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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 114 added, 146 removed, 324 unchanged (45% of the section changed)

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.

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.

This discussion and analysis may contain forward-looking statements based upon our current expectations and assumptions that involve risks and uncertainties.

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We have elected to omit discussion of the earliest of the three years covered by the Consolidated Financial Statements 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, 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.

Omnicell, a leader in transforming the pharmacy care delivery model, is committed to solving the critical challenges inherent in medication management and elevating the role of clinicians within healthcare as an essential component of care delivery.

Omnicell is focused on not only helping its customers optimize medication management in each setting of care, but also placing the patient at the center and helping its customers optimize medication management across all care settings from inpatient to outpatient.

We are doing so with an industry-leading medication management intelligent infrastructure to equip and empower pharmacists and pharmacies with the ability to focus on clinical care rather than administrative tasks.

This intelligent infrastructure provides the critical foundation for customers to realize the industry vision of the Autonomous Pharmacy, a vision defined by pharmacy leaders for improving operational efficiencies and ultimately targeting zero-error medication management.

Facilities worldwide use our automation and analytics solutions to increase operational efficiency, reduce medication errors, deliver actionable intelligence, and improve patient safety.

Institutional and retail pharmacies across North America and the United Kingdom leverage our innovative medication adherence and population health solutions to improve patient engagement and adherence to prescriptions, helping to reduce costly hospital readmissions.

Omnicell is focused on helping its customers to define and deliver a cost effective medication management strategy that is designed to equip and empower pharmacists and nurses to focus on patient care rather than administrative tasks, and to drive improved clinical, operational, and financial outcomes across all care settings.

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.

Omnicell solutions are helping healthcare facilities worldwide to reduce costs, improve labor efficiency, establish new revenue streams, enhance supply chain control, support compliance, and move closer to the industry vision of the Autonomous Pharmacy.

We sell our product and consumable solutions together with related service offerings.

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We typically exclude technical services and other less significant items ancillary to our products and services, such as freight revenue from bookings.

In addition, dependent upon counterparty or credit risk, which is evaluated at the time of contract signing, for a given multi-year subscription contract we may reduce the portion of the contractual commitment booked at a given time.

As noted, the portfolio of products, solutions and services we offer has evolved.

As a result, the ordering process for certain of our solutions has also evolved.

For example, orders for certain of our solutions may not include a purchase order.

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.

Revenues from Advanced Services bookings are recorded over the contractual term.

Bookings decreased by 13%, from $1.217 billion in 2021 to $1.054 billion in 2022, primarily driven by reduced demand for connected devices, partially offset by strong demand for Advanced Services offerings and the impact of acquisitions.

Bookings decreased by 19%, from $1.054 billion in 2022 to $854 million in 2023, primarily driven by lower-than-expected orders for our Advanced Services, particularly our technology-enabled services, which include Central Pharmacy Dispensing Service and IV Compounding Service.

We generally provide installation planning and consulting as part of most connected device product sales, which is typically included in the initial price of the solution.

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In addition to connected device product sales, we provide a range of services to our customers.

We also provide Advanced Services such as Central Pharmacy Dispensing Service (service portion), IV Compounding Service (service portion), EnlivenHealth, Specialty

Pharmacy Services, 340B solutions, Inventory Optimization Service, and other software solutions, which typically are provided over 2-7 years.

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.

The following table summarizes each revenue category:

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(3) For those Advanced Services contracts without a minimum commitment, bookings only include the amount of revenue that has been recognized once the services have been provided.

Our full-time employee headcount was approximately 4,230 on December 31, 2022, an increase of approximately 430 employees since December 31, 2021.

In November 2022, we announced a restructuring plan intended to reduce our global workforce across a majority of our functions affecting approximately 350 employees.

The majority of employees impacted by this restructuring event were included in our headcount as of December 31, 2022 with termination dates in early 2023.

Our full-time employee headcount was approximately 3,650 on December 31, 2023, a decrease of approximately 580 employees since December 31, 2022.

The decrease in employee headcount reflects the impact of restructuring initiatives announced in November 2022 and November 2023.

Operating Segments

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Business Strategy

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.

We believe there are significant challenges facing the practice of pharmacy today including, but not limited to, labor shortages, medication errors, drug shortages, medication loss due to drug diversion, significant medication waste and expiration costs, a high level of manual processes, complexity around compliance requirements, high healthcare worker turnover rates affecting tenure and expertise, hospitalizations from adverse drug events in outpatient settings, high variability in outcomes, and limited inventory visibility.

Each of these challenges can translate into a major economic impact for hospitals and health systems.

We believe that these significant challenges to the practice of pharmacy drive demand for increased digitization, visibility, and insights that our solutions enable, and that our solutions therefore present large opportunities.

In an effort to address these challenges and deliver solutions to help drive positive medication management outcomes, we believe a combination of technology, expertise and intelligence is needed in each care setting and across the entire continuum of care.

We are focused on delivering solutions to help drive these medication management outcomes with outstanding customer experience through a mature channel in four market categories:

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.

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.

Each of these challenges may lead to poor medication management outcomes including, but not limited to, medication errors, adverse drug events, lack of patient adherence, and medication waste.

We also recognize that these challenges may impact the timing of contracting for, or implementing, our products, solutions, or services.

However, we believe that over time these significant challenges to the practice of pharmacy will drive demand for increased automation, visibility, insights, and improved medication management outcomes that our solutions are designed to enable.

Because of this, we believe that our solutions are well-positioned to address the evolving needs of healthcare institutions and therefore present opportunities for long-term growth.

In an effort to address these challenges and deliver solutions to help drive positive medication management outcomes, we continue to make significant investments in our research and development efforts to further advance the industry vision of the Autonomous Pharmacy.

Furthermore, we believe a combination of robotics, smart devices, intelligent software, and expert services is needed in every care setting where medications are managed.

We are focused on delivering solutions to help our customers realize the industry vision of the Autonomous Pharmacy and drive positive medication management outcomes with outstanding customer experience through a mature channel in four market categories:

• Point of Care.

As a market leader, we expect to continue expansion into this product market as customers increase use of our dispensing systems in more areas within their hospitals.

Should labor shortages continue to challenge the delivery of healthcare services, we believe that deploying solutions and workflows that are intended to save nursing time is essential.

We are more than halfway through the replacement, upgrade, and expansion cycle of older models of automated dispensing systems with our XT Series within our customer base, which we believe remains a significant market opportunity.

We have been successful in market expansion through competitive conversions and we expect this success to continue.

We also believe there is an opportunity for us to expand the offering and define a new standard 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.

As a market leader, we expect to continue expansion into this product market as customers increase the use of our dispensing systems in more areas within their hospitals and increasingly in ambulatory care settings.

However, we recognize that the current macroeconomic environment, with significant labor constraints, may impact our customers’ considerations in the near term when they are determining whether to implement new workflows that may affect those same stressed labor pools.

As we are largely through the replacement cycle of our previous generation of automated dispensing systems, we are seeing demand moderate.

We continue to invest in next-generation point of care enhancements and solutions and believe that customers will upgrade their current installed base over time as we deliver these new solutions to market.

We also believe there is an opportunity for us to expand this offering and define a new standard for dispensing systems in ambulatory settings.

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.

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.

This market represents the beginning of the medication management process in acute care settings, and we believe it is a significant automation opportunity for high volumes of manual, repetitive, and error-prone processes that are often common in pharmacies today.

Manual medication dispensing processes are usually labor intensive, error-prone, and may lead to excess medication waste and expirations for our healthcare partners.

Automating the central pharmacy dispensing process should enable customers to reallocate pharmacy labor, enhance dispensing accuracy and patient safety, and reduce medication waste and expirations.

Likewise, the manual compounding of sterile IV preparations can be error-prone and create significant patient safety risks, and outsourcing sterile IV compounding could lead to increased medication costs and lack of access to needed medications as a result of being unable to source medications when they are required.

As a result, we believe IV automation provides a significant opportunity to enhance patient safety and reduce costs.

Because adoption of our Central Pharmacy and IV automation solution is still nascent, we believe that the implementation of new solutions (as well as upgrading older technology) will be accelerated by combining technology, expertise, and intelligence into a comprehensive offering that is designed to deliver improved outcomes.

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.

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.

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.

We believe that health systems will continue to invest in programs that are intended to improve patient outcomes and drive cost savings by utilizing specialty pharmacies and the federal 340B Drug Pricing Program (the “340B Program”).

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.

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.

Specialty medications are projected to account for nearly 60% of U.S.

total spending on medications, with total spending projected to be approximately $420 billion in 2025.

Specialty pharm acies serve as the connection between patients, prescribing physicians, and payers and work to streamline access and adherence to these specialty drugs.

We believe a solution that addresses start-up and managed services for health systems that is designed to optimize their specialty pharmacy programs and the related pharmaceutical aspects of patient care will help ensure continuity of care and should contribute to the revenue and profitability of those organizations.

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 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.

We believe that a fully optimized specialty pharmacy operation represents one of the largest economic opportunities for hospitals and health systems.

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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.

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).

New technologies and updated state board regulations appear to be spurring innovation by retail pharmacies, which, combined with the move to value-based care, we believe will drive the adoption of solutions that are intended to help providers and payers engage patients in new ways that improve patient care, reduce the total cost of care, and lead to more profitable operations.

Because of the complexity of relationships between payers and providers, as well as the large number of retail pharmacies, including a significant number of independent pharmacies, we believe a network of established relationships between payers, providers and pharmacies will also be important.

COVID-19 Update

We continue to monitor the COVID-19 pandemic and ongoing impacts on the Company.

At the outset of the COVID-19 pandemic, many health systems faced financial and operational pressures which we believe led our customers to delay or defer purchasing decisions and/or implementation of our solutions.

However, it currently appears that the COVID-19 pandemic is no longer directly impacting our customers’ buying patterns.

We believe that the challenges our customers have faced during the COVID-19 pandemic, including the need for robust visibility throughout their pharmacy supply chains, have increased the strategic relevance of our products and services.

The COVID-19 pandemic continues to evolve and there remains uncertainty regarding the continuing impact of the pandemic, including the impact of new variants of the COVID-19 virus, on the U.S.

and world economies, as well as on our business.

We continue to monitor this dynamic situation and may adjust our outlook as appropriate.

The ongoing impact of the COVID-19 pandemic, and the resulting increased economic and demand uncertainty, may adversely affect our business, operating results, cash flow, financial condition, and liquidity (including increased borrowing costs or other costs of capital).

However, under current circumstances, we believe that our financial position and resources will allow us to manage the anticipated impact of the COVID-19 pandemic on our business for the foreseeable future.

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).

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.

Ransomware Incident

On May 4, 2022, we determined that certain of our information technology systems were affected by ransomware impacting certain internal systems.

Upon detecting the security event, we took immediate steps designed to contain the incident and implement our business continuity plans to restore and support continued operations.

We have contained the incident and restored substantially all of our critical information technology systems.

As a result of the ransomware incident, (i) invoicing

was delayed, which impacted the timing of cash collections and free cash flow within the year, and (ii) we experienced customer implementation delays during the year as we recovered from the impacts of the ransomware incident.

Substantially all delayed implementations due to the ransomware incident have been completed as of the end of the year.

Furthermore, any delayed or impacted processes have returned to normal operations.

We do not believe the security event will have a material adverse effect on our business, operating results, cash flow, or financial condition.

Further information with respect to the ransomware incident we experienced in May 2022 may be found under the headings “Ongoing Mitigation Efforts” and “Impact of Recent Cyber Incident” in Part I, Item 1C of this Annual Report on Form 10-K.

Such information is incorporated herein by reference.

On January 10, 2022, we completed the acquisition of Hub and Spoke Innovations Limited (“Hub and Spoke Innovations”), pursuant to the terms and conditions of the Share Purchase Agreement, dated January 10, 2022, by and among Omnicell Limited (a wholly-owned subsidiary of the Company), Hub and Spoke Innovations Limited, and certain beneficial stockholders specified therein for a base purchase price of £2.5 million (approximately $3.4 million based on the exchange rate in effect at the acquisition date), prior to customary adjustments for closing cash, net working capital, and assumed indebtedness.

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

On December 31, 2021, we completed the acquisition of MarkeTouch Media pursuant to the terms and conditions of the Unit Purchase Agreement, dated December 31, 2021, by and among ateb, Inc.

(a wholly-owned subsidiary of the Company), MarkeTouch Media, LLC, MarkeTouch Holdings, Inc., Toucan Enterprises, Inc., and certain beneficial stockholders specified therein for a base purchase price of $82.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness.

The MarkeTouch Media acquisition adds mobile and web-based technology and patient engagement solutions, which is expected to expand the footprint of EnlivenHealth across the retail pharmacy sector, while enhancing potential growth opportunities in new market segments like specialty pharmacy and pharmacy benefits management.

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

On December 29, 2021, we completed the acquisition of ReCept Holdings, Inc., (“ReCept”), which was subsequently renamed Omnicell Specialty Pharmacy Services, Inc., pursuant to the terms and conditions of the Agreement and Plan of Merger, dated December 1, 2021, by and among Omnicell, Inc., ReCept Holdings, Inc., Redfish Acquisition Corp, and the representative of the securityholders for a base purchase price of $100.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness.

The addition of ReCept’s specialty pharmacy management services, now a part of the Company’s Specialty Pharmacy Services, for health systems, provider groups, and federally qualified health centers expands Omnicell’s Advanced Services portfolio in an effort to address the growing and complex specialty pharmacy market.

The results of the operations of ReCept have been included in our consolidated results of operations beginning December 29, 2021.

On September 9, 2021, we completed the acquisition of FDS Amplicare pursuant to the terms and conditions of the Agreement and Plan of Merger, dated July 25, 2021, by and among RxInnovation Inc., Omnicell, Inc., Fleming Acquisition Corp., and the representative of the securityholders for a base purchase price of $177.0 million, prior to customary adjustments for closing cash, net working capital, and assumed indebtedness.

The FDS Amplicare acquisition adds a comprehensive and complementary suite of SaaS financial management, analytics, and population health solutions to our EnlivenHealth offering.

The results of the operations of FDS Amplicare have been included in our consolidated results of operations beginning September 9, 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

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 .

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The entity can identify the payment terms for the goods or services to be transferred .

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.

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.

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When performance obligations are included in separate contracts, we consider an entire customer arrangement to determine if separate contracts should be considered combined for the purposes of revenue recognition.

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.

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.

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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.

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.

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Time and material services transfer control to the customer at the time the services are provided.

The portion of the transaction price allocated to our unsatisfied performance obligations are recorded as deferred revenues.

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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Lessor Leases

We determine if an arrangement is a lease at inception.

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.

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.

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.

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Our sales-type lease agreements do not contain any material residual value guarantees.

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.

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.

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.

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Both hardware and software revenues, and interest income from sales-types leases are recorded in product revenues in the Consolidated Statements of Operations.

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 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.

Some of our sales-type leases, mostly those relating to U.S.

government hospitals, and those associated with financed service contracts related to certain Advanced Services products, including Central Pharmacy Dispensing Service and IV Compounding Service, are retained in-house.

Allowance for Credit Losses

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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

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 .

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.

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.

Costs recognized in the preliminary project phase and the post-implementation phase are expensed as incurred.

Software Development Costs for External Use

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.

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Lessee Leases

We determine if an arrangement is a lease at inception.

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.

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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.

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.

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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.

The quantitative assessment involves a comparison

between the estimated fair value of our reporting unit with its carrying amount including goodwill.

If the carrying value exceeds estimated fair value, we will record an impairment charge based on that difference.

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In the event that these tax rates change, we will incur a benefit or detriment on our income tax expense in the period of enactment.

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

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.

In accordance with ASC 740, we recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

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Product revenues represented 62% and 70% of total revenues for the years ended December 31, 2023 and 2022, respectively.

Product revenues increased by $90.7 million, due to increased customer demand, primarily within our automated dispensing systems business, as well as increased revenues from our IV Compounding Service and Central Pharmacy Dispensing Service.

Product revenues decreased by $194.7 million, primarily due to lower volumes from our automated dispensing systems business primarily as a result of ongoing health systems’ capital budget and labor constraints, partially offset by an increase of $9.7 million in revenues from consumables.

Services and other revenues represented 38% and 30% of total revenues for the years ended December 31, 2023 and 2022, respectively.

Services and other revenues include revenues from technical services and Advanced Services offerings.

Services and other revenues increased by $73.2 million, primarily due to growth in our Advanced Services, including

incremental Advanced Services revenues from our recent acquisitions of FDS Amplicare, ReCept, and MarkeTouch Media.

The increase was partially offset by a decrease in revenues from 340B solutions primarily due to impacts from decreasing provider utilization of the 340B program as a result of recent drug manufacturer actions.

Our international sales represented 10% of total revenues for both of the years ended December 31, 2022 and 2021, and are expected to be affected by foreign currency exchange rate fluctuations.

Services and other revenues increased by $45.8 million, primarily due to an increase of $26.7 million in Advanced Services revenues due to continued customer demand and an increase of $19.1 million in technical services revenues as a result of growth in our installed customer base as well as the impact of pricing actions.

Our international sales represented 12% and 10% of total revenues for 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.

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.

The timing of our product revenues for equipment is primarily dependent on when our customers’ schedules and/or staffing levels allow for installations.

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(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.

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.

Year Ended December 31, Change in

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Gross margin 43% 45%

Cost of revenues for the year ended December 31, 2022 compared to the year ended December 31, 2021 increased by $129.6 million, of which $70.8 million was attributed to the increase in cost of product revenues and $58.8 million was attributed to the increase in cost of services and other revenues.

The increase in cost of product revenues was primarily driven by the increase in product revenues of $90.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was also driven by inventory-related costs due to inflationary impacts, higher employee-related and travel expenses due to increased headcount, as well as an increase in employee-related expenses for restructuring initiatives.

This increase was partially offset by the benefits associated with economies of scale due to higher volumes during 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 $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 cost of service and other revenues grew at a faster pace than our service and other revenues primarily due to additional investments in our service business to support new service solutions, the impact of lower 340B solutions revenues, and the mix of service revenues recognized during the year ended December 31, 2022.

The overall decrease in gross margin primarily relates to additional investments in our business, including our service solutions, the impact of lower 340B solutions revenues, and the mix of service revenues recognized in the quarter, as well as inflationary impacts on inventory-related costs and higher employee-related and travel expenses.

The decrease is partially offset

by higher revenues for the year ended December 31, 2022 due to increased customer demand as well as benefits associated with economies of scale due to higher volumes.

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 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.

The decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues for the year ended December 31, 2023, primarily due to certain fixed costs, such as labor and overhead.

In addition, the decrease in cost of product revenues was also driven by lower inventory-related costs as pricing for semiconductors, steel, freight, and other costs has decreased from the prior period, as well as the impact from restructuring activities.

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 overall decrease in gross margin primarily relates to lower product revenues for the year ended December 31, 2023 compared to the year ended December 31, 2022 whereas the decrease in cost of product revenues has not decreased proportionally with the decrease in product revenues, primarily due to certain fixed costs, such as labor and overhead.

The decrease is partially offset by lower inventory-related costs and the impact from restructuring activities.

Our gross profit for the year ended December 31, 2023 was $496.8 million, as compared to $589.0 million for the year ended December 31, 2022.

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Research and Development.

Research and development expenses increased by $29.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily attributed to an increase in employee-related expenses of approximately $19.6 million due to increased headcount to support the continued development of our intelligent infrastructure and incremental headcount from recent acquisitions, as well as an increase of $3.5 million in employee-related expenses for restructuring initiatives.

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 decrease was primarily attributed to a decrease of $5.4 million in consulting expenses, a decrease in employee-related expenses of $4.8 million, and other decreases from cost saving initiatives, partially offset by an increase of $4.3 million due to the timing of capitalized software projects.

Selling, General, and Administrative .

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.

The increase was primarily due to an increase of approximately $42.4 million in em ployee-related expenses primarily related to increased headcount, including the incremental headcount from recent acquisitions, as well as an increase o f $9.6 million in employee-related expenses for restructuring initiatives.

The increase was also driven by an increase in spending on travel and meetings of $7.6 million, an increase in intangible asset amortization expense of $7.0 million, an i ncrease in shipping and handling costs of $6.4 million, an increase in consulting expens es of $3.5 million, an in crease in spendi ng on software of $4.1 million, an increase in trade show expenses of $4.0 million, and increases in other operating expenses.

In addition, we incurred impairment and abandonment charges to operating lease right-of-use assets of $9.4 million and ransomware-related expenses, net of insurance recoveries, of $2.0 million during the year ended December 31, 2022.

The increase was partially offset by a decrease of $10.6 million in acquisition related expenses.

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.

The decrease was primarily due to a decrease

of $21.9 million in employee-related expenses, including the impact of restructuring activities, a decrease of $9.8 million in consulting expenses, a decrease of $7.3 million in commissions expenses, a decrease of $6.0 million in freight out, and a decrease of $4.8 million in travel expenses.

The decrease is also driven by a decrease of $2.8 million of ransomware-related expenses, net of insurance recoveries, related to the ransomware incident we experienced in May 2022.

The decrease is partially offset by an increase of $2.2 million in executive transition costs incurred during the year ended December 31, 2023, and an impairment of certain long-lived assets of $1.0 million during the year ended December 31, 2023.

Interest and Other Income (Expense), Net.

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.

The decrease in other expenses during the year ended December 31, 2022 compared to the year ended December 31, 2021 is primarily due to the adoption of Accounting Standards Update (“ASU”) 2020-06, effective January 1, 2022, which eliminated the imputed interest expense recognized on our convertible senior notes (refer to Note 1, Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information).

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.

Benefit from Income Taxes

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.

The increase in other income during the year ended December 31, 2023 compared to the year ended December 31, 2022 is primarily attributable to higher interest income received due to higher interest rates and higher cash and cash equivalents balances.

Provision for (Benefit from) Income Taxes

Year Ended December 31, Change in

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(Dollars in thousands)

Benefit from income taxes $ (8,101) $ (11,842) $ 3,741 (32)%

Provision for (benefit from) income taxes $ 263 $ (8,101) $ 8,364 (103)%

Effective tax rate on earnings (1)% 330%

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.

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.

Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct research and development expenditures and required those expenditures to be amortized.

While this change has not materially impacted our effective tax rate, the provision has impacted our cash flows and increased the amount of cash taxes we pay.

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.

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.

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.

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We had cash and cash equivalents of $468.0 million at December 31, 2023, compared to $330.4 million at December 31, 2022.

All of our cash and cash equivalents are invested in bank accounts and money market funds held in sweep and asset management accounts with 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.

Our cash position and working capital at December 31, 2023 and 2022 were as follows:

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Cash and cash equivalents $ 467,972 $ 330,362

Working capital (deficit) (1)

$ 453,366 $ (95,456)

_________________________________________________

(1) The working capital deficit balance as of December 31, 2021 was primarily due to the classification of our convertible senior notes as a current rather than long-term liability.

Refer to Note 11, Convertible Senior Notes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.

Working capital $ 559,779 $ 453,366

Our ratio of current assets to current liabilities was 2.5:1 and 2.1:1 at December 31, 2023 and 2022, respectively.

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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.

The A&R Credit Agreement superseded our 2016 senior secured credit facility and provides for (a) a five-year revolving credit facility of $500.0 million (the “Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million.

In addition, the A&R Credit Agreement includes a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million.

On September 22, 2020, the parties entered into an amendment to the A&R Credit Agreement to, among other changes, permit the issuance of the convertible senior notes and the purchase of the convertible note hedge transactions described below, expand our flexibility to repurchase our common stock and make other restricted payments, and replace the total net leverage covenant with a new secured net leverage covenant that required us to maintain a consolidated secured net leverage ratio not to exceed 3.50:1 for the calendar quarters ending September 30, 2020, December 31, 2020, and March 31,

2021 and requires us to maintain a consolidated secured net leverage ratio not to exceed 3.00:1 for the calendar quarters ending thereafter.

As of December 31, 2022, there was no outstanding balance for the Revolving Credit Facility and we were in full compliance with all covenants.

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

The Prior A&R Credit Agreement provided for (a) a five-year revolving credit facility of $500.0 million (the “Prior Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to $250.0 million (the “Prior Incremental Facility”).

In addition, the Prior A&R Credit Agreement included a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million.

On September 22, 2020 and March 29, 2023, we entered into amendments to the Prior A&R Credit Agreement to, among other changes, permit the issuance of the convertible senior notes and the purchase of the convertible note hedge

transactions, as described in Note 11, Convertible Senior Notes , expand our flexibility to repurchase our common stock and make other restricted payments, and replace the total net leverage covenant, as well as to remove and replace the interest rate benchmark based on the London interbank offered rate (“LIBOR”) and related LIBOR-based mechanics applicable to borrowings under the A&R Credit Agreement with an interest rate benchmark based on the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York and related SOFR-based mechanics.

On October 10, 2023, we entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the lenders from time to time party thereto, Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and TD Securities (USA) LLC as joint lead arrangers and Wells Fargo Bank, National Association, as administrative agent.

The Second A&R Credit Agreement supersedes the Prior A&R Credit Agreement and provides for (a) a five-year revolving credit facility of $350.0 million (the “Current Revolving Credit Facility”) and (b) an uncommitted incremental loan facility of up to an amount equal to the sum of (i) the greater of $250.0 million and 100% of the adjusted consolidated EBITDA for the last four quarters and (ii) additional amounts subject to pro forma compliance with certain consolidated secured net leverage ratio (the “Current Incremental Facility”).

In addition, the Second A&R Credit Agreement includes a letter of credit sub-limit of up to $15.0 million and a swing line loan sub-limit of up to $25.0 million.

The Second A&R Credit Agreement has an expiration date of October 10, 2028, subject to acceleration under certain conditions, upon which date all remaining outstanding borrowings will be due and payable.

As of December 31, 2023, we had $350.0 million of funds available under the Current Revolving Credit Facility and as of December 31, 2022, we had $500.0 million of funds available under the Prior Revolving Credit Facility.

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.

We expect to use future loans under the Revolving Credit Facility, if any, for working capital, potential acquisitions, and other general corporate purposes.

We expect to use future loans under the Current Revolving Credit Facility, if any, for working capital, potential acquisitions, and other general corporate purposes.

Our future uses of cash are expected to be primarily for working capital, capital expenditures, and other contractual obligations.

We also expect a continued use of cash for potential acquisitions and acquisition-related activities, as well as repurchases of our common stock.

In addition, we may also use a portion of our cash, as we consider various options related to our outstanding debt.

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.

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.

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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.

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.

For periods beyond the next twelve months, we also anticipate that our net operating cash flows plus existing balances of cash and cash equivalents will suffice to fund the continued growth of our business.

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Effect of exchange rate changes on cash and cash equivalents (1,354) (944)

Net decrease in cash, cash equivalents, and restricted cash $ (2,785) $ (134,300)

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.

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.

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.

Changes in assets and liabilities include cash inflows from (i) a decrease in accounts receivable and unbilled receivables of $49.2 million primarily due to the timing of billings, shipments, and collections, as well as the impacts of lower revenues, (ii) a decrease in inventories of $38.0 million primarily due to management of inventory levels to align with the current forecasted demand, (iii) an increase in deferred revenues of $24.1 million primarily due to an increase in billings for certain technical service and Advanced Service offerings, (iv) a decrease in prepaid commissions of $7.1 million, (v) a decrease in other long-term assets of $2.1 million, and (vi) a decrease in prepaid expenses of $1.1 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.

Net cash provided by operating activities was $77.8 million for the year ended December 31, 2022, primarily consisting of net income of $5.6 million adjusted for non-cash items of $145.6 million, offset by changes in assets and liabilities of $73.5 million.

The non-cash items primarily consisted of depreciation and amortization expense of $86.9 million, share-based compensation expense of $68.2 million, amortization of operating lease right-of-use assets of $12.2 million, impairment and abandonment of operating lease right-of-use assets related to facilities of $9.4 million, amortization of debt issuance costs of $4.2 million, and a change in deferred income taxes of $37.3 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.

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.

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.

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.

Changes in assets and liabilities include cash outflows from (i) an increase in accounts receivable and unbilled receivables of $41.0 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 $25.7 million to support forecasted sales, including advanced purchases of certain components, and higher costs of inventory, (iii) a decrease in other long-term liabilities of $14.9 million primarily due to a $6.2 million release of a certain net unrecognized tax benefit as a result of effective settlement with the tax authorities, as well as the release of deferral of certain payroll taxes related to the Coronavirus Aid, Relief and Economic Security Act, (iv) a decrease in operating lease liabilities of $12.5 million, (v) an increase in prepaid commissions of $6.9 million primarily due to timing of bookings and revenue recognition due to larger deal sizes across multiple products, services, and implementations for customers, (vi) an increase in prepaid expenses of $5.7 million, and (vii) an increase in other long-term assets of $3.3 million.

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.

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 $412.5 million for the year ended December 31, 2021, which consisted of $354.2 million consideration paid for our 2021 acquisitions, net of cash acquired, capital expenditures of $29.0 million for property and equipment, and $29.4 million for costs of software development for external use.

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 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.

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 provided by financing activities was $47.4 million for the year ended December 31, 2021, primarily due to $67.3 million in proceeds from employee stock option exercises and ESPP purchases, partially offset by $16.3 million in employees’ taxes paid related to restricted stock unit vesting and a net decrease in the customer funds balances of $3.7 million.

Net cash provided by financing activities was $23.4 million for the year ended December 31, 2023, primarily due to $23.2 million in proceeds from employee stock option exercises and ESPP purchases and a net change in the customer funds balances of $10.5 million, partially offset by $7.4 million in employees’ taxes paid related to restricted stock unit vesting and $3.0 million in payments for debt issuance costs.

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.

Contractual Obligations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis