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 June 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 July 28, 2023, there were 45,212,042 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 June 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 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	39
Item 4.	Controls and Procedures	40
PART II	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
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)

	June 30, 2023		December 31, 2022
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	399,464	$	330,362
Accounts receivable and unbilled receivables, net of allowances of $5,766 and $5,153, respectively	273,899		299,469
Inventories	130,577		147,549
Prepaid expenses	23,514		27,070
Other current assets	53,907		77,362
Total current assets	881,361		881,812
Property and equipment, net	103,212		93,961
Long-term investment in sales-type leases, net	35,039		32,924
Operating lease right-of-use assets	27,698		38,052
Goodwill	735,523		734,274
Intangible assets, net	226,707		242,906
Long-term deferred tax assets	32,764		22,329
Prepaid commissions	54,777		59,483
Other long-term assets	96,791		105,017
Total assets	$	2,193,872	$	2,210,758
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	47,192	$	63,389
Accrued compensation	52,475		73,455
Accrued liabilities	145,888		172,655
Deferred revenues, net	124,602		118,947
Total current liabilities	370,157		428,446
Long-term deferred revenues	48,750		37,385
Long-term deferred tax liabilities	1,511		2,095
Long-term operating lease liabilities	35,510		39,405
Other long-term liabilities	6,265		6,719
Convertible senior notes, net	568,114		566,571
Total liabilities	1,030,307		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; 55,488 and 55,030 shares issued; 45,205 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	1,088,825		1,046,760
Retained earnings	379,179		390,728
Accumulated other comprehensive loss	(14,176)		(17,087)
Total stockholders’ equity	1,163,565		1,130,137
Total liabilities and stockholders’ equity	$	2,193,872	$	2,210,758

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except per share data)
Revenues:
Product revenues	$	188,436	$	233,806	$	374,151	$	459,681
Services and other revenues	110,537		97,580		215,451		190,533
Total revenues	298,973		331,386		589,602		650,214
Cost of revenues:
Cost of product revenues	107,962		121,814		217,489		240,152
Cost of services and other revenues	56,568		51,480		112,641		101,923
Total cost of revenues	164,530		173,294		330,130		342,075
Gross profit	134,443		158,092		259,472		308,139
Operating expenses:
Research and development	23,137		26,355		46,015		51,385
Selling, general, and administrative	103,558		119,252		228,672		239,185
Total operating expenses	126,695		145,607		274,687		290,570
Income (loss) from operations	7,748		12,485		(15,215)		17,569
Interest and other income (expense), net	4,461		(1,711)		6,242		(1,825)
Income (loss) before income taxes	12,209		10,774		(8,973)		15,744
Provision for (benefit from) income taxes	8,758		1,705		2,576		(1,538)
Net income (loss)	$	3,451	$	9,069	$	(11,549)	$	17,282
Net income (loss) per share:
Basic	$	0.08	$	0.21	$	(0.26)	$	0.39
Diluted	$	0.08	$	0.20	$	(0.26)	$	0.37
Weighted-average shares outstanding:
Basic	45,125		44,219		45,007		44,234
Diluted	45,472		46,260		45,007		47,121

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

4

OMNICELL, INC.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Net income (loss)	$	3,451	$	9,069	$	(11,549)	$	17,282
Other comprehensive income (loss):
Foreign currency translation adjustments	1,432		(6,410)		2,911		(8,965)
Other comprehensive income (loss)	1,432		(6,410)		2,911		(8,965)
Comprehensive income (loss)	$	4,883	$	2,659	$	(8,638)	$	8,317

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

5

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

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

6

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

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

7

OMNICELL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
	2023		2022
	(In thousands)
Operating Activities
Net income (loss)	$	(11,549)	$	17,282
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	44,054		43,017
Loss on disposal of property and equipment	993		—
Share-based compensation expense	28,131		33,421
Deferred income taxes	(11,019)		(9,506)
Amortization of operating lease right-of-use assets	4,225		6,801
Impairment and abandonment of operating lease right-of-use assets related to facilities	7,815		5,093
Amortization of debt issuance costs	2,091		2,079
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables	26,463		(71,418)
Inventories	17,820		(32,625)
Prepaid expenses	3,576		1,660
Other current assets	773		(1,996)
Investment in sales-type leases	(1,707)		(12,465)
Prepaid commissions	4,706		6,033
Other long-term assets	43		1,455
Accounts payable	(15,806)		(3,130)
Accrued compensation	(20,980)		(11,118)
Accrued liabilities	(4,646)		4,682
Deferred revenues	16,540		1,395
Operating lease liabilities	(5,396)		(7,176)
Other long-term liabilities	(454)		969
Net cash provided by (used in) operating activities	85,673		(25,547)
Investing Activities
External-use software development costs	(6,685)		(6,543)
Purchases of property and equipment	(21,772)		(21,099)
Business acquisition, net of cash acquired	—		(3,392)
Purchase price adjustments from business acquisitions	—		5,484
Net cash used in investing activities	(28,457)		(25,550)
Financing Activities
Proceeds from issuances under stock-based compensation plans	15,203		21,123
Employees’ taxes paid related to restricted stock units	(3,465)		(8,470)
Change in customer funds, net	(4,273)		5,986
Stock repurchases	—		(52,210)
Net cash provided by (used in) financing activities	7,465		(33,571)
Effect of exchange rate changes on cash and cash equivalents	148		(2,123)
Net increase (decrease) in cash, cash equivalents, and restricted cash	64,829		(86,791)
Cash, cash equivalents, and restricted cash at beginning of period	352,835		355,620
Cash, cash equivalents, and restricted cash at end of period	$	417,664	$	268,829
Reconciliation of cash, cash equivalents, and restricted cash to the Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	399,464	$	244,953
Restricted cash included in other current assets	18,200		23,876
Cash, cash equivalents, and restricted cash at end of period	$	417,664	$	268,829
Supplemental disclosure of non-cash investing activities
Unpaid purchases of property and equipment	$	464	$	1,444
Transfers between inventory and property and equipment, net	$	—	$	314

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

8

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 June 30, 2023 and December 31, 2022, the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 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 six months ended June 30, 2023, and cash flows for the six months ended June 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 June 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.

9

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 $2.8 million and $4.0 million for the three months ended June 30, 2023 and 2022, respectively, and $5.9 million and $8.5 million for the six months ended June 30, 2023 and 2022, respectively.

10

Disaggregation of Revenues

The following table summarizes the Company’s revenues disaggregated by revenue type for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Connected devices, software licenses, and other	$	167,475	$	215,632	$	332,622	$	423,710
Consumables	20,961		18,174		41,529		35,971
Technical services	57,191		53,303		110,548		102,472
Advanced Services	53,346		44,277		104,903		88,061
Total revenues	$	298,973	$	331,386	$	589,602	$	650,214

The following table summarizes the Company’s revenues disaggregated by geographic region, which is determined based on customer location, for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
United States	$	257,202	$	294,937	$	513,145	$	582,514
Rest of world (1)	41,771		36,449		76,457		67,700
Total revenues	$	298,973	$	331,386	$	589,602	$	650,214

_________________________________________________

(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:

	June 30, 2023		December 31, 2022
	(In thousands)
Short-term unbilled receivables, net (1)	$	22,111	$	25,763
Long-term unbilled receivables, net (2)	15,132		14,744
Total contract assets	$	37,243	$	40,507
Short-term deferred revenues, net	$	124,602	$	118,947
Long-term deferred revenues	48,750		37,385
Total contract liabilities	$	173,352	$	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 $124.6 million and $118.9 million include deferred revenues from product sales and service contracts, net of deferred cost of sales of $13.6 million and $15.8 million, as of June 30, 2023 and December 31, 2022, respectively. During the three and six months ended June 30, 2023, the Company recognized revenues of $30.6 million and $86.1 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 $48.8 million and $37.4 million as of June 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. Short-term

11

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 $288.7 million as of June 30, 2023. Remaining performance obligations are expected to be recognized ratably over the remaining term of the contract, which is generally not more than ten years. Remaining performance obligations do not include product obligations, services where the associated product has not been accepted, services which have not yet started, variable portions of services, and certain other obligations.

Significant Customers

There were no customers that accounted for more than 10% of the Company’s total revenues for the three and six months ended June 30, 2023 and 2022. Also, there were no customers that accounted for more than 10% of the Company’s accounts receivable balance as of June 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 six months ended June 30, 2023 and 2022 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except per share data)
Net income (loss)	$	3,451	$	9,069	$	(11,549)	$	17,282
Weighted-average shares outstanding – basic	45,125		44,219		45,007		44,234
Effect of dilutive securities from stock award plans	347		1,142		—		1,421
Effect of convertible senior notes	—		899		—		1,466
Weighted-average shares outstanding – diluted	45,472		46,260		45,007		47,121
Net income (loss) per share – basic	$	0.08	$	0.21	$	(0.26)	$	0.39
Net income (loss) per share – diluted	$	0.08	$	0.20	$	(0.26)	$	0.37
Anti-dilutive weighted-average shares related to stock award plans	2,512		865		3,530		473
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 $399.5 million and $330.4 million as of June 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 June 30, 2023 and December 31, 2022, cash equivalents were $382.1 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 June 30, 2023 and December 31, 2022, the fair value of the convertible senior notes was $581.6 million and $501.4 million, respectively,

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compared to their carrying values of $568.1 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 June 30, 2023 and December 31, 2022 are presented in the tables below:

	June 30, 2023		December 31, 2022
	(In thousands)
Inventories:
Raw materials	$	62,757	$	75,854
Work in process	1,331		9,280
Finished goods	66,489		62,415
Total inventories	$	130,577	$	147,549
Other current assets:
Funds held for customers, including restricted cash (1)	$	34,429	$	56,703
Net investment in sales-type leases, current portion	11,078		11,486
Prepaid income taxes	63		1,702
Other current assets	8,337		7,471
Total other current assets	$	53,907	$	77,362
Other long-term assets:
External-use software development costs, net	$	73,125	$	80,760
Unbilled receivables, net	15,132		14,744
Deferred debt issuance costs	1,510		2,058
Other long-term assets	7,024		7,455
Total other long-term assets	$	96,791	$	105,017
Accrued liabilities:
Operating lease liabilities, current portion	$	10,951	$	10,761
Customer fund liabilities	34,429		56,703
Advance payments from customers	11,547		11,556
Rebate liabilities	46,680		42,802
Group purchasing organization fees	5,428		7,723
Taxes payable	12,337		9,642
Other accrued liabilities	24,516		33,468
Total accrued liabilities	$	145,888	$	172,655

_________________________________________________

(1)    Includes restricted cash of $18.2 million and $22.5 million as of June 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 six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Beginning balance	$	(15,608)	$	(10,962)	$	(17,087)	$	(8,407)
Other comprehensive income (loss)	1,432		(6,410)		2,911		(8,965)
Ending balance	$	(14,176)	$	(17,372)	$	(14,176)	$	(17,372)

Note 6. Property and Equipment

The following table represents the property and equipment balances as of June 30, 2023 and December 31, 2022:

	June 30, 2023		December 31, 2022
	(In thousands)
Equipment	$	97,048	$	91,391
Furniture and fixtures	4,915		5,154
Leasehold improvements	18,841		19,510
Purchased software and internal-use software development costs	93,396		76,327
Construction in progress	27,564		28,223
Property and equipment, gross	241,764		220,605
Accumulated depreciation and amortization	(138,552)		(126,644)
Total property and equipment, net	$	103,212	$	93,961

Depreciation and amortization expense of property and equipment was $6.6 million and $5.6 million for the three months ended June 30, 2023 and 2022, respectively, and $12.9 million and $10.9 million for the six months ended June 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 June 30, 2023 and December 31, 2022:

	June 30, 2023		December 31, 2022
	(In thousands)
United States	$	99,383	$	89,989
Rest of world (1)	3,829		3,972
Total property and equipment, net	$	103,212	$	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 June 30, 2023 and December 31, 2022 were as follows:

	June 30, 2023		December 31, 2022
	(In thousands)
Gross carrying amount	$	232,199	$	225,004
Accumulated amortization	(159,074)		(144,244)
External-use software development costs, net (1)	$	73,125	$	80,760

_________________________________________________

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

The Company recorded $7.4 million and $7.5 million to cost of revenues for amortization of external-use software development costs for the three months ended June 30, 2023 and 2022, respectively, and $14.8 million and $14.2 million for the six months ended June 30, 2023 and 2022, respectively.

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

	June 30, 2023
	(In thousands)
Remaining six months of 2023	$	14,090
2024	24,219
2025	16,843
2026	11,304
2027	5,349
Thereafter	1,320
Total	$	73,125

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	1,249
Balance as of June 30, 2023	$	735,523

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Intangible Assets, Net

The carrying amounts and useful lives of intangible assets as of June 30, 2023 and December 31, 2022 were as follows:

	June 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	$	(109,038)	$	(1,350)	$	200,701	4 - 30
Acquired technology	92,066		(69,641)		—		22,425		4 - 20
Backlog	1,800		(1,350)		—		450		2
Trade names	9,200		(7,156)		—		2,044		5 - 12
Patents	2,430		(1,393)		—		1,037		2 - 20
Non-compete agreements	600		(550)		—		50		3
Total intangibles assets, net	$	417,185	$	(189,128)	$	(1,350)	$	226,707

 

	December 31, 2022
	Gross carrying amount		Accumulated amortization		Foreign currency exchange rate fluctuations		Net carrying amount		Useful life (years)
	(In thousands, except for years)
Customer relationships	$	311,089	$	(99,177)	$	(1,514)	$	210,398	4 - 30
Acquired technology	92,066		(64,299)		—		27,767		4 - 20
Backlog	1,800		(900)		—		900		2
Trade names	9,200		(6,633)		—		2,567		5 - 12
Patents	2,430		(1,306)		—		1,124		2 - 20
Non-compete agreements	600		(450)		—		150		3
Total intangibles assets, net	$	417,185	$	(172,765)	$	(1,514)	$	242,906

Amortization expense of intangible assets was $8.1 million and $8.9 million for the three months ended June 30, 2023 and 2022, respectively, and $16.4 million and $18.0 million for the six months ended June 30, 2023 and 2022, respectively.

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

	June 30, 2023
	(In thousands)
Remaining six months of 2023	$	15,194
2024	23,086
2025	21,062
2026	18,077
2027	16,800
Thereafter	132,488
Total	$	226,707

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

16

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

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

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

Following the second amendment to the A&R Credit Agreement, loans under the Revolving Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the Adjusted Term SOFR (as defined in the A&R Credit Agreement), plus an applicable margin ranging from 1.25% to 2.00% per annum based on the Company’s Consolidated Total Net Leverage Ratio (as defined in the A&R Credit Agreement), or (b) an alternate base rate equal to the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, and (iii) 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 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.

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

As of June 30, 2023 and December 31, 2022, the Company had $417.7 million and $500.0 million of funds available under the Revolving Credit Facility, respectively. As of June 30, 2023 and December 31, 2022, the Company had no outstanding balance under the Revolving Credit Facility.

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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 June 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 third quarter of 2023, commencing on July 1, 2023, and were not convertible during the first quarter of 2023, commencing on January 1, 2023, respectively. Accordingly, the Company classified the Notes as a long-term liability in its Condensed Consolidated Financial Statements as of both June 30, 2023 and December 31, 2022. Whether the Notes will be convertible following the third fiscal quarter of 2023 will depend on the satisfaction of the conversion conditions in the future.

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

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

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

18

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 June 30, 2023, the remaining life of the Notes and the related issuance cost accretion is approximately 2.2 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 June 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 June 30, 2023 and December 31, 2022:

	June 30, 2023		December 31, 2022
	(In thousands)
Principal amount	$	575,000	$	575,000
Unamortized debt issuance costs	(6,886)		(8,429)
Convertible senior notes, net	$	568,114	$	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 six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Contractual coupon interest	$	359	$	359	$	719	$	719
Amortization of debt issuance costs	$	772	$	766	$	1,543	$	1,530

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.

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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 non-U.S. government sales-type leases, other than Advanced Services sales-type leases, to third-party leasing finance companies on a non-recourse basis. The Company has no obligation to the leasing company once the lease has been sold. Some of the Company’s sales-type leases, mostly those relating to U.S. government hospitals which comprised approximately 26% of the lease receivable balance as of June 30, 2023, and those associated with financed service contracts related to certain Advanced Services products, including Central Pharmacy Dispensing Service and IV Compounding Service, are retained in-house by the Company.

The following table presents the Company’s income recognized from sales-type leases for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Sales-type lease revenues	$	7,856	$	17,413	$	13,572	$	23,918
Cost of sales-type lease revenues	(4,380)		(8,528)		(7,042)		(11,606)
Selling profit on sales-type lease revenues	$	3,476	$	8,885	$	6,530	$	12,312

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

	June 30, 2023		December 31, 2022
	(In thousands)
Net minimum lease payments to be received	$	53,675	$	50,755
Less: Unearned interest income portion	(7,558)		(6,345)
Net investment in sales-type leases	46,117		44,410
Less: Current portion (1)	(11,078)		(11,486)
Long-term investment in sales-type leases, net	$	35,039	$	32,924

_________________________________________________

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

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

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:

	June 30, 2023
	(In thousands)
Remaining six months of 2023	$	6,956
2024	11,780
2025	9,360
2026	7,727
2027	6,280
Thereafter	11,572
Total future minimum sales-type lease payments	53,675
Present value adjustment	(7,558)
Total net investment in sales-type leases	$	46,117

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Operating Leases

The following table represents the Company’s income recognized from operating leases for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Rental income	$	1,870	$	2,421	$	4,129	$	4,893

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 June 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:

	June 30, 2023
	(In thousands)
Remaining six months of 2023	$	6,721
2024	12,388
2025	9,664
2026	8,996
2027	7,340
Thereafter	8,084
Total operating lease payments	53,193
Present value adjustment	(6,732)
Total operating lease liabilities (1)	$	46,461

_________________________________________________

(1)    Amount consists of a current and long-term portion of operating lease liabilities of $11.0 million and $35.5 million, respectively. The current portion of the operating lease liabilities is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

Operating lease costs were $2.6 million and $4.7 million for the three months ended June 30, 2023 and 2022, respectively, and $5.6 million and $8.8 million for the six months ended June 30, 2023 and 2022, respectively. Short-term lease costs and variable lease costs were not material for the three and six months ended June 30, 2023 and 2022. The Company recorded impairment and abandonment charges to operating lease right-of-use assets of $7.8 million during the six months ended June 30, 2023, and $3.3 million and $5.1 million during the three and six months ended June 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 six months ended June 30, 2023 and 2022:

	Six Months Ended June 30,
	2023		2022
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	6,725	$	8,607
Right-of-use assets obtained in exchange for new lease liabilities	$	1,608	$	10,685

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

	June 30, 2023		December 31, 2022
Weighted-average remaining lease term, years	4.8		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 June 30, 2023, the Company had non-cancelable purchase commitments of $127.1 million, of which $106.9 million are expected to be paid within the year ending December 31, 2023.

Ransomware Incident

During the six months ended June 30, 2023, the Company did not incur any material expenses related to the previously disclosed ransomware incident. During the three months ended June 30, 2022, the Company incurred $12.5 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 months ended June 30, 2022, the Company included net expenses of $0.2 million in cost of revenues and $1.2 million in selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

As of June 30, 2023, the Company has incurred $13.6 million of cumulative expenses related to the ransomware incident since it was detected, partially offset by $11.1 million of insurance recoveries, of which $10.9 million have been received as of June 30, 2023.

Legal Proceedings

The Company is currently involved in various legal proceedings.

A class action lawsuit was filed against the Company, on June 5, 2019, in the Circuit Court of Cook County, Illinois, Chancery Division, captioned Corey Heard, individually and on behalf of all others similarly situated v. Omnicell, Inc., Case No. 2019-CH-06817 (the “Heard Action”). The complaint seeks class certification, monetary damages in the form of statutory damages for willful and/or reckless or, in the alternative, negligent violation of the Illinois Biometric Information Privacy Act (“BIPA”), and certain declaratory, injunctive, and other relief based on causes of action directed to allegations of violation of BIPA by the Company. The complaint was served on the Company on June 13, 2019. On July 31, 2019, the Company filed a motion to stay or consolidate the case with the action Yana Mazya, et al. v. Northwestern Lake Forest Hospital, et al., Case No. 2018-CH-07161, pending in the Circuit Court of Cook County, Illinois, Chancery Division (the “Mazya Action”). The Court subsequently, on October 10, 2019, denied the motion, without prejudice, as being moot in view of the dismissal of the claims against the Company in the Mazya Action. The Company filed a motion to dismiss the complaint in the Heard Action on October 31, 2019. The hearing on the Company’s motion to dismiss was held on September 2, 2020. The Court ruled from the bench and dismissed the complaint without prejudice giving plaintiff leave to file an amended complaint by September 30, 2020. Plaintiff filed an amended complaint on September 30, 2020 and the Company subsequently filed a motion to dismiss the amended complaint on October 28, 2020, which was fully briefed, but the Court had not heard oral argument on the motion. The parties entered into a settlement agreement on January 25, 2022, (the “Settlement Agreement”). On February 1, 2022, the Court granted preliminary approval of the settlement. Following preliminary approval, plaintiff conducted discovery to identify class members and to determine the class size. Pursuant to the terms of the Settlement Agreement, and following class size discovery, the parties participated in non-binding mediation on November 21, 2022. A settlement was reached at the mediation and the parties executed an addendum to the Settlement Agreement (the “Addendum”) reflecting the changes to the original settlement terms. On November 30, 2022, the Court granted preliminary approval of the settlement contemplated by the Settlement Agreement, as amended by the Addendum. The Addendum required Omnicell to make a total settlement payment of $4.3 million. On April 6, 2023, the Court granted final approval of the settlement, including the Addendum, and entered judgment in the matter dismissing all claims against Omnicell with prejudice. The Company made its final required settlement payment installment on or before the April 21, 2023 due date.

As required under ASC 450, Contingencies, the Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss. The Company has not recorded any material accrual for contingent liabilities associated with its current legal proceedings based on its belief that any potential material loss, while

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reasonably possible, is not probable. Furthermore, any possible range of loss in these 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, 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 six months ended June 30, 2023, the Company recorded a provision for income taxes of $2.6 million by applying its estimated annual effective tax rate of 1.7% to its year-to-date measure of ordinary income and adjusted for $2.7 million of discrete income tax expense primarily from equity compensation. Benefit from income taxes for the six months ended June 30, 2022 was $1.5 million by applying its estimated annual effective tax rate of 24.1% to its year-to-date measure of ordinary income and included a net discrete income tax benefit of $5.3 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 six months ended June 30, 2023.

As of June 30, 2023 and December 31, 2022, the Company had gross unrecognized tax benefits of $10.0 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 June 30, 2023 and December 31, 2022, the amount of accrued interest and penalties was $0.3 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 June 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 six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Cost of product and service revenues	$	2,268	$	2,160	$	4,276	$	4,404
Research and development	1,697		2,594		3,303		4,858
Selling, general, and administrative	10,124		12,459		20,552		24,159
Total share-based compensation expense	$	14,089	$	17,213	$	28,131	$	33,421

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During the three and six months ended June 30, 2023, the Company capitalized approximately $1.1 million and $2.2 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 six months ended June 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 six months ended June 30, 2022.

Employee Stock Purchase Plan (“ESPP”)

The following assumptions were used to value shares under the ESPP for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 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, %	31.7% - 63.9%		28.8% - 45.6%		31.7% - 63.9%		28.8% - 45.6%
Risk-free interest rate, %	0.1% - 5.1%		0.1% - 1.5%		0.1% - 5.1%		0.1% - 1.5%
Dividend yield, %	—	%	—	%	—	%	—	%

For the six months ended June 30, 2023 and 2022, employees purchased approximately 209,000 and 175,000 shares of common stock, respectively, under the ESPP at a weighted-average price of $46.96 and $66.81, respectively. As of June 30, 2023, the unrecognized compensation cost related to the shares to be purchased under the ESPP was approximately $2.6 million and is expected to be recognized over a weighted-average period of 1.4 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 six months ended June 30, 2023. There were no stock options granted during the three months ended June 30, 2023, and the three and six months ended June 30, 2022.

	Six Months Ended June 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 six months ended June 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	(130)