Omnicell Inc (OMCL) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Omnicell Second Quarter Conference Call. (Operator Instructions)

Thank you. I'd now like to turn the call over to Rob Seim, CFO. You may begin.

Thank you. Good afternoon and welcome to the Omnicell 2014 Second-Quarter Results Conference Call. Joining me today is Randall Lipps, Omnicell's Chairman, President and CEO.

You can find our results in the Omnicell second-quarter earnings press release posted in the Investor Relations section of our website at www.omnicell.com.

This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today, in the Omnicell Annual Report on Form 10-K filed with the SEC on March 17, 2014, and in other more recent reports filed with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today.

The date of this conference call is July 31, 2014, and all forward-looking statements made on this call are made based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change.

Finally, this conference call is the property of Omnicell, Inc., and any taping, other duplication or rebroadcast without the express written consent of Omnicell is prohibited.

Today, Randy will first cover an update on our business. Then I'll cover our results for Q2 and our guidance for the rest of 2014. And following our prepared remarks, we'll take questions.

Thanks, Rob.

We had an outstanding quarter in Q2. Strong customer demand for our solutions resulted in 47% of our orders from automation and analytics products coming from new and competitive convergent customers. Included in those orders are several large multi-hospital systems which converted from our competitors. Revenue and earnings results are ahead of analyst expectations. And topping it all off, Omnicell was chosen as Top Overall Pharmacy Automation Vendor in the annual survey by KLAS, the prestigious third-party rating organization.

KLAS is a measure of customer satisfaction, and highly-satisfied customers turn into great references that lead to competitive conversions for Omnicell. One example from this quarter -- the Allina Health System in Minnesota, one of the pioneer accountable care organizations that selected Omnicell as its new system-wide medication automation partner earlier in Q2. The Allina system is comprised of 12 hospitals with 2,500 beds, as well as multiple retail pharmacies, long-term care pharmacies and post-acute care clinics. Following an extensive internal review by Allina involving nursing, pharmacy, anesthesia providers, emergency medical services and information technology, the health system will be replacing a competitor's product with a full range of Omnicell solutions. The implementation will include OmniRx medication dispensing systems with two of our efficient workflow software products, SinglePointe and Anywhere RN; our controlled substance management system, Anesthesia Workstation; and Pandora Analytics. Allina also utilizes our multi-med adherence products in skilled nursing facilities that are serviced by its pharmacy.

We also recently took orders from another of the nation's largest accountable care organizations, Atlantic Health System of New Jersey, where our solutions will replace competitive installations at four hospitals across the 1,600-bed system. Atlantic Health made an enterprise-wide decision to implement our Unity platform with a single server and a single database, supporting a mix of Omnicell solutions, including systems for the nursing units and the operating room.

Continuing on our success in the Middle East, we recently signed a new contract for three hospitals in the SEHA Integrated Health Network of Abu Dhabi, a preeminent health system in the Middle East. These hospitals include Mafraq Hospital, the flagship of the 12 hospitals in the 2,600 SEHA acute care system.

Mafraq is currently a 450-bed hospital that is expanding to a new 740-bed campus. They have standardized on our OmniRx and Anesthesia Workstations.

These wins underscore the long-term value designed and built into every Omnicell system. Our Unity platform puts medication and supply management from the central pharmacy to the nursing units and operating rooms into one comprehensive database for improved efficiency and patient safety. Our modular systems and practice of frequent software releases allow our customers the ultimate flexibility in configuration and the capability to keep their systems technologically current while protecting their investment.

This is why the annual KLAS survey of medication automation users has highlighted Omnicell as the brand with the highest customer satisfaction year after year. KLAS announced this week that we won top honors in 5 product categories, including top honors for our OmniRx medication dispensing systems for the ninth year in a row. In the last two years, KLAS has also named a Best Overall Pharmacy Vendor, which we have won both years.

We are proud of our accomplishments, but we are not standing still. We continue to invest in our three-leg strategy of differentiated products, expansion into new markets and acquisition and partnerships -- the same three legs that have driven our success to date.

As an example of our acquisition growth strategy, we recently received some encouraging news from regulatory authorities in the U.K. regarding our pending acquisition of SurgiChem. While nothing is yet final, the regulators' provisional findings were for approval of the acquisition. We expect a final statement from the regulators later this quarter.

So our three-leg growth strategy is working -- delivering state-of-the-art medication management and workflow efficiency to our customers, results for our investors and better health for everyone. I believe we have all the ingredients for continued success.

With that, I'll turn it back over to Rob.

Thanks.

So, as Randy said, 47% of our automation and analytics orders were from new and competitive conversion customers in Q2. Approximately three-fourths came from competitive conversions and one-fourth from greenfield customers who had never purchased automation before. Whether it's a competitive conversion or a greenfield, we go head to head with our competitors' products, and we are doing very well.

Year to date, 40% of our orders are from new and competitive conversion customers, very consistent with the last 9 years.

Our revenues of $105.1 million were up 12% from the same quarter last year and up 3% from last quarter. We continue to have great revenue visibility from our backlog model in automation and analytics, and the recurring revenue nature of consumables in our medication adherence segments.

GAAP earnings per share were $0.21, up 24% from Q2 2013. We did have some variations in GAAP gross margin in Q2 relative to prior quarters. Product gross margins were down 100 basis points, entirely due to product mix. Service gross margins were up 320 basis points.

The high quality of our G4 product line and our other products that we deliver to customers, which is becoming an increasing percentage of our installed base, resulted in fewer service calls. Good news for our customers and good for our financial results.

In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense and amortization of intangible assets associated with acquisitions. We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand acquisition-related costs and non-cash stock compensation expenses that are a component of our reported results. A full reconciliation of our GAAP to non-GAAP results is included in our second-quarter earnings press release and is posted on our website.

On a non-GAAP basis, earnings per share were $0.30 in Q2, and that's up $0.03 from Q2 of 2013 and $0.01 over analyst expectations. Non-GAAP EPS was up sequentially from $0.26 in Q1 of 2014. One of our major goals is to generate 15% non-GAAP operating margins, and we exceeded that goal in Q2, coming in at 15.5%.

Adjusted earnings before interest, taxes, depreciation and amortization, which also excludes stock compensation amortization and the amortization of acquisition-related costs, was $20 million for the second quarter of 2014, and that's up 18% from $16.7 million a year ago.

On a segment basis, our automation and analytics segment contributed $84.7 million in revenue. That's up from $73.7 million in the quarter a year ago. $12.2 million of GAAP operating income this quarter compares to $8.1 million of GAAP operating income from the same quarter last year for the segment. And $14.9 million of non-GAAP operating income in Q2 2014 compares to $10.7 million last year.

The medication adherence segment contributed $20.4 million of revenue to the quarter. That's compared to $19.8 million in Q2 of 2013. GAAP operating income of $0.4 million compares to $1.2 million a year ago for the segment, and $1.4 million of non-GAAP operating income compares to $2.4 million of non-GAAP operating income in Q2 a year ago.

During the second quarter, our cash grew $19 million to $126 million, driven mostly by our operating performance. We have board authorization to repurchase up to $25 million of our stock, but we made no repurchases during Q2. Our intended use of cash remains primarily to fund acquisitions. If we gain approval for the SurgiChem acquisition, it will consume approximately $20 million.

Accounts receivable days sales outstanding were 72, up 4 days from last quarter. Inventories were $31.5 million, up $0.5 million from Q1. And our headcount was 1,172.

Now looking forward, we do believe we're right on track to the guidance we gave in February, and we expect revenues to be between $415 million and $425 million for the year, an increase of 9% to 12% from 2013. We expect non-GAAP earnings to be $1.17 to $1.23 per share, up 8% to 14% year to year. Earnings per share estimates reflect an effective annual tax rate of 38% on GAAP earnings by year-end. We expect to finish with an average annual operating income of approximately 15%. We expect 2014 product bookings to be between $340 million and $350 million.

All this guidance is the same as we provided in February. It excludes the pending acquisition of SurgiChem. And just as a reminder, SurgiChem has an annual revenue run rate of approximately $12 million. If the SurgiChem acquisition is completed, we'll update guidance at that time.

So that concludes our prepared remarks, and now I'd like to open the call to questions.

Certainly. (Operator Instructions) Your first question comes from the line of Mohan Naidu with Stephens Inc.

Thanks for taking my questions. Randy and Rob, would you say the hospital spending environment has come back to basically a healthy situation here. You guys have very good [cities], of course. You're okay. Can you comment on hospital spending at this point?

Sure. Well, we all know hospitals are challenged in the environment of health care reform. Everybody's looking to be more efficient and provide better quality health care at lower cost. They still have a lot of technology that they invest in on an ongoing basis. The good news is we've continued to be high on the prioritization list -- on their capital prioritization list. Our products are -- improve the efficiency of the operation, as well as provide all the safety capabilities that they've always provided. So that gives them a lot of reason to want to implement Omnicell solutions.

Okay. And just a second question quickly on medication adherence segment. The slowdown in growth compared to the Q1 -- was there any mix change sequentially?

No. Not really. It's all subject to when institutional pharmacies place the orders for the consumables, which is most of the business. And year to date, we're up 6% and we believe that segment right now, for the bulk of the revenue, which is the single-dose product, is growing at that range -- kind of mid-single digits. And then, of course, the multi-med product is growing faster than that, but it's a smaller component of the revenue.

All right. One last question, Rob. If SurgiChem goes through, just give us a view on how the growth could change here on the guidance. You said your numbers will change to $12 million annual revenue run rate, but just give us a flavor of what growth rate (inaudible).

Well, SurgiChem is a company in the United Kingdom that is also in the medication adherence multi-med market predominantly in that -- in the U.K., and the rest of Europe has been growing in the mid-teens. And so we would expect the SurgiChem component, once it's part of our business if that acquisition finishes out, to grow at that rate. That would give us a bigger base of the multi-med to grow from, but it's still overall a relatively small part of the total Omnicell business.

Thank you very much for taking my questions.

Your next question comes from the line of Jamie Stockton with Wells Fargo.

Hi. Good afternoon. Thanks for taking my questions. You guys had some really good deals during the quarter to drive that 47% number. I guess my first question is whether you feel like essentially what's happened is your big competitor -- they've had their new cabinet out for a little while. People have had a chance to decide whether or not they really wanted to buy it or stick with them as their incumbent vendor and now you're starting to see decisions after they've had some time to evaluate it. Is that essentially what's going on?

Well, I think we've seen pretty consistently over the years that we're able to obtain some good share of the marketplace, and it just depends where our customers are. And we've competed effectively with new releases and old releases, and I think we'll continue that consistency which we've really had over the last 7 to 8 years, which is 30% to 40% of our business coming from competitive wins. And obviously, any of these customers today have been looking at the next releases of competitive products for some time. And so I don't think there's anything unique about the timing of these, as I think we've been winning against both current and future products that our competitors have (inaudible) offer. Our biggest competition is really the willingness to change. It's hard for hospitals to change, and we've got to make it easy for them to do that. And with a little bit of the consolidation, you do see hospitals making sort of single-vendor choices in the area, which I think gives us a little bit of an advantage.

Randy, do you feel like there's been any reduction in the pressure on IT departments because you've seen stuff like ICD-10 get pushed out and maybe that's another ball that they don't have up in the air so they are able to look at making some changes more in the near term?

Yes. I think that we do a much better job in the upfront process to make sure we are in the queue of the IT department in these decisions and don't get delayed. And I think that the ICD-10 and some of these things being pushed out has given these departments enough room. Really it doesn't take a whole lot of integration work with our partners as we've both been working with all the HIS systems to create very standardized, almost turnkey types of situations, minimizing the hospital's effort on some of these things. And so most of the effort IT has to take is just simply in the testing arena. So I think it's a little bit easier than it has been, is the way I'd say it.

Okay. And then just my last one. The G4 upgrade cycle -- you may have already given the number and I missed it -- but where did you guys stand at the end of the quarter?

We're about halfway through our current account base with upgrades and we've got a very full pipeline over the next few years to complete our entire account base.

Thank you.

You're probably looking for a precise number. We're 46% of the way through right now, so --

All right. Thanks, Rob.

We were 41% last quarter, up to 46%.

Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Good afternoon, gentlemen. Congratulations on a good quarter.

Thank you.

Thanks.

You mentioned in the prepared remarks a couple of really nice competitive wins in the quarter. It sounds like one was -- there had been some consolidation with Atlantic Health. You may have had one of their five hospitals and when they went to go to a single vendor, you won the rest. But with Allina, I think that was a straight-out win. What is it about the G4 platform -- about your current, I guess, solution pipeline that is the one or two factors that's helping you win versus your competition?

Hey, Matt. So just let me clarify the Atlantic win -- we did win the whole system and we had no installations there prior. One of their hospitals will be implementing a little bit later than the others, and so that's not in the first wave, so to speak. So Atlantic and Allina are pretty much in the same boat. But to get back to your question on what is it that's differentiating us, so there are a lot of things about our systems that differentiate us. We have a very broad product line. It's integrated onto one Unity platform now, which makes it very easy and efficient for both clinicians and the IT shop to run the systems. Our systems are very configurable. We upgrade them and update them on a frequent basis, and because they're modular, customers have the ability to keep them current without having to replace the whole system.

We have a number of advanced features and a number of products in the product line that sort of fill out the whole medication management process that our competition does not have. Now all these things don't necessarily resonate with each and every customer, but sort of a group of them generally resonate with a customer like Allina or Atlantic and make us a clear winner in their minds.

Okay. The mobile carts -- where do you think you stand from a penetration basis with your mobile carts? Is that still very early or are you seeing that ramp, I guess, kind of as anticipated? Where are we maybe from a bed count perspective when you look at your installed base today with the regular cabinets?

I don't know if I could give you a bed count, but the mobile carts are an addition to our cabinet-based systems, They run off the same database and they're intended to extend the reach to the bedside. That does appeal to a subset of the customers, but it is -- in today's capital-constrained environment, it is an additional expense for them. And I'd say it's the more advanced customers that are really interested in getting that control all the way to the bedside are the ones that have taken it up. I don't have numbers for you on exactly how many hospitals have them or how penetrated [there] is on a bed count.

Okay. Maybe one more from me and then I'll jump back in the queue. Any update on China would be appreciated.

So the status in China hasn't really changed in terms of our penetration of the market. It's still very early. We're still learning. We are absolutely -- we see a good market there, but I think it's going to take a while for the workflows to -- for us to adapt to the workflows that they use and for them to adapt to automation. We are putting additional effort into the marketplace with a few more feet on the street, and we're doing some localized development. So we are -- we remain committed to that market, as well as our other two focus areas that are outside of the United States, which are the Middle East -- and Mafraq is a great win, fantastic win in the Middle East -- and Western Europe where we're doing quite a bit of business in the medication adherence part of our business, as well as with great customers like Guy's and St. Thomas that we talked about last time.

Great. All right. Thanks again and congratulations on the quarter.

Thanks.

Your next question comes from the line of Steve Halper with FBR.

Hi. What is the reason behind the decline in profitability of the medication adherence segment?

So as we've talked about in the past, we see a great opportunity with the multi-med and there is a number of specific products that we would like to bring to market there. And we have been investing in that segment to [sell out] the product line. In the single-medication products that we sell mostly for use in nursing homes, we have a wide variety of equipment that customers can use and enter the market no matter what size they are. In the multi-med market, we've got just one piece of equipment and one size doesn't fit all. So we've been doing a lot of work to understand what the market wants, to develop those solutions, to make sure that we're doing the right amount of marketing and market research, and so you see that in the expenses.

Are you able to put a number to that level of investment?

Yes. Well, for the segment, we've invested about 5% of revenue above and beyond what was being invested into -- I'd call it spending advance of bringing the product to the market.

Right. That's (inaudible). And as we sit here almost in the beginning of August and you have the large trade show coming up at the end of the year, any initial thoughts on what the company is working on unveiling, things like that? If you could entertain that -- entertain us with that.

Well, I don't know how entertaining it'll be, Steve, but the big trade show -- the American Society of Health System Pharmacists Show in December -- is where most of the vendors in our industry will unveil new products, so to speak. We are always working on upgrades and updates to our software. Generally, we've come out with a new version just about every year and generally we talk about it there. We're on Version 18.5 of our software in a 22-year history of the company, so it's pretty consistently about every year. Other new products -- if there's any that we'll bring to market, we'd announce it then. We wouldn't be announcing it now.

Great. Thanks.

Thanks, Steve.

Your next question comes from the line of Charles Rhyee.

Yes. Thanks for taking the question. Rob, just going back to SurgiChem real briefly here, have you gotten any sort of indications from the U.K. authorities what they're really looking at, at this point? It seems to obviously have been dragging on for a while. And it's not a very large company, so I'm just curious -- what is it about the market dynamics there do you think that they're concerned about?

Well, review of competition in the U.K. seems to be at a little bit lower level than it is possibly in the United States. This is an acquisition that they did determine earlier in the year in Q1 that they were going to look at in more detail, and they have looked at it in a lot of detail. The good news is earlier this quarter -- or actually earlier this month -- we got the preliminary word -- they call it a provisional finding -- that the acquisition would go through. That's just pending a comment period at this point. And it pretty much goes at the pace that it goes. It's not a pace that we can control. It's a pace that government officials control.

Okay. But the good news here is that you've gotten sort of early signals that there's not going to be anything really blocking it at this point. Just now it's procedural at this point? Is that the right way to think about it?

Well, the way the process works is the competition authority comes out with a provisional finding and then there's a comment period. And anybody can put in a comment during that period. And our understanding is there haven't been any comments so far, so that's good, but we can't really say whether it's going to go through yet at this point or not.

How long is the comment period?

It's got just another day, I think.

Oh okay. So people had a month to make a comment and then, without any, then I guess the provisional finding stands.

Right. So there'll probably be a couple weeks for them to pull together all their finalized reports --

Okay.

[If there's] no comments.

Great. I just want to jump back to China. Obviously -- can you talk about how -- you're putting more feet on the ground there and you're doing some more development there. What's the growth been like in the last quarter or so and -- the last couple of quarters? And it looked like you were moving very quickly at the very start and now it seems to have slowed down slightly. What do you think has been the -- you talked about getting used to the workflow, but it seemed like you had done a lot of work getting ready for China. What's kind of surprised you maybe as you've really kind of gotten in there -- sort of knee-deep there?

Well, we've had a number of hurdles that we've had to overcome. There's all new different pharmacy information systems used in China and we were able to interface with those no problem, but then folks that actually utilize those systems have to figure out how they alter their workflow to have our control systems in place in addition to their pharmacy information systems.

We've done well with initial installations -- sort of the trying it out -- but we haven't got a hospital to the point where they're ready to go house-wide. Now all the installations we have are in very, very large hospitals. We're talking about hospitals that are much larger than hospitals in the United States. Randy talked about a lot of times our biggest competition is just the resistance to change. As the hospital gets larger and there's more and more people involved in the decision-making process, change becomes harder and harder. So this isn't materially different than other markets that we've gone into where we have to do a lot of work to demonstrate the value of the systems and convince someone to take that first leap to make a big change. So we just haven't got to that point in China yet.

Great. And my last question is -- obviously, a good amount of cash on the balance sheet. You've been deploying it. Does the SurgiChem -- because it's [on a hold] -- does that stop you from doing other deals? Do you need to get that one done before you can think about another deal or how's your business development efforts? Is this a limiting factor at the moment?

It is not. SurgiChem's a relatively small company in the whole scheme of things.

Yes.

As I said, they're doing about $1 million a month in revenue. That would be a great addition to our product portfolio in the U.K., but we have an active business development department and they are looking at potential additions to our product lines all the time.

Okay. So it's not an impediment. We're just -- you're continuously evaluating.

That's right.

Okay. Great. Thanks a lot, guys.

Your next question comes from the line of Gene Mannheimer with Topeka.

Thank you. Congrats, Randy and Rob, on a great quarter. I want to go back, if I could, to SurgiChem -- the timing of that once again. I think the CMA expectation is the final approval in late August. So assuming you get that, then when does the transaction officially close? Would it be just a matter of weeks beyond that?

Yes. It will close very quickly after the final approval. Remember that back in December of last year, we had fully negotiated the purchase agreement, so everything was ready for the acquisition to take place pending the closing conditions, and the major one was getting through the competition authority. So once it's -- once we get the go-ahead from them, we'll move forward very quickly.

Great. So it sounds like you'll -- assuming everything goes well, you'll have a full quarter of SurgiChem perhaps in the fourth quarter is what I'm thinking.

Perhaps.

The -- on G4, you talked about how many have upgraded -- how many customers upgraded through the second quarter. Is it still your expectation that between 50% and 60% of the base will have upgraded by year-end?

Yes. That is going very well.

Okay. Good. And then last, obviously you had some great competitive wins this quarter between Allina and Atlantic, to name a couple. Tell us -- what can you tell us about the rollout of those hospitals? Would it be spread over multi quarters as you usually do, or is there some type of big bang implementation? How should we think about that?

Well, both implementations -- one of them has already begun and the other one will begin fourth quarter. And I think in my earlier comments -- as we have gotten these conversions, we're able to set up both the IT and the implementation earlier in the cycle a little bit to make sure they get moving forward, and both those are customers that are moving -- I'd say fairly -- a little bit quicker than the average large customer.

Terrific. Thanks, Randy. Appreciate it.

(Operator Instructions) Your next question comes from the line of Raymond Myers with Alere Financial.

Thank you. Gentlemen, I wanted to know if you could touch upon the competitive environment, particularly with regard to your primary competitor who you seem to be taking share from at a consistent rate. Has there been any competitive response from that competitor?

Well, I think that competitor's always a strong competitor. They all are. Nobody likes losing a customer and they've got a good set of products. And so many customers resign up with our competitors so that we don't even get access to those accounts to do a competitive deal with. And we try to lock in somewhere around 100 competitive deals a year that we win with everybody in the market, and so it takes us a funnel of about a couple hundred customers to do that.

So half of those we win and the other half people typically choose to stick with their current vendor because it's just too hard to change. But I think we're positioned well to continue to grow the company and continue to have this base of conversions that has been characteristic of our profile for many years. It's part of the culture in the company, it's part of who we are, and it's a part of how we think and work to be sure that we win over the long term.

Can you -- thank you. Can you discuss your market share maybe in terms of how many customers are there in the market -- how many you have?

So there's about -- depending upon what database you look at, there's about 6,500 hospitals in the market. That number includes the government and psychiatric hospitals. We have a presence with our main products in about 35% of those hospitals -- our main products being the dispensing systems or the central pharmacy automation. And as you know, Ray, we've got other products that aren't quite as widespread use in the hospitals, such as our Pandora Analytics system which can be used with both our dispensing systems and our competitors' dispensing systems. And if you include all those other products -- we've got a presence in over 40% of the hospitals.

If you were to look at just the dollar market share, what share of the dollar spending would you estimate that Omnicell has?

Yes. A little bit under 25% for the dispensing systems.

And that's advancing at approximately what percent per year?

Between 1% to 2% a year.

Okay. Good. Follow-up question on the discussion around getting to 50% to 60% conversion to the G4 platform by the end of the year. You're making really great progress -- 5 percentage points this quarter. The only concern I would have is that as you get past 50% and then you start running uphill where there's less and less customers left to convert, what's the next stage of growth after you've gotten them all to G4, because it looks like, at this rate in another year or so, you'll have most of your customers converted.

Well, our history in the company is that we refresh our systems about every 5 years. And we -- we're very careful when we do those refreshes to make them something that is meaningful to our customer but also an upgrade that doesn't make them replace everything -- protects their investment, so to speak. That we've got a long history of that in the company and I don't see us changing that way of partnering with our customers at all. So when the G4 upgrade runs out, we'll probably be at a point where technology has moved forward enough that there'll be a new upgrade that we'll bring to the market.

And when would you expect that would be? Is that in 2017 or further out?

Yes. I'm not giving any specific dates for any of our new products. When we bring them to the market, we don't preannounce them. But generally, this is the process that we follow in the company.

Okay. Well, thanks very much.

Your next question comes from the line of Nina Deka with Piper Jaffray.

Hi, guys. This is Nina calling in for Sean Wieland. Thanks for taking my call and congrats on the quarter.

Thanks.

So now that you've hit your non-GAAP operating goal of 15%, where do you think it can go from here?

Well, that's a great question. We have a lot of growth opportunities in the company. Between our automation market with the hospitals -- that market expanding across the continuum of care as our customers expand across the continuum of care -- the medication adherence market, the international markets that we're investing in -- all of those are great growth opportunities. And so our intent is to reinvest anything that we might get from efficiencies or from leverage back into those growth opportunities because we think that's -- it's fantastic to have all these growth opportunities and we think that's the best return for everyone -- for shareholders, employees. So that's our strategy.

Great. Thank you.

Your next question comes from the line of Steve Halper. We have a follow-up. He's with FBR.

So I guess longer term, the goal had been to get the top line growing into double digits. You're firmly into that now. Is that still the goal and, as you think about 2015, are you ready to say yes, double-digit top-line growth is achievable?

Well, we're not prepared to give guidance for 2015 on this call, of course, but we have stated our long-term goal is to -- with -- including acquisitions, to try to sustain 15% growth in our business. Now the market for some of our main products are not growing quite that fast, so that is dependent upon us bringing new products to market, expanding in some of these areas that I talked about as our growth opportunities -- international, multi-med, medication adherence -- but we do have overall -- just kind of everybody in the company is focused on double-digit growth of 15%.

Thanks.

Your next question -- you have a follow-up from Matt Hewitt.

You mentioned Pandora a couple times. And if I recall correctly, a couple years ago when you bought Pandora, it was largely a system that was utilized by your -- by hospitals using your competitors' adherence systems. And I'm curious how the cross-selling opportunity has played out. I think one of the two that you just announced here recently had been using Pandora prior to your win, and I'm curious how that cross-selling opportunity has played out and whether or not you see that potentially ramping over the next year or two.

Well, I think it certainly helps to have some familiarity with the company in some regard before a customer buys, just so they have some Omnicell experience. And yes, Allina was a Pandora user. And just like so many of our customers, it's just not about using the systems for workload and safety; it's about what kind of analytics can we get out of them. So it's -- the more important role in some of these decisions, and certainly having a single database and our kind of architecture, allows for that across the continuum of care. And I think every new account we get, no matter where it is, becomes another powerful reference for other hospitals, either in the local area or across the country, to build upon. So we take our reputation very seriously and with every product we deliver and with every implementation that we finish. And so it's not one single thing; it's really about consistent performance over the long term.

All right. Thank you.

Your final question comes from the line of Leo Carpio.

Good evening, gentlemen. A couple of quick questions. First, regarding the hospital capital spending environment. Have you seen any changes in year over year at this point, because it sounds like -- that irrespective of how that environment is looking, you've just been running the board here on competitive wins and getting conversions.

So yes, it's an interesting question and it's a little bit different answer for each and every customer. Customers are certainly in different situations depending upon the market they're in and how advanced they are in adopting health care reform and a number of other factors. I'll go back to a statement I made earlier. One of the things that we find is that while hospital capital budgets can -- may be constrained, they certainly aren't being eliminated. Hospitals invest in technology -- invest in a lot of technology -- and when they go through their prioritization process, we're usually pretty high on that prioritization process, especially in the United States. These systems are a standard of care, and now that hospitals are under more financial constraints, they're looking for efficiency. We bring efficiency. We help with -- help them ensure their patients are healthy, and so those are good things to have in your products to get them high on the prioritization list.

Okay. And in terms of the G4 upgrade, what is driving it more? It sounds like -- I recall previously we've talked about the sunsetting of Windows XP as being a catalyst. Has ICD-10 had any impact at all in helpful -- in driving that upgrade cycle? Or it's been just negligible?

Well, no. Leo, I think Win 7 is an important piece because people want to get their systems more secure and up to date on the latest operating systems, as well as the feature and function set that you can get out of the G4 is pretty extensive. And there's some new functions in there that really allow easier workflows and medications -- I mean management of medications that are difficult to manage, like IV fluids on the floor. These things, altogether combined, really lead for people moving toward a consistent -- I think over the next few years, we can see that people are going to readily convert to the G4 because it just makes so much sense. And it has mostly to do with timing of either budgets or having a little more room in the IT area that makes sure they have time for the upgrade.

Okay. And just the last question. Since it looks like China's going to be on hold in terms of a new market for a while, what opportunity is left for you in the Middle East? You've been winning deals quite frequent the last couple of quarters. I'm just wondering what's left (inaudible) in terms of opportunity.

Well, the Middle East is growing because they're implementing health care, and they're implementing health care on the U.S. clinical model. And that's one of the reasons why our systems slot in so well. Mafraq Hospital -- while there's an existing Mafraq Hospital -- 420 beds or so -- they're building a brand new hospital -- 740 beds -- and implementing our systems there. And the other two hospitals we won in the SEHA System at the same time are new hospitals. Sidra, that we talked about last year, is a brand new hospital in Qatar. So a lot of the business we're winning is expansion business. Now there are some existing hospitals that we've also been able to win -- ones that we're implementing automation for the first time and actually had competitive conversions in the Middle East. So the market is going well for us overall.

Okay. Thank you.

That concludes our Q&A session. I'd like to turn the call back over to Randy Lipps for any closing remarks.

Well, it's been another great quarter and -- but especially it's nice to be recognized by KLAS as an independent outside organization that reflects all the good work and hard work that the employees at Omnicell here do. And it's really tough to be a good company and really a lot harder to be a great company. And what makes Omnicell a great company is its employees dedicated to improving health for everyone. So thanks for being on the team and we'll see you guys next time.

Again, thank you for your participation. This concludes today's call. You may now disconnect.