, TX 76137
(Address of registrant’s principal executive offices, including zip code)
(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 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 27, 2023, there were 45,469,376 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, 2023 and December 31, 2022 | 3
| Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2023 and 2022 | 4
| Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2023 and 2022 | 5
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2023 and 2022 | 6
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2023 and 2022 | 8
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 40
Item 4. | Controls and Procedures | 40
PART II | OTHER INFORMATION | 42
Item 1. | Legal Proceedings | 42
Item 1A. | Risk Factors | 42
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43
Item 3. | Defaults Upon Senior Securities | 43
Item 4. | Mine Safety Disclosures | 43
Item 5. | Other Information | 43
Item 6. | Exhibits | 44
Signature | 45

2

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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OMNICELL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

| September 30, 2023 |  | December 31, 2022
| (In thousands, except par value)
ASSETS
Current assets: |  |  |
Cash and cash equivalents | $ | 446,840 |  |  | $ | 330,362 |
Accounts receivable and unbilled receivables, net of allowances of $5,522 and $5,153, respectively | 272,584 |  |  | 299,469 |
Inventories | 116,144 |  |  | 147,549 |
Prepaid expenses | 27,947 |  |  | 27,070 |
Other current assets | 50,236 |  |  | 77,362 |
Total current assets | 913,751 |  |  | 881,812 |
Property and equipment, net | 106,880 |  |  | 93,961 |
Long-term investment in sales-type leases, net | 41,631 |  |  | 32,924 |
Operating lease right-of-use assets | 25,444 |  |  | 38,052 |
Goodwill | 734,328 |  |  | 734,274 |
Intangible assets, net | 218,861 |  |  | 242,906 |
Long-term deferred tax assets | 35,964 |  |  | 22,329 |
Prepaid commissions | 53,950 |  |  | 59,483 |
Other long-term assets | 90,766 |  |  | 105,017 |
Total assets | $ | 2,221,575 |  |  | $ | 2,210,758 |
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: |  |  |
Accounts payable | $ | 49,920 |  |  | $ | 63,389 |
Accrued compensation | 44,065 |  |  | 73,455 |
Accrued liabilities | 150,385 |  |  | 172,655 |
Deferred revenues, net | 124,991 |  |  | 118,947 |
Total current liabilities | 369,361 |  |  | 428,446 |
Long-term deferred revenues | 55,053 |  |  | 37,385 |
Long-term deferred tax liabilities | 1,565 |  |  | 2,095 |
Long-term operating lease liabilities | 32,845 |  |  | 39,405 |
Other long-term liabilities | 6,428 |  |  | 6,719 |
Convertible senior notes, net | 568,887 |  |  | 566,571 |
Total liabilities | 1,034,139 |  |  | 1,080,621 |
Commitments and contingencies (Note 13) |  |  |
Stockholders’ equity: |  |  |
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued | — |  |  | — |
Common stock, $0.001 par value, 100,000 shares authorized; 55,746 and 55,030 shares issued; 45,463 and 44,747 shares outstanding, respectively | 56 |  |  | 55 |
Treasury stock at cost, 10,283 shares outstanding, respectively | (290,319) |  |  | (290,319) |
Additional paid-in capital | 1,110,096 |  |  | 1,046,760 |
Retained earnings | 384,732 |  |  | 390,728 |
Accumulated other comprehensive loss | (17,129) |  |  | (17,087) |
Total stockholders’ equity | 1,187,436 |  |  | 1,130,137 |
Total liabilities and stockholders’ equity | $ | 2,221,575 |  |  | $ | 2,210,758 |

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3

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OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands, except per share data)
Revenues: |  |  |  |  |  |  |
Product revenues | $ | 188,755 |  |  | $ | 246,565 |  |  | $ | 562,906 |  |  | $ | 706,246 |
Services and other revenues | 109,908 |  |  | 101,494 |  |  | 325,359 |  |  | 292,027 |
Total revenues | 298,663 |  |  | 348,059 |  |  | 888,265 |  |  | 998,273 |
Cost of revenues: |  |  |  |  |  |  |
Cost of product revenues | 106,311 |  |  | 134,023 |  |  | 323,800 |  |  | 374,175 |
Cost of services and other revenues | 60,388 |  |  | 54,941 |  |  | 173,029 |  |  | 156,864 |
Total cost of revenues | 166,699 |  |  | 188,964 |  |  | 496,829 |  |  | 531,039 |
Gross profit | 131,964 |  |  | 159,095 |  |  | 391,436 |  |  | 467,234 |
Operating expenses: |  |  |  |  |  |  |
Research and development | 24,281 |  |  | 25,171 |  |  | 70,296 |  |  | 76,556 |
Selling, general, and administrative | 103,971 |  |  | 115,459 |  |  | 332,643 |  |  | 354,644 |
Total operating expenses | 128,252 |  |  | 140,630 |  |  | 402,939 |  |  | 431,200 |
Income (loss) from operations | 3,712 |  |  | 18,465 |  |  | (11,503) |  |  | 36,034 |
Interest and other income (expense), net | 3,670 |  |  | (1,148) |  |  | 9,912 |  |  | (2,973) |
Income (loss) before income taxes | 7,382 |  |  | 17,317 |  |  | (1,591) |  |  | 33,061 |
Provision for (benefit from) income taxes | 1,829 |  |  | 543 |  |  | 4,405 |  |  | (995) |
Net income (loss) | $ | 5,553 |  |  | $ | 16,774 |  |  | $ | (5,996) |  |  | $ | 34,056 |
Net income (loss) per share: |  |  |  |  |  |  |
Basic | $ | 0.12 |  |  | $ | 0.38 |  |  | $ | (0.13) |  |  | $ | 0.77 |
Diluted | $ | 0.12 |  |  | $ | 0.37 |  |  | $ | (0.13) |  |  | $ | 0.73 |
Weighted-average shares outstanding: |  |  |  |  |  |  |
Basic | 45,333 |  |  | 44,441 |  |  | 45,117 |  |  | 44,304 |
Diluted | 45,595 |  |  | 45,819 |  |  | 45,117 |  |  | 46,759 |

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4

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OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Net income (loss) | $ | 5,553 |  |  | $ | 16,774 |  |  | $ | (5,996) |  |  | $ | 34,056 |
Other comprehensive loss: |  |  |  |  |  |  |
Foreign currency translation adjustments | (2,953) |  |  | (6,770) |  |  | (42) |  |  | (15,735) |
Other comprehensive loss | (2,953) |  |  | (6,770) |  |  | (42) |  |  | (15,735) |
Comprehensive income (loss) | $ | 2,600 |  |  | $ | 10,004 |  |  | $ | (6,038) |  |  | $ | 18,321 |

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5

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OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

| 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 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,451 |  |  | — |  |  | 3,451 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,432 |  |  | 1,432 |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 15,148 |  |  | — |  |  | — |  |  | 15,148 |
Issuance of common stock under employee stock plans | 136 |  |  | 1 |  |  | — |  |  | — |  |  | 3,088 |  |  | — |  |  | — |  |  | 3,089 |
Tax payments related to restricted stock units | — |  |  | — |  |  | — |  |  | — |  |  | (2,096) |  |  | — |  |  | — |  |  | (2,096) |
Balances as of June 30, 2023 | 55,488 |  |  | 56 |  |  | (10,283) |  |  | (290,319) |  |  | 1,088,825 |  |  | 379,179 |  |  | (14,176) |  |  | 1,163,565 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,553 |  |  | — |  |  | 5,553 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,953) |  |  | (2,953) |
Share-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 16,104 |  |  | — |  |  | — |  |  | 16,104 |
Issuance of common stock under employee stock plans | 258 |  |  | — |  |  | — |  |  | — |  |  | 7,832 |  |  | — |  |  | — |  |  | 7,832 |
Tax payments related to restricted stock units | — |  |  | — |  |  | — |  |  | — |  |  | (2,665) |  |  | — |  |  | — |  |  | (2,665) |
Balances as of September 30, 2023 | 55,746 |  |  | $ | 56 |  |  | (10,283) |  |  | $ | (290,319) |  |  | $ | 1,110,096 |  |  | $ | 384,732 |  |  | $ | (17,129) |  |  | $ | 1,187,436 |

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
6

Table of Contents
OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - CONTINUED

| 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 |
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 |

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
7

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OMNICELL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

| Nine Months Ended September 30,
| 2023 |  | 2022
| (In thousands)
Operating Activities |  |  |
Net income (loss) | $ | (5,996) |  |  | $ | 34,056 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization | 65,596 |  |  | 64,843 |
Loss on disposal of property and equipment | 2,110 |  |  | 331 |
Share-based compensation expense | 43,113 |  |  | 50,731 |
Deferred income taxes | (14,165) |  |  | (17,061) |
Amortization of operating lease right-of-use assets | 6,238 |  |  | 9,709 |
Impairment and abandonment of operating lease right-of-use assets related to facilities | 7,815 |  |  | 5,390 |
Amortization of debt issuance costs | 3,139 |  |  | 3,121 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable and unbilled receivables | 27,050 |  |  | (116,895) |
Inventories | 31,690 |  |  | (32,269) |
Prepaid expenses | (857) |  |  | (2,602) |
Other current assets | 1,521 |  |  | 6,692 |
Investment in sales-type leases | (8,839) |  |  | (17,336) |
Prepaid commissions | 5,533 |  |  | 8,801 |
Other long-term assets | 2,539 |  |  | 4,189 |
Accounts payable | (13,358) |  |  | 2,043 |
Accrued compensation | (29,390) |  |  | (27,940) |
Accrued liabilities | 3,749 |  |  | 11,678 |
Deferred revenues | 23,628 |  |  | 17,667 |
Operating lease liabilities | (8,145) |  |  | (10,966) |
Other long-term liabilities | (291) |  |  | 1,446 |
Net cash provided by (used in) operating activities | 142,680 |  |  | (4,372) |
Investing Activities |  |  |
External-use software development costs | (10,240) |  |  | (9,648) |
Purchases of property and equipment | (32,404) |  |  | (33,861) |
Business acquisition, net of cash acquired | — |  |  | (3,392) |
Purchase price adjustments from business acquisitions | — |  |  | 5,484 |
Net cash used in investing activities | (42,644) |  |  | (41,417) |
Financing Activities |  |  |
Proceeds from issuances under stock-based compensation plans | 23,035 |  |  | 39,539 |
Employees’ taxes paid related to restricted stock units | (6,130) |  |  | (11,442) |
Change in customer funds, net | (6,615) |  |  | (402) |
Stock repurchases | — |  |  | (52,210) |
Net cash provided by (used in) financing activities | 10,290 |  |  | (24,515) |
Effect of exchange rate changes on cash and cash equivalents | (464) |  |  | (1,425) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 109,862 |  |  | (71,729) |
Cash, cash equivalents, and restricted cash at beginning of period | 352,835 |  |  | 355,620 |
Cash, cash equivalents, and restricted cash at end of period | $ | 462,697 |  |  | $ | 283,891 |
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents | $ | 446,840 |  |  | $ | 266,402 |
Restricted cash included in other current assets | 15,857 |  |  | 17,489 |
Cash, cash equivalents, and restricted cash at end of period | $ | 462,697 |  |  | $ | 283,891 |
Supplemental disclosure of non-cash investing activities
Unpaid purchases of property and equipment | $ | 642 |  |  | $ | 1,473 |
Transfers between inventory and property and equipment, net | $ | — |  |  | $ | 314 |

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, 2023 and December 31, 2022, the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 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, 2022, filed with the SEC on March 1, 2023, except as discussed in the section entitled “Recently Adopted Authoritative Guidance” below. The Company’s results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023, and cash flows for the nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 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.
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, 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.
Recently Adopted Authoritative Guidance
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company adopted ASU 2021-08 beginning January 1, 2023 and will apply the guidance prospectively to acquisitions occurring on or after the adoption date.
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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. 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. Solutions in this category include, but are not limited to, XT Series automated dispensing systems and products related to the Central Pharmacy Dispensing Service and IV 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, are designed to improve patient engagement and adherence to prescriptions.
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.
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®, Specialty Pharmacy Services, 340B solutions, Inventory Optimization Service, other software solutions, and services related to the Central Pharmacy Dispensing Service and IV 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
Consumables |  |  |  | Point in time, as transfer of control occurs, generally upon shipment to or receipt by customer |  | Product
Technical services |  |  |  | Over time, as services are provided, typically ratably over the service term |  | Service
Advanced Services |  |  |  | Over time, as services are provided |  | Service

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 $3.6 million and $4.8 million for the three months ended September 30, 2023 and 2022, respectively, and $9.5 million and $13.3 million for the nine months ended September 30, 2023 and 2022, 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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Connected devices, software licenses, and other | $ | 167,560 |  |  | $ | 226,415 |  |  | $ | 500,182 |  |  | $ | 650,125 |
Consumables | 21,195 |  |  | 20,150 |  |  | 62,724 |  |  | 56,121 |
Technical services | 57,303 |  |  | 53,914 |  |  | 167,851 |  |  | 156,386 |
Advanced Services | 52,605 |  |  | 47,580 |  |  | 157,508 |  |  | 135,641 |
Total revenues | $ | 298,663 |  |  | $ | 348,059 |  |  | $ | 888,265 |  |  | $ | 998,273 |

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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
United States | $ | 272,649 |  |  | $ | 315,755 |  |  | $ | 785,794 |  |  | $ | 898,269 |
Rest of world (1) | 26,014 |  |  | 32,304 |  |  | 102,471 |  |  | 100,004 |
Total revenues | $ | 298,663 |  |  | $ | 348,059 |  |  | $ | 888,265 |  |  | $ | 998,273 |

_________________________________________________
(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, 2023 |  | December 31, 2022
| (In thousands)
Short-term unbilled receivables, net (1) | $ | 20,275 |  |  | $ | 25,763 |
Long-term unbilled receivables, net (2) | 13,159 |  |  | 14,744 |
Total contract assets | $ | 33,434 |  |  | $ | 40,507 |
Short-term deferred revenues, net | $ | 124,991 |  |  | $ | 118,947 |
Long-term deferred revenues | 55,053 |  |  | 37,385 |
Total contract liabilities | $ | 180,044 |  |  | $ | 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.
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 $125.0 million and $118.9 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of $12.4 million and $15.8 million, as of September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2023, the Company recognized revenues of $20.1 million and $106.2 million, respectively, that were included in the corresponding gross short-term deferred revenues balance of $134.7 million as of December 31, 2022. Long-term deferred revenues include deferred revenues from product sales and service contracts of $55.1 million and $37.4 million as of September 30, 2023 and December 31, 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.
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Short-term deferred revenues are expected to be 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, but 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 $344.8 million as of September 30, 2023. Remaining performance obligations are expected to be recognized ratably over the remaining terms of the associated contracts, which terms vary but are 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, 2023 and 2022. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of September 30, 2023 and December 31, 2022.
Note 3. Net Income (Loss) Per Share
The basic and diluted net income (loss) per share calculations for the three and nine months ended September 30, 2023 and 2022 were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands, except per share data)
Net income (loss) | $ | 5,553 |  |  | $ | 16,774 |  |  | $ | (5,996) |  |  | $ | 34,056 |
Weighted-average shares outstanding – basic | 45,333 |  |  | 44,441 |  |  | 45,117 |  |  | 44,304 |
Effect of dilutive securities from stock award plans | 262 |  |  | 943 |  |  | — |  |  | 1,293 |
Effect of convertible senior notes | — |  |  | 435 |  |  | — |  |  | 1,162 |
Weighted-average shares outstanding – diluted | 45,595 |  |  | 45,819 |  |  | 45,117 |  |  | 46,759 |
Net income (loss) per share – basic | $ | 0.12 |  |  | $ | 0.38 |  |  | $ | (0.13) |  |  | $ | 0.77 |
Net income (loss) per share – diluted | $ | 0.12 |  |  | $ | 0.37 |  |  | $ | (0.13) |  |  | $ | 0.73 |
Anti-dilutive weighted-average shares related to stock award plans | 2,727 |  |  | 810 |  |  | 3,536 |  |  | 689 |
Anti-dilutive weighted-average shares related to convertible senior notes and warrants | 11,816 |  |  | 5,908 |  |  | 11,816 |  |  | 5,908 |

Note 4. Cash and Cash Equivalents and Fair Value of Financial Instruments
Cash and cash equivalents of $446.8 million and $330.4 million as of September 30, 2023 and December 31, 2022, respectively, consisted of bank accounts and highly-liquid U.S. Government money market funds held in sweep and asset management accounts with financial institutions of high credit quality. As of September 30, 2023 and December 31, 2022, cash equivalents were $429.7 million and $301.0 million, respectively, which consisted of money market funds held in sweep and asset management accounts.
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
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September 30, 2023 and December 31, 2022, the fair value of the convertible senior notes was $518.6 million and $501.4 million, respectively, compared to their carrying values of $568.9 million and $566.6 million, respectively, which are net of unamortized debt issuance 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.
Note 5. Balance Sheet Components
Balance sheet details as of September 30, 2023 and December 31, 2022 are presented in the tables below:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Inventories: |  |  |
Raw materials | $ | 56,566 |  |  | $ | 75,854 |
Work in process | 2,738 |  |  | 9,280 |
Finished goods | 56,840 |  |  | 62,415 |
Total inventories | $ | 116,144 |  |  | $ | 147,549 |
Other current assets: |  |  |
Funds held for customers, including restricted cash (1) | $ | 30,967 |  |  | $ | 56,703 |
Net investment in sales-type leases, current portion | 11,618 |  |  | 11,486 |
Prepaid income taxes | 125 |  |  | 1,702 |
Other current assets | 7,526 |  |  | 7,471 |
Total other current assets | $ | 50,236 |  |  | $ | 77,362 |
Other long-term assets: |  |  |
External-use software development costs, net | $ | 69,872 |  |  | $ | 80,760 |
Unbilled receivables, net | 13,159 |  |  | 14,744 |
Deferred debt issuance costs | 1,235 |  |  | 2,058 |
Other long-term assets | 6,500 |  |  | 7,455 |
Total other long-term assets | $ | 90,766 |  |  | $ | 105,017 |
Accrued liabilities: |  |  |
Operating lease liabilities, current portion | $ | 10,617 |  |  | $ | 10,761 |
Customer fund liabilities | 30,967 |  |  | 56,703 |
Advance payments from customers | 10,549 |  |  | 11,556 |
Rebate liabilities | 50,878 |  |  | 42,802 |
Group purchasing organization fees | 5,290 |  |  | 7,723 |
Taxes payable | 14,178 |  |  | 9,642 |
Other accrued liabilities | 27,906 |  |  | 33,468 |
Total accrued liabilities | $ | 150,385 |  |  | $ | 172,655 |

_________________________________________________
(1) Includes restricted cash of $15.9 million and $22.5 million as of September 30, 2023 and December 31, 2022, respectively.
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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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Beginning balance | $ | (14,176) |  |  | $ | (17,372) |  |  | $ | (17,087) |  |  | $ | (8,407) |
Other comprehensive loss | (2,953) |  |  | (6,770) |  |  | (42) |  |  | (15,735) |
Ending balance | $ | (17,129) |  |  | $ | (24,142) |  |  | $ | (17,129) |  |  | $ | (24,142) |

Note 6. Property and Equipment
The following table represents the property and equipment balances as of September 30, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Equipment | $ | 95,891 |  |  | $ | 91,391 |
Furniture and fixtures | 4,898 |  |  | 5,154 |
Leasehold improvements | 17,821 |  |  | 19,510 |
Purchased software and internal-use software development costs | 97,860 |  |  | 76,327 |
Construction in progress | 28,369 |  |  | 28,223 |
Property and equipment, gross | 244,839 |  |  | 220,605 |
Accumulated depreciation and amortization | (137,959) |  |  | (126,644) |
Total property and equipment, net | $ | 106,880 |  |  | $ | 93,961 |

Depreciation and amortization expense of property and equipment was $6.7 million and $5.8 million for the three months ended September 30, 2023 and 2022, respectively, and $19.6 million and $16.7 million for the nine months ended September 30, 2023 and 2022, 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, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
United States | $ | 102,729 |  |  | $ | 89,989 |
Rest of world (1) | 4,151 |  |  | 3,972 |
Total property and equipment, net | $ | 106,880 |  |  | $ | 93,961 |

_________________________________________________
(1) No individual country represented more than 10% of total property and equipment, net.
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Note 7. External-Use Software Development Costs
The carrying amounts of external-use software development costs as of September 30, 2023 and December 31, 2022 were as follows:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Gross carrying amount | $ | 236,024 |  |  | $ | 225,004 |
Accumulated amortization | (166,152) |  |  | (144,244) |
External-use software development costs, net (1) | $ | 69,872 |  |  | $ | 80,760 |

_________________________________________________
(1) Included in other long-term assets in the Condensed Consolidated Balance Sheets.
The Company recorded $7.1 million and $7.3 million to cost of revenues for amortization of external-use software development costs for the three months ended September 30, 2023 and 2022, respectively, and $21.9 million and $21.5 million for the nine months ended September 30, 2023 and 2022, respectively.
The estimated future amortization expenses for external-use software development costs were as follows:

| September 30, 2023
| (In thousands)
Remaining three months of 2023 | $ | 6,787 |
2024 | 24,747 |
2025 | 17,608 |
2026 | 12,069 |
2027 | 6,114 |
Thereafter | 2,547 |
Total | $ | 69,872

Note 8. Goodwill and Intangible Assets
Goodwill
The following table represents changes in the carrying amount of goodwill:

|  |  |  |  | (In thousands)
Balance as of December 31, 2022 |  |  |  |  | $ | 734,274 |
Foreign currency exchange rate fluctuations |  |  |  |  | 54 |
Balance as of September 30, 2023 |  |  |  |  | $ | 734,328 |

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Intangible Assets, Net
The carrying amounts and useful lives of intangible assets as of September 30, 2023 and December 31, 2022 were as follows:

| September 30, 2023
| 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 |  |  | $ | (113,844) |  |  | $ | (1,482) |  |  | $ | 195,763 |  |  | 4 - 30
Acquired technology | 84,876 |  |  | (64,792) |  |  | — |  |  | 20,084 |  |  | 4 - 20
Backlog | 1,800 |  |  | (1,575) |  |  | — |  |  | 225 |  |  | 2
Trade names | 9,200 |  |  | (7,418) |  |  | — |  |  | 1,782 |  |  | 5 - 12
Patents | 2,430 |  |  | (1,423) |  |  | — |  |  | 1,007 |  |  | 2 - 20
Non-compete agreements | 600 |  |  | (600) |  |  | — |  |  | — |  |  | 3
Total intangibles assets, net | $ | 409,995 |  |  | $ | (189,652) |  |  | $ | (1,482) |  |  | $ | 218,861 |  |  |

| 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 $7.7 million and $8.7 million for the three months ended September 30, 2023 and 2022, respectively, and $24.1 million and $26.7 million for the nine months ended September 30, 2023 and 2022, respectively.
The estimated future amortization expenses for amortizable intangible assets were as follows:

| September 30, 2023
| (In thousands)
Remaining three months of 2023 | $ | 7,483 |
2024 | 23,093 |
2025 | 21,056 |
2026 | 18,061 |
2027 | 16,754 |
Thereafter | 132,414 |
Total | $ | 218,861 |

Note 9. Debt and Credit Agreement
On November 15, 2019, the Company entered into an Amended and Restated Credit Agreement (as amended, the “Prior 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
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agent. The Prior A&R Credit Agreement provided for (a) a five-year revolving credit facility of $500.0 million (the “Prior Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Prior Incremental Facility”). In addition, the Prior A&R Credit Agreement included 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 Prior A&R Credit Agreement had an expiration date of November 15, 2024, upon which date all remaining outstanding borrowings would be due and payable.
On September 22, 2020 and March 29, 2023, the Company entered into amendments to the Prior 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, as well as 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 and related SOFR-based mechanics.
Loans under the Prior Revolving Credit Facility bore interest, at the Company’s option, at a rate equal to either (a) the Adjusted Term SOFR (as defined in the Prior 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 Prior 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) Adjusted Term SOFR for 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 Prior Revolving Credit Facility were 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 Prior Revolving Credit Facility. The applicable margin for, and certain other terms of, any term loans under the Prior Incremental Facility would be determined prior to the incurrence of such loans. The Company was permitted to make voluntary prepayments at any time without payment of a premium or penalty.
The Prior A&R Credit Agreement contained 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 Prior A&R Credit Agreement also contained financial covenants that required 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 Prior A&R Credit Agreement contained 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.
Subsequent to the quarter ended September 30, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) on October 10, 2023, with the lenders from time to time party thereto, Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and TD Securities (USA) LLC as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent. The Second A&R Credit Agreement supersedes the Prior A&R Credit Agreement and provides for (a) a five-year revolving credit facility of $350.0 million (the “Current Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to an amount equal to the sum of (i) the greater of $250.0 million or 100% of the adjusted consolidated EBITDA for the last four quarters and (ii) additional amounts subject to pro forma compliance with certain consolidated secured net leverage ratio (the “Current Incremental Facility”). In addition, the Second A&R Credit Agreement includes a letter of credit sub-limit of up to $15 million and a swing line loan sub-limit of up to $25 million. The Second A&R Credit Agreement has an expiration date of October 10, 2028, subject to acceleration under certain conditions, upon which date all remaining outstanding borrowings will be due and payable.
Loans under the Current Revolving Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the Adjusted Term SOFR (as defined in the Second A&R Credit Agreement), plus an applicable margin ranging from 1.50% to 2.25% per annum based on the Company’s Consolidated Total Net Leverage Ratio (as defined in the Second 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) the Adjusted Term SOFR for an interest period of one month plus 1.00%, plus an applicable margin ranging from 0.50% to 1.25% per annum based on the Company’s Consolidated Total Net Leverage Ratio. Undrawn commitments under the Current Revolving Credit Facility are subject to a commitment fee ranging from 0.20% to 0.35% per annum based on the Company’s Consolidated Total Net Leverage Ratio on the average daily unused portion of the Current Revolving Credit Facility. Subject to the terms and conditions of the Current Revolving Credit Facility or Current Incremental Facility, the Company is permitted to make voluntary prepayments at any time without payment of a premium or penalty. The availability of funds under the Current
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Revolving Credit Facility may be subject to reduction in order to maintain compliance with the financial covenants under the Second A&R Credit Agreement.
The Second 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 Second A&R Credit Agreement contains financial covenants that require the Company and its subsidiaries to not exceed a maximum consolidated secured net leverage ratio (not to exceed 3.00:1) and maintain a minimum consolidated interest coverage ratio (not to be less than 3.00:1). In addition, the Second 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 Second A&R Credit Agreement and, at the election of the Company and the contracting counterparty, any secured 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 Second 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.
As of both September 30, 2023 and December 31, 2022, the Company had $500.0 million of funds available under the Prior Revolving Credit Facility. As of September 30, 2023 and December 31, 2022, the Company had no outstanding balance under the Prior Revolving Credit Facility. The Company was in compliance with all covenants of the Prior A&R Credit Agreement as of September 30, 2023. Upon entry into the Second A&R Credit Agreement, the Company had $350.0 million of funds available under the Current 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 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.
During the three months ended September 30, 2023 and December 31, 2022, none of the conditional conversion features of the Notes were triggered, and therefore, the Notes are not convertible during the fourth quarter of 2023, commencing on October 1, 2023, and were not convertible during the first quarter of 2023, commencing on January 1, 2023. Accordingly, the Company classified the Notes as a long-term liability in its Condensed Consolidated Financial Statements as of both September 30, 2023 and December 31, 2022. Whether the Notes will be convertible following the fourth fiscal quarter of 2023 will depend on the satisfaction of the conversion conditions in the future.
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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, 2023, none of the criteria for a fundamental change or a conversion rate adjustment had been met.
As of September 20, 2023, the Company may redeem for cash all or any portion of the Notes, at its option, 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.
The debt issuance costs associated with the Notes are being amortized to interest expense over the term of the Notes using an effective interest rate of 0.80%. As of September 30, 2023, the remaining life of the Notes and the related issuance cost accretion is approximately 2.0 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, 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, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Principal amount | $ | 575,000 |  |  | $ | 575,000 |
Unamortized debt issuance costs | (6,113) |  |  | (8,429) |
Convertible senior notes, net | $ | 568,887 |  |  | $ | 566,571 |

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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Contractual coupon interest | $ | 359 |  |  | $ | 359 |  |  | $ | 1,078 |  |  | $ | 1,078 |
Amortization of debt issuance costs | $ | 773 |  |  | $ | 768 |  |  | $ | 2,316 |  |  | $ | 2,298 |

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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.
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
The Company enters into multi-year, sales-type lease agreements, with the leases varying in length from one to ten years. The Company optimizes cash flows by selling a majority of its sales-type leases, other than those relating to U.S. government hospitals and Advanced Services products, including Central Pharmacy Dispensing Service and IV Compounding Service, 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.
The following table presents the Company’s income recognized from sales-type leases for the three and nine months ended September 30, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Sales-type lease revenues | $ | 14,388 |  |  | $ | 10,115 |  |  | $ | 27,960 |  |  | $ | 34,033 |
Cost of sales-type lease revenues | (7,141) |  |  | (5,357) |  |  | (14,183) |  |  | (16,963) |
Selling profit on sales-type lease revenues | $ | 7,247 |  |  | $ | 4,758 |  |  | $ | 13,777 |  |  | $ | 17,070 |

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, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Net minimum lease payments to be received | $ | 62,470 |  |  | $ | 50,755 |
Less: Unearned interest income portion | (9,221) |  |  | (6,345) |
Net investment in sales-type leases | 53,249 |  |  | 44,410 |
Less: Current portion (1) | (11,618) |  |  | (11,486) |
Long-term investment in sales-type leases, net | $ | 41,631 |  |  | $ | 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.
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The carrying amount of the Company’s sales-type lease receivables is a reasonable estimate of fair value.
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, 2023
| (In thousands)
Remaining three months of 2023 | $ | 3,828 |
2024 | 13,431 |
2025 | 11,351 |
2026 | 9,053 |
2027 | 7,286 |
Thereafter | 17,521 |
Total future minimum sales-type lease payments | 62,470 |
Present value adjustment | (9,221) |
Total net investment in sales-type leases | $ | 53,249 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Rental income | $ | 1,330 |  |  | $ | 2,327 |  |  | $ | 5,459 |  |  | $ | 7,220 |

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 twelve years. As of September 30, 2023, the Company did not have any additional material operating leases that were entered into, but not yet commenced.
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, 2023
| (In thousands)
Remaining three months of 2023 | $ | 3,340 |
2024 | 12,266 |
2025 | 9,604 |
2026 | 8,942 |
2027 | 7,334 |
Thereafter | 8,054 |
Total operating lease payments | 49,540 |
Present value adjustment | (6,078) |
Total operating lease liabilities (1) | $ | 43,462 |

_________________________________________________
(1) Amount consists of a current and long-term portion of operating lease liabilities of $10.6 million and $32.8 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 $2.6 million and $4.0 million for the three months ended September 30, 2023 and 2022, respectively, and $8.2 million and $12.8 million for the nine months ended September 30, 2023 and 2022, respectively. Short-term lease costs and variable lease costs were not material for the three and nine months ended September 30, 2023 and 2022. The Company recorded impairment and abandonment charges to operating lease right-of-use assets of $7.8 million during the nine months ended September 30, 2023, and $0.3 million and $5.4 million during the three and nine months ended September 30, 2022, 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 months ended September 30, 2023 and 2022:

| Nine Months Ended September 30,
| 2023 |  | 2022
| (In thousands)
Cash paid for amounts included in the measurement of lease liabilities | $ | 10,100 |  |  | $ | 13,178 |
Right-of-use assets obtained in exchange for new lease liabilities | $ | 1,758 |  |  | $ | 12,177 |

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, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
Weighted-average remaining lease term, years | 4.6 |  | 5.0
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, 2023, the Company had non-cancelable purchase commitments of $118.7 million, of which $78.1 million are expected to be paid within the year ending December 31, 2023.
Ransomware Incident
During the nine months ended September 30, 2023, the Company did not incur any material expenses or recoveries related to the previously disclosed ransomware incident. During the three months ended September 30, 2022, the Company incurred $1.0 million of 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, partially offset by $11.1 million of expected insurance recoveries. Expenses include 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.
As of September 30, 2023, the Company has incurred $13.6 million of cumulative expenses related to the ransomware incident since it was detected, partially offset by $11.6 million of insurance recoveries, all of which have been received as of September 30, 2023.
Legal Proceedings
The Company is currently involved in various legal proceedings.
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 Company has not recorded any material accrual for contingent liabilities associated with any current legal proceedings based on its belief that any potential material loss, while reasonably possible, is not probable. Furthermore, any possible range of loss in such matters cannot be reasonably estimated at this time. The Company believes that it has valid defenses with respect to legal proceedings pending against it. However,
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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 legal proceedings or because of the diversion of management’s attention and the creation of significant 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. For the nine months ended September 30, 2023, the Company recorded a provision for income taxes of $4.4 million by applying its estimated annual effective tax rate to its year-to-date measure of ordinary income and adjusted for $5.6 million of discrete income tax expense primarily from equity compensation. For the nine months ended September 30, 2022, the Company recorded a benefit from income taxes of $1.0 million by applying its estimated annual effective tax rate to its year-to-date measure of ordinary income and included a net discrete income tax benefit of $6.9 million, primarily due to a tax benefit from equity compensation.
The 2023 annual effective tax rate before discrete items differed from the statutory rate of 21% primarily due to the favorable benefit of the research and development credits and a foreign-derived intangible income (“FDII”) benefit deduction, partially offset by unfavorable impact of the non-deductible compensation and equity charges and Global Intangible Low-Taxed Income (“GILTI”) tax inclusion. The 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 GILTI tax inclusion, partially offset by the favorable impact of research and development credits and an FDII deduction.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into 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. These provisions did not have an impact on the Company’s provision for income taxes for the nine months ended September 30, 2023.
As of September 30, 2023 and December 31, 2022, the Company had gross unrecognized tax benefits of $10.1 million and $9.3 million, respectively. The Company recognizes interest and penalties related to uncertain tax positions in interest and other income (expense), net in the Condensed Consolidated Statements of Operations. Accrued interest and penalties are included within other long-term liabilities on the Condensed Consolidated Balance Sheets. As of September 30, 2023 and December 31, 2022, the amount of accrued interest and penalties was $0.4 million and $0.2 million, respectively.
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, France, and the United Kingdom. With few exceptions, as of September 30, 2023, the Company was no longer subject to U.S., state, and foreign tax examinations for years before 2019, 2018, and 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
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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Cost of product and service revenues | $ | 2,213 |  |  | $ | 2,203 |  |  | $ | 6,489 |  |  | $ | 6,607 |
Research and development | 1,917 |  |  | 3,054 |  |  | 5,220 |  |  | 7,912 |
Selling, general, and administrative | 10,852 |  |  | 12,053 |  |  | 31,404 |  |  | 36,212 |
Total share-based compensation expense | $ | 14,982 |  |  | $ | 17,310 |  |  | $ | 43,113 |  |  | $ | 50,731 |

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During the three and nine months ended September 30, 2023, the Company capitalized approximately $1.1 million and $3.3 million, respectively, 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 non-cash share-based compensation expense to inventory during the three and nine months ended September 30, 2023 and 2022, or any material non-cash share-based compensation expense to internal-use and external-use software development costs during the three and nine months ended September 30, 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, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Expected life, years | 0.5 - 2.0 |  | 0.5 - 2.0 |  | 0.5 - 2.0 |  | 0.5 - 2.0
Expected volatility, % | 32.0% - 63.9% |  | 28.8% - 44.8% |  | 31.7% - 63.9% |  | 28.8% - 45.6%
Risk-free interest rate, % | 0.2% - 5.5% |  | 0.1% - 3.2% |  | 0.1% - 5.5% |  | 0.1% - 3.2%
Dividend yield, % | — | % |  | — | % |  | — | % |  | — | %

For the nine months ended September 30, 2023 and 2022, employees purchased approximately 353,000 and 316,000 shares of common stock, respectively, under the ESPP at a weighted-average price of $46.68 and $67.63, respectively. As of September 30, 2023, the unrecognized compensation cost related to the shares to be purchased under the ESPP was approximately $2.0 million and is expected to be recognized over a weighted-average period of 1.6 years.
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 months ended September 30, 2023. There were no stock options granted during the three months ended September 30, 2023, and the three and nine months ended September 30, 2022.

|  |  |  |  | Nine Months Ended September 30,
|  |  |  |  |  |  | 2023
Expected life, years |  |  |  |  |  |  | 3.2
Expected volatility, % |  |  |  |  |  |  | 44.8 | %
Risk-free interest rate, % |  |  |  |  |  |  | 3.7 | %
Estimated forfeiture rate, % |  |  |  |  |  |  | 10.0 | %
Dividend yield, % |  |  |  |  |  |  | — | %

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

| Number of Shares |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Years |  | Aggregate Intrinsic Value
| (In thousands, except per share data)
Outstanding at December 31, 2022 | 2,434 |  |  | $ | 68.65 |  |  | 6.1 |  | $ | 7,887 |
Granted | 200 |  |  | 55.60 |  |  |  |  |
Exercised | (157) |  |  | 41.85 |  |  |  |  |
Expired | (177) |  |  | 80.44 |  |  |  |  |
Forfeited | (180) |  |  | 74.17 |  |  |  |  |
Outstanding at September 30, 2023 | 2,120 |  |  | $ | 67.96 |  |  | 5.0 |  | $ | 3,418 |
Exercisable at September 30, 2023 | 1,801 |  |  | $ | 66.84 |  |  | 4.9 |  | $ | 3,418 |
Vested and expected to vest at September 30, 2023 and thereafter | 2,103 |  |  | $ | 67.90 |  |  | 5.0 |  | $ | 3,418 |

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The weighted-average fair value per share of options granted during the nine months ended September 30, 2023 was $19.48. The intrinsic value of options exercised during the three months ended September 30, 2023 and 2022 was $0.5 million and $7.6 million, respectively, and during the nine months ended September 30, 2023 and 2022 was $3.1 million and $23.1 million, respectively.
As of September 30, 2023, total unrecognized compensation cost related to unvested stock options was $5.3 million, which is expected to be recognized over a weighted-average vesting period of 0.9 years.
Restricted Stock Units (“RSUs”)
The following table summarizes the RSU activity under the 2009 Plan during the nine months ended September 30, 2023:

| Number of Shares |  | Weighted-Average Grant Date Fair Value |  | Weighted-Average Remaining Years |  | Aggregate Intrinsic Value
| (In thousands, except per share data)
Outstanding at December 31, 2022 | 1,117 |  |  | $ | 115.75 |  |  | 1.6 |  | $ | 56,297 |
Granted (Awarded) | 675 |  |  | 64.44 |  |  |  |  |
Vested (Released) | (252) |  |  | 117.13 |  |  |  |  |
Forfeited | (304) |  |  | 112.82 |  |  |  |  |
Outstanding and unvested at September 30, 2023 | 1,236 |  |  | $ | 87.89 |  |  | 1.7 |  | $ | 55,649 |

As of September 30, 2023, total unrecognized compensation cost related to RSUs was $78.2 million, which is expected to be recognized over the remaining weighted-average vesting period of 3.1 years.
Restricted Stock Awards (“RSAs”)
The following table summarizes the RSA activity under the 2009 Plan during the nine months ended September 30, 2023:

| Number of Shares |  | Weighted-Average Grant Date Fair Value
| (In thousands, except per share data)
Outstanding at December 31, 2022 | 13 |  |  | $ | 109.39 |
Granted (Awarded) | 24 |  |  | 70.96 |
Vested (Released) | (13) |  |  | 109.39 |
Outstanding and unvested at September 30, 2023 | 24 |  |  | $ | 70.96 |

As of September 30, 2023, total unrecognized compensation cost related to RSAs was $1.0 million, which is expected to be recognized over the remaining weighted-average vesting period of 0.6 years.
Performance-Based Stock Unit Awards (“PSUs”)
The following table summarizes the PSU activity under the 2009 Plan during the nine months ended September 30, 2023:

| Number of Shares |  | Weighted-Average Grant Date Fair Value
| (In thousands, except per share data)
Outstanding at December 31, 2022 | 135 |  |  | $ | 147.42 |
Granted | 65 |  |  | 122.29 |
Vested | (35) |  |  | 127.40 |
Forfeited | (66) |  |  | 153.68 |
Outstanding and unvested at September 30, 2023 | 99 |  |  | $ | 129.36 |

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As of September 30, 2023, total unrecognized compensation cost related to PSUs was approximately $6.7 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.4 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, 2023:

| Number of Shares
| (In thousands)
Stock options outstanding | 2,120 |
Non-vested restricted stock awards | 1,359 |
Shares authorized for future issuance | 2,417 |
ESPP shares available for future issuance | 3,250 |
Total shares reserved for future issuance | 9,146 |

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, 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 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.
During the nine months ended September 30, 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 and nine months ended September 30, 2023 and the three months ended September 30, 2022, the Company did not repurchase any of its outstanding common stock under the 2016 Repurchase Program.
Note 16. Restructuring 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 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 million and $5.3 million, respectively, of employee severance costs and related expenses. As of September 30, 2023, there was no material unpaid balance related to these restructuring plans.
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 September 30, 2023, the Company recorded an immaterial reversal of previously recognized restructuring expenses associated with the Plan. During the nine months ended September 30, 2023, the Company incurred $5.5 million of employee severance costs and related expenses, net of reversals, in connection with the Plan. As of September 30, 2023, the Company has incurred $22.9 million of cumulative restructuring expense, net of reversals, related to employee severance costs and related expenses since the inception of the Plan. As of September 30, 2023 and December 31, 2022, the unpaid balance related to the Plan was $1.0 million and $18.2 million, respectively.
Refer to Note 12, Lessee Leases, for information regarding the Company’s restructuring activities for the reduction of its real estate footprint and optimization of certain leased facilities.
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The following table summarizes the total employee-related restructuring expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (In thousands)
Cost of product and service revenues | $ | (280) |  |  | $ | 444 |  |  | $ | 102 |  |  | $ | 600 |
Research and development | (25) |  |  | 272 |  |  | 467 |  |  | 1,866 |
Selling, general, and administrative | (276) |  |  | 1,078 |  |  | 4,885 |  |  | 2,855 |
Total restructuring expense, net of reversals | $ | (581) |  |  | $ | 1,794 |  |  | $ | 5,454 |  |  | $ | 5,321 |

Note 17. Subsequent Events
Second Amended and Restated Credit Agreement
On October 10, 2023, the Company entered into the Second A&R Credit Agreement with the lenders from time to time party thereto, Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and TD Securities (USA) LLC as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent. The Second A&R Credit Agreement supersedes the Company’s Prior A&R Credit Agreement. Refer to Note 9, Debt and Credit Agreement, for additional information.
Restructuring Plan
On November 2, 2023, the Company announced a plan to reduce the Company’s headcount and real estate footprint (the “2023 Plan”) as part of the Company’s expense containment initiatives and other actions to reduce discretionary spending being implemented due to challenging industry dynamics and macroeconomic conditions. In connection with the 2023 Plan, the Company estimates that it will incur approximately $12 million to $18 million of nonrecurring restructuring and related charges, consisting of (i) approximately $9 million to $12 million of cash-based charges related to the reduction in headcount, which primarily consist of employee severance and benefits costs and (ii) approximately $3 million to $6 million of non-cash charges related to office closure, which the Company expects to incur the majority of charges in the fourth quarter of 2023 with remaining charges incurred in future periods. The Company expects to substantially complete the 2023 Plan, including cash payments, by the end of the second quarter of 2024, subject to local laws and consultation requirements.
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 on Form 10-Q 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 regarding our future sales pipeline and bookings;
•the extent and timing of future revenues, including the amounts of our current backlog;
•the size or growth of our market or market share;
•our beliefs about drivers of demand for our products, services, and solutions, opportunities in certain market categories, and continued expansion in these 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 specialty pharmacy providers;
•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;
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•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 that support the industry vision of the Autonomous Pharmacy, are strongly aligned with trends in the healthcare market, and are well-positioned to address the evolving needs of healthcare institutions;
•our expectation to continue to acquire companies, businesses, products, services, or technologies and 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 containment of the impacts of the ransomware incident we experienced in May 2022, and any further impacts on the Company, including its business, operating results, cash flow, or financial condition;
•our expected future uses of cash and the sufficiency of our sources of funding;
•our ability to generate cash from operations and our estimates regarding the sufficiency of our cash resources; and
•our expectations about the impact of epidemics, pandemics, or other major public health crises, such as the COVID-19 pandemic, and the associated containment measures, on our workforce and operations as well as those of our customers and suppliers, and the effect on our business, operating results, cash flow, or financial condition.
In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “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 Part I - Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II - Item 1A. “Risk Factors,” 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 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 on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits, as well as other documents we file with, or furnish to, the 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 on Form 10-Q represent our current estimates and assumptions and speak only as of the date of this Quarterly Report on Form 10-Q. 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, or otherwise.
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. The term “Omnicell, Inc.” refers only to Omnicell, Inc., excluding its subsidiaries.
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.
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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 clinicians within healthcare 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 patient at the center and helping its customers optimize medication management across all care settings from inpatient to outpatient. We are doing so with an industry-leading medication management intelligent infrastructure to equip and empower pharmacists and pharmacies with the ability to focus on clinical care rather than administrative tasks. This intelligent infrastructure provides the critical foundation for 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 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% of our total revenues for both the three months ended September 30, 2023 and 2022, and 88% and 90% for the nine months ended September 30, 2023 and 2022, respectively.
Over the past several years, our business has expan ded from a single-point solution to a platform of products and services that 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 bookings as an indicator of the success of our business. We define bookings generally as: (i) the value of non-cancelable contracts f or 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 placed through our Omnicell Storefront online platform or through written or telephonic orders. We typically exclude technical services and other less significant items ancillary to our products and services, such as freight revenue from bookings. As noted, the portfolio of products, solutions and services 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. Connected devices and software license bookings are recorded as revenue upon customer acceptance of the installation or receipt of goods. Revenues from 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 sales, we provide a range of services to our customers. We also provide Advanced Services such as Central Pharmacy Dispensing Service (service portion), IV Compounding Service (service portion), EnlivenHealth, Specialty Pharmacy Services, 340B solutions, Inventory Optimization Service, and other software solutions, which typically are provided over 2-7 years.
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The following table summarizes each revenue category:

Revenue Category |  | Revenue Type |  | Income Statement Classification |  | Included in Bookings
Connected devices, software licenses, and other |  | Nonrecurring |  | Product |  | Yes (1)
Consumables |  | Recurring |  | Product |  | Yes
Technical services |  | Recurring |  | Service |  | No
Advanced Services (2) (3) |  | Recurring |  | Service |  | Yes

_________________________________________________
(1) Certain other insignificant revenue streams ancillary to our products and services, such as freight revenue, are not included in bookings.
(2) 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 that has been recognized once the services have been provided.
Our full-time employee headcount was approximately 3,890 and 4,230 on September 30, 2023 and December 31, 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
The U.S. spent a total of $633.5 billion on prescription drugs that accounted for 14% of National Health Expenditures in 2022, and prescription drugs impact the vast majority of patients in virtually all settings of care. We believe there are significant challenges facing the practice of pharmacy 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 processes, complexity around compliance requirements, high 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 recognize that some of these challenges can create capital budget and labor constraints for our customers in the near-term that may impact the potential timing of contracting for, or implementing, our products, solutions, or services. However, we believe that over time these significant challenges to the practice of pharmacy should drive demand for increased digitization, visibility, and insights that our solutions are designed to enable. Because of this, we find that our solutions are well positioned to address the evolving needs of healthcare institutions and therefore present opportunities for growth over the long-term.
In an effort to address these challenges and deliver solutions to help drive positive medication management outcomes, we continue to make significant investments in our research and development efforts to further advance the industry vision of the Autonomous Pharmacy. Furthermore, 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 our customers realize the industry vision of the Autonomous Pharmacy and drive positive 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 into this product market as customers increase the use of our dispensing systems in more areas within their hospitals. However, we recognize that the current macroeconomic environment, with significant labor constraints, may impact our customers’ considerations in the near term when determining to implement new workflows that may affect those same stressed labor pools. As our XT Series cabinet is largely through the replacement, upgrade, and expansion cycle of older models of automated dispensing systems, we are seeing demand moderate. Over time, we believe that should labor shortages continue to challenge the delivery of healthcare services, deploying solutions and workflows that are intended to save nursing time, such as our XT Series, will be essential. We also believe there is an opportunity for us to expand this offering and define a new standard for dispensing systems in perioperative settings. We believe our
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current solutions within the Point of Care market and new innovation and services will continue to help customers drive improved outcomes.
•Central Pharmacy and IV Compounding. This market represents the beginning of the medication management process in acute care settings, and, we believe, it is a significant automation opportunity for high volumes of manual, repetitive, and error-prone processes that are often common in pharmacies today. Manual medication dispensing processes are usually labor intensive, error-prone, and may lead to excess medication waste and expirations 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 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 adoption of our Central Pharmacy and IV automation solution is still nascent, we believe that the implementation of new solutions (as well as upgrading older technology) will be accelerated by combining technology, expertise, and intelligence into a comprehensive offering that is designed to deliver improved outcomes. Despite the potential headwinds from the lack of clarity in the current regulatory environment for IV automation, we anticipate that these bundled solutions will become more critical as health systems continue to face labor shortages, increased financial pressure, and supply chain disruptions.
•Specialty Pharmacy and 340B Program. We believe that health systems will invest in more revenue-generating activities that are intended to improve patient outcomes by utilizing specialty pharmacies and the 340B Drug Pricing Program, which allow hospitals and 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 and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty medications are projected to account for nearly 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025. Specialty pharm acies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs. We believe a solution that addresses start-up and managed services for health systems that is designed to optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations. We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems.
•Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a significant opportunity as healthcare evolves. A majority of all prescription drugs are distributed in non-hospital settings. The COVID-19 pandemic accelerated the shift of outpatient care from hospitals and physician offices to other, more convenient settings, such as retail pharmacies and the home (including through telehealth technologies). New technologies and updated state board regulations appear to be spurring innovation by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of solutions that are intended to help providers and payers engage patients in new ways that improve patient care, reduce the total cost of care, and lead to more profitable operations. Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will also be important.
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;
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•Lessor leases;
•Allowance for credit losses;
•Inventory;
•Internal-use and external-use software development costs;
•Lessee leases;
•Valuation and impairment of goodwill and intangible assets;
•Business combinations;
•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 months ended September 30, 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, 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,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Product revenues | $ | 188,755 |  |  | $ | 246,565 |  |  | $ | (57,810) |  |  | (23)%
Percentage of total revenues | 63% |  | 71% |  |  |  |
Services and other revenues | 109,908 |  |  | 101,494 |  |  | 8,414 |  |  | 8%
Percentage of total revenues | 37% |  | 29% |  |  |  |
Total revenues | $ | 298,663 |  |  | $ | 348,059 |  |  | $ | (49,396) |  |  | (14)%

Product revenues represented 63% and 71% of total revenues for the three months ended September 30, 2023 and 2022, respectively. Product revenues decreased by $57.8 million, primarily due to lower volumes from our automated dispensing systems business primarily as a result of ongoing health systems capital budget and labor constraints.
Services and other revenues represented 37% and 29% of total revenues for the three months ended September 30, 2023 and 2022, respectively. Services and other revenues include revenues from technical services and Advanced Services offerings. Services and other revenues increased by $8.4 million, primarily due to increased customer demand for our Advanced Services offerings and continued growth in our installed customer base as well as the impact of pricing actions.
Our international sales represented 9% of total revenues for both the three months ended September 30, 2023 and 2022, 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
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Product revenues | $ | 562,906 |  |  | $ | 706,246 |  |  | $ | (143,340) |  |  | (20)%
Percentage of total revenues | 63% |  | 71% |  |  |  |
Services and other revenues | 325,359 |  |  | 292,027 |  |  | 33,332 |  |  | 11%
Percentage of total revenues | 37% |  | 29% |  |  |  |
Total revenues | $ | 888,265 |  |  | $ | 998,273 |  |  | $ | (110,008) |  |  | (11)%

Product revenues represented 63% and 71% of total revenues for the nine months ended September 30, 2023 and 2022, respectively. Product revenues decreased by $143.3 million, primarily due to lower volumes from our automated dispensing systems business primarily as a result of ongoing health systems capital budget and labor constraints, partially offset by an increase of $6.6 million in revenues from consumables.
Services and other revenues represented 37% and 29% of total revenues for the nine months ended September 30, 2023 and 2022, respectively. Services and other revenues include revenues from technical services and Advanced Services offerings. Services and other revenues increased by $33.3 million, primarily due to increased customer demand for our Advanced Services offerings and continued growth in our installed customer base as well as the impact of pricing actions.
Our international sales represented 12% and 10% of total revenues for the nine months ended September 30, 2023 and 2022, respectively, and are expected to be affected by foreign currency exchange rate fluctuations. We are unable to predict the extent to which revenues in future periods will be impacted by changes in foreign currency exchange rates.
Our ability to 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 costs of personnel and other expenses; and (iii) other costs, including variances in standard costs and overhead, scrap costs, rework, provisions for excess and obsolete inventory, and amortization of software development costs and intangibles.

| Three Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Cost of revenues: |  |  |  |  |  |  |
Cost of product revenues | $ | 106,311 |  |  | $ | 134,023 |  |  | $ | (27,712) |  |  | (21)%
As a percentage of related revenues | 56% |  | 54% |  |  |  |
Cost of services and other revenues | 60,388 |  |  | 54,941 |  |  | 5,447 |  |  | 10%
As a percentage of related revenues | 55% |  | 54% |  |  |  |
Total cost of revenues | $ | 166,699 |  |  | $ | 188,964 |  |  | $ | (22,265) |  |  | (12)%
As a percentage of total revenues | 56% |  | 54% |  |  |  |
Gross profit | $ | 131,964 |  |  | $ | 159,095 |  |  | $ | (27,131) |  |  | (17)%
Gross margin | 44% |  | 46% |  |  |  |

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Cost of revenues for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 decreased by $22.3 million, primarily driven by a $27.7 million decrease in cost of product revenues, partially offset by a $5.4 million increase in cost of services and other revenues.
The decrease in cost of product revenues was primarily driven by the decrease in product revenues of $57.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues for the three months ended September 30, 2023, primarily due to certain fixed costs, such as labor and overhead. In addition, the decrease in cost of product revenues was also driven by lower inventory-related costs as pricing for semiconductors, steel, freight, and other costs has decreased from the prior period. The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of $8.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
The overall decrease in gross margin primarily relates to lower product revenues for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 whereas the decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues, primarily due to certain fixed costs, such as labor and overhead. The decrease is partially offset by lower inventory-related costs. Our gross profit for the three months ended September 30, 2023 was $132.0 million, as compared to $159.1 million for the three months ended September 30, 2022.

| Nine Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Cost of revenues: |  |  |  |  |  |  |
Cost of product revenues | $ | 323,800 |  |  | $ | 374,175 |  |  | $ | (50,375) |  |  | (13)%
As a percentage of related revenues | 58% |  | 53% |  |  |  |
Cost of services and other revenues | 173,029 |  |  | 156,864 |  |  | 16,165 |  |  | 10%
As a percentage of related revenues | 53% |  | 54% |  |  |  |
Total cost of revenues | $ | 496,829 |  |  | $ | 531,039 |  |  | $ | (34,210) |  |  | (6)%
As a percentage of total revenues | 56% |  | 53% |  |  |  |
Gross profit | $ | 391,436 |  |  | $ | 467,234 |  |  | $ | (75,798) |  |  | (16)%
Gross margin | 44% |  | 47% |  |  |  |

Cost of revenues for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 decreased by $34.2 million, primarily driven by a $50.4 million decrease in cost of product revenues, partially offset by a $16.2 million increase in cost of services and other revenues.
The decrease in cost of product revenues was primarily driven by the decrease in product revenues of $143.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues for the nine months ended September 30, 2023, primarily due to certain fixed costs, such as labor and overhead. In addition, the decrease in cost of product revenues was also driven by lower inventory-related costs as pricing for semiconductors, steel, freight, and other costs has decreased from the prior period. The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of $33.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
The overall decrease in gross margin primarily relates to lower product revenues for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 whereas the decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues, primarily due to certain fixed costs, such as labor and overhead. The decrease is partially offset by lower inventory-related costs. Our gross profit for the nine months ended September 30, 2023 was $391.4 million, as compared to $467.2 million for the nine months ended September 30, 2022.
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Operating Expenses and Interest and Other Income (Expense), Net

| Three Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Operating expenses: |  |  |  |  |  |  |
Research and development | $ | 24,281 |  |  | $ | 25,171 |  |  | $ | (890) |  |  | (4)%
As a percentage of total revenues | 8% |  | 7% |  |  |  |
Selling, general, and administrative | 103,971 |  |  | 115,459 |  |  | (11,488) |  |  | (10)%
As a percentage of total revenues | 35% |  | 33% |  |  |  |
Total operating expenses | $ | 128,252 |  |  | $ | 140,630 |  |  | $ | (12,378) |  |  | (9)%
As a percentage of total revenues | 43% |  | 40% |  |  |  |
Interest and other income (expense), net | $ | 3,670 |  |  | $ | (1,148) |  |  | $ | 4,818 |  |  | (420)%

Research and Development. Research and development expenses decreased by $0.9 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease was primarily driven by cost saving initiatives, including the impact from lower consulting expenses.
Selling, General, and Administrative. Selling, general, and administrative expenses decreased by $11.5 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease was primarily due to a decrease of $3.4 million in consulting expenses, a decrease of $2.7 million in commission expenses, a decrease of $2.2 million in freight out, a decrease of $1.4 million in employee-related expenses for restructuring initiatives, a decrease of $1.4 million in rent expense, and a decrease of $1.2 million of ransomware-related expenses, net of insurance recoveries, incurred during the three months ended September 30, 2022. The decrease was partially offset by $1.3 million of executives transition costs incurred during the three months ended September 30, 2023.
Interest and Other Income (Expense), Net. Interest and other income (expense), net changed by $4.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily driven by a $4.5 million increase in other income and a $0.3 million decrease in other expense. The increase in other income during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 is primarily attributable to higher interest income received due to higher interest rates and higher cash and cash equivalents balances.

| Nine Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Operating expenses: |  |  |  |  |  |  |
Research and development | $ | 70,296 |  |  | $ | 76,556 |  |  | $ | (6,260) |  |  | (8)%
As a percentage of total revenues | 8% |  | 8% |  |  |  |
Selling, general, and administrative | 332,643 |  |  | 354,644 |  |  | (22,001) |  |  | (6)%
As a percentage of total revenues | 37% |  | 36% |  |  |  |
Total operating expenses | $ | 402,939 |  |  | $ | 431,200 |  |  | $ | (28,261) |  |  | (7)%
As a percentage of total revenues | 45% |  | 43% |  |  |  |
Interest and other income (expense), net | $ | 9,912 |  |  | $ | (2,973) |  |  | $ | 12,885 |  |  | (433)%

Research and Development. Research and development expenses decreased by $6.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The decrease was primarily attributed to a decrease of $5.2 million in consulting expenses, a decrease in employee-related expenses for restructuring initiatives of $1.4 million, a decrease due to the timing of capitalized software projects of $1.3 million and other decreases from cost saving initiatives, partially offset by an increase of $3.8 million in employee-related expenses due to increased headcount.
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Selling, General, and Administrative. Selling, general, and administrative expenses decreased by $22.0 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The decrease was primarily due to a decrease of $5.8 million in commissions expenses, a decrease of $4.9 million in employee-related expenses, a decrease of $4.5 million in consulting expenses, a decrease of $3.4 million in freight out, a decrease of $3.3 million in travel expenses, and a decrease of $2.6 million in temporary labor expenses. The decrease is also driven by $2.3 million of ransomware-related expenses, net of insurance recoveries, incurred during the nine months ended September 30, 2022. The decrease is partially offset by an increase of $2.0 million in employee-related expenses for restructuring initiatives, an increase of $2.4 million for impairment and abandonment charges of operating lease right-of-use assets in connection with restructuring activities of certain leased facilities, as well as an increase of $2.2 million in executives transition costs incurred during the nine months ended September 30, 2023.
Interest and Other Income (Expense), Net. Interest and other income (expense), net changed by $12.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily driven by a $12.1 million increase in other income and a $0.8 million decrease in other expense. The increase in other income during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 is primarily attributable to higher interest income received due to higher interest rates and higher cash and cash equivalents balances.
Provision for (Benefit from) Income Taxes

| Three Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Provision for income taxes | $ | 1,829 |  |  | $ | 543 |  |  | $ | 1,286 |  |  | 237%

| Nine Months Ended September 30,
|  |  |  |  | Change in
| 2023 |  | 2022 |  | $ |  | %
| (Dollars in thousands)
Provision for (benefit from) income taxes | $ | 4,405 |  |  | $ | (995) |  |  | $ | 5,400 |  |  | (543)%

For the nine months ended September 30, 2023, we recorded a provision for income taxes of $4.4 million by applying our estimated annual effective tax rate to our year-to-date measure of ordinary income and adjusted for $5.6 million of discrete income tax expense primarily from equity compensation. For the nine months ended September 30, 2022, we recorded a benefit from income taxes of $1.0 million, and included a net discrete income tax benefit of $6.9 million, primarily due to a $5.1 million tax benefit from equity compensation. The change in the provision for income taxes for the nine months ended September 30, 2023 compared to the benefit from income taxes for the same period in 2022 was primarily due to a decrease in excess tax benefit from equity compensation, as well as the change in income (loss) before income taxes.
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 $446.8 million at September 30, 2023 compared to $330.4 million at December 31, 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 financial institutions of high credit quality.
Our cash position and working capital at September 30, 2023 and December 31, 2022 were as follows:

| September 30, 2023 |  | December 31, 2022
| (In thousands)
Cash and cash equivalents | $ | 446,840 |  |  | $ | 330,362 |
Working capital | $ | 544,390 |  |  | $ | 453,366 |

Our ratio of current assets to current liabilities was 2.5:1 and 2.1:1 at September 30, 2023 and December 31, 2022, respectively.
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Sources of Cash
Revolving Credit Facility
On November 15, 2019, we entered into an Amended and Restated Credit Agreement (as amended, the “Prior 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 Prior A&R Credit Agreement provided for (a) a five-year revolving credit facility of $500.0 million (the “Prior Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Prior Incremental Facility”). In addition, the Prior A&R Credit Agreement included 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 and March 29, 2023, we entered into amendments to the Prior 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 our flexibility to repurchase our common stock and make other restricted payments, and replace the total net leverage covenant, as well as 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 and related SOFR-based mechanics.
On October 10, 2023, we entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and TD Securities (USA) LLC as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent. The Second A&R Credit Agreement supersedes the Prior A&R Credit Agreement and provides for (a) a five-year revolving credit facility of $350.0 million (the “Current Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to an amount equal to the sum of (i) the greater of $250.0 million and 100% of the adjusted consolidated EBITDA for the last four quarters and (ii) additional amounts subject to pro forma compliance with certain consolidated secured net leverage ratio (the “Current Incremental Facility”). In addition, the Second A&R Credit Agreement includes a letter of credit sub-limit of up to $15 million and a swing line loan sub-limit of up to $25 million. The Second A&R Credit Agreement has an expiration date of October 10, 2028, subject to acceleration under certain conditions, upon which date all remaining outstanding borrowings will be due and payable.
As of September 30, 2023, we had $500.0 million of funds available and no outstanding balance under the Prior Revolving Credit Facility. As of September 30, 2023, we were in compliance with all covenants under the Prior A&R Credit Agreement. Upon entry into the Second A&R Credit Agreement, we had $350.0 million of funds available under the Current Revolving Credit Facility. 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 Current 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, 2023, which may result in additional use of cash. There were no stock repurchases during the nine months ended September 30, 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 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.
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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,
| 2023 |  | 2022
| (In thousands)
Net cash provided by (used in): |  |  |
Operating activities | $ | 142,680 |  |  | $ | (4,372) |
Investing activities | (42,644) |  |  | (41,417) |
Financing activities | 10,290 |  |  | (24,515) |
Effect of exchange rate changes on cash and cash equivalents | (464) |  |  | (1,425) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 109,862 |  |  | $ | (71,729) |

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.
Net cash provided by operating activities was $142.7 million for the nine months ended September 30, 2023, primarily consisting of a net loss of $6.0 million adjusted for non-cash items of $113.8 million and changes in assets and liabilities of $34.9 million. The non-cash items primarily consisted of depreciation and amortization expense of $65.6 million, share-based compensation expense of $43.1 million, impairment and abandonment of operating lease right-of-use assets related to facilities of $7.8 million, amortization of operating lease right-of-use assets of $6.2 million, amortization of debt issuance costs of $3.1 million, and a change in deferred income taxes of $14.2 million. Changes in assets and liabilities include cash inflows primarily from (i) a decrease in inventories of $31.7 million primarily due to management of inventory levels to align with the current forecasted demand, (ii) a decrease in accounts receivable and unbilled receivables of $27.1 million primarily due to the timing of billings, shipments, and collections, as well as the impacts of lower revenues, (iii) an increase in deferred revenues of $23.6 million primarily due to an increase in billings for certain service and subscription offerings, (iv) a decrease in prepaid commissions of $5.5 million, (v) an increase in accrued liabilities of $3.7 million, (vi) a decrease in other long-term assets of $2.5 million, and (vii) a decrease in other current assets of $1.5 million. These cash inflows were partially offset by (i) a decrease in accrued compensation of $29.4 million primarily due to a decrease in the accrual for restructuring initiatives, lower commissions, as well as timing of payroll and ESPP purchases, (ii) a decrease in accounts payable of $13.4 million primarily due to an overall decrease in spending, as well as timing of payments, (iii) an increase in investment in sales-type leases of $8.8 million primarily due to the acceptance of certain Advanced Services products under sales-type lease arrangements, and (iv) a decrease in operating lease liabilities of $8.1 million.
Net cash used in operating activities was $4.4 million for the nine months ended September 30, 2022, primarily consisting of net income of $34.1 million adjusted for non-cash items of $117.1 million, offset by changes in assets and liabilities of $155.6 million. The non-cash items primarily consisted of depreciation and amortization expense of $64.8 million, share-based compensation expense of $50.7 million, amortization of operating lease right-of-use assets of $9.7 million, impairment and abandonment of operating lease right-of-use assets of $5.4 million, amortization of debt issuance costs of $3.1 million, and a change in deferred income taxes of $17.1 million. Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of $116.9 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 million primarily due to a decrease in accrued commissions and bonuses, as well as timing of payroll and ESPP purchases, (iv) 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 million. These cash outflows were partially offset by (i) an increase in deferred revenues of $17.7 million primarily due to an increase in billings driven by the timing of 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.
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Investing Activities
Net cash used in investing activities was $42.6 million for the nine months ended September 30, 2023, which consisted of capital expenditures of $32.4 million for property and equipment, and $10.2 million for external-use software development costs.
Net cash used in investing activities was $41.4 million for the nine months ended September 30, 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 million for property and equipment, and $9.6 million for costs of software development for external use, partially offset by purchase price adjustments from business acquisitions of $5.5 million.
Financing Activities
Net cash provided by financing activities was $10.3 million for the nine months ended September 30, 2023, primarily due to $23.0 million in proceeds from employee stock option exercises and ESPP purchases, partially offset by $6.1 million in employees’ taxes paid related to restricted stock unit vesting and a net change in the customer funds balances of $6.6 million.
Net cash used in financing activities was $24.5 million for the nine months ended September 30, 2022, primarily due to $52.2 million for repurchases of our stock, and $11.4 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.
Contractual Obligations
There have been no significant changes during the nine months ended September 30, 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, 2022.
Contractual obligations as of September 30, 2023 were as follows:

| Payments Due By Period
| Total |  | Remainder of 2023 |  | 2024 - 2025 |  | 2026 - 2027 |  | 2028 and thereafter
| (In thousands)
Operating leases (1) | $ | 49,540 |  |  | $ | 3,340 |  |  | $ | 21,870 |  |  | $ | 16,276 |  |  | $ | 8,054 |
Purchase obligations (2) | 118,658 |  |  | 78,055 |  |  | 40,471 |  |  | 132 |  |  | — |
Convertible senior notes (3) | 577,875 |  |  | — |  |  | 577,875 |  |  | — |  |  | — |
Total (4) | $ | 746,073 |  |  | $ | 81,395 |  |  | $ | 640,216 |  |  | $ | 16,408 |  |  | $ | 8,054 |

_________________________________________________
(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)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.
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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 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, 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, 2023, there was no outstanding balance under the Prior A&R Credit Agreement. Upon entry into the Second A&R Credit Agreement on October 10, 2023, we had $350.0 million of funds available under the Current Revolving Credit Facility. 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.
The net carrying amount under our convertible senior notes was $568.9 million as of September 30, 2023. 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, 2023, the fair market value of our convertible senior notes was $518.6 million. Refer to Note 4, Cash and Cash Equivalents 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. We do not hold or issue any derivative financial instruments for speculative trading purposes. As of September 30, 2023, we did not have any outstanding interest rate swap agreements.
There were no significant changes in our market risk exposures during the nine months ended September 30, 2023 as compared to the market risk exposures disclosed in “Quantitative and Qualitative Disclosures About Market Risk,” set forth in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on 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 on Form 10-Q 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.
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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, 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 the updates provided below, please refer to Part I - Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission on March 1, 2023.
We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position.
On November 15, 2019, we refinanced our existing senior secured credit facility pursuant to an amended and restated agreement with certain lenders, and Wells Fargo Bank, National Association, as administrative agent (as amended, the “Prior A&R Credit Agreement”). The Prior A&R Credit Agreement provided for a five-year revolving credit facility of $500.0 million and an uncommitted incremental loan facility of up to $250.0 million. As of December 31, 2022, there were no outstanding balances under the Prior A&R Credit Agreement.
Subsequently, on October 10, 2023, we refinanced the Prior A&R Credit Agreement pursuant to a second amended and restated agreement with certain lenders, and Wells Fargo Bank, National Association, as administrative agent (the “Second A&R Credit Agreement”). The Second A&R Credit Agreement provides for a five-year revolving credit facility of $350.0 million and an uncommitted incremental loan facility of up to an amount equal to the sum of (x) the greater of $250.0 million and 100% of the adjusted consolidated EBITDA for the last four quarters and (y) additional amounts subject to pro forma compliance with certain consolidated secured net leverage ratio.
In addition, on September 25, 2020, we issued $575.0 million aggregate principal amount of 0.25% Convertible Senior Notes due 2025 (the “Notes”), pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between us and U.S. Bank National Association, as trustee. We used a portion of the proceeds from the issuance of the Notes to repay all outstanding borrowings under the revolving credit facility at the time.
Our debt may limit our ability to borrow additional funds or use our existing cash flow for working capital, capital expenditures, acquisitions, or other general business purposes or may require us to use a substantial portion of our cash flow for debt service payments; limit our flexibility to plan for, or react to, changes in our business and industry; place us at a competitive disadvantage compared to our less leveraged competitors; and increase our vulnerability to the impact of adverse economic and industry conditions.
Our ability to make payments of the principal, to pay interest, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to, and we cannot provide assurance that our business will, generate cash flow from operations in the future sufficient to fund our cash requirements, service our debt or make necessary capital expenditures. Our failure to generate sufficient cash flow to pay our debts could have a material adverse effect on our business. In addition, if we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as borrowing more money, selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Any of these actions still may not be sufficient to allow us to service our debt obligations, could increase the risks related to our business or our ability to service or repay our indebtedness or may otherwise have an adverse effect on our business.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time of any such refinancing. We may not be able to engage in any of these activities or to do so on desirable terms, which could result in a default on our debt obligations. In addition, as more fully described below in the risk factor captioned “Covenants in our Second A&R Credit Agreement restrict our business and operations in many ways, and if we do not effectively manage our compliance with these covenants, our business, operating results, cash flow, or financial condition could be adversely affected,” the Second A&R Credit Agreement includes customary restrictive covenants that impose operating and financial restrictions on us.
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Covenants in our Second A&R Credit Agreement restrict our business and operations in many ways, and if we do not effectively manage our compliance with these covenants, our financial conditions and operating results could be adversely affected.
The Second A&R Credit Agreement contains various customary covenants that require us to provide financial and other information reporting as well as notice upon certain events and limit or restrict our ability and/or our subsidiaries’ ability to, among other things, incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; issue redeemable preferred stock; pay dividends or distributions or redeem or repurchase capital stock; prepay, redeem, or repurchase certain debt; make loans, investments, acquisitions, and capital expenditures; enter into agreements that restrict distributions from our subsidiaries; sell assets and capital stock of our subsidiaries; enter into certain transactions with affiliates; and consolidate or merge with or into, or sell substantially all of our assets to, another person.
The Second A&R Credit Agreement also includes financial covenants requiring us (i) not to exceed a maximum consolidated secured net leverage ratio of 3.00:1 and (ii) to maintain a minimum consolidated interest coverage ratio of 3.00:1. Our ability to comply with these financial covenants may be affected by events beyond our control. Our failure to comply with any of the covenants under the Second A&R Credit Agreement could result in a default under the terms of the Second A&R Credit Agreement, which could permit the administrative agent or the lenders to declare all or part of any outstanding borrowings to be immediately due and payable or foreclose on our assets, or to refuse to permit additional borrowings under the revolving credit facility, which could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain business opportunities that may be presented to us. In addition, if we are unable to repay those amounts, the administrative agent and the lenders under the Second A&R Credit Agreement could proceed against the collateral granted to them to secure that debt and foreclose on our assets, which would seriously harm our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
During the three months ended September 30, 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
Securities Trading Plans of Directors and Officers
During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408(a) of Regulation S-K).
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ITEM 6. EXHIBITS

|  |  |  | Incorporated By Reference
Exhibit Number |  | Exhibit Description |  | Form |  |  |  | Exhibit |  | Filing Date
10.1* |  | Omnicell, Inc. Executive Severance Plan |  | 8-K |  |  |  | 10.1 |  | 8/3/2023
10.2* |  | Separation Agreement dated August 4, 2023 by and between Omnicell, Inc. and Peter J. Kuipers |  | 8-K |  |  |  | 10.1 |  | 8/10/2023
10.3+* |  | Form of Restricted Stock Unit Notice and Form of Global Restricted Stock Unit Award Agreement for 2009 Equity Incentive Plan, as amended (August 2023) |  |  |  |  |  |  |  |
10.4* |  | Separation Agreement dated October 4, 2023 by and between Omnicell, Inc. and Christine M. Mellon |  | 8-K |  |  |  | 10.1 |  | 10/5/2023
10.5 |  | Second Amended and Restated Credit Agreement, dated as of October 10, 2023, among Omnicell, Inc., the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent |  | 8-K |  |  |  | 10.1 |  | 10/16/2023
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 3, 2023 | By: |  | /s/ Nchacha E. Etta
|  |  |  | Nchacha E. Etta, Executive Vice President & Chief Financial Officer (principal financial officer and duly authorized officer)

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