Omnicell, Inc. (OMCL) Q1 2015 Earnings Report, Transcript and Summary

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’ll 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's 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 Web site 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 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 will 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 about Q1 and our guidance for the remainder of 2015. Following that -- following our prepared remarks, we'll take your questions. So we had an absolutely outstanding quarter in Q1 with new orders, revenues and profits, 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-fourths of those orders came from competitive conversions 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 analyst expectations and our guidance for the quarter. 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’ve approximately eight months of 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 installation will complete because we install on our customer 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. Dr. Randy gives an update on the business; I’ll 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 a result of our three-leg 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 chose 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 competitor’s 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 of 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 administered time for selected first dose IV antibiotics. The other two legs of our growth strategy are expansion into new markets and growth through acquisition. Recently we completed two acquisitions in Europe that along with other acquisition 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 U.K. medication adherence. Earlier this month we completed the acquisition of MACH4 Pharma Systems of Bochum Germany. MACH4 produces robotic dispensing systems used in the hospital central pharmacy and in retail pharmacies to automate the handling of medications in original manufactures’ 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 U.K. have already integrated MACH4 robotic dispensing systems in the central pharmacy with Omnicell medication dispensing cabinets in the wards to create a complete medication handling process. MACH4 sells directly to customers in Germany, France, and the U.K., 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 longstanding distribution partner in the U.K. Avantec has developed the U.K. market over the past 10 years, gaining 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 regionally specific products for the U.K. market. Omnicell previously held a 15% ownership of Avantec. With this acquisition, Omnicell now interacts directly with the customer in the U.K. on all product lines including medication adherence, robotic dispensing systems, and automated dispensing cabinets. Before I conclude my remarks, I’d 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 purportedly 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 believes the continued investment in our three-leg strategy of differentiated products, expansion into new markets, and acquisitions and partnerships is driving profitable growth. We are 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 to 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. We use non-GAAP financial statements in addition to GAAP financial statements because we believe that 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 and is posted on our Web site. You will find additional GAAP to non-GAAP reconciliations in the press release this quarter that we intent to provide regularly in the future. Our non-GAAP basis, earnings per share were $0.29 in Q1, up $0.03 from Q1 2014 and, as we mentioned earlier, $0.06 above analysts expectations. Adjusted earnings before interest, taxes, depreciation and amortization, which also excludes stock compensation amortization and the amortization of acquisition related costs, was $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 business is 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, OmniSupply, and Pandora Analytics products. The MACH4 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 package consumables, which are now branded SureMed, 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’ve determined that certain corporate expenses cannot be easily applied to either segment. So from this quarter forward, we will separate those expenses into a 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 the 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 of 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 7 days from last quarter. The quality of receivables is very high and 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 1259. For 2015, we’re reaffirming the guidance we gave in February and including the expected results of MACH4 Pharma Systems and Avantec Healthcare Ltd. 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 will be initially dilutive to earnings by approximately $0.04 in 2015 and Avantec to be break-even, as we incur expense -- initial expenses to integrate both acquisitions. We expect non-GAAP earnings to be between $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, and 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’re 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 U.S. in addition to his other responsibilities, which started a reorganization process that I’m now completing. Rob has been our CFO for the past nine years, during which time the Company has done really well. He has help quadruple the size of the Company as well as increase the operating margin from 6% to 15%. 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 have 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 Johnston has assumed management of legal, HR and IT, Chris Drew leads our entire customer-facing organization in the U.S. 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] Your first question comes from Jamie Stockton with Wells Fargo.

Hi. Yes, good evening and thanks for taking my questions. 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 ES Solution [ph] 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 we 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 -- it can be seen as two things. One is, I think our international business, which is mostly all greenfield contributed 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’s skews that competitive conversion greenfield account number more. As well as just the total pipeline of first time customers is larger than it ever has been at Omnicell. And some of that maybe 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 are just what would service their acute care needs. So, sorry about a dual answer there to your question.

Okay, that’s great. And then maybe just one housekeeping one, Rob what was the Surgichem revenue during the quarter roughly?

It’s a bit more than $3 million.

Okay. All right. Thank you.

Yes, Surgichem is on the run rate that we expected.

Your next question is from Matthew Hewitt with Craig-Hallum Capital.

Good afternoon. Congratulations Rob, on the new role.

Thanks.

A 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 of Avantec was?

So, Avantec is -- initial purchase price of $12 million was potential of $6 million of earn outs over two years.

Okay. 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’re only changing the guidance for the two acquisitions, MACH4 and Avantec.

So it 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 it 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, its just we install on our customer schedule and we’re not necessarily certain which deals are actually going to close. It will be recorded as revenue at any point in time. So, we ended up with more deals in Q1 at 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 solid and still the same for the year. It’s a bit of the timing issue. MACH4 adds $12 million to $15 million of revenue to the year. We expect -- and we expect to be dilutive of those we’re integrating yet about $0.04, then Avantec adds about $3 million to $5 million of revenue, and its about breakeven as we’re spending money to integrate it. And just a reminder, Avantec was a distributor or a reseller of Omnicell, and that’s just about all of their business. So, part of the revenue that Avantec has in an end user basis Omnicell was already recording as we sold to them. And the $3 million to $5 million is the incremental revenue that -- or incremental [ph] margin that they had in their service business for the year that we’re adding on.

Okay. Maybe two quick ones. One, when do you anticipate that the Avantec closing?

It closed -- it was acquired and closed today.

Okay, great. And then one last one for 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 are the areas that you’re in relatively stable considering what's going on in some of the other countries there?

Yes. So the Middle East certainly is a large region with many national entities. Our focus is on the 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 had some instability recently.

Okay, great. Thank you very much for the update.

Your next question comes from Charles Rhyee with Cowen and Company.

Hi, guys. Thanks for taking the question. Can you remind us what the margin profile looks for MACH4 and Avantec as we think about modeling it looks to get past the near-term dilution?

So MACH4’s margin profile, you think the gross margin profile is just …

Yes, both actually because gross and operating?

The MACH4’s gross margin profile is in the ranges between 30% to 40% based on the products that are sold. Once we get passed the integration we’ll be working to get MACH4 to the same 15% operating margins that we expect from the rest of the company. And then Avantec again is a resell of Omnicell equipment in the UK plus the service business, and so you can expect for all margin profile Avantec’s business revenue that flows through the UK to be the same as the rest of Omicell’s business.

Okay. And just to follow-up on Jamie’s question earlier around CareFusion. Can you talk about that maybe going to -- and I think you touched on a little bit before, but maybe now that its part of that then, 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 it was previously owned under Cardinal, it created some opportunities for you there. How should -- how are you guys kind of approaching it?

The main part of these entities that we have competed against is the Texas product line. And long ago it was an independent company and has then been 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 -- I mean we’re not managing inside their companies, but Texas 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 market place as you can see by the competitive win ratio we’ve had for years on run now. But Texas has done -- of course its in the market before 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 -- big focus on service, report to the customer, technology, capabilities that we bring. And we’re going to continue to focus on trying to have the best products and the best customer experience in the market place.

Great, thanks. 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 lets say, like retail clinics et cetera. Can you talk about how you are thinking about that move down the road? Have you thought about how to develop your product maybe for retail end market to allow consumers to be able to access their medications either through some type of scan prescription but using some core Omnicell technology? Can you maybe talk about -- any thoughts around that area? That would be great. Thanks.

Yes, I think a lot in the world is changing about healthcare and its 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, a multi-dose cards are a great way to give meds to patients in different settings, but if there’s 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 in long-term -- on long-term care facility. So we see that, we’re definitely on the right road. We see uptick in 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 all have already started that. MACH4 sells retail robots to retail pharmacies mainly in the Germany and France market. 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.

Our next question comes from Sean Wieland with Piper Jaffray.

Thanks. So the Avantec acquisition 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?

Sure. So Avantec started back in 2004 and became our exclusive distributor shortly thereafter and they have been building a space with the 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, Kings College in London, those are 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 its not a -- necessarily a purchasing entity, each of the number of trusts in the NHS tend to make their own decisions especially regarding tools and equipment like ours. But we’ve built up a good reference space and Avantec has just done a wonderful job demonstrating the value of Omnicell systems. One other things that 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’re not necessarily technologists. And we help them with the use of the technology. We help them optimize it. We help them with the implementations. Help them ensure the drugs aren’t diverted. And because of that the SG&A and our business is relatively high and customers pay us a value that’s relatively high gross margin to cover that. When we sell through a distributor outside the United States, our distributors do all of that in customer work. They do most of the marketing, the sales, the service, the installation and we become more of a whole seller of our product into those markets. The UK market has developed to a point where we believe that there is good recognition of the value of our systems and 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 days. 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 that’s used in the United States where each dose is managed individually is not used there in many places. They manage on a box and blister pack basis with originally manufacturers packing. 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 a couple of other additional hardware products that make our systems more applicable to the workflows there in the UK in hospitals.

That’s very helpful. Thanks a lot.

Your next question comes from Steve Halper with FBR.

Hi. I was just wondering what the -- the underlying reasons for the Medication Adherence segment to decline in the profitability either GAAP or non-GAAP, What's at 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 in cost, control the expenses to get it into the market place in this 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 have also done it at the point where we’ve kind of stretched our factories. We 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 their task -- point of efficiency and so, we’re 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 to do in the past. We only made capacity investments in our Florida factories in about $4 million back at the end of ’13 and beginning of ’14 and, we can see growth particularly at the international markets. So we expect we’ll have sort of that functions in the future.

Right. 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?

Yes. So we’re going to be continuing to make investments through this year and the beginning of next year as we bring out the new products and get the M5000 to market place. So I would say its more into 2016.

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

We’re still doing the data on the first one, and we’ve got a 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.

Okay. And last question, when you think about the integrations -- the acquisitions, how much do you think you would be spending on integration cost?

Typically in acquisition is a minimum of somewhere between $1 million and $1.5 million of the year to get it into the system base and get all the back office put in place, particularly the smaller acquisitions or private companies they’re not operating on U.S. GAAP. And so we’ve got process changes and controls changes and system changes to implement.

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 you were …

[Indiscernible] like the Pandora acquisition or MTS acquisition after a couple of years the company is doing well again.

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

Absolutely.

Okay, great. Thank you.

Our final question comes from Gene Mannheimer with Topeka Capital.

Thank you, and congrats on a good start to 2015. The 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? Thanks.

s Well G4 continues to do very well in the market place where its 65% of the install base is now ordered. And like we said in the past we expect most of the install 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 the new features that are in it are just doing very well like the Med-Label printer has just been a real home run.

Terrific. And let’s see -- when I think about this, you’ve done now three consecutive acquisitions overseas between Surgichem, MACH4 and now Avantec. Rob, you’re 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? Thank you.

All right. Well we’re not changing the fact that we’re -- we’ve got three growth strategies. The first growth strategy is everything around the products and having differentiated products in the market place. A big part of that is the multi-net opportunity but also the continued growth of the implementations of our automated dispensing systems in the United States. That’s still a market that isn’t fully penetrated. Obviously we’re taking some share from competitors that are pretty consistent in 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 and we’ve got particular regions that are starting to appreciate automation in bigger and bigger ways and UK is one of them, and in Middle East we’ve done successful. So that’s clearly one of the areas that we believe we can get good returns. And then, augmenting both of those strategies kind of [indiscernible] with them is acquisitions. We can't do everything with our own development teams.

Okay. End of Q&A

I will now hand the program back over to Randy Lipps for any additional or closing remark.

Well, thanks for joining us today and its 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 market place for us, and then allowing us to continue to grow the Company on so many different sectors not only in the U.S. but around the world. And also I’d really like to heartfelt congratulations to Rob Seim on his move and really thankful for all that he’s done for the Company in his leadership roles, and we look forward to have him in that international and growing that maybe really nicely. All right, we’ll see you next time.