Omnicell Inc (OMCL) 2016 Q2 法說會逐字稿

Good afternoon. My name is Holly, and I'll be your conference operator today. At this time we'd would like to welcome everyone to the Omnicell second quarter earnings announcement.

(Operator Instructions)

I'd now like to turn today's conference over to Peter Kuipers, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the Omnicell second quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Joining me today is Randall Lipps, Omnicell founder, Chairman, President, and CEO.

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 February 26, 2016, 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 28, 2016, 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.

Randall will first cover an update on our business, then I will cover our results for the second quarter of 2016. Following our prepared remarks, we will take your questions.

Our second quarter financial results are as usual included in our earnings announcement, which was released earlier today and is posted in the Investor Relations section of our website at Omnicell.com. Our prepared remarks will also be posted in the same section.

Let me turn over the call to Randall.

Good afternoon, everyone. We are pleased to discuss our second quarter results.

I'm very proud of our performance, which continues our consistent track record over the past several years. We exceeded our revenue guidance and analyst expectations with record quarterly non-GAAP revenue of $176 million in the second quarter. Together with good cost and integration execution this revenue strength resulted in non-GAAP EPS of $0.38, also above analysts' expectations.

Bookings momentum for new and competitive conversions continues to be strong, driven by our award-winning differentiated products. As mentioned previously, with the acquisition of Aesynt Omnicell has gained an additional 10% of the automation and analytics market.

On a combined basis, new and competitive conversions accounted for approximately 30% of the second quarter automation and analytics bookings. Based on the year-to-date booking strength, we believe that our combined customer base gives us a very strong platform for future growth.

As previously discussed, we closed the acquisition of Aesynt on January 5, 2016. The Aesynt business, based in Cranberry Township, Pennsylvania, is a leader in enterprise medication management, with specific products in IV compounding, central pharmacy automation, point-of-care solutions and enterprise software products.

Our integration of Aesynt has been progressing very well. Earlier in the quarter we integrated the sales and field teams in North America to provide one face and one contact to the customer, and later in the quarter we realigned all other functions. As a part of this integration we've had a modest reduction in headcount in early April.

During the first quarter earnings call in 2016 we stated that we expected no significant impact on bookings and revenue in the second quarter from this sales and field integration, and I'm pleased to report that to date we have experienced minimal impact from the sales and field realignment on bookings, revenue or pipeline.

We have previously prepared a brief summary of the transaction, which has -- which was posted to the Investor Relations section of our website, Omnicell.com, that has since been updated to reflect the closing of the transaction. We have had very positive responses from existing and potential customers regarding the strength and benefits of our expanded product portfolio. Last quarter we updated the combined portfolio product page in the investor deck to also show the estimated annual total addressable market, or TAM, and our market position.

In the last number of years we have successfully grown the business by implementing three scalable growth strategies: one, growth through differentiated products; secondly, growth in new markets; and thirdly, growth via acquisitions. In the second quarter we continued to experience great wins and added notable customers to our Omnicell family through our first strategy of differentiated products.

We had strong momentum and notable first-time customer wins, and many were through competitive conversions. We estimated that we have gained further market share in the first six months of 2016, a continuation of a market share gain trend, as we have experienced for many years.

Examples of notable wins in the second quarter through competitive conversions include Stanford Health Care, Rochester Regional Health and Heritage Valley Health. We are thrilled to announce that we have signed an agreement with Stanford Health Care in Palo Alto, California. Stanford Health Care plans to replace all of their existing dispensing systems with Omnicell products, as well as to install Omnicell dispensing systems in their new hospital, which is currently under construction.

Stanford Health Care has also purchased our controlled substance manager solution and intends to add Omnicell's anesthesia workstations in the next few months. Of course, Stanford is nationally ranked in 13 specialties and named the top hospital in California by U.S. News & Report. They are included in the honor roll as one of the top 15 hospitals in the nation, with six specialties achieving high honors.

Rochester Regional Health, a five-hospital health system in Western New York has selected the Omnicell's medication and automation solutions to support their long-term goals as they consolidate five facilities into one cohesive health system. The interoperability between Omnicell's medication and automation solutions and Epic's EHR, the primary electronic health record used in Rochester Regional's health system, will standardize care across the facilities, which have previously been using disparate systems.

Rochester Regional is currently installing Omnicell solutions in two of the five hospitals that collectively have over 1,300 beds with plans to implement Omnicell automation in all five facilities by 2018.

Heritage Valley Health System, located just west of Pittsburgh, Pennsylvania, will be converting to Omnicell automated dispensing systems, anesthesia workstations, controlled substance manager and implementing Omnicell analytics. Heritage Valley chose Omnicell for our innovative approach to medication management, especially the focus on streamlining nursing workflow.

An integrated delivery network serving western Pennsylvania, eastern Ohio and the panhandle of West Virginia, Heritage Valley Health System has been recognized for the third consecutive year as one of the nation's most wired hospitals by the American Hospital Association's Health Forum.

Our second strategy of expanding into new markets also fueled growth in the last several years, and we believe sets us up well for 2016 and beyond. In a notable sale in the United Arab Emirates, we will be installing both our robotic dispensing system and our automated dispensing systems together at Saudi German Hospital. It is a significant win that Saudi German Hospital's group is the largest private healthcare company in the Kingdom of Saudi Arabia.

The hospital in Dubai is one of the group's first non-Saudi investments, underscoring their strong growth potential. Saudi German Hospital's group selected Omnicell due to superior technology and bundling, with products that accommodate needs in both the inpatient and outpatient settings.

In South Africa we have started installations of robotic dispensing systems in partnership with nongovernment health organizations to reduce waiting times that are a significant impediment to medication access in underprivileged areas. Steve Biko Academic Hospital in Pretoria and Helen Joseph Hospital in Johannesburg are both the first among the orders installed.

Our third strategy of expanding our presence and relevance through acquisitions has also delivered great results with the acquisition of the Aesynt business that was announced in 2015 and closed in the first week of January this year. In the second quarter, the University of Pittsburg Medical Center, UPMC, Western Pennsylvania's largest healthcare provider and a long-time legacy Aesynt customer, signed a 10-year sole-source agreement for AcuDose-Rx cabinets, Aesynt Rx medication systems, narcotic vaults, and Enterprise Medication Manager, our pharmacy supply chain management solution.

As an integrated global health enterprise closely affiliated with the University of Pittsburgh, UPMC has been named to the elite honor roll as one of America's best hospitals by U.S. News & World Report's Annual Guide. In addition, UPMC is nationally ranked in 14 medical specialties.

This continuing partnership supports UPMC's goal to leverage technologies to support their care model, enhance integration between pharmacy and nursing floors while strengthening their central pharmacy services through ROBOT-Rx and MedCarousel. UPMC also provides a strong foundation for the future implementation of Enterprise Medication Manager.

This is yet another proof point of the strategic value of the broadened product portfolio resulting from the acquisition of Aesynt earlier in the first quarter.

We remain very focused on our mission to change the practice of healthcare with solutions that improve patient and provider outcomes. Our second quarter results again demonstrate the strength of the broad product portfolio that bolsters our role as a strategic partner to the health systems.

Let me turn it back over to Peter for some financial updates.

Thank you, Randall.

I'll discuss a summary of our second quarter financial results and our guidance for the third quarter in 2016.

Our second quarter 2016 GAAP revenues of $173 million were up 53% from the same quarter last year, and up 1% sequentially. Strong demand in revenue was driven by both expansion and upgrades at existing customers, as well as by new and competitive conversion customers. We continued to see particular strength of the combined product portfolio to enable strategic, tailored and scalable solutions for our customers.

Earnings per share in accordance with GAAP were a net loss of $0.03, which is down from $0.24 of earnings per share in the second quarter of 2015. The second quarter 2015 GAAP net income included a $3.4 million gain on business combination of an equity investment. GAAP gross margin was at 45% for the quarter.

In addition to GAAP financial results, we report our results on a non-GAAP basis, which excludes stock compensation expense, an amortization of intangible assets associated with acquisitions, one-time acquisition-related expenses and the acquisition accounting impacts related to a number of items including deferred revenue, inventory of fair value adjustments, as well.

We use non-GAAP financial statements in addition to GAAP financial statements because we believe it is useful for investors to understand acquisition and amortization related cost and noncash stock compensation expenses that are a component of our reported results as well as one-time events such as the gain on the Avantex investment in 2Q 2015 and one-time acquisition-related expenses. 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.

Our first quarter of 2016 non-GAAP revenues of $176 million were up 56% from the same quarter last year, and up 1% sequentially. On a non-GAAP basis, earnings per share were $0.38 in the second quarter of 2016, up $0.10, or 37%, from the same quarter last year and up $0.03 sequentially. Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization was $25.9 million for the second quarter of 2016, up 40% from $18.5 million a year ago.

Our business is also reported in segments consisting of automation analytics and medication adherence. Automation analytics consists of our OmniRx Automated Dispensing Cabinets, Anesthesia Workstations, central pharmacy, Omnicell Supply, Pandora Analytics and MACH4 robotic dispensing systems. Our acquisitions of Avantec, MACH4 and Aesynt are also included in these segments.

The medication adherence segment consists of all adherence packaged consumables, which are now branded SureMed, and the equipment used by pharmacists to create adherence packages. Our acquisitions of MTS Medication Technologies and (inaudible) are included in the medication adherence segment. As a reminder, we now report certain corporate expenses that cannot be easily applied to either segment separately.

On a segment basis, our automation and analytics segment contributed $148.7 million in GAAP revenue in the second quarter of 2016, up from $88.7 million in 2Q 2015, or an increase of 86%, mostly driven by the acquisition of Aesynt. $20.5 million of GAAP operating income this quarter compares to $23.3 million the same quarter last year. $35.7 million of non-GAAP operating income in 2Q 2016 compares to $21.8 million last year.

The medication adherence segment contributed $24.2 million of GAAP revenue to the quarter, compared to $24.1 million in 2Q 2015. GAAP operating income of $2 million compares to $2.3 million a year ago. $3.6 million of non-GAAP operating income compares to $3.7 million of non-GAAP operating income in the second quarter a year ago.

Non-GAAP common expenses were $90.3 million this quarter, compared to $11.1 million in the second quarter of 2015. The increase is mostly driven by the Aesynt acquisition.

NetApp operating margin was 11.4% for the second quarter, and year to date we are ahead of plan, driven by the strength in revenue and cost underruns.

In the second quarter of 2016 our cash balance decreased from $53 million to $41 million, primarily due to the use of cash in accounts receivables, inventories and an increase in prepaid income taxes. Year to date cash flows from operations were $16 million.

Our strong cash flow in the first quarter enabled us to repay $20 million of the outstanding balance on the credit revolver in March. On June 30, 2016, our loan leverage ratio, measured as outstanding total loan balance over the last 12 months of EBITDA, was slightly below 2.

Accounts receivable days sales outstanding for the combined business were 85 days, up 2 days from the first quarter in 2016. The increase in DSO was mostly billing, timing driven. We review the collectability of our receivables regularly and we do not believe the fluctuation in DSO are indicative of a change in our rate of bad debt.

Inventories were $74 million, up around $2 million for last quarter, mostly for a build in inventory for installs and deliveries in the third quarter.

Our headcount was 2,264, down 29 from last quarter, driven by the reduction in headcount related to the sales and field alignment in April this year.

We are reconfirming our 2016 total year guidance. As discussed on our fourth quarter and full year 2015 earnings call, for 2016 we expect product bookings to be between $540 million and $560 million. We now expect 2016 non-GAAP revenue to be at the higher end of the range of $695 million to $715 million.

We expect 2016 non-GAAP earnings to be between $1.50 and $1.60 per share. Lastly, we expect non-GAAP operating margins for 2016 to be approximately 12.7%.

As discussed in prior earnings calls, we consider 2016 to be a transitional and transformative year as we integrate Aesynt and gain momentum from our expanded product portfolio.

Let me now move to guidance for the third quarter of 2016. For the third quarter of 2016 we expect non-GAAP revenue to be between $176 million and $183 million and expect that non-GAAP EPS is between $0.38 and $0.42 per share.

As discussed in previous earnings calls, it is important to note that from time to time installation completion timing on specifically bigger projects could impact revenue and earnings in a given quarter, but we do not expect these quarterly fluctuations to impact the growth rate measured over multiple quarters.

We are assuming an annual average tax rate of 38% on GAAP earnings on a combined basis. This assumption includes the benefit of the R&D tax credit impact as it has been permanently approved by the government.

As discussed on the last two earnings calls, when comparing 2016 to 2015, it is important to note a couple of items that are new for 2016. First, for 2016 our non-GAAP expected results include around $10 million of integration expenses that we do not adjust for based on our non-GAAP policy.

These integration costs, directly impacting non-GAAP operating margins and non-GAAP EPS, mostly consist of retention costs, integration-related IT expenses, costs related to the implementation of Sarbanes Oxley, costs related to tax restructuring, accelerated product development integration cost and cost of the integration team.

It's also important to remember that in 2016 we are expecting modest first-year cost synergies between $5 million and $10 million. As we have demonstrated in the past, we have confidence in our ability to achieve our 15% non-GAAP operating margin target over time, and after integrating the acquired business and getting full benefit of the scale of the combined business.

With the sales and fields-related reorg that we executed in early April as well as other cost actions we are on track for the first year cost synergies between $5 million and $10 million and are tracking more towards the upper end of this cost synergies range.

Lastly, for 2016 we expect interest expense related to the senior secured credit facility used to finance the Aesynt acquisition to be around $6 million. Compared to 2015 this is a headwind to non-GAAP EPS of around $0.10.

To round out our update I will hand the call back to Randall.

Thanks, Peter.

Once again, Omnicell's second quarter was marked by record revenues bolstered by the strength of our expanded portfolio that delivers our customers unmatched innovation and flexibility. Already in the last 180 days we have completed the first phase of the Aesynt integration, and all departments are now realigned with their respective organizations.

And this really allows us to move forward with the second phase of the Aesynt integration, which involves mostly systems and process implementations as well as joint product development. So I'm pleased that we are seeing health systems, both existing and new customers, assessing the needs for improved efficiency and safety, evaluating the breadth of our solutions, and then choosing us.

And so it's really been a lot of hard work by a lot of folks, so hats off for the Omnicell people for moving quickly through the integration, allowing us to move forward with our customers to make a difference.

With that I'll now open it up for calls. Operator, please help me out here.

(Operator Instructions)

Mohan Naidu, Oppenheimer & Co.

Thanks for taking my questions, and congratulations on a great quarter here. Hey, Randy, maybe on the deal flow, we are seeing great deal flow so far this year. Plus can you update us on the competitive landscape and win rate you are seeing in the market, especially now that you have a full suite of products with Aesynt in there.

Well, I think our competitive conversion rates, what we talk about are 30%, which are a little less because now we've taken one of the competitors, and at least the NA market is now in our combined total. But it's still 30%.

The pending conversion rate is strong, and we're seeing that being helped out by the fact that we have products now that can go into almost any account, whether we have the core business or not, like IV, like our enterprise medication management products. These products can be kind of wedge products that start out a relation at a lot of new organizations.

And so I think the competitive landscape is very strong for us, not only that we continue to take market share, but now that we can approach new markets with new market share in a different way by going to accounts where we don't have core products and starting to deliver on some new products that are the best in the marketplace. So that's very helpful.

That's great. Maybe a quick one for Peter, how should we think about your exposure to the weakness in British pound as we go into the second half, if at all there is anything?

Yes, I would say the exposure from Brexit is fairly limited, so if you're going to dissect Brexit for our business. So our business in the UK, we're the market leader in automation analytics and in med adherence.

Most of our customers there are funded by the NHS, and that funds the hospitals. Our understanding is that the NHS has very limited funding from the EU, so we expect the impact to be there very small, if any.

From an FX perspective, exchange perspective, the rate is down I think about 8%, but we also, of course, do have costs in also the Great Britain pound. So the net-net impact is fairly small.

We do intend to put a foreign exchange hedge in place over on our P&L exposure there. So overall it's all included in our guidance, and it's a small impact, if any.

Okay. One quick question around gross margins. On the automation segment, is it just a mix coming in from Aesynt that dropped the sequential drop in gross margins?

Yes, it's some mix. There was one deal where we honored the commitments from prior to the acquisition. We do think that we will see an uptake in the second half in gross margin in the A&A segment.

That's great. Thank you very much for taking my questions.

Jamie Stockton, Wells Fargo Securities, LLC.

Randy, the international deals that you talked about, it sounded like maybe there was a little stronger central pharmacy automation component. Maybe I was just making that up. I don't know. But if there was can you talk about whether you are getting traction with either the Aesynt solutions outside the US, which is something that I think you talked about as an opportunity when you did the deal, or if maybe some of the solutions when you got MACH4 you were able to take into other geographies internationally?

Yes, the MACH4 opportunity is the one that I referred to as the robotic dispensing opportunity, both in Saudi Arabia and South Africa. And there's a good worldwide market, particularly outside -- everywhere outside the US for this product.

And because we have a bigger platform to offer that on, and that's usually used in the outpatient setting, and so many countries such as in Saudi Arabia you see that they have both an inpatient and an outpatient provider or mandate that they're working through. And so being able to offer both is important, and I think it helps us in those cases.

And then I think in South Africa, where you still see the impact of AIDS and a lot of NGOs there trying to figure out how to solve the problem, which is medication availability and medication compliance, the two things that we're focused on, it's refreshing to see our solutions impacting those areas there.

And we believe there's a market for the same product in China, in Australia, literally around the world. So we're picking our markets and taking that product strong to the market, and it's a great product, and we think it will help us expand our ability to automate medication management.

Okay, and then maybe just one follow-up on the same topic when you think about the US. Are you seeing many hospitals interested in sticking with the relatively robust medication dispensing cabinet but then also at the same time wanting to kind of beef up the central pharmacy automation such that you might be able to cross-sell some of the Aesynt solutions into your legacy base specifically around central pharmacy? Or is this still a situation where hospitals are kind of going one path or the other?

Yes, I'd say today that we don't see any big uptake in that market. We don't see any shrinkage, either, the hospitals that have decided to go with the ROBOT-Rx. They are looking for modifications and improvements to the product, which I think make a lot of sense. And as we focus on the future we want to deliver the next generation of product that allows us to not just answer the solution set that exists today but expand that solution set.

And the best way to think about it is robotics is impacting every industry worldwide to improve efficiency. We know hospitals need a lot of efficiency. And a lot of it needs to take place in the central pharmacy.

So as we come out and develop from that basis infrastructure that we acquired in the Aesynt acquisition we'll be able to modify and expand that platform to be more meaningful to more hospitals as we move forward. And so that part is a little more down the road than we are currently today.

The current customers who have those products are upgrading them, or they might buy a hospital and they might expand on the system or buy a new system. But we do believe there is a market for an expanded product line that really automates more of the pharmacy central in a broader application.

Okay. That's great. Thank you.

Sean Wieland, Piper Jaffray & Co.

So, can you -- wait, let me get my headset on here, did you talk at all about organic growth in the core business or with Aesynt, and if not could you?

Yes, so you've seen that SPA. You've seen the 75-day 8-K that we filed earlier this year. Then you've got to back into the number. We don't disclose it necessarily. In the 10-Q you'll find a footnote. If you do the calculation there you can see that our organic growth apples to apples including Aesynt last year, as well, is in the high single digits, around 8% year over year. So strong business performance.

I would add to that, Sean, that in our guidance, if you look at that, we are forecasting double digit growth in our bookings growth and very strong growth there, and we -- you know, the first two quarters we are on or above plan for that, so we're feeling confident about the year based on that.

Okay. How about the organic growth within the Aesynt business, then?

Yes, so like we've discussed earlier, right, there's really one business, right? So we have now the accounts are merged, the sales and field terms are merged. It is one business, and we're selling both products, if you will, with the choice to the customer. We have great wins selling on both the central product lines, if you will, but we are merging to and developing one consolidated product portfolio set.

Yes, and so it's hard to break out. But I would say the Aesynt customers are continuing to order product whether it's the legacy product Aesynt or the Omnicell product. We're seeing good growth from them that's been expected.

All right.

And we've -- so I don't see -- I don't see it. But we can't really break it out by product line, because we're indifferent to the product line.

Okay. Do you have an update on the M5000 product?

Yes, the update is there is no update till we release it.

And then do you have a scheduled timing to release it yet, or is there any update on how the development work is going?

Like we said on the last call, Sean, we will announce it when it's ready, and then we'll announce it.

We're still working on (inaudible).

Okay. All right. Good enough.

Still progressing.

Thank you so much.

Matt Hewitt, Craig-Hallum Capital.

Hi, guys. This is Charlie Etson on for Matt. Just a couple of questions. First, I guess, not to harp on it, but last quarter you guys delayed the launch of the M5000. From like a corporate strategy perspective, is there any -- can you reveal any like tendency to either focus on the product development, or are you kind of waiting for the merger to progress through final stages before you kind of use both product development teams to work on the product?

Well, there's a very big strong initiative to focus on the automation of the multidose solution set. So that's core to where we want to go. We know there's a market for it. We think there are several ways to get to different types of solutions that we want to offer to the market. It's important for us to figure that out.

M5000 was one of those. We're not projecting when that project is going to be completed until we're finished. We are working on it, and -- but automation, it's a very difficult thing to do to automate the multidose products.

No one else in the world has really done it. And so we think we're still furthest ahead and plan on having a successful market when we're ready. But, as I said on the last call, we -- it's not much of an impact this year, and something will probably be done on that next year.

Okay. That makes sense. And then just kind of from an international perspective, I know you said you've kind of merged the -- you've integrated the two companies and you're kind of taking a joint approach as you go out to sell the clients. Is that across all countries internationally, or are you prioritizing the US first and going from there, or how does that work?

Well, most of the products that we acquired I said are domestic or North America -based and focused on North America. The one exception is the IV robotics, which is both a US and non-US worldwide product that we've rolled out. So we've particularly been focusing on the IV product line, taking that into some new markets or joining that with our platform where we are outside the US.

But that's primarily the outside US product line that we acquired from Aesynt. Most of -- all the other products that we acquired are North American based.

Okay. Well, thank you.

(Operator Instructions)

Raymond Myers, The Benchmark Company, LLC.

Randy, my first question is related to your early discussion on the call with some really impressive competitive wins, Stanford, Rochester, Heritage, Saudi Arabia, etc., very impressive, but still only 30% of your revenue is from new and competitive conversions, which is generally in line with historical average. So can you help us to understand the impact of those competitive wins? Was that -- would they just happen to be ones that you would note?

So, I'll take the question, Ray. If you look at the combined business, right, so the Aesynt business is mostly generating revenue from existing customers and half of that business is actually service revenue, as well, right? So there's a good set of recurring revenue stream there.

What we said on the last call is that we expect the competitive conversions on a combined basis -- that's just how the math works -- to be in the 30% range. And it continues to be strong, like we've said. We have taken market share, as well, in the second quarter.

What we've said in the past, if we do mention a competitive win they're normally one of the larger ones. We don't disclose the dollar amount, if you will. So hopefully that helps.

Yes, so, just to clarify, before the Aesynt integration we would've probably had these same competitive wins, (inaudible) the net competitive conversion rate probably would've have been 40%-plus. It would've been a lot higher, right?

So now that we have a larger basis of business and we don't count the Aesynt accounts that we used to convert as competitive wins anymore, both those two factors make it look smaller. Actually, the activity of the business is just as vibrant and strong as it has ever been.

Okay. So I'm right to take away from this list of wins that this is a greater proportion of wins in that business than you have had for the last several quarters.

No, the dollar amounts are roughly the same, or a little bit bigger, but what Randy and I are saying is that if you divide that roughly same dollar amount over a bigger total revenue base you get a percentage that's more in the 30% range.

Probably the one other issue on the reporting basis is some hospitals will not allow us to publicly report it. So each one of these has to be approved by them.

And so we could have some great wins, but we can't announce it on the call because the customer will not allow us to have it happen. This particular call we got a lot of customers to agree to allow us to announce it, so -- and it was some great wins, as well.

Okay. Good. That helps. Thank you. Next question is regarding the consolidation that happened in the second quarter of Aesynt's business, does that affect the expense structure here in the second half?

Can you repeat the consolidation of what business?

You talked about -- yes, there was some consolidation in the Aesynt business in Q2, so I'm trying to understand if you look at Q2 P&L and you look forward to second half P&L, should we see some delta there for the consolidation?

Well, we combined the business on January 5, and we did the sales and field reorg and quota setting and regional setting and account assignment, if you will. We did that in first or second week of April. And we did also have a modest reduction in force.

And that was at the beginning of the quarter.

Yes, the beginning of the quarter.

So we don't really see a big difference in the expense in Q2 versus Q3, I don't think. And that would be the biggest difference.

Yes, so overall the overall track for our cost synergies between $5 million and $10 million total year, and we're trending to the higher end of that range.

Okay, great. So we already felt that in Q2. It's not that there's incremental benefit in Q3.

There'll be some, but it's not going to be --

Oh, okay. That helps. And then one nit is did you say the proportion of customers that are currently converted to the G4?

We actually did not, I believe. It's at 81% now.

And then lastly I just wanted to touch on asking you generally what are management's growth priorities now that Aesynt is six months in and it seems to be progressing well? What are your priorities for the next 12 months or so?

Well, thinking long term, and that's the way I look at the business is long term, is 15% soft line, 8% to 12% organic, 5% on average inorganic. Of course, Aesynt is a bigger piece of that. We don't see anything slowing us down there except a big acquisition to take. We probably wouldn't do something as big as that in the near term.

But we're always opportunistic. We think we've got a great platform. And particularly now with the Aesynt product line if there's something that was available at the right price we'd probably look at that.

But we think we're in a good spot to acquire great technologies and products to put on our platform and roll out. And, yes, as you can see, we've moved fairly quickly with this integration, continue the execution of the Company, and we'll finish the year strong. So it's -- we're not going to slow down.

That sounds great. Thank you, gentlemen.

Mitra Ramgopal, Sidoti & Company.

Yes, hi, just one quick question. Randy, I know you talked about organic growth about 8%. I was wondering if pretty much all of that is volume driven or are you getting some additional pricing now.

Well, it's a combination of both. So this is Peter, actually. So, Mitra, if you look at our products, right, so we've been winning for 10 years in a row now best product in automation and analytics.

Customers see definitely the product differentiators, so we're able to get premium pricing. So we do have that, but we also, of course, have a portfolio component as we grow and grow every year. So I would say it's both.

Thanks. And then, again, and this is more longer term, based on the wins, for example, in the business you're seeing more outside of the US, how do you see the mix changing over the next couple of years in terms of US versus ex-US?

Yes, so international revenue as a percentage of total revenue in second quarter was 15%. We have as a kind of a first-step goal to get to 20% of the total.

Now, as you can see from our prepared remarks and from the release that we issued we're growing domestically also really well in total. So international has to grow exponentially to increase that share of the pie. But we're trying to get to 20% internally.

Okay. Thanks for taking the questions.

Thank you. And that'll conclude today's question-and-answer session. I'll turn the conference call over to Randall Lipps for closing comments.

Well, thanks again for joining us today.

Another shout-out to the Omnicell team, has superbly executed the last 180 days to again put us in line for great results that we've had and the great results that we believe we're going to have going forward. I know it's been a lot of work by folks and a lot of changes. But we've done it, and we're off to the races. Thanks for joining us today.

Once again, we'd like to thank you for your participation on today's conference call. You may now disconnect.