Omnicell Inc (OMCL) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for holding and welcome to the Omnicell First Quarter Earnings Call. During the presentation all lines will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

I will now hand the program over to Mr. Rob Seim, Chief Financial Officer of Omnicell. Sir, please go ahead.

Thank you. Good afternoon and welcome to the Omnicell 2015 first quarter results conference call. Joining me today is Randall Lipps, Omnicell Chairman, President and CEO. You can find our results in the Omnicell first 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 and the Omnicell Annual Report on Form 10-K filed with the SEC on March 30, 2015 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 April 30, 2015 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.

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

Today, I'll briefly cover an overview of the results for Q1. Randy will then cover an update on our business. Then I'll finish up with a few more of the financial details of our Q1 and our guidance for the remainder of 2015. Following our prepared remarks, we'll take your questions.

So we had an absolutely outstanding quarter in Q1 with new orders, revenues and profit all exceeding our expectations. 52% of the orders in our Automation and Analytics segment of our business during the quarter were from new and competitive conversion customers around the globe, underscoring our strength in the market. Approximately three-fourth of those orders came from competitive conversion and the rest from greenfield customers who had never purchased automation before.

Our revenue in the quarter was higher than expectations and our non-GAAP EPS was $0.29, $0.06 higher than analysts' expectations and our guidance for the quarter. And when we gave our guidance for Q1 back in February, we thought the mix of products installed would generate lower margins for the quarter. That guidance was based on the mix of products in backlog and scheduled for installation. At any given time, we have approximately eight months forward revenue in backlog and multiple installations in progress. We recognize revenue on installation and the backlog gives us good visibility, but we can't always forecast when an individual customer's installations will complete, because we install on our customers schedule.

In Q1, we ended up completing a mix of customer installations that resulted in higher revenue and higher profit than expected. We still believe the annual guidance we gave in February is correct, but the quarterly timing will be different than we expected and guided to. So, after Randy gives an update on the business, I'll cover more of the details on the financial performance for Q1 and our guidance.

Now to Randy.

While we had a change in the timing of our expected results, I'm thrilled about our performance in Q1. We had a great start to the year and our prospects for continued growth consistent with our guidance are strong. The success of our solutions in the market that we experienced in 2014, which I believe is the result of our three-legged growth strategy, continued in Q1.

The first leg of our strategy, which is differentiated products directly resulted in key customer wins around the globe. Two examples are the Ministry of National Guard Health Affairs in Saudi Arabia and Erlanger Health System in Tennessee. The Ministry of National Guard Health Affairs is a six hospital system in Saudi Arabia with over 2,000 beds that shows Omnicell, based on the workflow merits of our solutions, our reputation in the region and our ability to integrate our solutions with other software tools used in the hospital. The implementation is a competitive replacement at one hospital and a first time installation at the other five. It will include our OmniRx Automated Dispensing Systems, operating room systems, Pandora Analytics and our Central Pharmacy Solutions. National Guard chose Omnicell after an extensive three year review of alternative workflows and competitors' products.

Erlanger is a five hospital, 800 bed integrated delivery network in Tennessee that selected Omnicell's medication management and workflow solutions to help ensure best clinical practices are carried out. Omnicell spent three years collaborating with Erlanger to redesign their medication processes to meet the expectations of a multi-disciplined investigation team, involving nursing, pharmacy and technology groups. Erlanger ordered a full complement of our solutions and we are proud to be their partner in change.

On the product side, we demonstrated interoperability with the Epic electronic health record system at Hackensack University Medical Center. By eliminating unnecessary redundancies during medication ordering, nurses now have easier and faster access to patient data to help deliver the highest quality of care in the most timely manner. Also, at Hackensack, an important clinical study to quantify the nursing workflow efficiency gained from their investment in Omnicell Automated Dispensing Systems has been completed. And the results for this study presented last week at the New Jersey Society of Hospital Pharmacists, Hackensack researchers documented, among other things, a 40% reduction between scheduled time and the administered time for selected first-dose IV antibiotics.

The other two legs of our growth strategy are expansion into new markets and grow through acquisition. Recently, we completed two acquisitions in Europe that along with other acquisitions of SurgiChem in 2014, demonstrate our commitment to the region. In Europe, we are augmenting our product lines with regional specific products and go-to market capabilities through acquisitions, building a base of solutions and talent to address medication and supply management across the continuum of care. Our acquisition of SurgiChem expanded our leading position in UK medication adherence. Earlier this month, we completed the acquisition of MACH4 Pharma System of Bochum, Germany. MACH4 produces robotic dispensing systems used in hospital central pharmacy and in retail pharmacies to automate the handling of medications in original manufacturer's packaging. MACH4 is a technology leader combining two types of handling systems to optimize speed for high moving medications and storage space for slower moving medications. Hospitals such as the Isle of Wight in the UK have already integrated MACH4 robotic dispensing systems and the central pharmacy with Omnicell medication dispensing cabinets and the wards to create a complete medication handling process. MACH4 sells directly to customers in Germany, France and the UK and utilizes resellers in other countries. The management team of MACH4 will report directly to our General Manager of Europe, Middle East and Africa operations.

Earlier today, we announced the acquisition of Avantec Healthcare, our long-standing distribution partner in the UK. Avantec has developed the UK market over the past 10 years, getting a broad installation base in the National Health System hospitals for both medication and supply automation. In addition to Omnicell systems, Avantec designs and provides regional specific products for the UK market. Omnicell previously held a 15% ownership of Avantec. With this acquisition, Omnicell now interacts directly with the customer in the UK on all product lines, including medication adherence, robotic dispensing systems and automated dispensing cabinets.

Before I conclude my remarks, I'd like to briefly comment on the recent investigation we completed following a whistleblower claim. The claim alleged, among other things, the existence of a side letter arrangement with a customer that reportedly provided for discounts, which were not recorded in the financial results of the Company. We take a claim such as this very seriously and regardless of when it happens, we take the appropriate amount of time to do a thorough investigation. This claim happened to take place immediately before the filing of the Annual Report. And so, the investigation postponed our 10-K filing. We concluded that the letter referred to in the claim did not promise discounts to the customer that were not included in the Company's financial statements and we have reaffirmed that our financial controls were operating effectively. However, we are committed to continuously improving our internal communications and training processes related to customer communication and commitments.

To wrap up, business is great, we believe the continued investment in our three-legged strategy of differentiated products, expansion into new markets and acquisitions and partnerships is driving profitable growth. We're executing our growth strategy well, delivering state-of-the-art medication management and workflow efficiencies to our customers, results for investors and better healthcare for everyone. I believe we have all the ingredients for continued success.

I'll turn it back over to Rob for some financial numbers.

Thanks. So, I'll finish up here with a brief summary of the financial results and our guidance for 2015. Revenues of $116.2 million in Q1 were up 14% from the same quarter last year. Earnings per share, in accordance with Generally Accepted Accounting Principles, were $0.17 in Q1 2015, which was flat with Q1 2014. Our gross margins were consistent with previous quarters, including service gross margins of 59%.

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. These non-GAAP financial statement is an 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 first quarter earnings press release that is posted on our website. And you'll find additional GAAP to non-GAAP reconciliations in the press release this quarter that we intend to provide regularly in the future.

On a non-GAAP basis, earnings per share were $0.29 in Q1, up $0.03 from Q1 2014, as we mentioned earlier, $0.06 above analysts expectations. Adjusted earnings before interest, taxes, depreciation and amortization, which also excludes stock compensation and amortization and the amortization of acquisition-related costs were $19.3 million for the first quarter of 2015. That's up 14% from $17 million a year ago. That's an increase consistent with the growth in revenue.

Our businesses also reported in segments, consisting of automation and analytics and the medication adherence segment. Automation and analytics consists of our OmniRx Automated Dispensing Cabinets, Anesthesia Workstations, Central Pharmacy, Omni supply and Pandora Analytics products. The market for Robotic Dispensing Systems will also be included in this segment beginning in Q2, as well as all the results of Avantec Healthcare.

The medication adherence segment consists of all adherence packaged consumables, which are now brand at Sure-Med and equipment used by pharmacists to create adherence packages. Our acquisitions of MTS Medication Technologies and SurgiChem are included in the medication adherence segment. With the addition of the acquisitions, we have determined that certain corporate expenses cannot be easily applied to either segment. And so from this quarter forward, we will separate those expenses and create common expense category, separate from the two segments. These common expenses are roughly 10% to 12% of total revenue. For purposes of year-to-year comparisons, we've also stated 2014 with a common expense category. Details of the segments are available in the press release.

On a segment basis, our automation and analytics segment contributed $92.8 million in revenue, up from $81.5 million in Q1, 2014. $25.3 million GAAP operating income this quarter compares to $21.5 million GAAP operating income last year. And $26.9 million of non-GAAP operating income in Q1, 2015 compares to $22.6 million last year. The medication adherence segment contributed $23.4 million of revenue in the quarter compared to $20.3 million in Q1 2014. GAAP operating income of $1.4 million compared to $3.3 million a year ago and [$2.8 million] of non-GAAP operating income compares to $4.3 million of non-GAAP operating income in Q1 a year ago. And the non-GAAP common expense category was $14.4 million this quarter compared to $13.2 million in Q1 2014.

In Q1, our cash increased from $126 million to $139 million. During the quarter we repurchased no shares. Rounding out the balance sheet, accounts receivable days sales outstanding were 70, up seven days from last quarter. The quality of our receivables is very high. The increase in DSO is more a reflection of the timing of shipments from our factory. We expect DSO in the 65 to 75 day range. Inventories were $33 million and our headcount was 1,259.

So for 2015, we are reaffirming the guidance we gave in February and including the expected results of MACH4 Pharma Systems and Avantec Healthcare Limited. MACH4 Pharma Systems added $12 million to 15 million of revenue to our guidance and Avantec adds $3 million to $5 million of additional revenue. Including the acquisitions, we expect revenue to be between $495 million and $510 million, an increase of 12% to 16% from 2014. We expect MACH4 Pharma Systems to be initially dilutive to earnings by approximately $0.04 in 2015 and Avantec to be breakeven. We incur initial expenses to integrate both acquisitions.

We expect non-GAAP earnings to be between the $1.31 and $1.36 per share, including both acquisitions. We expect the two acquisitions to add $15 million to $20 million in product bookings in 2015. We now expect total product bookings to be between $400 million and $420 million in 2015. The cost of integrating the acquisitions will temporarily suppress non-GAAP operating margins to approximately 12% for the year. We expect to return to 15% operating margins in 2016 when both acquisitions become accretive to earnings. And finally, to round out the numbers, we are assuming an annual average effective tax rate of 38% on GAAP earnings.

Before we go to questions, I'd like to make one more announcement. Our business outside the United States is an important part of our growth strategy and we recently greatly expanded our international presence with three acquisitions and organic growth successes, such as the Saudi National Guard order, In January, I asked Rob to take over leadership of our operations outside the US, in addition to his other responsibilities, who had started a reorganization process that I am now completing. Rob has been our CFO for the past nine years, during which time the Company has done really well. He's help quadruple the size of the Company, as well as increase the operating margin from 6% to 15%. And in addition to being our CFO, Rob has also managed our manufacturing, our quality, HR, legal and IT organizations. Rob's broad background, including his international experience at IBM and Bay Networks makes him an ideal candidate to lead our international growth strategies. So, I'm happy to announce now that Rob will transition to focusing entirely on international growth and manufacturing success of the Company once we've hired someone to take over as our Chief Financial Officer.

We've initiated a search for a new CFO that I expect will take three to six months to complete. Rob will continue as the CFO during that time. Following the hiring of a new CFO, Rob will manage international operations and worldwide manufacturing and quality full-time. Rounding out the management team, Dan Johnson has assumed management of Legal, HR, and IT. Chris Drew leads our entire customer-facing organization in the US and Company-wide marketing. Jorge Taborga leads Engineering, and Nhat Ngo leads Strategy and Business Development. I'd like to thank Rob for his contributions over the past nine years and we look forward to his success in his new role.

So, now that concludes our prepared remarks. Now operator, I'd like to open up the call to take your questions.

(Operator Instructions) Jamie Stockton, Wells Fargo.

Congratulations on a very good quarter. I guess maybe just as far as color on what drove such a strong percentage of orders from new customers and competitive conversions, should we view this as, as far as the competitive conversions are concerned, as maybe some initial benefit or like really tangible benefit that you guys are seeing from CareFusion getting acquired and some disruption within their client base that's occurring as a result of that, or do you feel like it's something else, like maybe some of their clients that had been waiting to see the [Ess Solution] in action and once they saw it, now they've kind of been freed up to make a different decision? Any color on that would be great.

Sure. I think you know we've had a long history of having 30% to 40% of our orders come from first time customers every quarter for many years. This is an uptick and I think it is -- again, can be seen as two things. One is, I think our international business, which is mostly all greenfield, contributes a lot to this metric and we're starting to see more momentum on the international side as we have investment more there and we continue with our latest acquisition. So I think that skews that competitive conversion greenfield account number more. As well as just the total pipeline of first time customers is larger than it's ever has been at Omnicell, and some of that may be due to the disruption at competitors, but it also I think as we have seen, our approach to the marketplace by offering a broader solution set than just focused on acute care. Most providers these days are very focused on outside of the hospital and outpatient services and I think we have a strong solution set that addresses both. And so I think that's allowed some new customers to get into our pipeline that in the past would have only been focused on what they currently had or just what would service their acute care needs. So sort of a dual answer there to your question.

And then maybe just one housekeeping one. Rob, what was the SurgiChem revenue during the quarter, roughly?

A bit more than $3 million.

Okay, alright. Thank you.

SurgiChem is on the run rate that we expected.

Matt Hewitt, Craig-Hallum Capital.

Good afternoon, congratulations Rob on the new role.

Thanks.

Couple of questions. First, and I'm sorry if I missed this in the press release this morning, or in the prepared remarks, but have you guys told us what the purchase price for Avantec was?

So Avantec is -- initial purchase price is $12 million with potential of $6 million of earnouts over two years.

And then I guess a little bit of a follow-up on that. You just had a really great quarter, nice beat and you're raising your guidance essentially for the overage in Q1. How should we be thinking about what Avantec will be bringing on over the course of the year?

Well, actually we're keeping the guidance the same as we originally had. We are only changing the guidance for the two acquisitions; MACH4 and Avantec.

So is that a function of, maybe, one or two of the customers getting implemented a quarter ahead of time or is that the delta?

Well, in Q1 we -- as you said, we are over the expectation and that has a lot to do with the mix of customers that actually closed in the quarter. But as you know, we have a fairly large backlog and we have good visibility to the revenue that's going to happen through the year. So we install on our customer schedule and we are not necessarily certain which deals are actually going to close and be recorded as revenue at any point in time. So we ended up with more deals in Q1 and with a higher mix. When we look out through the year, we still see the same overall mix and we think our forecast that we gave back in February is [following] still the same for the year. It's a bit of a timing issue. MACH4 adds $12 million to $15 million of revenue through the year, we expect. And we expect it to be dilutive as we're integrating it about $0.04. Then Avantec adds about $3 million to $5 million of revenue. And it's about breakeven as we are spending money to integrate it. And just a reminder, Avantec was a distributor or reseller of Omnicell and that's just about all of their business. So part of the revenue that Avantec has on an end-user basis, Omnicell was already recording, as we sold through them. And $3 million to $5 million is the incremental revenue that (inaudible) margin that they had in their service business through the year that we're adding on.

Maybe two quick ones. When do you anticipate the Avantec closing?

It closed, it was acquired and closed today.

And then one last one from me, this is a little bit more big picture, but given the instability in the Middle East and that's been a big growth market for you last couple of years, are you seeing any impact on your channel or on your pipeline in that region or the areas that you are in relatively stable, considering what's going on in some of the other countries there?

So the Middle East certainly is a large region with many national entities. Our focus is on countries in the Saudi Arabian or the Arabian Peninsula, Saudi Arabia, the Emirates, Qatar, Kuwait, and those countries are stable. So, we really haven't seen any impact to our business. We're not really operating in the countries that have had some instability recently.

Charles Rhyee, Cowen & Company.

Can you remind us what the margin profile looks for MACH4 and Avantec, as we think about modeling once we get past the near-term dilution?

So MACH4 's margin profile, the gross margin profile?

Both actually, gross and operating.

The MACH4's gross margin profile is in -- ranges between the 30% to 40% from the products that are sold. Once we get past the integration, we will be working to get MACH4 to -- in the same 15% operating margin that we expect from the rest of the Company. And then Avantec, again, is a reseller of Omnicell equipment in the UK, plus the service business. And so you can expect overall margin profile of Avantec's business revenue that flows into the UK to be the same as the rest of Omnicell.

And just to follow up on Jamie's question earlier around CareFusion, can you talk about the -- maybe go into -- I think you touch on a little bit before, but maybe now that is part of that, is it your assumption that -- do you believe that this will create better opportunities for you, to continue to take share? It certainly seemed like what was previously owned under Cardinal, it created some opportunities for you there. How are you guys kind of approaching it?

The main part of these entities that we have competed against is the Pyxis product line that long ago was an independent company and has then been, then owned by Cardinal and CareFusion, now part of Becton Dickinson. We can't really comment on what's happening inside of those companies. We don't -- we're not managing inside their companies, but Pyxis has always been a formidable competitor and we expect them to continue to be a formidable competitor, we see them in every deal. We're doing very well in the marketplaces. You can see by the competitive win ratio we've had for years on run now. But if Pyxis is done, of course, it's in the market for us and had a pretty commanding market share and we've done -- been able to transition some of those customers to us, based on the customer experience we bring, the high level of service, a big focus on service and support for the customer, technology capabilities that we bring and we're going to continue to focus on trying to have the best products, the best customer experience in the marketplace.

One last question I have, as you think about where the overall healthcare market is going and we're seeing more care moving out of institutional settings into, let's say, like retail clinics, etc. Can you talk about how you are thinking about that move down the road. Have you thought about how to develop you product, maybe for retail end market, to allow consumers to be able to access their medications now that there is some type of scan prescription, with using some core Omnicell technology, can you maybe talk about any thoughts around that area, that would be great? Thanks.

Yeah, I think a lot, and the world is changing about healthcare, and it's about all moving outside the four walls of providers and moving into different settings. And I mean that's what drove our MTS acquisition a few years ago was to really move toward automation and solution sets that impacted patients directly and then it was all about how do we -- how we get those solutions into more patients hands effectively and that's why we created the M5000. The multi-dose cards are a great way to give meds to patients in different settings, but if there is no way to automatically fill these things reliably, they weren't really great solutions, other than just hand packing a few. And so we've seen a fairly strong interest in our M5000, both in the institutional pharmacies and in hospitals, because they want to impact what's going on with patients, not at the moment inside their institutions. but what's happening at home or on long-term care facility.

So we see that we are definitely on the right road, we see uptick and demand for our products. We know we have gaps we need to fill, but we really want to create that longitudinal experience for medication across the entire continuum, no matter where the patient happens to be, including the home. And we already have 1.2 million patients on medication systems solutions, mostly in the UK that many of them are bringing to their homes. So we have already started that MACH4 sales retail robots to retail pharmacies, mainly in the Germany and France markets. So we have entered those markets, but I think it does create, as you say, a lot of opportunity and a lot of focus in the Company on how to continue to take advantage of really what we consider a fairly wide open market.

Sean Wieland, Piper Jaffray.

So the Avantec acquisitions today, can you just expand a little bit about their existing relationship with the NHS and what if any foot in the door, this gives you into that opportunity?

So Avantec started back in 2004 and became our exclusive distributor shortly thereafter and they've been building a base with NHS hospitals ever since then, we've got over 80 trusts that have purchased at least some Omnicell equipment. We've got several trusts that have gone house wide. We talked about some of those in the past, like [Guys], St. Thomas Trust in London, King's College in London, those very big implementations that happened in 2008-2009. They've really done a great job, building up the market and becoming the leader and making Omnicell the leader in the UK. Now the NHS is of course a controlling entity in the UK, but it's not necessarily a purchasing entity. Each of the member of trusts in the NHS tend to make their own decisions, especially regarding tools and equipment like ours, but we built up a good reference base and Avantec has just done a wonderful job demonstrating the value of Omnicell systems.

One of the things about Omnicell's equipment is there's a lot in the sales process. There's a lot of value that's generated in that process. Our customers are responsible for keeping people healthy, they are not necessarily technologists and we help them with the use of the technology, we help them optimize it, we help them with the implementation of them, ensure that drugs aren't diverted. And because of that the SG&A in our business is relatively high and customers pay us a value, it's relatively high gross margin to cover that. When we sell through a distributor outside the United States, our distributors do all of that, end-customer work, they do most of the marketing, the sales, the service, the installation and we become more of a wholesaler of our products into those markets. The UK market has developed to a point where we believe that there is a good recognition of the value for our systems, a lot of opportunity going forward. And with the MACH4 acquisition and the MTS and SurgiChem acquisitions earlier, we established a relatively strong direct sales base. And so, we sort of have a mix of the ways we're going to market in the UK. The acquisition of Avantec it makes us direct in the UK market in all of our products and we think that's a good thing for how we bring value to the customers.

So, you talk about regional specific functionality in these systems. Is that just the blister pack stuff or give us some examples of regional specific functionality.

Well, this is actually specific to what Avantec does in the UK. The hospital workflows and a little bit just about how care is given is different from one region to another. In the UK, hospital stays are longer and the unit dose system it's used is the United States where each dose is managed individually. It is not used there in many places, they manage on a box and blister pack basis with original manufacturer's packaging. And so we have provided features in our system that is specific to that market, but Avantec has also developed ancillary software systems that interact with our products and couple other additional hardware products that make our systems more applicable to the workflows there in the UK in hospitals.

Steve Halper, FBR.

I was just wondering what the underlying reasons for the medication adherence segment to decline in profitability, either GAAP or non-GAAP, what's the play there?

Sure, So, we have been focusing on building out the product line in the medication adherence segment. As we talked about, we're doing development there and we brought the M5000 to market. We're now into the -- part of the stage with M5000, we're incurring more SG&A expenses and cost of goods sold expenses to get it into the marketplace in its launch. We've been pretty open about investments to really set ourselves up for the growth opportunity that we see. And that's most of the decline that you've seen. We've also been at the point where we've kind of stretched our factories. We've had a lot of growth in the revenue and we're selling a lot more and kind of got our factories operating at a point where the [task] point of efficiency and so we are working to improve and increase our capacity and get back some efficiency that we've lost in our gross margin.

Does that require any additional capital investments, CapEx?

It probably will, over time, but not anything substantially different from what we've had do in the past. We only made capacity investments in our Florida factories of about $4 million back at the end of 2013 and beginning of 2014. And we can see growth, particularly at the international markets that we expect will have a sort of step functions in the future.

And would you care to sort of project into the future when you think that segment would start growing again?

In margins?

Just absolute profit.

So we're going to be continuing to make investments through this year and the beginning of next year as we bring out new products, and M5000 to the marketplace. But that's more into 2016.

And how many M5000s do you have installed now beyond the first one?

We are still doing the beta on the first one and we got pretty good pipeline going on. We started taking orders for them, but we only have the one installed at this point.

Okay. But you have additional orders in hand.

Yes.

And last question, when you think about the integrations -- I'm sorry the acquisitions, how much do you think you would be spending on integration costs?

Typically an acquisition is a minimum of somewhere between $1 million and $1.5 million a year to get it into the system base and get all the back office put in place, particularly these smaller acquisitions are private companies, they're not operating on US GAAP. And so we've got process changes and controls changes and systems changes things like that.

And does it take more than a year to get through those -- that process?

A lot of the spending on integration is in the first year and then it trickles down over time.

Right. So if they were --

(inaudible) with like the Pandora acquisition or MTS acquisition, after a couple of years the companies doing well again.

And when you say $0.04 dilutive to MACH4, part of that is the integration expense?

Absolutely.

Gene Mannheimer, Topeka Capital.

Thank you and congrats on a good start to 2015. One term that has been noticeably absent from this call has been G4, at least I didn't hear it. Can you provide us an update of how many customers have migrated to-date and what inning are we in that upgrade cycle?

Well G4 continues to do very well in the marketplace, we're at 65% of the installed base is now ordered and like we said in the past, we expect most of the installed base to eventually implement, we're probably getting towards the later adopters now since G4 came out in 2011. But it's been very well received in the marketplace. Some of these new features that are in it are just doing very well, like that med label printer, it's just been a real home run.

When I think about this, you've done now three consecutive acquisitions overseas, between SurgiChem, MACH4 and now Avantec. Rob you are going over there to run International. So it sounds like this is -- is this where the growth is going to come from going forward, how do we think about the domestic opportunity, is that still a high-single digit to 10% grower?

Well, we're not changing the fact that we've got three growth strategies. The first growth strategy is everything around the products and having differentiated products in the marketplace. A big part of that is the multi-net opportunity, but also the continued growth of the implementations of automated dispensing systems in the United States. That's still a market that isn't fully penetrated. Obviously we're taking share from competitors with our pretty consistent competitive conversion rates and so we see that there is growth in both of those areas.

International has been under-penetrated for a very long time, we've got particular regions that are starting to appreciate automation in bigger and bigger ways, UK is one of them. Middle East we have been successful, so that's clearly one of the areas that we believe we can get good returns. And then augmenting both of those strategies (inaudible) is acquisitions, we can't do everything with our own development teams.

I'll now hand the program back over to Randy Lipps for any additional or closing remarks.

Well, thanks for joining us today, and it's great to have a great start to the year. I'd like to really congratulate the Omnicell team members again for driving such a difference in the marketplace for us and then allowing us to continue to grow the Company on so many different sectors, not only in the US, but around the world. And also I'd really like heartfelt congratulations to Rob Seim on his move and really thankful for all that he has done for the Company in his leadership roles and we look forward to having him in that international and growing that baby really nicely.

Alright, we will see you next time.

Ladies and gentlemen, thank you for joining us today. You may now disconnect your lines.