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OMNICELL, INC.

OMNICELL, INC.OMCLEarnings & Financial Report

Nasdaq · Industrials · Electronic Computers

Omnicell, Inc. is an American multinational healthcare technology company headquartered in Mountain View, CA. It manufactures automated systems for medication management in hospitals and other healthcare settings, and medication adherence packaging and patient engagement software used by retail pharmacies. Its products are sold under the brand names Omnicell and EnlivenHealth.

What changed in OMNICELL, INC.'s 10-K — 2022 vs 2023

Top changes in OMNICELL, INC.'s 2023 10-K

453 paragraphs added · 473 removed · 340 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

110 edited+50 added−39 removed69 unchanged
Medication Adherence Our medication adherence solutions, which include our consumables and medication packaging systems, 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 pharmacy operations and patient adherence to prescriptions.
Medication Adherence Our medication adherence solutions, which include our consumables and medication packaging systems, are used by institutional pharmacies serving long-term care and other sites outside the acute care hospital, as well as retail, community, and outpatient pharmacies, and are designed to improve pharmacy operations and patient adherence to prescriptions.
Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating the HIPAA fraud provisions without actual knowledge of the statute or specific intent to violate it. • The Federal Civil Monetary Penalties Law, which authorizes the imposition of substantial civil monetary penalties against an entity that engages in activities including, among others (i) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (ii) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program; (iii) violations of the federal Anti-Kickback Statute; or (iv) failing to report and return a known overpayment. • Analogous U.S. state and local laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers. • Federal laws, regulations, and guidance that govern communications and marketing to Medicare enrollees and establish limits on compensation paid for lead generation activities, including the Centers for Medicare and Medicaid Services (“CMS”) Medicare Communications and Marketing Guidelines (“MCMG”). • The 340B Program requires pharmaceutical manufacturers participating in Medicaid to sell covered outpatient drugs at discounted prices to specified health care organizations (called 340B covered entities), including, but not limited to: sole community hospitals, critical access hospitals, rural referral centers, and certain disproportionate share hospitals serving low-income and indigent patients.
Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating the HIPAA fraud provisions without actual knowledge of the statute or specific intent to violate it. • The Federal Civil Monetary Penalties Law, which authorizes the imposition of substantial civil monetary penalties against an entity that engages in activities including, among others (i) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (ii) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program; (iii) violations of the federal Anti-Kickback Statute; or (iv) failing to report and return a known overpayment. • Analogous U.S. state and local laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers. • Federal laws, regulations, and guidance that govern communications and marketing to Medicare enrollees and establish limits on compensation paid for lead generation activities, including the Centers for Medicare and Medicaid Services (“CMS”) Medicare Communications and Marketing Guidelines (“MCMG”). • The 340B Program, which requires pharmaceutical manufacturers participating in Medicaid to sell covered outpatient drugs at discounted prices to specified health care organizations (called 340B covered entities), including, but not limited to: sole community hospitals, critical access hospitals, rural referral centers, and certain disproportionate share hospitals serving low-income and indigent patients.
To initiate the selling process, the sales representative generally contacts the chief pharmacy officer, chief information officer, chief nursing officer, chief financial officer, director of pharmacy, director of nursing, director of information technology, director of materials management, or other decision makers, and actively engages with each group within the healthcare facility about the economic, safety, efficiency, and compliance benefits of our solutions relative to competing methods of managing medications or medical and surgical supplies.
To initiate the selling process, the sales representative generally contacts the chief financial officer, chief pharmacy officer, chief information officer, chief nursing officer, director of pharmacy, director of nursing, director of information technology, director of materials management, or other decision makers, and actively engages with each group within the healthcare facility about the economic, safety, efficiency, and compliance benefits of our solutions relative to competing methods of managing medications or medical and surgical supplies.
Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. • The federal civil and criminal false claims laws, including the civil False Claims Act (“FCA”), which prohibits, among other things: (i) knowingly presenting, or causing to be presented, claims for payment of government funds that are false or fraudulent; (ii) knowingly making, or using or causing to be made or used, a false record or statement material to a false or fraudulent claim; (iii) knowingly making, using or causing to made or used a false record or statement material to an obligation to pay money to the government; or (iv) knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government.
Our or our customers’ practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. • The federal civil and criminal false claims laws, including the civil False Claims Act (“FCA”), which prohibits, among other things: (i) knowingly presenting, or causing to be presented, claims for payment of government funds that are false or fraudulent; (ii) knowingly making, or using or causing to be made or used, a false record or statement material to a false or fraudulent claim; (iii) knowingly making, using or causing to made or used a false record or statement material to an obligation to pay money to the government; or (iv) knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government.
In the United States, even though we do not bill Medicare, Medicaid, or other government or commercial third-party payers, our relationships with pharmacies, healthcare providers, physicians, pharmaceutical manufacturers, and third-party payers can subject us to healthcare fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business.
In the United States, even though we do not bill Medicare, Medicaid, or other government or commercial third-party payers, our relationships with pharmacies, healthcare providers, physicians, pharmaceutical manufacturers, and third-party payers can subject us or our customers to healthcare fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business.
Specialty drugs are used for treatment of complex conditions and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty medications are projected to account for 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025.
Specialty drugs are used for treatment of complex conditions and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty medications are projected to account for nearly 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025.
Nevertheless, the 2022 American College of Healthcare Executives survey of hospital CEOs found that workforce challenges were their top concern, with 90% of survey respondents mentioning shortages of nurses and 83% citing shortages of technicians.
The 2022 American College of Healthcare Executives survey of hospital CEOs found that workforce challenges were their top concern, with 90% of survey respondents mentioning shortages of nurses and 83% citing shortages of technicians.
Foreign Corrupt Practices Act and the United Kingdom Bribery Act) as well as laws and regulations pertaining to healthcare fraud, waste, and abuse, including state and federal anti-kickback and false claims laws in the United States.
Foreign Corrupt Practices Act and the United Kingdom Bribery Act) as well as laws and regulations pertaining to healthcare fraud, waste, and abuse, including, as applicable, state and federal anti-kickback and false claims laws in the United States.
In addition, a survey conducted by the American Society of Health-System Pharmacists found that vacancy rates for pharmacy technician positions averaged from 20% to 30%, and one in ten health systems surveyed reported pharmacy technician shortages of 41% or more in 2021. Healthcare workforce labor constraints have come at a time when hospitalizations continue to fluctuate dramatically.
In addition, a survey conducted by the American Society of Health-System Pharmacists found that vacancy rates for pharmacy technician positions averaged from 20% to 30%, and one in ten health systems surveyed reported pharmacy technician shortages of 41% or more in 2021. Healthcare workforce labor constraints have come at a time when admissions continue to fluctuate dramatically.
Medication adherence can be improved through attitudinal and behavioral changes, which pharmacists can encourage and help facilitate by providing interventional support, including adherence tools such as blister cards, reminders, prescription synchronization, and patient engagement tools. We believe our EnlivenHealth portfolio has the potential to reduce hospitalizations and emergency department visits and improve patient health by increasing medication adherence.
Medication adherence can be improved through attitudinal and behavioral changes, which pharmacists can encourage and help facilitate by providing interventional support, including adherence tools such as blister cards, reminders, prescription synchronization, and patient engagement tools. We believe our EnlivenHealth portfolio has the potential to reduce admissions and emergency department visits and improve patient health by increasing medication adherence.
Failure of any of our U.S. government customers to receive their annual funding could impair our ability to sell to these customers, or to collect payments on our existing unsold leases. Effective September 2021, the U.S. government mandated changes in its Federal Supply Services contract that resulted in our determination not to enter into future leases with U.S. government customers.
Failure of any of our U.S. government customers to receive their annual funding could impair our ability to sell to these customers, or to collect payments on our existing unsold leases. Effective September 2021, the U.S. government mandated changes in its Federal Supply Schedule contract that resulted in our determination not to enter into future leases with U.S. government customers.
Our website address is www.omnicell.com and our investor relations website is located at ir.omnicell.com. 18 Table of Contents Information About Our Executive Officers The following table sets forth certain information about our executive officers as of the date of this Annual Report on Form 10-K: Name Age Position Randall A.
Our website address is www.omnicell.com and our investor relations website is located at ir.omnicell.com. 19 Table of Contents Information About Our Executive Officers The following table sets forth certain information about our executive officers as of the date of this Annual Report on Form 10-K: Name Age Position Randall A.
Manley was a partner in the law firm of Duane Morris LLP and prior to that he was a partner in the law firm of Kirkland & Ellis LLP from November 2009 until August 2014. Mr. Manley holds a J.D. from the University of Notre Dame Law School and a B.S. in Mechanical Engineering from Purdue University. Christine M.
Manley was a partner in the law firm of Duane Morris LLP and prior to that he was a partner in the law firm of Kirkland & Ellis LLP from November 2009 until August 2014. Mr. Manley holds a J.D. from the University of Notre Dame Law School and a B.S. in mechanical engineering from Purdue University.
These 340B covered entities are responsible for certain statutory obligations, such as a prohibition on duplicate discounts and on diversion, and are required to have certain policies and records regarding their compliance with the 340B Program. 340B covered entities may be audited with respect to their 340B Program compliance. • The federal Stark Law (“Stark Law”), also known as the physician self-referral law, prohibits a physician from referring Medicare patients to an entity (including pharmacies) for the furnishing of “designated health services,” if the physician or a member of the physician’s immediate family has a direct or indirect “financial relationship” with the entity, unless a specific exception applies.
These 340B covered entities are responsible for certain statutory obligations, such as a prohibition on duplicate discounts and on diversion, and are required to have certain policies and 12 Table of Contents records regarding their compliance with the 340B Program. 340B covered entities may be audited with respect to their 340B Program compliance. • The federal Stark Law (“Stark Law”), also known as the physician self-referral law, which prohibits a physician from referring Medicare patients to an entity (including pharmacies) for the furnishing of “designated health services,” if the physician or a member of the physician’s immediate family has a direct or indirect “financial relationship” with the entity, unless a specific exception applies.
The healthcare fraud and abuse laws and regulations that may impact our operations include but are not limited to: • The federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering, or paying any remuneration (including any kickback or bribe), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arranging for, or recommending the purchase, lease, or order of any item or service for which payment may be made, in whole or in part, under federal healthcare programs like Medicare or Medicaid.
The healthcare fraud and abuse laws and regulations that may impact our or our customers’ operations include but are not limited to: • The federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering, or paying any remuneration (including any kickback or bribe), directly or indirectly, overtly or covertly, in 11 Table of Contents cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arranging for, or recommending the purchase, lease, or order of any item or service for which payment may be made, in whole or in part, under federal healthcare programs like Medicare or Medicaid.
The results of our research and development efforts will further drive the advancement of our cloud-based offerings and amplify the industry vision of the Autonomous Pharmacy. Business under Government Contracts A number of our U.S. government-owned or government-run hospital customers have signed five-year leases, with payment terms that are subject to one-year government budget funding cycles.
The results of our research and development efforts will further drive the advancement of our cloud-based offerings and accelerate the realization of the industry vision of the Autonomous Pharmacy. Business under Government Contracts A number of our U.S. government-owned or government-run hospital customers have signed five-year leases, with payment terms that are subject to one-year government budget funding cycles.
We compete directly with a number of companies in the medication management automation solutions market, as well as the medication adherence solutions market, on the basis of many factors, including price, quality, customer outcome, cost of operation, innovation, product features and capabilities, installation and service, reputation and brand recognition, size of installed base, range of solutions, distribution, and promotion.
We compete directly with a number of companies in the medication management automation solutions market, as well as the medication adherence solutions market, on the basis of many factors, including price, quality, customer outcome, return on investment, cost of operation, innovation, product features and capabilities, installation and service, reputation and brand recognition, size of installed base, range of services and solutions, distribution, and promotion.
The enhanced stakeholder focus on matters relating to ESG activities requires deliberate, conscientious efforts to effect change while the reporting frameworks are still being considered, both in the United States and abroad.
The enhanced stakeholder focus on matters relating to ESG activities requires deliberate, conscientious efforts to effect change while the reporting frameworks are still being finalized, both in the United States and abroad.
We are carefully studying ways we can contribute to realize a 1.5° Celsius future by 2030, reduce waste in our product design and manufacturing processes, as well as enhance our Social and Governance initiatives, taking cues from our internal and external stakeholders, internal assessments and direction from the Corporate Governance Committee of Omnicell’s Board of Directors.
We are carefully studying ways we can contribute to realize a 1.5° Celsius future by 2030, reduce waste in our product design and manufacturing processes and develop product end-of-life solutions, as well as enhance our social and governance initiatives, taking cues from our internal and external stakeholders, internal assessments, and direction from the Corporate Governance Committee of Omnicell’s Board of Directors.
As an organization, we have adopted a risk-management approach using the Committee of Sponsoring Organizations of the Treadway Commission 16 Table of Contents (“COSO”) framework to assess and reduce the impact of climate change on our business strategy and operations.
As an organization, we have adopted a risk-management approach using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework to assess and reduce the impact of climate change on our business strategy and operations.
We are also investing in the further development of technology-enabled software and services including further enhancements to our Advanced Services offerings, as well as continuing to build software that is designed to enable scaling of our current service offerings.
We are also investing in the further development of technology-enabled 15 Table of Contents software and services including further enhancements to our Advanced Services offerings, as well as continuing to build software that is designed to enable scaling of our current service offerings.
Pharmacopeial Convention, the Institute for Safe 9 Table of Contents Medication Practices, and state boards of pharmacy in the areas of medication management—including storage, security, and labeling—have created an environment of increased patient safety, awareness, and regulatory control.
Pharmacopeial Convention, the Institute for Safe Medication Practices, and state boards of pharmacy in the areas of medication management—including storage, security, and labeling—have created an environment of increased patient safety, awareness, and regulatory control.
Moreover, entities can be held liable under the FCA even when they do not submit claims directly to 11 Table of Contents government payers if they are deemed to “cause” the submission of false or fraudulent claims.
Moreover, entities can be held liable under the FCA even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or fraudulent claims.
We pursue patent protection in the United States and foreign jurisdictions for technology that we believe to be proprietary and that may offer a potential competitive advantage for our products. Our issued patents expire on various dates between 2023 and 2040. We intend to seek and obtain additional United States and foreign patents on our technology.
We pursue patent protection in the United States and foreign jurisdictions for technology that we believe to be proprietary and that may offer a potential competitive advantage for our products. Our issued patents expire on various dates between 2024 and 2041. We intend to seek and obtain additional United States and foreign patents on our technology.
In the United States, these include federal health information privacy laws (such as the Health Information Portability and Accountability Act of 1996), various state and federal security breach notification laws, consumer 10 Table of Contents protection laws, and state laws addressing privacy and security.
In the United States, these include federal health information privacy and security laws (such as the Health Information Portability and Accountability Act of 1996), various state and federal security breach notification laws, consumer protection laws, and state laws addressing privacy and security.
Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will also be important.
Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will continue to be important.
As market demands, government regulations, and societal pressures continue to cause 14 Table of Contents the healthcare industry to evolve, it could result in further business consolidations and alliances among the industry participants with whom we engage and compete.
As market demands, government regulations, and societal pressures continue to cause the healthcare industry to evolve, it could result in further business consolidations and alliances among the industry participants with whom we engage and compete.
Furthermore, our customers may also be subject to other laws, rules, or regulations that apply to dispensers and licensing and other requirements under laws governing, and regulations promulgated by, state boards of pharmacy, that apply to compounding facilities.
Furthermore, our customers may also be subject to other laws, rules, or regulations that apply to dispensers and licensing and other requirements under laws governing, and regulations promulgated by, state boards of pharmacy, including those, as applicable, that apply to compounding facilities.
Additional risks are inherent to conducting business outside the United States, including more robust information governance and environmental regulations in 12 Table of Contents the European Union, expropriation, nationalization, and other governmental actions.
Additional risks are inherent to conducting business outside the United States, including more robust information governance and environmental regulations in the European Union, expropriation, nationalization, and other governmental actions.
Medical devices are also subject to various other regulatory requirements, including as applicable, premarket clearance or approval, clinical trial requirements, establishment registration and device listing, complaint handling, notification and repair, replace, refund, mandatory recalls, unique device identifier requirements, reports of removals and corrections, post-marketing surveillance, and device tracking.
Products designated as medical devices are also subject to various other regulatory requirements, including as applicable, premarket clearance or approval, establishment registration and device listing, complaint handling, notification and repair, replace, refund, mandatory recalls, unique device identifier requirements, reports of removals and corrections, cybersecurity requirements, and post-marketing surveillance.
Specialty pharm acies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs.
Specialty pharmacies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs.
We believe a solution that addresses start-up and managed services for health systems that is designed to optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations.
We believe a solution that is designed to help health systems start or optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations.
Our XT Series automated dispensing systems for medications and supplies, which are used in nursing units and other clinical areas of the hospital, are designed to support workflows specific to each area of the hospital, with various software and hardware options. For the operating room, we also offer specialized automated dispensing systems.
Our XT Series automated dispensing systems for medications and supplies, which are used in nursing units and other clinical areas of the hospital, are designed to support workflows specific to each area of the hospital, with various software and hardware options.
We believe this reflects our positive employee relations and that Omnicell is viewed by our employees as a good place to work. Compensation and Benefits • We embrace a strong pay-for-performance total rewards philosophy that we believe is competitive, performance-based, and cost-effective.
We believe this intra-year increase reflects improved employee relations and that Omnicell is generally viewed by our employees as a good place to work. Compensation and Benefits • We embrace a strong pay-for-performance total rewards philosophy that we believe is competitive, performance-based, and cost-effective.
All employees also have access to LinkedIn Learning for their “on-demand” learning needs. We are refreshing our curriculums for 2023 with an emphasis on key capabilities needed for Omnicell’s future success. • Our approach to talent development is designed to enable our organizational transformation by aligning how we lead across all levels.
All employees also have access to LinkedIn Learning for their “on-demand” learning needs. In 2023 we created self-paced learning journeys with an emphasis on key capabilities needed for Omnicell’s future success. • Our approach to talent development is designed to enable our organizational transformation by aligning how we lead across all levels.
A 2021 McKinsey & Co. survey of the leaders of 100 large private-sector hospitals in the United States—which was conducted several months prior to the emergence of the COVID-19 Omicron variant—concluded that on average hospitals’ inpatient admissions have returned to 2019 levels, and inpatient admissions were projected to increase by 4% in 2022 relative to 2019.
A 2021 McKinsey & Co. survey of the leaders of 100 large private-sector hospitals in the United States—which was conducted several months prior to the emergence of the COVID-19 Omicron variant—concluded that on average hospitals’ inpatient admissions have returned to 2019 levels.
Health and Wellness • We offer a comprehensive wellness program designed to promote a healthy lifestyle, including exercise challenges, on-site gym facilities, virtual workouts, and health coaching. In addition to making physical health a priority, we offer mental health counseling and resources, financial coaching, and Teladoc Health services (i.e., telephone health services).
Health and Wellness • We offer a comprehensive wellness program designed to promote a healthy lifestyle, including on-site gym facilities, on-site bio-metric screening, and health coaching. In addition to making physical health a priority, we offer mental health counseling and resources, financial coaching, and Teladoc Health services (i.e., telephone health services).
Recent Acquisition s In addition to our own organic development, we have, from time to time, acquired businesses and technologies that expand our product lines and are strategic fits for our business, and we expect to continue to seek to acquire businesses, technologies, or products in the future. The following highlights describe our acquisition activity over the past fiscal year.
Recent Acquisition s In addition to our own organic development, we have, from time to time, acquired businesses and technologies that expand our product lines and are strategic fits for our business, and we expect to continue to seek to acquire businesses, technologies, or products in the future.
This includes live instructor-led workshops by level, toolkits, and self-guided resources to help leaders engage their employees and teams, practice resilience, and lead our organizations into the future. • We also launched our THRIVE Senior Leadership Talent Review and Succession Process, which facilitates dialogue to identify top and high potential talent, align aspirations, bolster our leadership pipeline through succession planning, and support readiness via individual development plans. • In order to further develop our leaders, we launched a consistent 360 feedback methodology for senior leaders in the organization and are launching a self-service option for other people leaders in early 2023. • We are in the process of implementing Oracle Talent Management, a cloud-based human resources management software program, which includes Talent Profiles to capture employees’ internal mobility interests and facilitates internal job searches.
This includes live instructor-led workshops by level, toolkits, and self-guided resources to help leaders engage their employees and teams, practice resilience, and lead our organizations into the future. • We also launched our THRIVE Senior Leadership Talent Review and Succession Process, which facilitates dialogue to identify top and high potential talent, align aspirations, bolster our leadership pipeline through succession planning, and support readiness via individual development plans. • In order to further develop our leaders, we launched a consistent 360 feedback methodology for all people leaders in the organization and complemented it with development planning cohorts who complete individual development planning activities with peer coaching support. 18 Table of Contents • In 2023, we automated Talent Management activities by implementing Oracle, a cloud-based human resources management software program, which includes Talent Profiles to capture employees’ internal mobility interests and facilitates internal job searches.
In addition, our robotic automation capabilities continue to evolve, while we work to further enhance new-to-market solutions, as well as new solutions currently in development. We have also begun work on longer-term solutions that we believe will benefit our cloud platform offerings. We also continue to enhance the other elements of our product and service portfolio.
In addition, our robotic automation capabilities continue to evolve, while we work to further enhance new-to-market solutions, as well as new solutions currently in development. We have also begun work on longer-term solutions that we believe will benefit our cloud platform offerings.
We have found that a majority of our customers’ service issues can be addressed by our support engineers either by phone or with remote diagnostic tools. In addition, our customers can enable access to allow us to remotely monitor system performance of certain products.
Our support centers are staffed 24 hours a day, 365 days a year. We have found that a majority of our customers’ service issues can be addressed by our support engineers either by phone or with remote diagnostic tools. In addition, our customers can enable access to allow us to remotely monitor system performance of certain products.
Our engagement survey scores in employee growth opportunities and career path, both landing above industry benchmarks, as measured by the Glint survey platform, reflect our commitment to employee development. • We invest in our employees’ learning through robust training programs via Omnicell University and leadership development curriculums, including our Core Values in Action training series, Leadership in Action training series, New Manager Masterclass, and Change Leadership Enablement initiative.
Our engagement survey scores in employee growth opportunities and career path, both landing above industry benchmarks, as measured by the Employee Engagement Survey platform, reflect our commitment to employee development. • We invest in our employees’ learning through robust training programs via Omnicell University and leadership development curriculums, including our Guiding Principles in Action training series, Change Leadership Enablement series, New Manager Lead Program, and coaching engagements.
We offer market-competitive pay and a comprehensive benefits package. • Our quarterly bonus program is designed to incentivize our employees to focus on work that will further our strategic priorities. • We offer reward and recognition programs that embed our core values into our culture and everything we do, allowing for peer-to-peer recognition and motivating our employees to continually work to advance our mission, vision, and values. • Our ASPIRE quarterly performance review process launched on April 1, 2022 and enables our talent to reach their optimum levels of contribution to Omnicell’s business strategies, facilitates regular employee feedback, and supports our pay-for-performance philosophy.
We offer market-competitive pay and a comprehensive benefits package. • Our quarterly bonus program is designed to incentivize our employees to focus on work that will further our strategic priorities. • We offer reward and recognition programs that embed our guiding principles into our culture and everything we do, allowing for peer-to-peer recognition and motivating our employees to continually work to advance our promise, our purpose, and our guiding principles. • Our quarterly performance review process is designed to enable our talent to reach their optimum levels of contribution to Omnicell’s business strategies, facilitates regular employee feedback, and supports our pay-for-performance philosophy.
Our foreign operations are discussed in Note 3, Revenues, and Note 7, Property and Equipment , of the Notes to Consolidated Financial Statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K.
For other geographies, we generally sell through distributors and resellers. Our foreign operations are discussed in Note 3, Revenues, and Note 7, Property and Equipment , of the Notes to Consolidated Financial Statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Annual Report on Form 10-K.
These factors contribute to medical errors and unnecessary process costs across the healthcare sector including in medication management. Legislation and industry guidelines, such as those issued by the U.S. Food and Drug Administration (“FDA”), the U.S. Drug Enforcement Administration (“DEA”), The Joint Commission, the U.S.
These factors contribute to medical errors and unnecessary process costs across the healthcare sector including in medication management. Regulation and industry guidelines, such as those issued by the U.S. Food and Drug Administration (“FDA”), the U.S. Drug Enforcement Administration (“DEA”), The Joint Commission (an organization that accredits U.S. health care organizations and programs), the U.S.
This solution is intended for health systems, federally qualified health centers, and provider groups to support on-site management of specialty pharmacy services, including payer contracting, staffing, assistance with licensing, 340B Drug Pricing Program administration, and to assist with obtaining preferred pricing for certain medications.
This solution is intended for health systems, federally qualified health centers, and provider groups to support on-site management of specialty pharmacy services, including payer contracting, staffing, assistance with licensing, 340B Program administration, and to assist with obtaining access to specialty medication and limited distribution drugs.
Products and Services Our products and services span the evolving continuum of care, including across inpatient, outpatient, and retail settings. We provide a range of advanced automation, including robotics designed to automate work, streamline workflows, and reduce human error.
Products and Services Our products and services span the evolving continuum of care, including inpatient, outpatient, and retail settings. We provide a range of point of care medication and supply dispensing systems, including automated systems. We also offer advanced automation solutions including robotics designed to automate work, streamline workflows, and reduce human error.
Most recently, we launched the New Manager Masterclass, prioritizing early managers and new managers in our revenue-generating organizations with the intention to scale across the organization in 2023. 17 Table of Contents • We have also launched a Change Leadership Enablement curriculum to better equip our leaders as they navigate high levels of organizational change.
Most recently, we launched The Lead Program, prioritizing early managers and new managers in our revenue-generating organizations with the intention to scale across multiple leader levels in 2024. • We have also launched a Change Leadership Enablement curriculum to better equip our leaders as they navigate high levels of organizational change.
We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems. • Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a significant opportunity as healthcare evolves. A majority of all prescription drugs are distributed in the non-acute sector.
We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems. • Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a significant opportunity as healthcare evolves.
Internationally, various foreign jurisdictions in which we operate have established, or are developing, their own data privacy and security legal frameworks with which we or our customers must comply including, for example, the European Union’s General Data Protection Regulation.
Internationally, various foreign jurisdictions in which we operate, including the European Union (the “EU”), have established, or are developing, their own data privacy and security legal frameworks with which we or our customers are subject to including, for example, the UK and the EU’s General Data Protection Regulation (together, the “GDPR”).
Professional, Technical, and Customer Success Services As the complexity of the introduction and implementation of new innovations increases for our health system customers, we also offer Professional Services, such as technology and service implementations, as well as change management services.
Professional, Technical, and Customer Success Services As the complexity of the introduction and implementation of new innovations increases for our health system customers, we also offer Professional Services, such as technology installation, program management, customer education and 8 Table of Contents training, and change management services.
As part of our Advanced Services offering, we provide equipment at the inception of the contract period, which is accounted for as a multi-year sales-type lease. These agreements are generally multi-year and non-cancellable.
As part of our Advanced Services offering, we provide equipment and software at the inception of the contract period, which is accounted for as a multi-year sales-type lease. These agreements are generally multi-year and non-cancellable. We typically retain these lease receivables for such Advanced Services in-house and service them for the duration of the associated service term.
Our sales force is organized by geographic region in the United States and Canada, with account management executives dedicated to our customers in the top 300 U.S. health systems and health system executives focused on generating new business. Our sales are primarily made direct to end-user customers with the exception of some distribution of medication adherence consumables.
Our sales force is organized by geographic region in the United States and Canada, with account management executives dedicated to our customers in the top 300 U.S. health systems and health system executives focused on generating new business.
Human Capital Management As of December 31, 2022, we had approximately 4,230 employees worldwide (with approximately 3,660 located in either the United States or Canada), excluding individuals who are classified as temporary or contractors, which is an increase of approximately 430 employees since December 31, 2021.
Human Capital Management As of December 31, 2023, we had approximately 3,650 employees worldwide (with approximately 3,040 located in either the United States or Canada), excluding individuals who are classified as temporary or contractors, which is a decrease of approximately 580 employees since December 31, 2022.
New technologies and updated state board regulations appear to be spurring innovation by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of solutions that are intended to help providers and payers engage patients in new ways that improve patient care, reduce the total cost of care, and lead to more profitable operations.
New technologies and increased scope of practice for pharmacists appear to be spurring innovation and expansion of the provision of clinical services by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of our patient engagement solutions, that are intended to help providers (including pharmacists) and payers engage patients in new ways that are expected to improve outcomes, reduce the total cost of care, and lead to more profitable operations.
Our teams are motivated by knowing that our work to improve medication management has a tangible, real-world impact on healthcare workers, patients, and communities. We recognize that we are accountable not only to our customers and stockholders, but also to the global community. In April 2022, we published our 2021 Corporate Responsibility Report, which outlines our approach to corporate responsibility.
Our teams are motivated by knowing that our work to improve medication management across the continuum of care has a tangible, real-world impact on healthcare workers, patients, and communities. We recognize that we are accountable not only to our customers and stockholders, but also to the global community.
We continually work to innovate and improve our business practices in an effort to ensure the greatest positive impact as we strive to continue to do things in “A Better Way.” More information on our ESG initiatives and a copy of our 2021 Corporate Responsibility Report are available on our corporate website, www.omnicell.com, under the “About Us―Corporate Responsibility” tab.
We continually seek to innovate and improve our business practices as we strive to build “A Better Way.” More information on our ESG initiatives and a copy of our 2022 ESG Report are available on our corporate website, www.omnicell.com, under the “About Us―Corporate Responsibility” tab.
While many components of our systems are standardized and available through multiple sources, certain components or subsystems are fabricated by a sole supplier according to our specifications, schedules, and customer requirements, or are only available from limited sources. Our medication adherence product manufacturing process consists of fabrication and assembly of equipment and mechanized process manufacturing of consumables.
While many components of our systems are standardized and available through multiple sources, certain 14 Table of Contents components or subsystems are fabricated by a sole supplier according to our specifications, schedules, and customer requirements, or are only available from limited sources.
Based on a 2020 report by the Health Care Cost Institute, the rise in prescription drug spending accounted for 49% of the total increase in annual spending per person from 2016 to 2020.
Annual prescription drug expenditures in the United States were approximately $634 billion in 2022, according to the IQVIA National Sales Perspective database. Based on a 2020 report by the Health Care Cost Institute, the rise in prescription drug spending accounted for 49% of the total increase in annual spending per person from 2016 to 2020.
We rely on a limited number of suppliers for the raw materials that are necessary in the production of our consumable medication packages.
Our medication adherence product manufacturing process consists of fabrication and assembly of equipment and mechanized process manufacturing of consumables. We rely on a limited number of suppliers for the raw materials that are necessary in the production of our consumable medication packages.
A majority of our connected devices and software license products are installable and recognized as revenues within twelve months of booking, while service revenues from Advanced Services are recorded over the contractual term.
A majority of our connected devices and software license products are installable and recognized as revenues within twelve months of booking.
After the solutions are implemented, our Customer Success team helps our customers adopt and optimize their solutions in an effort to achieve their desired clinical and business outcomes. We offer telephone and web-based technical support through our U.S.-based technical support centers. Our support centers are staffed 24 hours a day, 365 days a year.
After the solutions are implemented, our Customer Success team provides remote and onsite experts who help our customers fully adopt and optimize utilization of our solutions in an effort to achieve their desired clinical and business outcomes. We offer telephone and web-based technical support through our U.S.-based technical support centers.
Seidelmann 47 Executive Vice President and Chief Commercial Officer Randall A. Lipps was named Chief Executive Officer and President of Omnicell in October 2002. Mr. Lipps has served as Chairman of the Board and a Director of Omnicell since founding Omnicell in September 1992. Mr. Lipps received both a B.S. in economics and a B.B.A. from Southern Methodist University.
Lipps has served as Chairman of the Board and a Director of Omnicell since founding Omnicell in September 1992. Mr. Lipps received both a B.S. in economics and a B.B.A. from Southern Methodist University. Nchacha E. Etta joined Omnicell in June 2023 as Executive Vice President and Chief Financial Officer. Prior to joining Omnicell, Mr.
This intelligent infrastructure provides the critical foundation for customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management.
We are doing this with an industry-leading medication management infrastructure which includes robotics, smart devices, intelligent software, and expert services. This comprehensive set of solutions provides the critical foundation for customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management.
However, we manufacture and develop specifications for products classified as Class I and Class II medical devices, which are subject to FDA regulation and require compliance with the FDA Quality System Regulation as well as medical device reporting, including a sterile disposable product that required FDA 510(k) review and clearance prior to marketing and distribution.
With respect to our products and solutions, we manufacture and develop specifications for products classified as Class I and Class II medical devices, which are subject to FDA regulation and require compliance with the FDA Quality System Regulation as well as medical device reporting.
Intellectual Property and Proprietary Technology We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures, contractual restrictions, and licensing arrangements to protect our intellectual property rights.
We believe we have a strongly differentiated outcome-centric approach to medication management that combines robotics, smart devices, software, and expert services. Intellectual Property and Proprietary Technology We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures, contractual restrictions, and licensing arrangements to protect our intellectual property rights.
Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs. As a result, we believe IV automation provides a significant opportunity to enhance patient safety and reduce costs.
Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs and lack of access to needed medications as a result of being unable to source medications when they are required.
With a DEIB strategy anchored in data, we expect to be able to understand opportunities for improvement and to more accurately measure the efficacy of our human resources processes and diversity programs. • Our external-facing aspirational long-term DEIB strategy includes supporting vendor/supplier diversity as well as strategies aimed at ensuring our products and services are inclusive and accessible.
By anchoring our DEIB strategy in data, we anticipate gaining insights into areas for enhancement and achieving a more precise measurement of the effectiveness of our human resources processes and diversity programs. • Our external-facing aspirational long-term DEIB strategy includes supporting vendor/supplier diversity as well as strategies aimed at ensuring our products and services are inclusive and accessible.
These areas include, without limitation, FDCA and FDA, Controlled Substances Act and DEA regulations, state board of pharmacy regulations, and laws and regulations regarding quality, information governance and security, and environmental, health and safety. We expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our operations and business.
These areas include, without limitation, FDCA and FDA, Controlled Substances Act and DEA regulations, state board of pharmacy regulations, and laws and regulations regarding quality, privacy, information governance and security, and environmental, health and safety.
Our combined direct, corporate, and international distribution sales teams consisted of approximately 570 staff members as of December 31, 2022. Nearly all of our direct sales team members have hospital capital equipment, services, or clinical systems experience. As of December 31, 2022, we have 151 long-term, sole-source agreements with the top 300 U.S. health systems.
Our combined direct, corporate sales support, and international distribution sales teams consisted of approximately 450 staff members as of December 31, 2023. Nearly all of our direct sales team members have hospital capital equipment, services, or clinical systems experience.
The manufacture and sale of most of our current medication management solutions are not directly regulated by the FDA or the DEA, although they are used by other persons (our customers) whose pharmacy, dispensing, and compounding activities may be subject to regulation by those agencies and by state boards of pharmacy.
However, the pharmacy, dispensing, and compounding activities of other persons (our customers) that use our current medication management solutions may be subject to regulation by those agencies and by state boards of pharmacy.
Shipment of consumables typically occurs between one and four weeks after an order is received. Competition The markets in which we operate are intensely competitive.
We utilize our backlog to manage our installation, procurement, and production activities to help improve inventory turns, reduce inventory scrap, and manage shipping costs. Shipment of consumables typically occurs between one and four weeks after an order is received. Competition The markets in which we operate are intensely competitive.
We regularly conduct employee engagement surveys, most recently via the Glint platform. Through continued investment in talent processes and acting on employee feedback, we have achieved an overall employee satisfaction score of 75, which is above the benchmark average score of similarly-sized global companies identified by Glint that use the Glint platform.
We most recently completed the Employee Engagement Survey via the Glint platform in September 2023 and achieved an overall employee satisfaction score of 68, which is below the benchmark average score of similarly-sized global companies identified by Glint that use the Glint platform.
With certain automation and technology-enabled service offerings, we provide expert services designed to help optimize utilization through subscription agreements, inclusive of expert personnel to operate the equipment.
Across these settings, we provide central pharmacy automation solutions for both medication dispensing and IV compounding. We also provide patient engagement solutions to help improve adherence to prescriptions. With certain automation and technology-enabled service offerings, we provide expert services designed to help optimize utilization through subscription agreements, inclusive of expert personnel to operate the equipment.
We receive, store, and process personal information and other data from our customers, employees, and service providers. Our customers also use our solutions to obtain and store personal information, including personal health information, from their patients and customers. As a result, we are subject to various laws and regulations related to privacy, data protection, and information security.
We receive, store, and process personal information and other data from our customers, employees, and service providers. Our customers also use our products or services to obtain and store personal information, including personal health information, from their patients and customers.
We also believe there is an opportunity for us to expand the offering and define a new standard for dispensing systems in perioperative settings. We believe our current solutions within the Point of Care market and new innovation and services will continue to help customers drive improved outcomes. • Central Pharmacy and IV Compounding.
We believe our current solutions within the Point of Care market and new innovation and services will continue to help customers drive improved clinical and financial outcomes. • Central Pharmacy and IV Compounding.
Furthermore, while complexities in medication management have increased over time along with the volume of patients and medications, many manual processes are still used, resulting in inefficient tracking and delivery of medications and supplies and increased administrative burden on many clinical staff.
These factors, combined with continuing consolidation in the healthcare industry, have increased the need for the efficient delivery of healthcare in order to control costs and elevated the strategic importance of medication management and pharmacy automation across the continuum of care. 9 Table of Contents Furthermore, while complexities in medication management have increased over time along with the volume of patients and medications, many manual processes are still used, resulting in inefficient tracking and delivery of medications and supplies and increased administrative burden on many clinical staff.
Our Inventory Optimization Service is designed to provide greater medication inventory visibility as well as reduce medication waste and expirations, stockouts and shortages. Patient Engagement Our EnlivenHealth brand offers a portfolio of patient engagement and medication management tools designed to help improve health outcomes.
Our Inventory Optimization Service is designed to provide greater medication inventory visibility as well as reduce medication waste and expirations, stockouts and shortages.
Retail Pharmacy and Hospital Automation Outside the United States Additional products sold outside the United States include robotic dispensing systems used in hospitals and retail pharmacies for handling the stocking and retrieval of boxed medications.
Product support is available through fixed-period service contracts and on a time-and-materials basis. On-site service is provided by our field service team. Retail Pharmacy and Hospital Automation Outside the United States Additional products sold outside the United States include robotic dispensing systems used in hospitals and retail pharmacies for handling the stocking and retrieval of boxed medications.
This report describes and updates our contributions to how we plan on achieving a more sustainable future. We define corporate responsibility through four strategic pillars – Environmental, Social, Governance, and Innovation.
In April 2023, we published our 2022 ESG Report, which highlights our approach to being responsible corporate citizens and describes and updates our contributions and work towards achieving a more sustainable future. We define corporate responsibility through four strategic pillars – Environmental, Social, Governance, and Innovation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The manufacture and sale of most of our current medication management solutions products and services are not directly regulated by the FDA or the DEA, although such products and services are used by other persons (our customers) whose pharmacy, dispensing, and compounding activities may be subject to regulation by those agencies and by state boards of pharmacy.
The manufacture and sale of most of our current medication management solutions are not directly regulated by the FDA or the DEA, although such products and services are used by other persons (our customers) whose pharmacy, dispensing, and compounding activities may be subject to regulation by those agencies and by state boards of pharmacy.
The A&R Credit Agreement contains various customary covenants that require us to provide financial and other information reporting as well as notice upon certain events and limit or restrict our ability and/or our subsidiaries’ ability to, among other things, incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; issue redeemable preferred stock; pay dividends or distributions or redeem or repurchase capital stock; prepay, redeem, or repurchase certain debt; make loans, investments, acquisitions, and capital expenditures; enter into agreements that restrict distributions from our subsidiaries; sell assets and capital stock of our subsidiaries; enter into certain transactions with affiliates; and consolidate or merge with or into, or sell substantially all of our assets to, another person.
The Second A&R Credit Agreement contains various customary covenants that require us to provide financial and other information reporting as well as notice upon certain events and limit or restrict our ability and/or our subsidiaries’ ability to, among other things, incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; issue redeemable preferred stock; pay dividends or distributions or redeem or repurchase capital stock; prepay, redeem, or repurchase certain debt; make loans, investments, acquisitions, and capital expenditures; enter into agreements that restrict distributions from our subsidiaries; sell assets and capital stock of our subsidiaries; enter into certain transactions with affiliates; and consolidate or merge with or into, or sell substantially all of our assets to, another person.
The A&R Credit Agreement also includes financial covenants requiring us (i) not to exceed a maximum consolidated secured net leverage ratio of 3.00:1 and (ii) to maintain a minimum interest coverage ratio of 3.00:1. Our ability to comply with these financial covenants may be affected by events beyond our control.
The Second A&R Credit Agreement also includes financial covenants requiring us (i) not to exceed a maximum consolidated secured net leverage ratio of 3.00:1 and (ii) to maintain a minimum consolidated interest coverage ratio of 3.00:1. Our ability to comply with these financial covenants may be affected by events beyond our control.
Any decrease in expenditures or change in spending priorities by healthcare facilities or increased financing costs, including as a result of the impacts of public health crises such as the ongoing COVID-19 pandemic, could decrease demand for our medication management solutions, medication packaging systems, and related services, and reduce our revenues.
Any decrease in expenditures or change in spending priorities by healthcare facilities or increased financing costs, including as a result of the impacts of public health crises such as the COVID-19 pandemic, could decrease demand for our medication management solutions, medication packaging systems, and related services, and reduce our revenues.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or to do so on desirable terms, which could result in a default on our debt obligations.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time of any such refinancing. We may not be able to engage in any of these activities or to do so on desirable terms, which could result in a default on our debt obligations.
Investment in new business strategies and initiatives could disrupt ongoing business and present risks not originally contemplated. We have invested, and in the future may invest, in new business strategies or initiatives, including with respect to our software as a service or solution as a service subscription products and services or other subscription and cloud-based offerings.
Investment in new business strategies, initiatives, products or solutions could disrupt ongoing business and present risks not originally contemplated. We have invested, and in the future may invest, in new business strategies, initiatives, products or solutions, including with respect to our software as a service or solution as a service subscription products and services or other subscription and cloud-based offerings.
Our IT systems and third-party cloud services are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses, public health crises such as the ongoing COVID-19 pandemic, other catastrophic events or environmental impact, as well as due to system upgrades and/or new system implementations.
Our IT systems and third-party cloud services are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses, public health crises such as the COVID-19 pandemic, other catastrophic events or environmental impact, as well as due to system upgrades and/or new system implementations.
Furthermore, the broader U.S. and global economy has experienced elevated inflationary pressures as well as continued supply chain disruptions, labor shortages and geopolitical instability. We are unable to predict future changes in the state of the U.S. or global economy or whether inflationary pressures will continue to intensify or subside.
The broader U.S. and global economy has experienced elevated inflationary pressures as well as continued supply chain disruptions, labor shortages and geopolitical instability. We are unable to predict future changes in the state of the U.S. or global economy or whether inflationary pressures will continue to intensify or subside.
In addition, if we are unable to repay those amounts, the administrative agent and the lenders under the A&R Credit Agreement could proceed against the collateral granted to them to secure that debt and foreclose on our assets, which would seriously harm our business.
In addition, if we are unable to repay those amounts, the administrative agent and the lenders under the Second A&R Credit Agreement could proceed against the collateral granted to them to secure that debt and foreclose on our assets, which would seriously harm our business.
We have substantial debt, which could impair our financial flexibility and access to capital, and are subject to covenants in our A&R Credit Agreement (as defined below) that restrict our business and operations. • Legal, Regulatory, and Healthcare Industry Risks.
We have substantial debt, which could impair our financial flexibility and access to capital, and are subject to covenants in our Second A&R Credit Agreement (as defined below) that restrict our business and operations. • Legal, Regulatory, and Healthcare Industry Risks.
Direct regulation of our business and products by the FDA, DEA, or other federal agencies could substantially increase the cost to produce our products or deliver our services and increase the time required to bring those products and services to market, reduce the demand for our products and services, and reduce our revenues.
Direct regulation of our business and products by the FDA, DEA, CMS, or other federal agencies could substantially increase the cost to produce our products or deliver our services and increase the time required to bring those products and services to market, reduce the demand for our products and services, and reduce our revenues.
Moreover, the current and/or a future security breach or privacy violation that leads to disclosure or modification of, or prevents access to, patient information, including personally identifiable information or protected health information, could harm our reputation, result in litigation, 29 Table of Contents compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents, and otherwise subject us to liability under laws and regulations that protect personal information, resulting in increased costs or loss of revenues.
Moreover, the current and/or a future security breach or privacy violation that leads to disclosure or modification of, or prevents access to, patient information, including personally identifiable information or protected health information, could harm our reputation, result in litigation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents, and otherwise subject us to liability under laws and regulations that protect personal information, resulting in increased costs or loss of revenues.
Customers may elect not to renew their subscriptions upon expiration, or they may attempt to renegotiate pricing or other contractual terms at or prior to renewal on terms that are less favorable to us.
Customers may elect not to renew their subscriptions upon expiration, or they may attempt to renegotiate pricing or other contractual terms at or prior to renewal to terms that are less favorable to us.
While a final rule has not yet been issued, if adopted, these proposed changes may require us to update our HIPAA policies and procedures to comply with the new requirements. Finally, pursuant to legislation passed in 2021, OCR recently issued guidance on recognized security practices for covered entities and business associates.
While a final rule has not yet been issued, if adopted, these proposed changes may require us to update our HIPAA policies and procedures to comply with the new requirements. Additionally, pursuant to legislation passed in 2021, OCR recently issued guidance on recognized security practices for covered entities and business associates.
In addition, the Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of this initiative. There can be no assurance that these initiatives will achieve the expected benefits to our business as intended.
In addition, the Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of these initiatives. There can be no assurance that these initiatives will achieve the expected benefits to our business as intended.
Any future actions or developments could adversely impact the healthcare industry, including with respect to the cost of prescription drugs, regulation of pharmacy services, the administration of the federal 340B Drug Pricing Program, changes to pharmacy reimbursement rates, or could challenge or change the way we do business, which could have an adverse impact on our business.
Any future actions or developments could adversely impact the healthcare industry, including with respect to the cost of prescription drugs, regulation of pharmacy services, the administration of the federal 340B Program, changes to pharmacy reimbursement rates, or could challenge or change the way we do business, which could have an adverse impact on our business.
Many of these systems are housed or supported in or around our corporate headquarters located in Northern California, near major earthquake faults and which may be vulnerable to climate change effects, and where a significant portion of our research and development activities and other critical business operations take place.
Many of these systems are housed or supported in or around our corporate facility located in Northern California, near major earthquake faults and which may be vulnerable to climate change effects, and where a significant portion of our research and development activities and other critical business operations take place.
We also offer our Inventory Optimization Service, certain patient engagement products and services under EnlivenHealth, Specialty Pharmacy Services, and 340B solutions, as a subscription. As we continue to execute on the industry vision of the Autonomous Pharmacy and grow subscription and cloud-based offerings, we may offer additional products and services on a subscription basis.
We also offer our Inventory Optimization Service, certain patient engagement, clinical and financial products and services under EnlivenHealth, Specialty Pharmacy Services, and 340B solutions, as a subscription. As we continue to execute on the industry vision of the Autonomous Pharmacy and grow subscription and cloud-based offerings, we may offer additional products and services on a subscription basis.
If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to significant financial penalties and possible exclusion from participation in federal and state funded healthcare programs, and the curtailment or restricting of our operations, as well as additional reporting obligations 33 Table of Contents and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws.
If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to significant financial penalties and possible exclusion from participation in federal and state funded healthcare programs, and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws.
Disruptions to, or the failure of any of these systems, and the resulting loss of critical data, which is not quickly recoverable by the effective execution of disaster recovery plans designed to reduce such disruption, could cause delays in our product development, prevent us from fulfilling our customers’ orders, and could severely affect our ability to conduct normal business operations, the result of which would adversely affect our operating results.
Disruptions to, or the failure of any of these systems, and the resulting loss of critical data, which is not quickly 35 Table of Contents recoverable by the effective execution of disaster recovery plans designed to reduce such disruption, could cause delays in our product development, prevent us from fulfilling our customers’ orders, and could severely affect our ability to conduct normal business operations, the result of which would adversely affect our operating results.
In addition, the foregoing factors may also impact the willingness or ability of our customers to pay their existing obligations or honor their contractual commitments, which could result in decreased revenue and negatively impact our business, operating results, cash flow, or financial condition.
Furthermore, the foregoing factors may also impact the willingness or ability of our customers to pay their existing obligations or honor their contractual commitments, which could result in decreased revenue and negatively impact our business, operating results, cash flow, or financial condition.
New product and service developments or enhancements may be delayed, have technical problems (including software defects or errors), fail to meet customer or market specifications or industry standards, which could result in increased or unexpected expenses related to further developments or modifications.
New product and service developments or enhancements may be delayed, have technical problems (including software defects or errors), fail to meet customer or market specifications, regulatory requirements, or industry standards, which could result in increased or unexpected expenses related to further developments or modifications.
Petersburg facilities, including as a result of extreme weather conditions or natural disasters, which may be more frequent as a result of climate change, will adversely affect our ability to ship our consumable medication packages globally and would reduce our revenues.
Petersburg facilities, including as a result of extreme weather conditions or natural disasters, which may become more frequent as a result of climate change, will adversely affect our ability to ship our consumable medication packages globally and would reduce our revenues.
In addition to other factors discussed in this “Risk Factors” section, factors, many of which are outside of our control and are difficult to predict, that may cause our quarterly or annual operating results to fluctuate include, but are not limited to, the following: • the size, product mix, and timing of orders for our products, and their installation and integration and whether our estimates for the same were proper; • our ability to successfully install our products on a timely basis and meet other contractual obligations necessary to recognize revenue; • fluctuations in customer demand for our products, including due to changes in our customers’ budgets, and whether customer demand was properly estimated; • our ability to control costs, including operating expenses, and continue cost reduction efforts, such as our restructuring initiative; • changes in pricing policies by us or our competitors; • the number, timing, and significance of product enhancements and new product announcements by us or our competitors; • the timing and significance of any acquisition or business development transactions that we may consider or negotiate and the revenues, costs, and earnings that may be associated with these transactions; • the relative proportions of revenues we derive from products and services; • our ability to generate cash from our accounts receivable on a timely basis; • changes in, and our ability to successfully execute on, our business strategy; and • macroeconomic and political conditions, including fluctuations in interest rates, tax increases, availability of credit markets, and trade and tariff actions.
In addition to other factors discussed in this “Risk Factors” section, factors, many of which are outside of our control and are difficult to predict, that may cause our quarterly or annual operating results to fluctuate include, but are not limited to, the following: • the size, product mix, and timing of orders for our products, and their installation and integration and whether our estimates for the same were proper; 39 Table of Contents • our ability to successfully install our products on a timely basis and meet other contractual obligations necessary to recognize revenue; • fluctuations in customer demand for our products, including due to changes in our customers’ budgets, healthcare worker turnover rates and labor shortages and whether customer demand was properly estimated; • our ability to control costs, including operating expenses, and continue cost reduction efforts, such as our restructuring initiative; • changes in pricing policies by us or our competitors; • the number, timing, and significance of product enhancements and new product announcements by us or our competitors; • the timing and significance of any acquisition or business development transactions that we may consider or negotiate and the revenues, costs, and earnings that may be associated with these transactions; • the relative proportions of revenues we derive from products and services; • our ability to generate cash from our accounts receivable on a timely basis; • changes in, and our ability to successfully execute on, our business strategy; and • macroeconomic and political conditions, including fluctuations in interest rates, tax increases, availability of credit markets, and trade and tariff actions.
The failure of any of our U.S. government customers to receive their annual funding, or the government mandating changes to the Federal Supply Services contract, could impair our ability to sell equipment to these customers or to sell our U.S. government receivables to third-party leasing companies.
In addition, the failure of any of our U.S. government customers to receive their annual funding, or the government mandating changes to the Federal Supply Services contract, could impair our ability to sell equipment to these customers or to sell our U.S. government receivables to third-party leasing companies.
From time to time, the U.S. and global economy has experienced cyclical downturns impacting economic activity, the results of which include decreased demand for goods and services, reduced government spending, rising inflation, liquidity or credit constraints, declines in corporate profitability, credit, equity, or foreign exchange market volatility, increased bankruptcies, and general economic uncertainty.
From time to time, the U.S. and global economy has experienced cyclical downturns impacting economic activity, the results of which include decreased demand for goods and services, reduced government spending, rising inflation, increasing interest rates, liquidity or credit constraints, declines in corporate profitability, credit, equity, or foreign exchange market volatility, increased bankruptcies, and general economic uncertainty.
These budgets are often supported by cash flows that can be negatively affected by declining investment income and influenced by limited resources, increased operational and financing costs, macroeconomic conditions, and conflicting spending priorities among different departments.
Customer budgets are often supported by cash flows that can be negatively affected by declining investment income and influenced by limited resources, increased operational and financing costs, macroeconomic conditions, and conflicting spending priorities among different departments.
These transactions may involve significant challenges, uncertainties, and risks, including: • difficulties in combining previously separate businesses into a single unit and the complexity of managing a more dispersed organization as sites are acquired; • difficulties in right-sizing organizations and gaining synergies across acquired operations; 30 Table of Contents • complying with regulatory requirements, such as those of the U.S.
These transactions may involve significant challenges, uncertainties, and risks, including: • difficulties in combining previously separate businesses into a single unit and the complexity of managing a more dispersed organization as sites are acquired; • difficulties in right-sizing organizations and gaining synergies across acquired operations; • complying with regulatory requirements, such as those of the U.S.
These consequences may include, but are not limited to: (1) refunding or retroactively adjusting amounts 32 Table of Contents that have been paid under the relevant government program or from other payers; (2) state or federal agencies imposing significant fines, penalties and other sanctions on us; (3) losing our right to participate in certain governmental programs; and (4) damaging our reputation in various markets, which could adversely affect our ability to attract customers and employees.
These consequences may include, but are not limited to: (1) refunding or retroactively adjusting amounts that have been paid under the relevant government program or from other payers; (2) state or federal agencies imposing significant fines, penalties and other sanctions on us; (3) losing our right to participate in certain governmental programs; and (4) damaging our reputation in various markets, which could adversely affect our ability to attract customers and employees.
Our failure to comply with any of the covenants under the A&R Credit Agreement could result in a default under the terms of the A&R Credit Agreement, which could permit the administrative agent or the lenders to declare all or part of any outstanding borrowings to be immediately due and payable or foreclose on our assets, or to refuse to permit additional borrowings under the revolving credit facility, which could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain 34 Table of Contents business opportunities that may be presented to us.
Our failure to comply with any of the covenants under the Second A&R Credit Agreement could result in a default under the terms of the Second A&R Credit Agreement, which could permit the administrative agent or the lenders to declare all or part of any outstanding borrowings to be immediately due and payable or foreclose on our assets, or to refuse to permit additional borrowings under the revolving credit facility, which could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain business opportunities that may be presented to us.
Additional discussion of the risks that we face can be found following this summary and should be carefully considered together with all of the other information appearing in this Annual Report on Form 10-K. 19 Table of Contents Risk Factors Related to our Business and Industry • Economic Conditions and Demand Risks.
Additional discussion of the risks that we face can be found following this summary and should be carefully considered together with all of the other information appearing in this Annual Report on Form 10-K. Risk Factors Related to our Business and Industry • Economic Conditions and Demand Risks.
Certain of our Advanced Services offerings are highly complex and may be susceptible to errors, including as a result of human or technological error. We may be required to bear the cost of correcting any errors and the cost of such corrections may be significant, which could adversely affect our business, operating results, cash flow, or financial condition.
Certain of our Advanced Services offerings are highly complex and may be susceptible to errors, including human or technological error. We may be required to bear the cost of correcting any errors and the cost of such corrections may be significant, which could adversely affect our business, operating results, cash flow, or financial condition.
If our Advanced Services customers decline to renew their subscriptions or decide to terminate their agreements early for any reason, we would not derive the expected financial benefits from that customer, which could have a material adverse effect on our business, operating results, cash flow, or financial condition.
If our Advanced Services customers decline to renew their subscriptions or decide to terminate their agreements early, we would not derive the expected financial benefits from that customer, which could have a material adverse effect on our business, operating results, cash flow, or financial condition.
In addition, certain provisions of the Federal Food, Drug and Cosmetic Act (“FDCA”) related to the handling, distribution and compounding of pharmaceuticals, govern all parts of the drug distribution chain, which our customers may be required to comply with and which may influence customer demand for our products.
In addition, certain provisions of the Federal Food, Drug and Cosmetic Act (“FDCA”) related to the handling, distribution and compounding of pharmaceuticals, govern all parts of the drug 32 Table of Contents distribution chain, which our customers may be required to comply with and which may influence customer demand for our products.
The market price of our common stock has been and may continue to be highly volatile in response to various factors discussed in this “Risk Factors” section, many of which are beyond our control, including: • actual or anticipated changes in our operating results or forecasts, and whether our operating results meet our publicly announced guidance or expectations of securities analysts or investors; • changes in the ratings of our common stock by securities analysts or changes in their earnings estimates; • changes in our business model and initiatives, such as our ongoing transition to focus on a subscription-based business model and our ongoing restructuring initiative to contain costs; • developments in our customer relationships; • changes in our Board of Directors, senior management, or key personnel; • announcements by us or our competitors of technological innovations or new products; • mergers, acquisitions, combinations, and other significant transactions involving us or our competitors; • our sale of our common stock or other securities; • level of demand for our common stock, and actions by stockholders or short sellers of our common stock; • changes in laws or regulations applicable to our products or services; 38 Table of Contents • our involvement in any litigation or investigations by government authorities, including litigation judgments, settlements, or other litigation-related costs; • cyber events, such as the ransomware incident we experienced in May 2022; • epidemics, pandemics, or other major public health crises, such as the ongoing COVID-19 pandemic; or • general economic, regulatory, political and market conditions.
The market price of our common stock has been and may continue to be highly volatile in response to various factors discussed in this “Risk Factors” section, many of which are beyond our control, including: • actual or anticipated changes in our operating results or forecasts, and whether our operating results meet our publicly announced guidance or expectations of securities analysts or investors; • changes in the ratings of our common stock by securities analysts or changes in their earnings estimates; • changes in our business model and initiatives, such as our ongoing transition to focus on a subscription-based business model o r a decision to exit a particular business or product line, and our ongoing restructuring initiatives to contain costs; • developments in our customer relationships; • changes in our Board of Directors, senior management, or key personnel; • announcements by us or our competitors of technological innovations or new products; • mergers, acquisitions, combinations, and other significant transactions involving us or our competitors; • our sale of our common stock or other securities; • level of demand for our common stock, and actions by stockholders or short sellers of our common stock; • changes in laws or regulations applicable to our products or services; • our involvement in any litigation or investigations by government authorities, including litigation judgments, settlements, or other litigation-related costs; • cyber events, such as the ransomware incident we experienced in May 2022; • epidemics, pandemics, or other major public health crises, such as the COVID-19 pandemic; or • general economic, regulatory, political and market conditions.
Our Board of Directors may use these provisions to prevent changes in the management and control of our Company. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future including, without limitation, a stockholder rights plan.
Our Board 40 Table of Contents of Directors may use these provisions to prevent changes in the management and control of our Company. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future including, without limitation, a stockholder rights plan.
Furthermore, uncertainty around the 340B Program could lead to lower levels of participation by 340B covered entities, which could reduce demand for our 340B Program-related businesses and could adversely affect our business. In addition, Congress has considered legislative changes to the 340B Program. Any legislative changes to the 340B Program could also affect our 340B Program-related services.
Furthermore, uncertainty around the 340B Program could lead to lower levels of participation by 340B covered entities, which could reduce demand for our 340B Program-related businesses and could adversely affect our business. In addition, Congress has considered legislative changes to the 340B Program.
We carry some inventory of critical components and are otherwise working to secure supplies necessary to ensure fulfillment of customer demand, but global shortages could result in our need to secure supplies at higher costs as well as manufacturing delays.
We carry some inventory of critical components and are otherwise working to secure supplies necessary 36 Table of Contents to ensure fulfillment of customer demand, but global shortages could result in our need to secure supplies at higher costs as well as manufacturing delays.
Other critical systems are housed in communities that have been subject to significant tropical storms such St. Petersburg, Florida, which is the location of our manufacturing facilities for our consumable medication packages, and Raleigh, North Carolina. In the future, tropical storms may be intensified or occur with increasing frequency as a result of climate change.
Other critical systems are housed in communities that have been subject to significant tropical storms such St. Petersburg, Florida, which is the location of our manufacturing facilities for our consumable medication packages. In the future, tropical storms may be intensified or occur with increasing frequency as a result of climate change.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, or the refinancing of our existing convertible notes, the ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders.
Approximately 6% of our revenues during the year ended December 31, 2022 were generated from the sale of consumable medication packages, most of which are produced in our St. Petersburg, Florida facility on a continuous basis and are shipped out to fulfill the demands of our institutional and retail pharmacy customers domestically and abroad.
Approximately 7% of our revenues during the year ended December 31, 2023 were generated from the sale of consumable medication packages, most of which are produced in our St. Petersburg, Florida facility on a continuous basis and are shipped out to fulfill the demands of our institutional and retail pharmacy customers domestically and abroad.
In addition, since equity compensation is a key component of our employee compensation program, any failure to receive stockholder approval for future proposed increases to the number of shares reserved for issuance under our equity incentive plans could prevent us from granting equity compensation at competitive levels and make it more difficult to attract, retain, and motivate employees, including key employees of acquired businesses.
In addition, since equity compensation is a key component of our employee compensation program, any further decrease in our stock price or failure to receive stockholder approval for future proposed increases to the number of shares reserved for issuance under our equity incentive plans could prevent us from granting equity compensation at competitive levels and make it more difficult to attract, retain, and motivate employees, including key employees of acquired businesses.
Medical devices are also subject to various other regulatory requirements, including as applicable, premarket clearance or approval, clinical trial requirements, establishment registration and device listing, complaint handling, notification and repair, replace, refund, mandatory recalls, unique device identifier (“UDI”) requirements, reports of removals and corrections, post-marketing surveillance, and device tracking.
Medical devices are also subject to various other regulatory requirements, including as applicable, premarket clearance or approval, establishment registration and device listing, complaint handling, notification and repair, replace, refund, mandatory recalls, unique device identifier (“UDI”) requirements, reports of removals and corrections, cybersecurity requirements and post-marketing surveillance.
For these and other reasons, the sales cycle associated with sales of our systems is often lengthy and subject to a number of 22 Table of Contents delays over which we have little or no control.
For these and other reasons, the sales cycle associated with sales of our systems is often lengthy and subject to a number of delays over which we have little or no control.
The competitive challenges we face in the markets in which we operate include, but are not limited to, the following: • current or future competitors may offer or have the ability to offer a broader range of solutions than us, develop alternative solutions that provide a better customer outcome or lower cost of operation, develop new features or capabilities for their products that could compete with ours, respond more quickly and efficiently to new or changing technologies, standards, or regulations, or devote greater resources to the development, promotion, and sale of their products than we do; • competitive pressures could result in increased price competition for our products and services, fewer customer orders, and reduced gross margins; • current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, including larger, more established healthcare supply companies, thereby increasing their ability to develop and offer a broader suite of products and services; • our industry has recently experienced a significant degree of consolidation which could lead to competitors developing new business models that require us to adapt how we market, sell, or distribute our products or could also lead to competitors with greater economies of scale that have lower cost of operations allowing them to sell their products and services at a lower cost; • certain competitors have greater brand name recognition and a more extensive installed base than we do, and such advantages could be used to increase their market share; • certain competitors may have existing business relationships with our current and potential customers, which may cause these customers to purchase competing products and services from these competitors; and • our competitors may secure products and services from suppliers on more favorable terms or secure exclusive arrangements with suppliers or buyers that may impede the sales of our products and services.
The competitive challenges we face in the markets in which we operate include, but are not limited to, the following: • current or future competitors may offer or have the ability to offer a broader range of solutions than us, develop alternative solutions that provide a better customer outcome or lower cost of operation, develop new features or capabilities for their products, including artificial intelligence (“AI”), machine learning, and generative AI capabilities, which are part of an intensely competitive and rapidly evolving market, that could compete with our solutions, respond more quickly and efficiently to new or changing technologies, standards, or regulations, or devote greater resources to the development, promotion, and sale of their products than we do; 25 Table of Contents • competitive pressures could result in increased price competition for our products and services, fewer customer orders, and reduced gross margins; • current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, including larger, more established healthcare supply companies, thereby increasing their ability to develop and offer a broader suite of products and services; • our industry has recently experienced a significant degree of consolidation which could lead to competitors developing new business models that require us to adapt how we market, sell, or distribute our products or could also lead to competitors with greater economies of scale that have lower cost of operations allowing them to sell their products and services at a lower cost; • certain competitors have greater brand name recognition and a more extensive installed base than we do, and such advantages could be used to increase their market share; • certain competitors may have existing business relationships with our current and potential customers, which may cause these customers to purchase competing products and services from these competitors; and • our competitors may secure products and services from suppliers on more favorable terms or secure exclusive arrangements with suppliers or buyers that may impede the sales of our products and services.
We may fail to meet the demands of, or maintain relationships with, our institutional and retail pharmacy customers and we may be unable to secure or maintain access to existing and future specialty drugs. • COVID-19 Risks .
We may fail to meet the demands of, or maintain relationships with, our institutional and retail pharmacy customers and we may be unable to secure or maintain access to existing and future specialty drugs. • Debt Risks.
Should that occur, we may not be able to accurately report our financial results, 41 Table of Contents prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Should that occur, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
A delay in, or loss of, sales of these systems (including as a result of the impacts of public health crises such as the ongoing COVID-19 pandemic or due to customer labor shortages or customer budgetary constraints) could have an adverse effect upon our business, operating results and could harm our business, cash flow, or financial condition.
A delay in, or loss of, sales of these systems (including as a result of the impacts of public health crises such as the COVID-19 pandemic or due to customer labor shortages , increased healthcare worker turnover, or customer budgetary constraints) could have an adverse effect upon our business, operating results and could harm our business, cash flow, or financial condition.
We are subject to continued and increased competition from current and future competitors in the medication management automation solutions market and the medication adherence solutions market, including price competition, industry and competitor consolidation, competitor brand recognition, and in relationships with our suppliers and current and potential customers . • Technology Risks.
We are subject to continued and increased competition from current and future competitors in the medication management automation solutions market and the medication adherence solutions market, including price competition, industry and competitor consolidation, competitor brand recognition, and in relationships with our suppliers and current and potential customers . 20 Table of Contents • Technology Risks.
Moreover, failure of health care facility and pharmacy 37 Table of Contents employees to use our products for their intended purposes could result in product liability claims against us. Litigation with respect to product liability claims, regardless of any outcome, could result in substantial cost to us, divert management’s attention from operations, and decrease market acceptance of our products.
Moreover, failure of health care facility and pharmacy employees to use our products properly or for their intended purposes could result in product liability claims against us. Litigation with respect to product liability claims, regardless of any outcome, could result in substantial cost to us, divert management’s attention from operations, and decrease market acceptance of our products.
Despite our significant efforts and extensive time commitments in sales to healthcare facilities, we cannot be assured that our efforts will result in sales to these customers. In addition, our medication management solutions and our more complex automated packaging systems typically represent a sizable initial capital expenditure for healthcare organizations.
Despite our significant efforts and extensive time commitments targeting sales to healthcare facilities, we cannot be assured that our efforts will result in sales to these customers. In addition, our medication management solutions and our more complex automated packaging systems typically represent a sizable initial capital expenditure and potential time and labor commitment to implement for healthcare organizations.
The loss of any of these relationships could impact the breadth of our customer base and could impair our ability to meet our revenue or revenue growth rate targets or our ability to increase our revenues.
The loss of any of these relationships could impact the breadth of our customer base and could impair our ability to meet our revenue or revenue growth 24 Table of Contents rate targets or our ability to increase our revenues.
A number of factors, including, but not limited to, the need to maintain a significant inventory of certain components that are in short supply, especially in response to the current semiconductor chip shortage, or that must be purchased in bulk to obtain favorable pricing, the general unpredictability of demand for specific products and customer requests for quick delivery schedules, may result in us maintaining large amounts of inventory.
A number of factors, including, but not limited to, the need to maintain a significant inventory of certain components that are in short supply or that must be purchased in bulk to obtain favorable pricing, the general unpredictability of demand for specific products and customer requests for quick delivery schedules, may result in us maintaining large amounts of inventory.
We cannot provide assurance that any acquisition or future transaction we complete will result in long-term benefits to us or our stockholders, or that we will be able to effectively integrate or manage the acquired businesses, including FDS Amplicare, ReCept, MarkeTouch Media, or Hub and Spoke Innovations.
We cannot provide assurance that any acquisition or future transaction we complete will result in long-term benefits to us or our stockholders, or that we will be able to effectively integrate or manage the acquired businesses, including FDS Amplicare, Omnicell Specialty Pharmacy Services, MarkeTouch Media, or Hub and Spoke Innovations.
If we inaccurately anticipate technological innovations or market trends or fail to generate sufficient revenue to develop new products, enhance existing products to meet customer needs or technological or regulatory change, or are unable to fund product development investments, our ability to generate future revenues or revenue growth may be negatively impacted, which could have a material adverse effect on our business, operating results, cash flow, or financial condition.
If we inaccurately anticipate technological innovations or market trends or fail to generate sufficient revenue to develop new products, enhance existing products to meet customer needs or technological or regulatory change, or are unable to fund investment in, or achieve expected return on investment from, future product development, our ability to generate future revenues or revenue growth may be negatively impacted, which could have a material adverse effect on our business, operating results, cash flow, or financial condition.
If the current inflationary trends continue, or fail to improve, it could adversely affect our profits, margins or operating results as a result of increasing costs. We may not realize the benefits of our expense containment efforts. In November 2022, we announced a restructuring initiative through which we expect to achieve certain efficiencies, which was further updated in February 2023.
If the current inflationary trends continue, or fail to improve, it could adversely affect our profits, margins or operating results as a result of increasing costs. We may not realize the benefits of our expense containment efforts. In November 2022 and November 2023, we announced restructuring initiatives through which we expect to achieve certain efficiencies.
For example, the Budget Control Act of 2011, among other things, resulted in reductions in payments to Medicare providers of 2% per fiscal year, which went into effect on April 1, 2013 and, following a temporary suspension during the COVID-19 pandemic that expired on July 1, 2022, will remain in effect into 2031 unless additional Congressional action is taken.
For example, the Budget Control Act of 2011, among other things, resulted in reductions in payments to Medicare providers of 2% per fiscal year, which went into effect on April 1, 2013 and, following a temporary suspension during the COVID-19 pandemic that expired on July 1, 2022, will remain in effect through the first six months of the fiscal year 2023 sequestration order unless additional Congressional action is taken.
These systems are susceptible to disruption or failure in the event of an extreme weather condition, including earthquake, fire, flood, ice and snowstorms or other natural disasters, as well as cyber-attack, terrorist attack, telecommunications failure, epidemic or pandemic (such as the ongoing COVID-19 pandemic), or other catastrophic event.
These systems are susceptible to disruption or failure in the event of an extreme weather condition, including earthquake, fire, flood, ice and snowstorms or other natural disasters, as well as cyber-attack, terrorist attack, telecommunications failure, health emergencies, including epidemics or pandemics (such as the COVID-19 pandemic), or other catastrophic event.
These contracts enable us to sell our products and services more readily to customers represented by these organizations. Some of our contracts with these organizations are terminable at the convenience of either party.
These contracts enable us to sell our products and services more readily to customers represented by these organizations. Some of our contracts with these organizations are terminable at the convenience of the applicable customer.
As a result, analysts’ ability to accurately forecast our results may be negatively impacted and it may be more likely that we fail to meet their 39 Table of Contents estimates.
As a result, analysts’ ability to accurately forecast our results may be negatively impacted and it may be more likely that we fail to meet their estimates.
Our products use raw materials and components that may be subject to price fluctuations, shortages, or other disruptions of supply for many reasons outside of our control, including as a result of the COVID-19 pandemic. In addition, we may be dependent upon a limited number of suppliers for certain components which may be unduly affected by supply chain disruptions.
Our products use raw materials and components that may be subject to price fluctuations, shortages, or other disruptions of supply for many reasons outside of our control. In addition, we may be dependent upon a limited number of suppliers for certain components which may be unduly affected by supply chain disruptions.
In addition, the ability to collect payments on unsold receivables could be impaired and may result in a write-down of our unsold receivables from U.S. government customers. The balance of our unsold leases to U.S. government customers was $19.0 million as of December 31, 2022.
In addition, the ability to collect payments on unsold receivables could be impaired and may result in a write-down of our unsold receivables from U.S. government customers. The balance of our unsold leases to U.S. government customers was $10.6 million as of December 31, 2023.
Changes in the budgets of these organizations and the timing of spending under these budgets can have a significant effect on the demand for our medication management solutions, medication packaging systems, and related services.
Changes in the budgets of these organizations and the timing of spending under these budgets, as well as customer labor shortages, can have a significant effect on the demand for our medication management solutions, medication packaging systems, and related services.
As part of this initiative, the Company has reduced its workforce across many of its functions and is in the process of reducing its real estate footprint.
As part of these initiatives, the Company has reduced its workforce across many of its functions and is in the process of reducing its real estate footprint.
In addition, they also may not be competitive with other products using new or alternative technologies that offer comparable performance and functionality or may not be accepted in new or existing markets.
In addition, they also may not be competitive with other products using new or alternative technologies that offer comparable performance and functionality, may not be accepted in new or existing markets, or may not achieve expected return on investment.
Delays in installations of our medication management solutions or our more complex medication packaging systems could harm our competitive position, operating results, and financial condition. The purchase of our medication management solutions or our more complex medication packaging systems is often part of a customer’s larger initiative to re-engineer its pharmacy and distribution and materials management systems.
Delays in installations of our medication management solutions, including our central pharmacy automation solutions, could harm our competitive position, operating results, and financial condition. The purchase of our medication management solutions, including our central pharmacy automation solutions, is often part of a customer’s larger initiative to re-engineer its pharmacy and distribution and materials management systems.
Our international operations subject us to a variety of risks, including: • our reliance on distributors for the sale of our medication management solutions outside the United States, Canada, the UK, France, and Germany; • remaining uncertainty regarding the consequences of Brexit and the impact on markets, as well as the potential impact on: (i) our operations, (ii) our customers’ operations and capital planning, and (iii) the healthcare industry overall; • the difficulty of managing an organization operating in various countries; • reduced protection for intellectual property rights in certain jurisdictions; • the imposition of, or adverse changes in, international laws and regulations, including privacy and security, labor, import, export, trade, environmental standards, product compliance, tax, anti-bribery, and employment laws; • fluctuations in currency exchange rates and difficulties in repatriating funds from certain countries; • additional investment, coordination, and lead-time necessary to successfully interface our automation solutions with the existing information systems of our customers or potential customers outside of the United States; • political unrest, terrorism, and other potential hostilities in areas in which we have facilities or operations; and • epidemics, pandemics, or other major public health crises, such as the ongoing COVID-19 pandemic.
Our international operations subject us to a variety of risks, including: • our reliance on distributors for the sale of our medication management solutions outside the United States, Canada, the UK, France, and Germany; • the difficulty of managing an organization operating in various countries; • reduced protection for intellectual property rights in certain jurisdictions; • the imposition of, or adverse changes in, international laws and regulations, including privacy and security, labor, import, export, trade, environmental standards, product compliance, tax, anti-bribery, and employment laws; • fluctuations in currency exchange rates and difficulties in repatriating funds from certain countries; • additional investment, coordination, and lead-time necessary to successfully interface our automation solutions with the existing information systems of our customers or potential customers outside of the United States; • political unrest, terrorism, and other potential hostilities (such as the ongoing conflicts between Russia and Ukraine or Israel and Hamas), including in areas in which we have facilities or operations; and • epidemics, pandemics, or other major public health crises, such as the COVID-19 pandemic.
If decreases in demand for capital equipment caused by weak or uncertain economic conditions and decreased corporate and government spending, any effects of fiscal budget balancing at the federal level or proposed legislative changes, deferrals or delays (including due to customer labor shortages) of capital equipment projects, longer timeframes for capital equipment purchasing decisions, or generally reduced expenditures for capital solutions occur, we will experience decreased revenues and lower revenue growth rates, and our business, operating results, cash flow, or financial condition could be materially and adversely affected.
If decreases in demand for capital equipment caused by weak or uncertain economic conditions and decreased corporate and government spending, any effects of fiscal budget balancing at the federal level or proposed legislative changes, or generally reduced expenditures for capital solutions occur, we will experience decreased revenues and lower revenue growth rates, and our business, operating results, cash flow, or financial condition could be materially and adversely affected.
We operate in highly competitive markets, and we may be unable to compete successfully. 24 Table of Contents The markets in which we operate are intensely competitive.
We operate in highly competitive markets, and we may be unable to compete successfully. The markets in which we operate are intensely competitive.
ITEM 1B. UNRESOLVED STAFF COMMENTS There are currently no unresolved issues with respect to any SEC staff’s written comments.
ITEM 1B. UNRESOLVED STAFF COMMENTS There are currently no unresolved issues with respect to any SEC staff’s written comments. 42 Table of Contents
Our operations in foreign countries expose us to additional risks, including distribution, management, and systems integration issues, reduced intellectual property protections, adverse changes in international laws, fluctuations in currency exchange rates, political unrest, and pandemics or other major public health crises. • Workforce Risks. We may be unable to recruit and retain skilled and motivated personnel. • Intellectual Property Risks.
Our operations in foreign countries expose us to additional risks, including distribution, management, and systems integration issues, reduced intellectual property protections, adverse changes in international laws, fluctuations in currency exchange rates, political unrest, foreign conflicts, and pandemics or other major public health crises. • Workforce Risks.
These organizations may not renew our contracts on similar terms, if at all, and they may choose to terminate our contracts before they expire, any of which could cause our revenues to decline.
The GPOs may increase the fees we pay or these organizations may not renew our contracts on similar terms, if at all, and they may choose to terminate our contracts before they expire, any of which could cause our revenues to decline.
Following our irrevocable election, only the shares of common stock expected to be settled in excess of the principal amount are considered dilutive for calculating earnings per share under the if-converted method.
Following our irrevocable election, only the shares of common stock expected to be settled in excess of the principal amount are considered dilutive for calculating earnings per share under the if-converted method. Accordingly, as the price of our common stock increases, our diluted earnings per share could be adversely affected.
In addition, as more fully described below in the risk factor captioned “ Covenants in our A&R Credit Agreement restrict our business and operations in many ways, and if we do not effectively manage our compliance with these covenants, our business, operating results, cash flow, or financial condition could be adversely affected, ” the A&R Credit Agreement includes customary restrictive covenants that impose operating and financial restrictions on us.
In addition, as more fully described below in the risk factor captioned “ Covenants in our Second A&R Credit Agreement restrict our business and operations in many ways, and if we do not effectively manage our compliance with these covenants, our business, operating results, cash flow, or financial condition could be adversely affected, ” our second amended and restated agreement with certain lenders, and Wells Fargo Bank, National Association, as administrative agent (the “Second A&R Credit Agreement”) includes customary restrictive covenants that impose operating and financial restrictions on us.
If goodwill or other intangible assets that we recorded in connection with our prior acquisitions become impaired, we could be required to take significant charges against earnings.
If goodwill or other intangible assets that we recorded in connection with our prior acquisitions become impaired, we could be required to take significant charges against earnings. In connection with the accounting for prior acquisitions, we recorded a significant amount of goodwill and other intangible assets.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could cause our stock price to decline.
Any increase in our effective tax rate would reduce our profitability. Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could cause our stock price to decline.
U.S. government legislation and program rulemaking may cause customers to postpone purchases of our products due to reductions in federal healthcare program reimbursement rates and/or needed changes to their operations in order to meet the requirements of legislation or in anticipation of future rulemaking.
The healthcare industry has faced, and will likely continue to face, significant financial constraints. U.S. government legislation and program rulemaking may cause customers to postpone purchases of our products due to reductions in federal healthcare program reimbursement rates and/or needed changes to their operations in order to meet the requirements of legislation or in anticipation of future rulemaking.
Any failure to prevent such security breaches or privacy violations, or implement satisfactory remedial measures, could require us to expend significant resources to investigate security breaches and notify affected individuals, remediate any damage, disrupt our operations or the operations of our customers, damage our reputation or cause us incur costs to manage public relations issues, damage our relationships with our customers, or expose us to a risk of financial loss, litigation, regulatory penalties, contractual indemnification obligations, or other liability.
Any failure to prevent such security breaches or privacy violations, or implement satisfactory remedial measures, could require us to expend significant resources to investigate security breaches and notify affected individuals, remediate any damage, disrupt our operations or the operations of our customers, damage our reputation or cause us incur costs to manage public relations issues, damage our relationships with our customers, or expose us to a risk of financial loss, litigation, regulatory penalties, contractual indemnification obligations, or other liability. 30 Table of Contents We may fail to realize the potential benefits of acquired businesses, which could negatively affect our business, operating results, cash flow, or financial condition.
Any failure to protect our intellectual property rights could negatively affect our ability to compete. • Materials Risks. We use raw materials and components that may be subject to price fluctuations, shortages, or interruptions of supply. • Suppliers/Third-Party Vendors Risks . We may be unable to obtain an adequate supply of components, equipment, and raw materials on a timely basis.
We may be unable to recruit and retain skilled and motivated personnel. • Intellectual Property Risks. Any failure to protect our intellectual property rights could negatively affect our ability to compete. • Materials Risks. We use raw materials and components that may be subject to price fluctuations, shortages, or interruptions of supply. • Suppliers/Third-Party Vendors Risks .
Any of the foregoing could make our existing and future software solutions obsolete and unmarketable or result in loss of market share, damage our reputation or otherwise harm our business, operating results, cash flow, or financial condition.
Any of the foregoing could 22 Table of Contents make our existing and future solutions obsolete and unmarketable, or result in loss of market share or a determination to exit a particular business or product line, damage our reputation or otherwise harm our business, operating results, cash flow, or financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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LEGAL PROCEEDINGS Refer to the information set forth under “Legal Proceedings” in Note 14, Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 42 Table of Contents PART II
LEGAL PROCEEDINGS Refer to the information set forth under “Legal Proceedings” in Note 14, Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 45 Table of Contents PART II
Petersburg, Florida Administration, marketing, research and development, sales, and manufacturing 167,700 Warrendale, Pennsylvania Manufacturing and research and development 107,400 Cranberry Township, Pennsylvania Administration, marketing, research and development, sales, technical support, and training 89,550 Irlam, United Kingdom Administration, sales, marketing, and distribution center 61,000 Milpitas, California Manufacturing 46,300 Waukegan, Illinois Technical services, support, training, and repair center 38,500 Fort Worth, Texas Administration, sales, marketing, and research and development 34,400 Santa Clara, California Administration, marketing, and research and development 32,492 Bochum, Germany Administration, sales, marketing, distribution, and manufacturing center 19,000 We also have smaller rented facilities in Boston, Massachusetts; Strongsville, Ohio; Austin, Texas; Houston, Texas; Grapevine, Texas; New York, New York; Germany; France; Italy; the People’s Republic of China; the United Arab Emirates; Australia; and the United Kingdom.
Petersburg, Florida Administration, marketing, research and development, sales, and manufacturing 167,700 Warrendale, Pennsylvania Manufacturing and research and development 107,400 Cranberry Township, Pennsylvania Administration, marketing, research and development, sales, technical support, and training 58,400 Irlam, United Kingdom Administration, sales, marketing, and distribution center 61,000 Milpitas, California Administration, manufacturing, and research and development 46,300 Waukegan, Illinois Technical services, support, training, and repair center 38,500 Fort Worth, Texas Administration, sales, marketing, and research and development 34,400 Bochum, Germany Administration, sales, marketing, distribution, and manufacturing center 19,000 We also have smaller rented facilities in Strongsville, Ohio; Grapevine, Texas; New York, New York; Germany; France; India; Italy; the People’s Republic of China; the United Arab Emirates; Australia; and the United Kingdom.
ITEM 2. PROPERTIES Our headquarters are located in a leased facility in Santa Clara, California. The following is a list of our material leased facilities and their primary functions: Site Major Activity Approximate Square Footage St.
ITEM 2. PROPERTIES Our headquarters are located in a leased facility in Fort Worth, Texas. The following is a list of our material leased facilities and their primary functions: Site Major Activity Approximate Square Footage St.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The NASDAQ Composite Index tracks the aggregate price performance of equity securities traded on the NASDAQ Stock Market. The NASDAQ Health Care Index and NASDAQ Health Services Index tracks the aggregate price performance of healthcare and health services equity securities. Omnicell’s common stock is traded on the NASDAQ Global Select Market and is a component of both indexes.
The NASDAQ Composite Index tracks the aggregate price performance of equity securities traded on the NASDAQ Stock Market. The NASDAQ Health Care Index tracks the aggregate price performance of healthcare and health services equity securities. Omnicell’s common stock is traded on the NASDAQ Global Select Market and is a component of both indexes.
The stock price performance shown on the graph is based on historical results and should not be relied upon as an indication of future price performance. 43 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (1) (2) Among Omnicell, Inc., the NASDAQ Composite Index, the NASDAQ Health Care Index, and the NASDAQ Health Services Index _________________________________________________ (1) $100 invested on December 31, 2017 in stock or index, including reinvestment of dividends.
The stock price performance shown on the graph is based on historical results and should not be relied upon as an indication of future price performance. 46 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (1) (2) Among Omnicell, Inc., the NASDAQ Composite Index, and the NASDAQ Health Care Index _________________________________________________ (1) $100 invested on December 31, 2018 in stock or index, including reinvestment of dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “OMCL.” Stockholders There were 76 registered stockholders of record as of February 22, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Our Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “OMCL.” Stockholders There were 76 registered stockholders of record as of February 21, 2024.
Refer to Note 16, Stock Repurchase Programs , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional information. ITEM 6. [Reserved] 44 Table of Contents
Refer to Note 16, Stock Repurchase Programs , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional information. ITEM 6. [Reserved]
The graph assumes $100 was invested in each of Omnicell’s common stock, the NASDAQ Composite Index, the NASDAQ Health Care Index, and the NASDAQ Health Services Index as of the market close on December 31, 2017.
The graph assumes $100 was invested in each of Omnicell’s common stock, the NASDAQ Composite Index, and the NASDAQ Health Care Index as of the market close on December 31, 2018.
Performance Graph The following graph compares total stockholder returns for Omnicell’s common stock for the past five years to three indexes: the NASDAQ Composite Index, the NASDAQ Health Care Index, and the NASDAQ Health Services Index.
Performance Graph The following graph compares total stockholder returns for Omnicell’s common stock for the past five years to two indexes: the NASDAQ Composite Index and the NASDAQ Health Care Index.
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Year Ended December 31, 2017 2018 2019 2020 2021 2022 Omnicell, Inc. $ 100.00 $ 126.27 $ 168.49 $ 247.46 $ 372.04 $ 103.96 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 NASDAQ Health Care 100.00 83.86 92.88 118.12 106.27 79.91 NASDAQ Health Services 100.00 136.52 208.19 343.37 256.81 166.30 Stock Repurchase Program During the year ended December 31, 2022, we repurchased approximately 389,300 shares of our common stock under the repurchase programs at an average price of $134.11 per share for an aggregate purchase price of approximately $52.2 million.
Added
Year Ended December 31, 2018 2019 2020 2021 2022 2023 Omnicell, Inc. $ 100.00 $ 133.44 $ 195.98 $ 294.64 $ 82.33 $ 61.45 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 NASDAQ Health Care 100.00 110.75 140.85 126.71 95.29 96.06 Stock Repurchase Program We did not repurchase any shares of our common stock during the year ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Shipments from suppliers or contract manufacturers before we receive them are recorded as in-transit inventory when title and the significant risks and rewards of ownership have passed to us. Software Development Costs for Internal Use We capitalize costs related to computer software developed or obtained for internal use in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software .
Shipments from suppliers or contract manufacturers before we receive them are recorded as in-transit inventory when title and the significant risks and rewards of ownership have passed to us. Internal-Use Software Development Costs We capitalize costs related to computer software developed or obtained for internal-use in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software .
Our ability to continue to grow revenues is dependent on our ability to continue to obtain orders from customers, which may be dependent upon customers’ capital equipment budgets and/or capital equipment approval cycles, our ability to produce quality products and consumables to fulfill customer demand, the volume of installations we are able to complete, our ability to meet customer needs by providing a quality installation experience, our ability to develop new or enhance existing solutions, and our flexibility in workforce allocations among customers to complete installations on a timely basis.
Our ability to grow revenues is dependent on our ability to continue to obtain orders from customers, which may be dependent upon customers’ capital equipment budgets and/or capital equipment approval cycles, our ability to produce quality products and consumables to fulfill customer demand, the volume of installations we are able to complete, our ability to meet customer needs by providing a quality installation experience, our ability to develop new or enhance existing solutions, and our flexibility in workforce allocations among customers to complete installations on a timely basis.
Based on our current business plan and backlog, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations, cash generated from the exercise of employee stock options and purchases under our Employee Stock Purchase Plan (“ESPP”), along with the availability of funds under the Revolving Credit Facility will be sufficient to meet our cash needs for working capital, capital expenditures, potential acquisitions, and other contractual obligations for at least the next twelve months.
Based on our current business plan and backlog, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations, cash generated from the exercise of employee stock options and purchases under our Employee Stock Purchase Plan (“ESPP”), along with the availability of funds under the Current Revolving Credit Facility will be sufficient to meet our cash needs for working capital, capital expenditures, potential acquisitions, and other contractual obligations for at least the next twelve months.
Investing Activities Net cash used in investing activities was $58.7 million for the year ended December 31, 2022, which consisted of capital expenditures of $47.5 million for property and equipment, $13.2 million for costs of software development for external use, and $3.4 million consideration paid for the acquisition of Hub and Spoke Innovations, net of cash acquired, partially offset by purchase price adjustments from business acquisitions of $5.5 million.
Net cash used in investing activities was $58.7 million for the year ended December 31, 2022, which consisted of capital expenditures of $47.5 million for property and equipment, $13.2 million for external-use software development costs, and $3.4 million consideration paid for the acquisition of Hub and Spoke Innovations, net of cash acquired, partially offset by purchase price adjustments from business acquisitions of $5.5 million.
Most of our sales, other than renewals of support and maintenance, contain multiple performance obligations, with a combination of hardware systems, software products, consumables, support and maintenance, and professional services. The transaction price of a contract is determined based on the fixed consideration, net of an estimate for variable consideration such as various discounts or rebates provided to customers.
Most of our sales, other than renewals of support and maintenance, contain multiple performance obligations, with a combination of hardware systems, software products, support and maintenance, and professional services. The transaction price of a contract is determined based on the fixed consideration, net of an estimate for variable consideration such as various discounts or rebates provided to customers.
Specialty drugs are used for treatment of complex conditions and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty medications are projected to account for 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025.
Specialty drugs are used for treatment of complex conditions and often require intensive patient management and specialized workflows for dispensing and care coordination. Specialty medications are projected to account for nearly 60% of U.S. total spending on medications, with total spending projected to be approximately $420 billion in 2025.
We expect to use future loans under the Revolving Credit Facility, if any, for working capital, potential acquisitions, and other general corporate purposes. Uses of Cash Our future uses of cash are expected to be primarily for working capital, capital expenditures, and other contractual obligations.
We expect to use future loans under the Current Revolving Credit Facility, if any, for working capital, potential acquisitions, and other general corporate purposes. Uses of Cash Our future uses of cash are expected to be primarily for working capital, capital expenditures, and other contractual obligations.
Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of $60.4 million primarily due to an increase in billings driven by overall business growth and the timing of shipments as well as collections, (ii) an increase in inventories of $30.1 million primarily to support forecasted sales, including advanced purchases of certain components, such as semiconductors, as well as higher costs of inventory and timing of shipments, (iii) an increase in investment in sales-type leases of $15.4 million primarily due to the increase in sales-type lease revenues associated with certain Advanced Services products, (iv) a decrease in operating lease liabilities of $13.8 million, (v) a decrease in accounts payables of $7.8 million primarily due to 57 Table of Contents an overall decrease in spending during the fourth quarter of 2022, including inventory spending, as well as timing of payments, and (vi) an increase in prepaid expenses of $4.7 million.
Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of $60.4 million primarily due to an increase in billings driven by overall business growth and the timing of shipments as well as collections, (ii) an increase in inventories of $30.1 million primarily to support forecasted sales, including advanced purchases of certain components, such as semiconductors, as well as higher costs of inventory and timing of shipments, (iii) an increase in investment in sales-type leases of $15.4 million primarily due to the increase in sales-type lease revenues associated with certain Advanced Services products, (iv) a decrease in operating lease liabilities of $13.8 million, (v) a decrease in accounts payables of $7.8 million primarily due to an overall decrease in spending during the fourth quarter of 2022, including inventory spending, as well as timing of payments, and (vi) an increase in prepaid expenses of $4.7 million.
Financing Activities Net cash used in financing activities was $21.0 million for the year ended December 31, 2022, primarily due to $52.2 million for repurchases of our stock and $13.5 million in employees’ taxes paid related to restricted stock unit vesting, partially offset by $40.2 million in proceeds from employee stock option exercises and ESPP purchases and a net increase in the customer funds balances of $4.6 million.
Net cash used in financing activities was $21.0 million for the year ended December 31, 2022, primarily due to $52.2 million for repurchases of our stock and $13.5 million in employees’ taxes paid related to restricted stock unit vesting, partially offset by $40.2 million in proceeds from employee stock option exercises and ESPP purchases and a net change in the customer funds balances of $4.6 million.
Standalone selling price is best evidenced by the price we charge for the good or service when selling it separately in similar circumstances to similar customers. Other than for the renewal of annual support services contracts, our products and services are not generally sold separately. We use an amount discounted from the list price as a best estimated selling price.
Standalone selling price is best evidenced by the price we charge for the good or service when selling it separately in similar circumstances to similar customers. Other than for the renewal of annual technical services contracts, our products and services are not generally sold separately. We use an amount discounted from the list price as a best estimated selling price.
A majority of our contracts are evidenced by a non-cancelable written agreement. Contracts for consumable products are generally evidenced by an order placed via phone or a purchase order. Entity can identify each party’s rights regarding the goods or services to be transferred . Contract terms are documented within the written agreements.
A majority of our contracts are evidenced by a non-cancelable written agreement. Contracts for consumable products are generally evidenced by an order placed via our online portal, phone, or a purchase order. Entity can identify each party’s rights regarding the goods or services to be transferred . Contract terms are documented within the written agreements.
Lessor Leases We determine if an arrangement is a lease at inception. The transaction price is allocated to separate performance obligations, generally consisting of a combination of hardware systems, software products, support and maintenance, and professional services, proportionally based on the standalone selling price of each performance obligation.
Lessor Leases We determine if an arrangement is or contains a lease at inception. The transaction price is allocated to separate performance obligations, generally consisting of a combination of hardware systems, software products, support and maintenance, and professional services, proportionally based on the standalone selling price of each performance obligation.
Lessee Leases We determine if an arrangement is a lease at inception. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
Lessee Leases We determine if an arrangement is or contains a lease at inception. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
Actual results may differ from these estimates and assumptions. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our Consolidated Financial Statements: 48 Table of Contents Revenue Recognition We earn revenues from sales of our products and related services, which are sold in the healthcare industry, our principal market.
Actual results may differ from these estimates and assumptions. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our Consolidated Financial Statements: Revenue Recognition We earn revenues from sales of our products and related services, which are sold in the healthcare industry, our principal market.
Actual collection losses may differ from management’s estimates, and such differences could be material to our financial position and results of operations. 50 Table of Contents Inventory Inventories are stated at the lower of cost, computed using the first-in, first-out method, and net realizable value. Inbound shipping costs are included in cost of inventory.
Actual collection losses may differ from management’s estimates, and such differences could be material to our financial position and results of operations. Inventory Inventories are stated at the lower of cost, computed using the first-in, first-out method, and net realizable value. Inbound shipping costs are included in cost of inventory.
If this qualitative assessment indicates that it is more likely than not that impairment exists, or if we decide to bypass this option, we proceed to the quantitative assessment. The quantitative assessment involves a comparison between the estimated fair value of our reporting unit with its carrying amount including goodwill.
If this qualitative assessment indicates that it is more likely than not that impairment exists, or if we decide to bypass this option, we proceed to the quantitative assessment. The quantitative assessment involves a comparison 54 Table of Contents between the estimated fair value of our reporting unit with its carrying amount including goodwill.
Payment terms are documented within the agreement and are generally net 30 to 60 days from shipment of tangible product or services performed for customers in the United States. Where a written contract does not exist, our standard payment terms are net 30 day terms.
Payment terms are documented within the agreement and are generally net 30 to 60 days from shipment of tangible product or services performed for 51 Table of Contents customers in the United States. Where a written contract does not exist, our standard payment terms are net 30 day terms.
This market represents the beginning of the medication management process in acute care settings, and, we believe, it is a significant automation opportunity for high volumes of manual, 46 Table of Contents repetitive, and error-prone processes that are often common in pharmacies today.
This market represents the beginning of the medication management process in acute care settings, and we believe it is a significant automation opportunity for high volumes of manual, repetitive, and error-prone processes that are often common in pharmacies today.
Software developed or obtained for internal use includes certain costs for the development of our subscription and cloud-based offerings sold to customers, as well as enterprise-level business and finance software customized to meet specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which is generally five years.
Software developed or obtained for internal-use includes certain costs for the development of our subscription and cloud-based offerings sold to our customers, as well as enterprise-level business and finance software that we customize to meet our specific operational needs. Costs incurred in the application development phase are capitalized and amortized over their useful lives, which is generally five years.
If we were to determine that all or part of the net deferred tax assets are not realizable in the future, we will record a valuation allowance that would be charged to earnings in the period such determination is made.
If we were to 55 Table of Contents determine that all or part of the net deferred tax assets are not realizable in the future, we will record a valuation allowance that would be charged to earnings in the period such determination is made.
The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities 51 Table of Contents assumed as of the acquisition date are recorded at the acquisition date fair value. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.
The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the acquisition date are recorded at the acquisition date fair value. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.
Revenues generated in the United States represented 90% of our total revenues for the year ended December 31, 2022. Over the past several years, our business has expanded from a single-point solution to a platform of products and services that will help to further advance the industry vision of the Autonomous Pharmacy.
Revenues generated in the United States represented 88% of our total revenues for the year ended December 31, 2023. Over the past several years, our business has expanded from a single-point solution to a platform of products and services that will help to further advance the industry vision of the Autonomous Pharmacy.
Our international sales represented 10% of total revenues for both of the years ended December 31, 2022 and 2021, and are expected to be affected by foreign currency exchange rate fluctuations. We are unable to predict the extent to which revenues in future periods will be impacted by changes in foreign currency exchange rates.
Our international sales represented 12% and 10% of total revenues for both of the years ended December 31, 2023 and 2022, respectively, and are expected to be affected by foreign currency exchange rate fluctuations. We are unable to predict the extent to which revenues in future periods will be impacted by changes in foreign currency exchange rates.
Sources of Cash Revolving Credit Facility On November 15, 2019, we entered into an Amended and Restated Credit Agreement (as subsequently amended, as discussed below, the “A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, Citizens Bank, N.A., and JPMorgan Chase Bank, N.A., as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent.
Sources of Cash Revolving Credit Facility On November 15, 2019, we entered into an Amended and Restated Credit Agreement (as amended, the “Prior A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, Citizens Bank, N.A., and JPMorgan Chase Bank, N.A., as joint lead arrangers, and Wells Fargo Bank, National Association, as administrative agent.
As of December 31, 2022, there was no outstanding balance for the Revolving Credit Facility and we were in full compliance with all covenants. Refer to Note 10, Debt and Credit Agreement , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
As of December 31, 2023 and 2022, there was no outstanding balance under the Prior or Current Revolving Credit Facility and we were in full compliance with all covenants. Refer to Note 10, Debt and Credit Agreement , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
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.
In addition, the Prior A&R Credit Agreement included a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million.
Refer to Note 17, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information. LIQUIDITY AND CAPITAL RESOURCES We had cash and cash equivalents of $330.4 million at December 31, 2022, compared to $349.1 million at December 31, 2021.
Refer to Note 17, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information. LIQUIDITY AND CAPITAL RESOURCES We had cash and cash equivalents of $468.0 million at December 31, 2023, compared to $330.4 million at December 31, 2022.
Specialty pharm acies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs.
Specialty pharmacies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs.
We believe a solution that addresses start-up and managed services for health systems that is designed to optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations.
We believe a solution that is designed to help health systems start or optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations.
All of our cash and cash equivalents are invested in bank accounts and money market funds held in sweep and asset management accounts with major financial institutions.
All of our cash and cash equivalents are invested in bank accounts and money market funds held in sweep and asset management accounts with financial institutions of high credit quality.
Such omitted discussion can be found under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, located in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, for reference to discussion of the fiscal year ended December 31, 2020, the earliest of the three fiscal years presented.
Such omitted discussion can be found under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” located in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023, for reference to discussion of the fiscal year ended December 31, 2021, the earliest of the three fiscal years presented.
We recognize interest income from sales-type leases using the effective interest method. Both hardware and software revenues, and interest income from sales-types leases are recorded in product revenues in the Consolidated Statements of Operations.
We recognize service revenues associated with sales-type leases ratably over the term of the agreement in service revenues in the Consolidated Statements of Operations. We recognize interest income from sales-type leases using the effective interest method. Both hardware and software revenues, and interest income from sales-types leases are recorded in product revenues in the Consolidated Statements of Operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
The results of the operations of Hub and Spoke Innovations have been included in our consolidated results of operations beginning January 10, 2022. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
We optimize cash flows by selling a majority of our 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. We have no obligation to the leasing company once the lease has been sold.
We optimize cash flows by selling a majority of our sales-type leases, other than those relating to U.S. government hospitals and Advanced Services products, including Central Pharmacy Dispensing Service and IV Compounding Service, to third-party leasing finance companies on a non-recourse basis. We have no obligation to the leasing company once the lease has been sold.
The increase in cost of product revenues was primarily driven by the increase in product revenues of $90.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The decrease in cost of product revenues was primarily driven by the decrease in product revenues of $194.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
During the first quarter of 2022, the 2014 Repurchase Program was completed. During the year ended December 31, 2022, we repurchased approximately 389,300 shares of our common stock under the repurchase programs at an average price of $134.11 per share for an aggregate purchase price of approximately $52.2 million.
During the year ended December 31, 2022, we repurchased approximately 389,300 shares of our common stock under the repurchase programs at an average price of $134.11 per share for an aggregate purchase price of approximately $52.2 million. There were no stock repurchases during the year ended December 31, 2023.
Software Development Costs for External Use We capitalize certain software development costs in accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed , under which those costs incurred subsequent to the establishment of technological feasibility may be capitalized and amortized over the estimated lives of the related products.
Costs recognized in the preliminary project phase and the post-implementation phase are expensed as incurred. 53 Table of Contents External-Use Software Development Costs We capitalize certain software development costs in accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed , under which those costs incurred subsequent to the establishment of technological feasibility may be capitalized and amortized over the estimated lives of the related products.
The 2022 annual effective tax rate differed from the statutory tax rate of 21%, primarily due to a favorable impact of the research and development credits, excess tax benefit from share-based compensation, and foreign-derived intangible income (“FDII”) deduction, partially offset by an unfavorable impact from non-deductible compensation charges and global intangible low-taxed income (“GILTI”) inclusion.
The 2023 annual effective tax rate differed from the statutory tax rate of 21%, primarily due to an unfavorable impact of non-deductible equity compensation charges partially offset by a favorable impact of research and development credits, and foreign-derived intangible income (“FDII”) deduction.
Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will also be important. COVID-19 Update We continue to monitor the COVID-19 pandemic and ongoing impacts on the Company.
Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will continue to be important.
For sales-type leases, we recognize revenues for our hardware and software products, net of lease execution costs, post-installation product maintenance, and technical support, at the net present value of the lease payment stream upon customer acceptance. We recognize service revenues associated with sales-type leases ratably over the term of the agreement in service revenues in the Consolidated Statements of Operations.
For sales-type leases, we recognize revenues for our hardware and software products, net of lease execution costs, post-installation product maintenance, professional services associated with Advanced Services offerings, and technical support, at the net present value of the lease payment stream upon customer acceptance.
Standalone selling price is best evidenced by the price we charge for the good or service when selling it separately in similar circumstances to similar customers. Other than for the renewal of annual support services contracts, our products and services are not generally sold separately. We use an amount discounted from the list price as a best estimated selling price.
Standalone selling price is best evidenced by the price we charge for the good or service when selling it separately in similar 52 Table of Contents circumstances to similar customers. Other than for the renewal of annual technical services contracts, our products and services are not generally sold separately.
Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors,” and elsewhere in this Annual Report on Form 10-K.
This discussion and analysis may contain forward-looking statements based upon our current expectations and assumptions that involve risks and uncertainties. 47 Table of Contents Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors,” and elsewhere in this Annual Report on Form 10-K.
The expected volatility is based on a combination of historical and market-based implied volatility, and the expected life of the awards is based on our historical experience of employee stock option exercises, including forfeitures.
The expected volatility is based on a combination of historical and market-based implied volatility, and the expected life of the awards is based on our historical experience of employee stock option exercises, including forfeitures. Expense is recognized on a straight-line basis over the requisite service period.
New technologies and updated state board regulations appear to be spurring innovation by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of solutions that are intended to help providers and payers engage patients in new ways that improve patient care, reduce the total cost of care, and lead to more profitable operations.
New technologies and increased scope of practice for pharmacists appear to be spurring innovation and expansion of the provision of clinical services by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of our patient engagement solutions, that are intended to help providers (including pharmacists) and payers engage patients in new ways that are expected to improve outcomes, reduce the total cost of care, and lead to more profitable operations.
There were no stock repurchases during the year ended December 31, 2021. Refer to Note 16, Stock Repurchase Programs , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
Refer to Note 16, Stock Repurchase Programs , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
The A&R Credit Agreement superseded our 2016 senior secured credit facility and provides for (a) a five-year revolving credit facility of $500.0 million (the “Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million.
The Prior A&R Credit Agreement provided for (a) a five-year revolving credit facility of $500.0 million (the “Prior Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Prior Incremental Facility”).
Expense is recognized on a straight-line basis over the requisite service period. 52 Table of Contents The fair value of restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) is based on the stock price on the grant date.
The fair value of restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) is based on the stock price on the grant date. The RSUs and RSAs are subject to a service vesting condition and are recognized on a straight-line basis over the requisite service period.
We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems. • Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a significant opportunity as healthcare evolves. A majority of all prescription drugs are distributed in the non-acute sector.
We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems. 50 Table of Contents • Retail, Institutional, and Payer. We believe the Retail, Institutional, and Payer market represents a significant opportunity as healthcare evolves.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes in this Annual Report on Form 10-K. This discussion and analysis may contain forward-looking statements based upon our current expectations and assumptions that involve risks and uncertainties.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Failure of the customer to either return the equipment or negotiate a new agreement results in the contract becoming a month-to-month rental. Certain sales-type leases automatically renew for successive one-year periods at the end of each lease term without written notice from the customer. Our sales-type lease agreements do not contain any material residual value guarantees.
Certain sales-type leases automatically renew for successive one-year periods at the end of each lease term without written notice from the customer. Our sales-type lease agreements do not contain any material residual value guarantees.
Selling, general, and administrative expenses increased by $96.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Selling, general, and administrative expenses decreased by $51.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
These cash outflows were partially offset by (i) an increase in deferred revenues of $24.5 million primarily due to an increase in billings for certain service and subscription offerings, (ii) an increase in accrued liabilities of $16.7 million primarily due to an increase in taxes payable and an increase in general liabilities, (iii) a decrease in other current assets of $6.4 million, (iv) a decrease in other long-term assets of $5.0 million, (v) a decrease in prepaid commissions of $4.3 million, and (vi) an increase in accrued compensation of $2.4 million.
These cash outflows were partially offset by (i) an increase in deferred revenues of $24.5 million primarily due to an increase in billings for certain service and subscription offerings, (ii) an increase in accrued liabilities of $16.7 million primarily due to an increase in taxes payable and an increase in general liabilities, (iii) a decrease in other current assets of $6.4 million, (iv) a decrease in other long-term assets of $5.0 million, (v) a decrease in prepaid commissions of $4.3 million, and (vi) an increase in accrued compensation of $2.4 million. 60 Table of Contents Investing Activities Net cash used in investing activities was $55.0 million for the year ended December 31, 2023, which consisted of capital expenditures of $41.5 million for property and equipment and $13.5 million for external-use software development costs.
Net cash provided by operating activities was $231.8 million for the year ended December 31, 2021, primarily consisting of net income of $77.8 million adjusted for non-cash items of $157.3 million, offset by changes in assets and liabilities of $3.3 million.
Net cash provided by operating activities was $181.1 million for the year ended December 31, 2023, primarily consisting of net loss of $20.4 million adjusted for non-cash items of $157.8 million and changes in assets and liabilities of $43.7 million.
For example, orders for certain of our solutions may not include a purchase order. Connected devices and software license bookings are recorded as revenue upon customer acceptance of the installation or receipt of goods. Revenues from Advanced Services bookings are recorded over the contractual term.
As noted, the portfolio of products, solutions and services we offer has evolved. As a result, the ordering process for certain of our solutions has also evolved. For example, orders for certain solutions may not include a purchase order. Connected devices and software license bookings are recorded as revenue upon customer acceptance of the installation or receipt of goods.
The following table summarizes each revenue category: Revenue Category Revenue Type Income Statement Classification Included in Bookings Connected devices, software licenses, and other Nonrecurring Product Yes (1) Consumables Recurring Product Yes Technical services Recurring Service No Advanced Services (2) (3) Recurring Service Yes _________________________________________________ (1) Certain other insignificant revenue streams ancillary to our products and services, such as freight revenue, are not included in bookings.
We also provide Advanced Services such as Central Pharmacy Dispensing Service (service portion), IV Compounding Service (service portion), EnlivenHealth, Specialty Pharmacy Services, 340B solutions, Inventory Optimization Service, and other software solutions, which typically are provided over 2-7 years. 48 Table of Contents The following table summarizes each revenue category: Revenue Category Revenue Type Income Statement Classification Included in Bookings Connected devices, software licenses, and other Nonrecurring Product Yes (1) Consumables Recurring Product Yes Technical services Recurring Service No Advanced Services (2) (3) Recurring Service Yes _________________________________________________ (1) Certain other insignificant revenue streams ancillary to our products and services, such as freight revenue, are not included in bookings.
Research and development expenses increased by $29.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Research and development expenses decreased by $7.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of $73.2 million, including incremental revenues from our recent acquisitions, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The increase in cost of services and other revenues was primarily driven by the increase in services and other revenues of $45.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The non-cash items primarily consisted of depreciation and amortization expense of $73.0 million, share-based compensation expense of $53.2 million, amortization of discount on convertible senior notes of $18.6 million, amortization of operating lease right-of-use assets of $11.9 million, amortization of debt issuance costs of $3.4 million, and a change in deferred income taxes of $3.3 million.
The non-cash items primarily consisted of depreciation and amortization expense of $87.3 million, share-based compensation expense of $55.3 million, impairment and abandonment of operating lease right-of-use assets related to facilities of $10.0 million, amortization of operating lease right-of-use assets of $8.2 million, amortization of debt issuance costs of $4.4 million, and a change in deferred income taxes of $11.0 million.
Interest and other income (expense), net, changed by $23.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by a $18.1 million decrease in other expenses and a $5.3 million increase in other income.
Interest and other income (expense), net, changed by $14.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by a $14.6 million increase in other income.
Cash Flows The following table summarizes, for the periods indicated, selected items in our Consolidated Statements of Cash Flows: Year Ended December 31, 2022 2021 (In thousands) Net cash provided by (used in): Operating activities $ 77,781 $ 231,809 Investing activities (58,669) (412,498) Financing activities (20,953) 47,363 Effect of exchange rate changes on cash and cash equivalents (944) (974) Net decrease in cash, cash equivalents, and restricted cash $ (2,785) $ (134,300) Operating Activities We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, and the timing of other liability payments.
For periods beyond the next twelve months, we also anticipate that our net operating cash flows plus existing balances of cash and cash equivalents will suffice to fund the continued growth of our business. 59 Table of Contents Cash Flows The following table summarizes, for the periods indicated, selected items in our Consolidated Statements of Cash Flows: Year Ended December 31, 2023 2022 (In thousands) Net cash provided by (used in): Operating activities $ 181,094 $ 77,781 Investing activities (55,016) (58,669) Financing activities 23,420 (20,953) Effect of exchange rate changes on cash and cash equivalents (1,354) (944) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 148,144 $ (2,785) Operating Activities We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, and the timing of other liability payments.
We also expect a continued use of cash for potential acquisitions and acquisition-related activities, as well as repurchases of our common stock. The 2016 Repurchase Program has a total of $2.7 million remaining for future repurchases as of December 31, 2022, which may result in additional use of cash.
The 2016 Repurchase Program has a total of $2.7 million remaining for future repurchases as of December 31, 2023, which may result in additional use of cash.
Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs. As a result, we believe IV automation provides a significant opportunity to enhance patient safety and reduce costs.
Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs and lack of access to needed medications as a result of being unable to source medications when they are required.
We anticipate that these bundled solutions will become more critical as health systems continue to face labor shortages, increased financial pressure, and supply chain disruptions. • Specialty Pharmacy and 340B Program.
As a result, we believe IV automation provides a significant opportunity to enhance patient safety and reduce costs. We anticipate that these technology-enabled services will become more critical as health systems continue to face labor shortages, increased financial pressure, and supply chain disruptions. • Specialty Pharmacy and 340B Program.
The RSUs and RSAs are subject to a service vesting condition and are recognized on a straight-line basis over the requisite service period. The fair value of performance-based stock unit awards (“PSUs”) with service and market conditions is estimated using a Monte Carlo simulation model applying a multiple awards approach.
The fair value of performance-based stock unit awards (“PSUs”) with service and market conditions is estimated using a Monte Carlo simulation model applying a multiple awards approach. Expense is recognized when it is probable that the performance condition will be met using the accelerated attribution method over the requisite service period.
We also believe there is an opportunity for us to expand the offering and define a new standard for dispensing systems in perioperative settings. We believe our current solutions within the Point of Care market and new innovation and services will continue to help customers drive improved outcomes. • Central Pharmacy and IV Compounding.
We believe our current solutions within the Point of Care market and new innovation and services will continue to help customers drive improved clinical and financial outcomes. • Central Pharmacy and IV Compounding.
Business Strategy The U.S. spent a total of $577 billion on prescription drugs that accounted for 14% of National Health Expenditures in 2021, and prescription drugs impact the vast majority of patients in virtually all settings of care.
Business Strategy The U.S. spent a total of $634 billion on prescription drugs in 2022, an increase of 9% compared to 2021, and pr escription drugs impact the vast majority of patients in virtually all settings of care.
The CODM allocates resources and evaluates the performance of Omnicell at the consolidated level using information about our revenues, gross profit, income from operations, and other key financial data. All significant operating decisions are based upon an analysis of Omnicell as one operating segment, which is the same as our reporting segment.
Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. The CODM allocates resources and evaluates the performance of Omnicell at the consolidated level using information about our revenues, gross profit, income from operations, and other key financial data.
The valuation assumptions used in estimating the fair value of employee share-based awards may change in future periods. Accounting for Income Taxes We record an income tax provision for (benefit from) the anticipated tax consequences of the reported results of operations.
Accounting for Income Taxes We record an income tax provision for (benefit from) the anticipated tax consequences of the reported results of operations.
The COVID-19 pandemic accelerated the shift of certain primary care from hospitals and physician offices to other, more convenient settings, such as retail pharmacies and the home (including through telehealth technologies).
Retail drug prescriptions represent 85% of all prescription drugs dispensed in the U.S., growing at a rate of 1.7% annually through 2022. Additionally, the COVID-19 pandemic accelerated the shift of outpatient care from hospitals and physician offices to other, more convenient settings, such as retail pharmacies and the home (including through telehealth technologies).
The increase in other income during the year ended December 31, 2022 compared to the year ended December 31, 2021 is primarily attributable to benefits from certain arrangements outside of our normal course of business, as well as higher interest income received due to higher interest rates. 55 Table of Contents Benefit from Income Taxes Year Ended December 31, Change in 2022 2021 $ % (Dollars in thousands) Benefit from income taxes $ (8,101) $ (11,842) $ 3,741 (32)% Effective tax rate on earnings 330% (18)% We recorded an income tax benefit of $8.1 million on a loss before provision for income taxes of $2.5 million, which resulted in an effective tax rate of 330% for the year ended December 31, 2022 compared to an income tax benefit of $11.8 million on income before provision for income taxes of $66.0 million, which resulted in a negative effective tax rate of 18% for the year ended December 31, 2021.
Provision for (Benefit from) Income Taxes Year Ended December 31, Change in 2023 2022 $ % (Dollars in thousands) Provision for (benefit from) income taxes $ 263 $ (8,101) $ 8,364 (103)% Effective tax rate on earnings (1)% 330% We recorded a provision for income taxes of $0.3 million on a loss before taxes of $20.1 million, which resulted in a negative effective tax rate of 1% for the year ended December 31, 2023, compared to an income tax benefit of $8.1 million on a loss before taxes of $2.5 million, which resulted in an effective tax rate of 330% for the year ended December 31, 2022.
We believe that health systems will invest in more revenue-generating activities that are intended to improve patient outcomes by utilizing specialty pharmacies and the 340B Drug Pricing Program, which allow hospitals and health systems to stretch federal resources and expand patient access to healthcare by requiring manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations.
The 340B Program allows qualifying hospitals and health systems to stretch federal resources and expand patient access to healthcare by requiring manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to eligible healthcare organizations and covered entities.
We are focused on delivering solutions to help drive these medication management outcomes with outstanding customer experience through a mature channel in four market categories: • Point of Care. As a market leader, we expect to continue expansion into this product market as customers increase use of our dispensing systems in more areas within their hospitals.
We are focused on delivering solutions to help our customers realize the industry vision of the Autonomous Pharmacy and drive positive medication management outcomes with outstanding customer experience through a mature channel in four market categories: • Point of Care.
These cash outflows were partially offset by (i) an increase in accrued liabilities of $34.9 million primarily due to an increase in rebates and lease buyout liabilities, (ii) an increase in accounts payables of $29.1 million primarily due to an overall increase in spending, including inventory spending, as well as timing of payments, (iii) an increase in deferred revenues of $24.2 million primarily due to an increase in billings driven by the timing of shipments in order to meet customers’ implementation schedules and recognition of revenues for products requiring installation, (iv) an increase in accrued compensation of $12.3 million primarily due to an increase in accrued commissions, as well as timing of payroll, (v) a decrease in investment in sales-type leases of $3.3 million, and (vi) a decrease in other current assets of $2.8 million.
These cash inflows were partially offset by (i) a decrease in accrued compensation of $21.5 million primarily due to a decrease in the accrual for restructuring initiatives, lower commissions, as well as timing of ESPP purchases, (ii) a decrease in accounts payables of $17.5 million primarily due to an overall decrease in spending, as well as timing of payments, (iii) a decrease in operating lease liabilities of $10.9 million, (iv) an increase in investment in sales-type leases of $10.4 million primarily due to the acceptance of certain Advanced Services products under sales-type lease arrangements, (v) a decrease in accrued liabilities of $10.3 million, and (vi) an increase in other current assets of $6.8 million.
We believe there are significant challenges facing the practice of pharmacy today including, but not limited to, labor shortages, medication errors, drug shortages, medication loss due to drug diversion, significant medication waste and expiration costs, a high level of manual processes, complexity around compliance requirements, high healthcare worker turnover rates affecting tenure and expertise, hospitalizations from adverse drug events in outpatient settings, high variability in outcomes, and limited inventory visibility.
We believe there are significant challenges facing the practice of pharmacy today including, but not limited to, budget constraints, increased healthcare worker turnover rates, labor shortages, drug shortages, drug diversion, manual and error-prone processes, complex compliance requirements, and limited inventory visibility.
RESULTS OF OPERATIONS Total Revenues Year Ended December 31, Change in 2022 2021 $ % (Dollars in thousands) Product revenues $ 903,222 $ 812,512 $ 90,710 11% Percentage of total revenues 70% 72% Services and other revenues 392,725 319,506 73,219 23% Percentage of total revenues 30% 28% Total revenues $ 1,295,947 $ 1,132,018 $ 163,929 14% Product revenues represented 70% and 72% of total revenues for the years ended December 31, 2022 and 2021, respectively.
RESULTS OF OPERATIONS Total Revenues Year Ended December 31, Change in 2023 2022 $ % (Dollars in thousands) Product revenues $ 708,561 $ 903,222 $ (194,661) (22)% Percentage of total revenues 62% 70% Services and other revenues 438,551 392,725 45,826 12% Percentage of total revenues 38% 30% Total revenues $ 1,147,112 $ 1,295,947 $ (148,835) (11)% Product revenues represented 62% and 70% of total revenues for the years ended December 31, 2023 and 2022, respectively.
Operating Expenses and Interest and Other Income (Expense), Net Year Ended December 31, Change in 2022 2021 $ % (Dollars in thousands) Operating expenses: Research and development $ 104,969 $ 75,716 $ 29,253 39% As a percentage of total revenues 8% 7% Selling, general, and administrative 486,341 389,430 96,911 25% As a percentage of total revenues 38% 34% Total operating expenses $ 591,310 $ 465,146 $ 126,164 27% As a percentage of total revenues 46% 41% Interest and other income (expense), net $ (130) $ (23,500) $ 23,370 (99)% Research and Development.
Operating Expenses and Interest and Other Income (Expense), Net Year Ended December 31, Change in 2023 2022 $ % (Dollars in thousands) Operating expenses: Research and development $ 97,115 $ 104,969 $ (7,854) (7)% As a percentage of total revenues 8% 8% Selling, general, and administrative 434,593 486,341 (51,748) (11)% As a percentage of total revenues 38% 38% Total operating expenses $ 531,708 $ 591,310 $ (59,602) (10)% As a percentage of total revenues 46% 46% Interest and other income (expense), net $ 14,760 $ (130) $ 14,890 (11454)% Research and Development.
This intelligent infrastructure provides the critical foundation for customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management. Facilities worldwide use our automation and analytics solutions to increase operational efficiency, reduce medication errors, deliver actionable intelligence, and improve patient safety.
We are doing this with an industry-leading medication management infrastructure which includes robotics, smart devices, intelligent software, and expert services. This comprehensive set of solutions provides the critical foundation for customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management.
Sales-Type Leases We enter into non-cancelable sales-type lease arrangements, most of which do not have an option to extend the lease term. At the end of the lease term, the customer must either return the equipment or negotiate a new agreement, resulting in a new purchase or lease transaction.
We use an amount discounted from the list price as a best estimated selling price. Sales-Type Leases We enter into non-cancelable sales-type lease arrangements, most of which do not have an option to extend the lease term.
Cost of Revenues and Gross Profit Cost of revenues is primarily comprised of three general categories: (i) standard product costs which account for the majority of the product cost of revenues that are provided to customers, and are inclusive of purchased material, labor to build the product, and overhead costs associated with production; (ii) costs of providing services and installation costs, including costs of personnel and other expenses; and (iii) other costs, including variances in standard costs and overhead, scrap costs, rework, warranty, provisions for excess and obsolete inventory, and amortization of software development costs and intangibles.
Cost of Revenues and Gross Profit Cost of revenues is primarily comprised of three general categories: (i) standard product costs which account for the majority of the product cost of revenues that are provided to customers, and are inclusive of purchased material, labor to build the product, and overhead costs associated with production; (ii) costs of providing services and installation costs, including costs of personnel and other expenses; and (iii) other costs, including variances in standard costs and overhead, scrap costs, rework, provisions for excess and obsolete inventory, and amortization of software development costs and intangibles. 56 Table of Contents Year Ended December 31, Change in 2023 2022 $ % (Dollars in thousands) Cost of revenues: Cost of product revenues $ 414,106 $ 493,626 $ (79,520) (16)% As a percentage of related revenues 58% 55% Cost of services and other revenues 236,166 213,334 22,832 11% As a percentage of related revenues 54% 54% Total cost of revenues $ 650,272 $ 706,960 $ (56,688) (8)% As a percentage of total revenues 57% 55% Gross profit $ 496,840 $ 588,987 $ (92,147) (16)% Gross margin 43% 45% Cost of revenues for the year ended December 31, 2023 compared to the year ended December 31, 2022 decreased by $56.7 million, primarily driven by a $79.5 million decrease in cost of product revenues, partially offset by a $22.8 million increase in cost of services and other revenues.
The portion of the transaction price allocated to our unsatisfied performance obligations are recorded as deferred revenues. Revenues, contract assets, and contract liabilities are recorded net of associated taxes. 49 Table of Contents From time to time, we enter into change orders which modify the product to be received by the customer pursuant to certain contracts.
The portion of the transaction price allocated to our unsatisfied performance obligations for which invoicing has occurred is recorded as deferred revenues, net of deferred cost of goods sold. Revenues, contract assets, and contract liabilities are recorded net of associated taxes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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As of December 31, 2022, we did not have any outstanding interest rate swap agreements. 59 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and Consolidated Financial Statements are included in Item 15 of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference. ITEM 9.
As of December 31, 2023, we did not have any outstanding interest rate swap agreements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and Consolidated Financial Statements are included in Item 15 of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference. ITEM 9.
Although our convertible senior notes are based on a fixed rate, changes in interest rates could impact the fair value of such notes. As of December 31, 2022, the fair market value of our convertible senior notes was $501.4 million.
Although our convertible senior notes are based on a fixed rate, changes in interest rates could impact the fair value of such notes. As of December 31, 2023, the fair market value of our convertible senior notes was $527.2 million.
Interest Rate Fluctuation Risk We are exposed to interest rate risk through our borrowing activities. As of December 31, 2022, there was no outstanding balance under the A&R Credit Agreement, and the net carrying amount under our convertible senior notes was $566.6 million.
As of December 31, 2023, we did not have any outstanding foreign exchange forward contracts. Interest Rate Fluctuation Risk We are exposed to interest rate risk through our borrowing activities. As of December 31, 2023, there was no outstanding balance under the Current A&R Credit Agreement, and the net carrying amount under our convertible senior notes was $569.7 million.
In order to manage foreign currency risk, at times we enter into foreign exchange forward contracts to mitigate risks associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities of our foreign subsidiaries. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions.
In order to manage foreign currency risk, at times we enter into foreign exchange forward contracts to mitigate risks 61 Table of Contents associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities of our foreign subsidiaries.
By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We do not enter into derivative contracts for trading purposes. As of December 31, 2022, we did not have any outstanding foreign exchange forward contracts.
In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We do not enter into derivative contracts for trading purposes.

Other OMCL 10-K year-over-year comparisons