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 March 31, 2021

☐	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.)

590 East Middlefield Road

Mountain View, CA 94043

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

(650) 251-6100

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	OMCL	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transitions 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 April 27, 2021, there were 43,189,924 shares of the registrant’s common stock, $0.001 par value, outstanding.

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 March 31, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2021 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2021 and 2020	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39
PART II	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signature		43

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OMNICELL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31, 2021		December 31, 2020
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	548,055	$	485,928
Accounts receivable and unbilled receivables, net of allowances of $5,518 and $4,286, respectively	205,658		190,117
Inventories	96,208		96,298
Prepaid expenses	17,122		16,027
Other current assets	36,956		41,044
Total current assets	903,999		829,414
Property and equipment, net	60,538		59,073
Long-term investment in sales-type leases, net	21,255		22,156
Operating lease right-of-use assets	51,922		55,114
Goodwill	499,065		499,309
Intangible assets, net	161,816		168,211
Long-term deferred tax assets	15,376		15,019
Prepaid commissions	54,209		56,919
Other long-term assets	118,443		119,289
Total assets	$	1,886,623	$	1,824,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	50,759	$	40,309
Accrued compensation	37,851		55,750
Accrued liabilities	84,075		80,311
Deferred revenues, net	119,588		100,053
Total current liabilities	292,273		276,423
Long-term deferred revenues	7,887		5,673
Long-term deferred tax liabilities	39,128		39,633
Long-term operating lease liabilities	45,435		48,897
Other long-term liabilities	18,542		19,174
Convertible senior notes, net	472,347		467,201
Total liabilities	875,612		857,001
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; 53,065 and 52,677 shares issued; 43,171 and 42,783 shares outstanding, respectively	53		53
Treasury stock at cost, 9,894 outstanding, respectively	(238,109)		(238,109)
Additional paid-in capital	950,361		920,359
Retained earnings	304,849		290,722
Accumulated other comprehensive loss	(6,143)		(5,522)
Total stockholders’ equity	1,011,011		967,503
Total liabilities and stockholders’ equity	$	1,886,623	$	1,824,504

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

3

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended March 31,
	2021		2020
	(In thousands, except per share data)
Revenues:
Product revenues	$	178,125	$	170,073
Services and other revenues	73,718		59,613
Total revenues	251,843		229,686
Cost of revenues:
Cost of product revenues	92,627		90,272
Cost of services and other revenues	36,933		29,792
Total cost of revenues	129,560		120,064
Gross profit	122,283		109,622
Operating expenses:
Research and development	16,080		18,652
Selling, general, and administrative	86,593		78,819
Total operating expenses	102,673		97,471
Income from operations	19,610		12,151
Interest and other income (expense), net	(6,691)		(822)
Income before provision for income taxes	12,919		11,329
Provision for (benefit from) income taxes	(1,208)		18
Net income	$	14,127	$	11,311
Net income per share:
Basic	$	0.33	$	0.27
Diluted	$	0.30	$	0.26
Weighted-average shares outstanding:
Basic	42,962		42,357
Diluted	46,367		43,621

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

4

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended March 31,
	2021		2020
	(In thousands)
Net income	$	14,127	$	11,311
Other comprehensive loss:
Foreign currency translation adjustments	(621)		(4,694)
Other comprehensive loss	(621)		(4,694)
Comprehensive income	$	13,506	$	6,617

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

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OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount
	(In thousands)
Balances as of December 31, 2020	52,677	$	53	(9,894)	$	(238,109)	$	920,359	$	290,722	$	(5,522)	$	967,503
Net income	—	—		—	—		—		14,127		—		14,127
Other comprehensive loss	—	—		—	—		—		—		(621)		(621)
Share-based compensation	—	—		—	—		11,772		—		—		11,772
Issuance of common stock under employee stock plans	388	—		—	—		20,826		—		—		20,826
Tax payments related to restricted stock units	—	—		—	—		(2,596)		—		—		(2,596)
Balances as of March 31, 2021	53,065	$	53	(9,894)	$	(238,109)	$	950,361	$	304,849	$	(6,143)	$	1,011,011

	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Income (Loss)		Stockholders’ Equity
	Shares	Amount		Shares	Amount
	(In thousands)
Balances as of December 31, 2019	51,277	$	51	(9,145)	$	(185,074)	$	780,931	$	258,792	$	(9,446)	$	845,254
Net income	—	—		—	—		—		11,311		—		11,311
Other comprehensive loss	—	—		—	—		—		—		(4,694)		(4,694)
Share-based compensation	—	—		—	—		10,659		—		—		10,659
Issuance of common stock under employee stock plans	474	1		—	—		17,658		—		—		17,659
Tax payments related to restricted stock units	—	—		—	—		(1,425)		—		—		(1,425)
Cumulative effect of a change in accounting principle related to credit losses	—	—		—	—		—		(264)		—		(264)
Balances as of March 31, 2020	51,751	$	52	(9,145)	$	(185,074)	$	807,823	$	269,839	$	(14,140)	$	878,500

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

6

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
	2021		2020
	(In thousands)
Operating Activities
Net income	$	14,127	$	11,311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,575		14,043
Share-based compensation expense	11,772		10,659
Deferred income taxes	(862)		(1,149)
Amortization of operating lease right-of-use assets	2,895		2,682
Amortization of debt issuance costs	849		241
Amortization of discount on convertible senior notes	4,571		—
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables	(15,427)		(16,052)
Inventories	(1,035)		(5,734)
Prepaid expenses	(1,095)		323
Other current assets	3,128		968
Investment in sales-type leases	925		(268)
Prepaid commissions	2,710		2,881
Other long-term assets	2,177		(2,844)
Accounts payable	10,368		208
Accrued compensation	(17,899)		(9,165)
Accrued liabilities	4,661		2,734
Deferred revenues	21,749		16,868
Operating lease liabilities	(3,142)		(2,784)
Other long-term liabilities	(632)		309
Net cash provided by operating activities	57,415		25,231
Investing Activities
Software development for external use	(8,043)		(10,602)
Purchases of property and equipment	(5,089)		(3,173)
Net cash used in investing activities	(13,132)		(13,775)
Financing Activities
Repayment of revolving credit facility	—		(50,000)
Proceeds from issuances under stock-based compensation plans	20,826		17,659
Employees’ taxes paid related to restricted stock units	(2,596)		(1,425)
Change in customer funds, net	(2,631)		—
Net cash provided by (used in) financing activities	15,599		(33,766)
Effect of exchange rate changes on cash and cash equivalents	(386)		(820)
Net increase (decrease) in cash, cash equivalents, and restricted cash	59,496		(23,130)
Cash, cash equivalents, and restricted cash at beginning of period	489,920		127,210
Cash, cash equivalents, and restricted cash at end of period	$	549,416	$	104,080
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	548,055	$	104,080
Restricted cash included in Other current assets	1,361		—
Cash, cash equivalents, and restricted cash at end of period	$	549,416	$	104,080
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment	$	487	$	944
Transfers between inventory and property and equipment, net	$	1,269	$	—

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

7

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 automation solutions and adherence tools for healthcare systems and pharmacies, which are sold in its principal market, the healthcare industry. The Company’s market is primarily located in the United States and Europe. “Omnicell” or the “Company” collectively refer to Omnicell, Inc. and its subsidiaries.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the financial position of the Company as of March 31, 2021 and December 31, 2020, and the results of operations, comprehensive income, and cash flows for the three months ended March 31, 2021 and 2020. 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, 2020, filed with the SEC on February 24, 2021, except as discussed in the section entitled “Recently Adopted Authoritative Guidance” below. The Company’s results of operations, comprehensive income, and cash flows for the three months ended March 31, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021, or for any future period.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications and Adjustments

Certain prior-year amounts have been reclassified to conform with current-period presentation. This reclassification was a change in the presentation of certain items in the disaggregation of revenues for the three months ended March 31, 2020 in Note 3, Revenues. This change was not deemed material and was included to conform with current-period classification and presentation.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s Condensed Consolidated Financial Statements and accompanying Notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. 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 March 31, 2021, 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.

8

Recently Adopted Authoritative Guidance

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, Income Taxes, as well as improves consistent application of and simplifies the guidance for other areas of ASC 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12 on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Authoritative Guidance

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. This update permits the use of either the modified retrospective or fully retrospective method of transition. ASU 2020-06 will be effective for the Company beginning January 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its Condensed Consolidated Financial Statements.

There was no other recently issued and effective authoritative guidance that is expected to have a material impact on the Company’s Condensed Consolidated Financial Statements through the reporting date.

Note 2. Business Combinations

340B Link Business Acquisition

On October 1, 2020, the Company completed the acquisition of all of the outstanding equity of the 340B Link business (the “340B Link Business”) of Pharmaceutical Strategies Group, LLC pursuant to the terms and conditions of the Equity Purchase Agreement, dated August 11, 2020, as amended, by and among the Company, PSGH, LLC, BW Apothecary Holdings, LLC, the sellers identified therein and the sellers’ representative for total cash consideration of $225.0 million. The 340B Link Business acquisition adds a comprehensive and differentiated suite of software-enabled services and solutions used by certain eligible hospitals, health systems, clinics, and entities to manage compliance and capture 340B drug cost savings on outpatient prescriptions filled through the eligible entity’s pharmacy or a contracted pharmacy partner. The results of the 340B Link Business's operations have been included in the Company's consolidated results of operations, commencing as of the acquisition date.

9

The Company accounted for the acquisition of the 340B Link Business in accordance with ASC 805, Business Combinations. The tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The preliminary fair values assume management's best estimates based on information available at the acquisition date and may change over the measurement period, which will end no later than one year from the acquisition date, as additional information is received. The following table represents the preliminary allocation of the purchase price to the assets acquired and the liabilities assumed by the Company as part of the acquisition included in the Company's Condensed Consolidated Balance Sheets, and is reconciled to the purchase price transferred:

	340B Link Business (Preliminary)
	(In thousands)
Accounts receivable and unbilled receivables	$	8,197
Prepaid expenses	232
Other current assets	22,747
Total current assets	31,176
Property and equipment	531
Operating lease right-of-use assets	3,138
Goodwill	161,117
Intangible assets	62,800
Total assets	258,762
Accounts payable	568
Accrued liabilities	23,787
Long-term deferred tax liabilities	6,818
Long-term operating lease liabilities	2,589
Total liabilities	33,762
Total purchase price	$	225,000

The $161.1 million of goodwill arising from the 340B Link Business acquisition is primarily attributed to sales of future software-enabled services and solutions and the 340B Link Business’s assembled workforce. Goodwill that is expected to be deductible for tax purposes is approximately $93.9 million.

Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual/legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows:

	304B Link Business
	Fair value		Useful life (years)
	(In thousands, except for years)
Customer relationships	$	53,000	21
Acquired technology	9,000		5
Trade names	200		1
Non-compete agreements	600		3
Total purchased intangible assets	$	62,800

The customer relationships intangible asset represents the fair value of the underlying relationships and agreements with the 340B Link Business’s customers. The acquired technology intangible asset represents the fair value of the 340B Link Business's portfolio of software and solutions that have reached technological feasibility and were part of the 340B Link Business’s offerings at the date of acquisition. The trade names intangible asset represents the fair value of brand and name recognition associated with the marketing of the 340B Link Business's software-enabled services and solutions. The non-compete agreements intangible asset represents the fair value of non-compete agreements with former key members of the 340B Link Business's management.

The fair value of the customer relationships intangible asset was determined based on the excess earnings method; the fair values of the acquired technology and trade names intangible assets were determined based on the relief-from-royalty

10

method; and the fair value of the non-compete agreements intangible asset was determined based on the lost profits method. The key assumptions used in estimating the fair values of intangible assets included forecasted financial information; customer attrition rates; royalty rates of 10.0% and 0.5% for the acquired technology and trade names intangible assets, respectively; a discount rate of 14.0% for all intangible assets; and certain other assumptions.

The customer relationships and acquired technology intangible assets are being amortized using a double-declining method of amortization as such method better represents the economic benefits to be obtained. The trade names and non-compete agreements are being amortized over their estimated useful lives using the straight-line method of amortization.

The Company believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions.

Pro Forma Financial Information

The following table presents certain unaudited pro forma information for illustrative purposes only, for the three months ended March 31, 2020 as if this acquisition had been completed on January 1, 2019. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2019. The unaudited pro forma information combines the historical results of the acquisition with the Company’s consolidated historical results and includes certain adjustments including, but not limited to, amortization and depreciation of intangible assets and property and equipment acquired; imputed interest, interest expense, and amortization of debt issuance costs for the indebtedness incurred to complete the acquisition; and acquisition-related costs incurred.

	Three Months Ended
	March 31, 2020
	(In thousands, except per share data)
Pro forma revenues	$	238,647
Pro forma net income	$	10,694

Note 3. Revenues

Revenue Recognition

The Company earns revenues from sales of its products and related services, which are sold in the healthcare industry, its principal market. The Company’s customer arrangements typically include one or more of the following revenue categories:

Connected devices, software licenses, and other. Software-enabled connected devices and software licenses that manage and regulate the storage and dispensing of pharmaceuticals, consumables blister cards, and packaging equipment and other supplies. This revenue category is often sold through long-term, sole-source agreements with multi-year co-development plans. Solutions in this category include, but are not limited to, XT Series automated dispensing systems, the XR2 Automated Central Pharmacy system, and IV compounding automation solutions.

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

Consumables. Medication adherence packaging, labeling, and other one-time use packaging including multimed adherence packaging and single dose blister cards which are used by retail, community, and outpatient pharmacies, as well as by institutional pharmacies serving long-term care and other sites outside the acute care hospital, and are designed to improve patient engagement and adherence to prescriptions.

Software-as-a-service (“SaaS”), subscription software, and technology-enabled 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™ (formerly Population Health Solutions), 340B solutions, and services associated with Omnicell One™ (formerly Performance Center), Central Pharmacy Dispensing Services, including the XR2 Automated Central Pharmacy system, and Central Pharmacy Compounding Services, including IV compounding automation solutions.

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The following table summarizes revenue recognition for each revenue category:

Revenue Category	Timing of Revenue Recognition	Income Statement Classification
Connected devices, software licenses, and other	Point in time, as transfer of control occurs, generally upon installation and acceptance by the customer	Product
Technical services	Over time, as services are provided, typically ratably over the service term	Service
Consumables	Point in time, as transfer of control occurs, generally upon shipment to or receipt by customer	Product
SaaS, subscription software, and technology-enabled 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 owned fully or in part 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 $3.4 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively.

Disaggregation of Revenues

The following table summarizes the Company’s revenues disaggregated by revenue type for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021		2020
	(In thousands)
Connected devices, software licenses, and other	$	159,718	$	147,347
Technical services	50,860		49,519
Consumables	18,407		22,726
SaaS, subscription software, and technology-enabled services	22,858		10,094
Total revenues	$	251,843	$	229,686

The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021		2020
	(In thousands)
United States	$	224,276	$	207,734
Rest of world (1)	27,567		21,952
Total revenues	$	251,843	$	229,686

_________________________________________________

(1)    No individual country represented more than 10% of total revenues.

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Contract Assets and Contract Liabilities

The following table reflects the Company’s contract assets and contract liabilities:

	March 31, 2021		December 31, 2020
	(In thousands)
Short-term unbilled receivables, net (1)	$	12,184	$	13,895
Long-term unbilled receivables, net (2)	14,856		17,205
Total contract assets	$	27,040	$	31,100
Short-term deferred revenues, net	$	119,588	$	100,053
Long-term deferred revenues	7,887		5,673
Total contract liabilities	$	127,475	$	105,726

_________________________________________________

(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 $119.6 million and $100.1 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of $20.8 million and $21.0 million, as of March 31, 2021 and December 31, 2020, respectively. The short-term deferred revenues from product sales relate to delivered and invoiced products, pending installation and acceptance, expected to occur within the next twelve months. During the three months ended March 31, 2021, the Company recognized revenues of $47.3 million that were included in the corresponding gross short-term deferred revenues balance of $121.1 million as of December 31, 2020.

Long-term deferred revenues include deferred revenues from product and service contracts of $7.9 million and $5.7 million as of March 31, 2021 and December 31, 2020, respectively. Remaining performance obligations are primarily recognized ratably over the remaining term of the contract, generally not more than ten years.

Significant Customers

There were no customers that accounted for more than 10% of the Company’s total revenues for the three months ended March 31, 2021 and 2020. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of March 31, 2021 and December 31, 2020.

Note 4. Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted-average number of shares outstanding during the period. In periods of net loss, all potential common shares are anti-dilutive, so diluted net loss per share equals the basic net loss per share. In periods of net income, diluted net income per share is computed by dividing net income for the period by the basic weighted-average number of shares plus any dilutive potential common stock outstanding during the period, using the treasury stock method. Potential common stock includes the effect of outstanding dilutive stock options, restricted stock awards, and restricted stock units, as well as shares the Company could be obligated to issue from its convertible senior notes and warrants, as described in Note 10, Convertible Senior Notes. Any anti-dilutive weighted-average dilutive shares related to stock award plans, convertible senior notes, and warrants are excluded from the computation of the diluted net income per share.

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The basic and diluted net income per share calculations for the three months ended March 31, 2021 and 2020 were as follows:

	Three Months Ended March 31,
	2021		2020
	(In thousands, except per share data)
Net income	$	14,127	$	11,311
Weighted-average shares outstanding – basic	42,962		42,357
Effect of dilutive securities from stock award plans	1,980		1,264
Effect of convertible senior notes	1,425		—
Weighted-average shares outstanding – diluted	46,367		43,621
Net income per share – basic	$	0.33	$	0.27
Net income per share – diluted	$	0.30	$	0.26
Anti-dilutive weighted-average shares related to stock award plans	287		1,744
Anti-dilutive weighted-average shares related to warrants	5,908		—

Note 5. Cash and Cash Equivalents and Fair Value of Financial Instruments

Cash and cash equivalents of $548.1 million and $485.9 million as of March 31, 2021 and December 31, 2020, respectively, consisted of bank accounts and highly-liquid U.S. Government money market funds held in sweep accounts with major financial institutions. As of March 31, 2021 and December 31, 2020, cash equivalents were $502.3 million and $447.2 million, respectively, which consisted of money market funds held in sweep 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 March 31, 2021, the fair value of the convertible senior notes was $816.8 million, compared to their carrying value of $472.3 million, which is net of unamortized discount and debt issuance costs and excludes amounts classified within additional paid-in capital. 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.

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Note 6. Balance Sheet Components

Balance sheet details as of March 31, 2021 and December 31, 2020 are presented in the tables below:

	March 31, 2021		December 31, 2020
	(In thousands)
Inventories:
Raw materials	$	30,331	$	28,205
Work in process	6,961		7,973
Finished goods	58,916		60,120
Total inventories	$	96,208	$	96,298
Other current assets:
Funds held for customers, including restricted cash (1)	$	17,228	$	18,164
Net investment in sales-type leases, current portion	10,222		10,246
Prepaid income taxes	7,071		10,095
Other current assets	2,435		2,539
Total other current assets	$	36,956	$	41,044
Other long-term assets:
Capitalized software, net	$	95,632	$	94,027
Unbilled receivables, net	14,856		17,205
Deferred debt issuance costs	3,979		4,253
Other long-term assets	3,976		3,804
Total other long-term assets	$	118,443	$	119,289
Accrued liabilities:
Operating lease liabilities, current portion	$	12,236	$	12,197
Customer fund liabilities	17,228		18,164
Advance payments from customers	7,426		6,981
Rebates and lease buyouts	24,838		21,815
Group purchasing organization fees	4,802		4,412
Taxes payable	3,544		3,520
Other accrued liabilities	14,001		13,222
Total accrued liabilities	$	84,075	$	80,311

_________________________________________________

(1)    Includes restricted cash of $1.4 million and $4.0 million as of March 31, 2021 and December 31, 2020, respectively.

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021		2020
	Foreign currency translation adjustments		Foreign currency translation adjustments
	(In thousands)
Beginning balance	$	(5,522)	$	(9,446)
Other comprehensive loss	(621)		(4,694)
Ending balance	$	(6,143)	$	(14,140)

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Note 7. Property and Equipment

The following table represents the property and equipment balances as of March 31, 2021 and December 31, 2020:

	March 31, 2021		December 31, 2020
	(In thousands)
Equipment	$	85,724	$	81,034
Furniture and fixtures	7,422		7,498
Leasehold improvements	20,025		19,517
Software	51,992		50,230
Construction in progress	6,366		7,095
Property and equipment, gross	171,529		165,374
Accumulated depreciation and amortization	(110,991)		(106,301)
Total property and equipment, net	$	60,538	$	59,073

Depreciation and amortization expense of property and equipment was $4.8 million and $4.3 million for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020:

	March 31, 2021		December 31, 2020
	(In thousands)
United States	$	55,227	$	53,203
Rest of world (1)	5,311		5,870
Total property and equipment, net	$	60,538	$	59,073

_________________________________________________

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

Note 8. Goodwill and Intangible Assets

Goodwill

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

	December 31, 2020		Additions	Foreign currency exchange rate fluctuations	March 31, 2021
	(In thousands)
Goodwill	$	499,309	—	(244)	$	499,065

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Intangible Assets, Net

The carrying amounts and useful lives of intangible assets as of March 31, 2021 and December 31, 2020 were as follows:

	March 31, 2021
	Gross carrying amount		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)
	(In thousands, except for years)
Customer relationships	$	187,889	$	(67,464)	$	(816)	$	119,609	10 - 30
Acquired technology	86,029		(47,600)		6		38,435		5 - 20
Backlog	1,150		(1,150)		—		—		4
Trade names	7,850		(5,985)		14		1,879		1 - 12
Patents	2,899		(1,507)		1		1,393		2 - 20
Non-compete agreements	600		(100)		—		500		3
Total intangibles assets, net	$	286,417	$	(123,806)	$	(795)	$	161,816

	December 31, 2020
	Gross carrying amount		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)
	(In thousands, except for years)
Customer relationships	$	187,889	$	(64,254)	$	(777)	$	122,858	10 - 30
Acquired technology	86,029		(44,851)		6		41,184		5 - 20
Backlog	1,150		(1,078)		—		72		4
Trade names	7,850		(5,794)		14		2,070		1 - 12
Patents	2,930		(1,455)		2		1,477		2 - 20
Non-compete agreements	600		(50)		—		550		3
Total intangibles assets, net	$	286,448	$	(117,482)	$	(755)	$	168,211

Amortization expense of intangible assets was $6.3 million and $4.5 million for the three months ended March 31, 2021 and 2020, respectively.

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

	March 31, 2021
	(In thousands)
Remaining nine months of 2021	$	17,675
2022	21,167
2023	19,145
2024	12,856
2025	11,586
Thereafter	79,387
Total	$	161,816

Note 9. Debt and Credit Agreement

2019 Revolving Credit Facility

On November 15, 2019, the Company entered into an Amended and Restated Credit Agreement (as subsequently amended as discussed below, the “A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, Citizens Bank, N.A., and JPMorgan Chase Bank, N.A., as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent. The A&R Credit Agreement superseded the Company’s 2016 secured credit facility (the “Prior Credit Agreement”) and provides for (a) a five-year revolving credit facility of $500.0 million (the “Revolving Credit

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Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Incremental Facility”). In addition, the A&R Credit Agreement includes a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million. The A&R Credit Agreement has an expiration date of November 15, 2024, upon which date all remaining outstanding borrowings will be due and payable.

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

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

The A&R Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, dividends, and other distributions. The A&R Credit Agreement contains financial covenants that require the Company and its subsidiaries to not exceed a maximum total secured net leverage ratio (as described above) and maintain a minimum interest coverage ratio. In addition, the A&R Credit Agreement contains certain customary events of default including, but not limited to, failure to pay interest, principal and fees, or other amounts when due, material misrepresentations or misstatements in any representation or warranty, covenant defaults, certain cross defaults to other material indebtedness, certain judgment defaults, and events of bankruptcy. The Company’s obligations under the A&R Credit Agreement and any swap obligations and banking services obligations owing to a lender (or an affiliate of a lender) are guaranteed by certain of its domestic subsidiaries and secured by substantially all of its and such subsidiary guarantors’ assets. In connection with entering into the A&R Credit Agreement, and as a condition precedent to borrowing loans thereunder, the Company and certain of the Company’s other direct and indirect subsidiaries have entered into certain ancillary agreements, including, but not limited to, a reaffirmation agreement, which amends certain terms of the existing collateral agreement and reaffirms their obligations under the existing guaranty agreement. The Company was in full compliance with all covenants as of March 31, 2021.

The refinancing of the Prior Credit Agreement by means of the A&R Credit Agreement was evaluated in accordance with ASC 470-50, Debt - Modifications and Extinguishments. In determining whether the refinancing was to be accounted for as a debt extinguishment or a debt modification, the Company considered whether lenders within the syndicate remained the same or changed and whether the changes in debt terms were substantial. This assessment was performed on an individual lender basis within the syndicate. As a result, the refinancing was accounted for as a modification with the exception of certain lenders that exited the syndicate. The exit of certain lenders resulted in an immaterial write-off of existing unamortized debt issuance costs. The remaining unamortized debt issuance costs related to debt modification, along with the new deferred costs, will be amortized over the remaining term of the A&R Credit Agreement.

In connection with the A&R Credit Agreement, the Company incurred and capitalized an additional $2.3 million of debt issuance costs. In connection with the Amendment on September 22, 2020, the Company incurred and capitalized an additional $0.6 million of debt issuance costs. The debt issuance costs are being amortized to interest expense using the straight-line method through 2024. Amortization expense related to debt issuance costs for credit agreements was approximately $0.3 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.

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The following table represents changes in the balance of the Company's deferred debt issuance costs:

	(In thousands)
Balance as of December 31, 2020	$	4,253
Additions	—
Amortization	(274)
Balance as of March 31, 2021	$	3,979

As of each of March 31, 2021 and December 31, 2020, there was no outstanding balance for the Revolving Credit Facility.

Note 10. Convertible Senior Notes

0.25% Convertible Senior Notes due 2025

On September 25, 2020, the Company completed a private offering of $575.0 million aggregate principal amount of 0.25% convertible senior notes (the “Notes”), including the exercise in full of the initial purchasers’ option to purchase up to an additional $75.0 million principal amount of the Notes. The Company received proceeds from the issuance of the Notes of $559.7 million, net of $15.3 million of transaction fees and other debt issuance costs. The Notes bear interest at a rate of 0.25% per year, payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes were issued pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank 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 March 31, 2021, the conditional conversion feature of the Notes was triggered, based on the price of the Company’s common stock, as the last reported sale price of the Company’s common stock was greater than or equal to 130% of the then applicable conversion price for the Notes for at least 20 trading days during the period of 30 consecutive trading days ending on March 31, 2021, the last trading day of the fiscal quarter. Accordingly, the Notes are convertible, in whole or in part, at the option of the holders during the second quarter of 2021. Whether the Notes will be convertible following the second fiscal quarter of 2021 will depend on the continued satisfaction of this condition or another conversion condition in the future. The Company continues to classify the Notes as a long-term liability in its Condensed Consolidated Financial Statements as of March 31, 2021 based on contractual settlement provisions.

Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. 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 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

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amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of March 31, 2021, none of the criteria for a fundamental change or a conversion rate adjustment had been met.

The Company may not redeem the Notes prior to September 20, 2023. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price for the Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeems less than all 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.

Convertible debt instruments that may be settled in cash are required to be separated into liability and equity components. The allocation to the liability component is based on the fair value of a similar instrument that does not contain an equity conversion option. Based on this debt-to-equity ratio, debt issuance costs are then allocated to the liability and equity components in a similar manner. Accordingly, at issuance, the Company allocated $461.8 million to the debt liability and $72.7 million to additional paid-in capital, net of applicable issuance costs and deferred taxes. The difference between the principal amount of the Notes and the liability component, inclusive of issuance costs, represents the debt discount, which the Company will amortize to interest expense over the term of the Notes using an effective interest rate of 4.18%. The determination of the discount rate required certain estimates and assumptions. As of March 31, 2021, the remaining life of the Notes and the related debt discount and issuance cost accretion is approximately 4.5 years.

The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 8.1 million shares. As of March 31, 2021, the if-converted value of the Notes exceeded the principal amount by $192.3 million.

The Notes consisted of the following balances reported in the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020:

	March 31, 2021		December 31, 2020
	(In thousands)
Liability:
Principal amount	$	575,000	$	575,000
Unamortized discount	(91,173)		(95,744)
Unamortized debt issuance costs	(11,480)		(12,055)
Convertible senior notes, liability component	$	472,347	$	467,201
Convertible senior notes, equity component (1)	$	72,732	$	72,732

_________________________________________________

(1)    Included in additional paid-in capital in the Condensed Consolidated Balance Sheets.

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 months ended March 31, 2021:

	Three Months Ended
	March 31, 2021
	(In thousands)
Contractual coupon interest	$	359
Amortization of discount	$	4,571
Amortization of debt issuance costs	$	575

Convertible Note Hedge and Warrant Transactions

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

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

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

Note 11.