Omnicell's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb. 4.14 | About: Omnicell, Inc. (OMCL)

Omnicell, Inc. (NASDAQ:OMCL)

Q4 2013 Earnings Conference Call

February 04, 2014 05:30 PM ET

Executives

Rob Seim - EVP and Chief Financial Officer

Randall Lipps - Chairman, President and CEO

Analysts

Matt Hewitt - Craig-Hallum Capital

Sean Wieland - Piper Jaffray

Jamie Stockton - Wells Fargo

Charles Rhyee - Cowen and Company

Steve Halper - FBR

Gene Mannheimer - B. Riley

Raymond Myers - Alere Financial

Operator

Good afternoon my name is Christiana and I will be your conference operator today. At this time, I would like to welcome everyone to the Omnicell’s Fourth Quarter 2013 Earnings Call. (Operator Instructions). After the speakers remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Rob Seim, you may begin your conference.

Rob Seim

Thank you. Good afternoon, and welcome to the Omnicell 2013 fourth quarter results conference call. Joining me today is Randall Lipps, Omnicell’s Chairman, President and CEO. You can find our results in the Omnicell fourth quarter earnings press release posted in the Investor Relations section of our website at www.omnicell.com.

This call will include forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information in our press release today in the Omnicell annual report on Form 10-K filed with the SEC on March 11, 2013, and then 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 February 4, 2014, and all forward-looking statements made on this call are made based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these events to change.

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

Randy will cover an update on our business first today and then I'll cover our results for 2013 and our guidance for 2014. And following our prepared remarks, we'll take your questions.

Randall Lipps

Good afternoon. I'm very proud of our performance in the fourth quarter in all of 2013 and over the past four years. Exceeding our guidance, we recorded record revenues in Q4, we also reported record orders culminating in full year bookings performance of $328 million. $13 million over the upper end of our guidance.

Our full year 2013 was also a record in both revenue and earnings. But I think the most compelling statistics the one to measure our performance overtime. In the past four years we’ve increased revenue over 75% and more than tripled our non-GAAP net profit. We’ve expanded our market share and take a new thought leader customers every quarter for 9 consecutive years. We’ve changed our revenue mix from 15% reocurring to 45% reocurring. We’ve broadened our product line expanded into new markets and move with our customers to address medication management across the continuum of care.

I want to assure you while we’re proud what we’ve accomplished we’re not standing still. I believe Omnicell has more expansion opportunities now than we’ve ever had before and that we’re positioned well to take advantage of them. Of our three growth strategies, our first strategy of differentiated products, continues to attract new customers to adopt our award winning G4 platform. Customers such as Mobile Infirmary has 689 hospital system in Mobile Alabama has adopted our G4 medication dispensing systems, anesthesia workstations and pharmacy automation.

Mobile Infirmary selected Omnicell to replace two competing systems as standardized their medication management approach across the entire enterprise with the goal of improving nursing efficiency and patient care.

Every year we win new academic medical centers, government installations and smaller community hospitals. We’ve announced new advanced interoperabilities such as the ability to operate an automated dispensing system from Cerner power chart and interoperability between our non-acute medication packaging systems and leading non-acute pharmacy information systems such as soft riders.

And we continue to bring new differentiated products to the market such as our expanded Pandora Analytics product line but now aggregate the information from not only medication dispensing systems, but also supply systems operated room systems and the central pharmacy systems. In addition, our systems are now Phase II meaningful use certifies.

Our second strategy is of expanding into new markets also fuels growth particularly in 2013. Examples include our expanding business of placing automated dispensing systems into non-acute care settings and our continued international expansion. In addition our multi-med medication adherence solutions continue to do well in Europe with over 500,000 patients receiving the prescriptions for our medication adherence solutions every week.

And part of our record revenue performance in Q4 was driven by the recording of revenue from the Sidra medical center in Qatar, an order we took in late 2012. Our third strategy of expanding our presence and relevance through acquisition has also delivered results.

Augmenting our non-acute care medication adherence solutions in Q4, we announced an agreement to purchase Surgichem Limited from Bupa Home Care in the United Kingdom. Surgichem provides medication adherence solutions popular with committee pharmacies which is an excellent compliment to our existing business in the UK that has predominantly served large obtained pharmacy.

The acquisition is going through regulatory review now in the UK. Pending regulatory approval, the acquisition is expected to be immediately accretive. We believe our hard work over the years and the execution of our three leg strategy laid the foundation first successes last year and sets us up for continued future growth.

In today it’s changing into multiples healthcare environment, we remained focused on our mission to change the practice of healthcare and solutions that improve patients and provider outcomes. Our solutions provide clinicians greater assurance that medication and supplies are mastered correctly or not misused and are handled in a cost in an effective manner. We now count over 6,000 customers using one or more of our solutions.

Every day our products serve the caregivers thousands of patients around the world saving money and improving patient safety. We will never stop in our pursuit of a better outcome in healthcare.

It is what drives us to continue to deliver differentiated products, drives us into new markets where our solutions make a difference and drives us to use our cash flows to expand our product line to meet the changing needs of the healthcare industry. And it is what drives the results that we saw in Q4 and in 2013 overall.

Turn call back over to you Rob.

Rob Seim

All right. So the fourth quarter and full year results for 2013 exceeded our expectations in nearly every way, so us up for another great year in 2014. First of all the orders were very strong in the quarter, topping up the year growth resulting in record order volume. Our product backlog ended the year at a $180 million exceeding our guidance range of $160 million to $165 million and it’s up 16% from the ending backlog in 2012 with a $155 million.

Overall product bookings finished the year at $328 million above our guidance of $305 million , $315 million. Those books are up from $265 million in 2012 when we had a partial year of contribution from MTS. The year-over-year growth of 24% is made up of about 10% from a full year of the MTS contribution and about 14% from organic growth.

And turning to the quarter where a significant number of new customers wins both in our acute care segment where we saw large orders from academic medical centers and strong performance in the non-acute care market. We’ve also seen continued expansion of demand for our G4 upgrade to existing automated sensing system installation. We’ve now taken orders to upgrade 37% of our existing customers G4. So while we are happy with the progress we still have a large portion of our install base to upgrade.

Historically we’ve discussed the percentage of our new product orders that have come from new and competitive conversion accounts this measure encompasses all of our products except the MTS product. All these products are marketed under the Omnicell brand. Those orders from new and competitive conversion customers were 47% of Q4 bookings for Omnicell branded products, but the bulk of the orders coming from competitive conversions, a small number of the orders from Greenfield customers were never purchased automation before.

For the full year of 2013 38% of our orders for Omnicell branded systems came from new or competitive conversion customers. Every year since 2005 nine years in a row our orders from new and competitive customers have been over one-third in this portion of our business.

Our 2013 financial performance was very strong. Our revenues of $381 million were a record, non-GAAP net income of $1.08 per share also a record was consistent with our increased guidance and well above the upper end of the guidance we set at the beginning of the year. We exited the year with non-GAAP operating margin of 14.6% for the Q4.

So the revenue for Q4 2013 of $105.8 million was above our expectations, driven by strong demand from G4 upgrades which often shift shortly after their order. And revenue was up 17% from Q4 2012 and up 12% from Q3 of 2013. The Q4, 2013 profit on a GAAP basis was $0.19 per share, up from $0.16 per share one year ago.

For the full year of 2013, the revenue of $381 million was up 21% from 2012. The GAAP earnings per share of $0.67 was up $0.20 from $0.47 in 2012. We also report our results on a non-GAAP basis, which excludes stock compensation expense, amortization of intangible assets associated with acquisitions and any non-recurring costs or benefits. These non-GAAP financial statements in addition to GAAP financial statements, as we believe it's 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 fourth quarter earnings press release that is posted on our website. This quarter a non-recurring charge of $0.6 million associated with the pending acquisition of Surgichem was excluded from our non-GAAP results.

On a non-GAAP basis, earnings per share were $0.29 in Q4, $0.01 higher than analysts’ expectations. Non-GAAP EPS was down sequentially from $0.31 in Q3 as expected. Q3 we had tax benefits associated with employee stock plan totaling $0.03 per share which we did not expect to repeat in Q4. Non-GAAP earnings per share were up $0.25 in Q4 of 2012.

For the full year 2013, our non-GAAP profit increased from $0.87 per share to the $1.08 per share, an increase of 24%. Adjusted earnings before interest, taxes, depreciation and amortization which also excludes stock compensation amortization and amortization acquisition related costs was $18.9 million for the fourth quarter of 2013, up 17% from $16.2 million a year ago. For the full year 2013, adjusted EBITDA was $66 million, an increase of 21% from $54.4 million in 2012.

Our Acute Care segment which includes everything we sell to hospitals, contributed $79.9 million in revenue and $12.4 million of operating income in Q4 2013 or roughly 80% of the total operating income of the company.

The Non-Acute Care business which consists of solutions sold outside the hospital setting, including equipment and consumables that manage medications through adherence packages and dispensing systems sold to institutions serving long-term care need. The Non-Acute segment contributed $25.8 million in revenues for the quarter and contributed $3.1 million of non-GAAP operating income or 20% of the total operating income of the company.

In relation for the full year of 2013, our Acute Care segment contributed $285 million of revenue from $41 million of operating income and the Non-Acute Care segment contributed $96 million in revenue and $11 million of operating income.

During Q4, we completed share repurchases, totaling $21 million. We bought back approximately 885,000 shares at an average price of $23.67 per share. Consequently cash decreased from a $116 million at the end of Q3, 2013 to $105 million at the end of Q4, 2013. Excluding the buyback, cash was up $10 million. Majorities of the shares were repurchased late in the quarter and had minimal impact on earnings per share in Q4. We have authorization to repurchase up to another $29 million of stock. For the full year of 2013, our free cash flow was over $43 million, up from $33 million in 2012.

Accounts receivable day sales outstanding were 51, down 12 days from last quarter. We had very favorable collections at the end of the year and strong revenue. Going forward, we expect our DSO to be between 55 and 65 days. Inventories were $31 million, roughly flat to last quarter. Our headcount was 1,134 up from 1,089 at the end of 2012 as we continued to invest on growth initiatives, add headcount to handle increased production and installation.

Looking forward, we know our customers will continue to face unprecedented change over the upcoming years. We believe we can help them meet regulatory and cost challenges. We are optimistic about new emerging opportunities for medication adherence. We believe our solutions will play an increasingly integral role in making healthcare organizations more efficient and to improve patient outcomes.

2014, we expect revenue to be between $415 million and $425 million, an increase of 9% to 12%. We expect non-GAAP earnings to be between a $1.17 and $1.23 per share, growth of 8% to 14%. We expect steady revenue and earnings growth through the year, and we expect Q1 2014 to be $96 million to $98 million of revenue and approximately $0.23 non-GAAP earnings per share. Typically experience higher expense levels in Q1 due to several seasonal factors in our business.

So our business has involved to include much more consumable revenue and the backlog number has become a less meaningful number. We are going to focus more now on the annual product bookings as a major of our new business. Product bookings are firm orders for installation of our automation solutions or for delivery of the consumable products.

Product bookings do not include service contracts. We will provide updates to the annual bookings expectation each quarter as we go through the year. We expect product bookings to be between $340 million and $350 million in 2014. We steadily improved our operating margins over time and are now operating near our goal of 15%. We expect our results to fluctuate from quarter-to-quarter but to average nearly 15% objective for the year.

And all of this guidance excludes the pending acquisition of Surgichem. That concludes our prepared remarks. And now, I’d like to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Matt Hewitt of Craig-Hallum Capital.

Matt Hewitt - Craig-Hallum Capital

Good afternoon gentlemen and congratulations on a great finish to the year.

Rob Seim

Thank you.

Matt Hewitt - Craig-Hallum Capital

First question, what was the Sidra contribution in the fourth quarter?

Rob Seim

So we don’t actually disclose the amount of revenue for particular customers; they typically don’t really like us to do that. Sidra was a sizable order in the fourth quarter of last year and we did record all the revenue for it in the fourth quarter of this year.

Matt Hewitt - Craig-Hallum Capital

Okay fair enough. And then as far as the general market is concerned, you mentioned a couple of times that there is unprecedented challenges that your customers are facing. How are your sales team and how are you navigating some of those challenges? Obviously given your Q4 performance, you are doing better than most, what tools do you have and how have you been able to outperform what others in your space have been witnessing?

Rob Seim

Well, first of all, our products are actually pretty easy to install. There might some changes in work flows that customers have to go through but our teams really have a consultative process starting with the early portion of the sales process going all the way through planning for the installation and actually doing the installation. We take as much of the pressure and work load off of the customer as possible. And the installation process typically involves the pharmacy staff quite a bit, it does not involve the CIO staff as much. So what we find is there is plenty of customers who are in the market that are looking to move to higher levels of efficiency and better outcomes for their patients, their outlook in it, all the systems that are available in the marketplace. Quite a few of those customers are choosing us, because the overall package we can provide, the product features that consultative process, and good solid service.

Matt Hewitt - Craig-Hallum Capital

Alright, fair enough. Thank you. I'll jump back in the queue.

Operator

The next question comes from the line of Sean Wieland of Piper Jaffray.

Sean Wieland - Piper Jaffray

Hey, thanks guys. So it feels like there was an inflection in the quarter. And just based on your remarks, I can't really put my finger on the one or two things that changed. You reiterated last 90 days ago, you reiterated your bookings guidance for the year and then you came in meaningfully above that. So my question is what changed over the past three months to drive that outperformance?

Rob Seim

Well, we did have a strong order quarter. And as I talked about in the past, we take almost 1,000 orders every quarter, but there is pretty smaller number of them that are very large orders that have -- can have a significant impact on the quarter. We do see customers moving forward with those orders and quite a few of them, maybe a few more than we -- certainly few more than we expected to close in the quarter. So, it's a little hard to call these things, because there is many people involved in the decision process and many times the customer might be changing the vendor, so there is competitive pressures and negotiations of contract and so forth. We did very well in the fourth quarter and our products held up very well in those competitive situations. And so, we're really happy with the performance that we had.

And then on revenue basis, we did although I'm not -- I can't really disclose the exact amount, we did have the large order for Sidra that we booked into the revenue and we expected to book that into the revenue. Not a surprise, but… It’s not going to [held] pretty solid revenue.

Sean Wieland - Piper Jaffray

Yes, the End of Life of Windows XP has anything to do with driving upgrades for G4?

Randall Lipps

Yes, it certainly does. There is a lot of features in the G4 upgrade, the End of Life of Windows XP, our G4 upgrades Windows 7. End of Life of XP is certainly making some of the IT folks of our customers interested in getting those upgrades done. We have seen steadily increasing demand for the G4 upgrades since we announced that two years ago. And substantially more increasing demand into this year. Yeah, it took off a little bit slower than we probably expected. It took a while for folks to get it into budget and sort of work it into their process, but now we have a lot of customers interested.

Sean Wieland - Piper Jaffray

Okay. And CareFusion talked about lengthening implementation time, are you seeing any of that in your customer base?

Randall Lipps

We are not. We’re not really seeing any lengthening in the order time or the installation time.

Sean Wieland - Piper Jaffray

Superb. Thanks and congrats on a nice quarter.

Randall Lipps

Thank you.

Rob Seim

Thanks Sean.

Operator

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

Jamie Stockton - Wells Fargo

Yeah. Good evening. Thanks for taking my questions. I guess maybe to follow-up on one of Sean’s real quick just on the Windows XP front. What do you think the mentality is of those hospitals that are not going forward with the G4 upgrade as far as Windows XP End of Life is concerned? It sounds like maybe half of your user base still beyond XP because they haven’t upgraded to G4 after it goes End of Life. I mean will there be a real rush for them at some point by the end of the year to try to upgrade because they are afraid of sort of [security] audit or do you feel like they are not going back, they’re going to hurry?

Randall Lipps

Well, I think that you are correct. Hospitals start fall and the [category] rates are driven totally by the IT upgrade and the IT demand get all systems up out XP on to the next version. Windows and some places just see that too big of a hurdle to do for every place in the hospital including our system.

So they have taken on other avenues to get that done. But I still think probably this year will be the peaking year for our G4 upgrade. And particularly in 2013 every quarter was an increasing larger quarter for G4, I think that will continue. We should have a record year next year in G4 upgrades and should provide a good base of business for us going forward. But that still will be I think it will take five years to get 90% of the people there, but I think year four and five, which is 2015 or 2016 will be on the other side as well.

Jamie Stockton - Wells Fargo

Okay. And is there any component other way they are waiting for like Windows 8?

Randall Lipps

No, I don’t think so. I think they are just waiting to the proper time to allocate. But there is lot other great reasons to upgrade to G4 platform medication and there are even different functions and features you can’t get without the new console. So as people get further into the G3 platform those get more apparent, they look better. And of course eventually at some point with the sunset to G3 platform, so we won’t support the G3 platform, but that won’t be for a year or two.

Jamie Stockton - Wells Fargo

Okay. And then you had a really strong quarter as far as new client activity within bookings, could you just touch on competitively was there kind of an initial burst of activity around the test I’m getting out from other there, dispensing business that we might be continuing in ‘14 or not continue in‘14?

Randall Lipps

Well, I think we've seen probably a pretty full on market, I think we are doing really well in the market compared to our competitors. What we see happening is as hospitals merge, they take on more formal process as they did at the Infirmary Mobile that I discussed in the remarks. And when they merge, they have hospitals with different systems, so they usually create from that to go through a more formal selection process. And I guess it’s a little bit more of a level Plainfield. And interesting thing at Mobile was that we were in none of the hospitals, hopefully there were two competitors and the group of hospitals who told we replaced both those competitors and I believe one was CareFusion and the other was a small division at (inaudible). And so as we see consolidation, I think in general that helps us to get these competitive when can you see a lot of that in the industry.

Jamie Stockton - Wells Fargo

And now I have a question, just give us an update on where China stands and all of you had anything in your prepared remarks, I think the last thing we heard was roughly 30 hospitals that we are piloting your solution there?

Randall Lipps

No, we have 30 in the pipeline, so we have 20 hospitals right now that are installed during the process of installing. And so there is still the early inflations where the relatively small inflation find it out in a particular word, we don’t have hospitals in-house not yet.

Jamie Stockton - Wells Fargo

Do you think that that phenomenon we might see in 2014?

Randall Lipps

Well, we are certainly trying make it so.

Jamie Stockton - Wells Fargo

Okay. All right, thank guys.

Operator

Your next question comes from the line of Charles Rhyee of Cowen and Company.

Charles Rhyee - Cowen and Company

Yeah, thanks for taking the question. One more question on the G4 side, you obviously gave a lot of details here. Rob I don’t know if you gave that number, but what was the -- what percentage of the base sale needs to be converted? And I know a while back I think at the start you talked about a five year general cycle on these upgrades. And I know it got a little pushed out, but sort of can you give a sense on the timing of what’s left in now obviously the ex issue what sort of the timeframe you kind of see that?

Rob Seim

So there is 37% of the installed base that has ordered, so of course 63% that haven’t ordered yet. We did looking back on previous times when we done upgrade like this saw that there was a five cycle as you said. And we expect that there will probably be another five year cycle or so that kind of a wild card in this is this XP End of Life which we really didn’t have last time that we did this sort of upgrade, at least not right in the middle of the upgrade process.

So that may drive a little bit faster adoption cycle in this doing years. It was a little bit slower to take off than we expected and have been historically has certainly picked up quite a bit through 2013 as I said and may go pretty fast now.

Charles Rhyee - Cowen and Company

Okay. And then just looking at the 1Q guidance here on revenues, I think you are looking at $96 million to $98 million, anything do you think that have told maybe out of the first quarter to fourth quarter, I mean fourth quarter is obviously very strong. And if I look at growth year-over-year in the first quarter kind of down sequentially, anything that might have been different between like a big order that you might have expected this year versus the fourth quarter?

Randall Lipps

There is nothing that got pulled from the fourth quarter, excuse me, from the first quarter to the fourth quarter. There was no customer that suddenly said why we need to install that faster or finish their installation ahead of time. The big driver in the fourth quarter was that Sidra order that we recorded revenue on. But many times it's kind of a funny phenomenon; sometimes our customers just have a hard time getting things installed in the fourth quarter because of the holidays, other customers that doesn't bother as much. And then sometimes customers can't quite get going in the first quarter, they came back from the holidays and they are just not ready to do things in those first few weeks. So, nothing really be getting pulled from quarter-to-quarter though just the natural installation cycle for our customers.

Charles Rhyee - Cowen and Company

Okay, that's helpful. And then just the last question here, I don't know if you mentioned that as we think about the full year guidance. Did you talk sort of the uptick we saw in SG&A? And so how should we think about that going forward? Is that sort of a run rate and then as we think about bringing Surgichem in? Thanks.

Randall Lipps

Well, Surgichem is not in our guidance at all. So that is still under regulatory review. And we're not sure exactly when it will get through, or it will get through the regulatory review. And if it does then we’ll close the transaction and then we'll update our guidance because a lot better understanding of the timing.

In terms of the rest of the guidance, so we're operating pretty near to 15% operating margin now. And our goal is to stay there as I said in the past. And a lot of that investment will be in the OpEx. So you’ll see continued investment in R&D, continued investment in the go-to-market engines, marketing in sales. We’re going to try everything we can to maintain and improve our gross margins. We’re always working in that area. But the P&L in terms of the overall percentages, how it’s laid out, will probably be pretty similar as we go through the year as it has been and was in Q4.

Charles Rhyee - Cowen and Company

Okay, great. Thanks a lot.

Operator

The next question comes from the line of Steve Halper of FBR.

Steve Halper - FBR

Yeah, just one housekeeping question and then more of a competitive question. What was the operating cash flow in the quarter? I know you gave free cash flow.

Rob Seim

The cash flow from operations in the quarter was $15.1 million.

Steve Halper - FBR

Right. And the free cash flow?

Rob Seim

Yeah. So the CapEx was $4.5 million.

Steve Halper - FBR

Okay.

Rob Seim

So, The difference between those is…

Steve Halper - FBR

Okay. So -- and then just on the pricing environment, any change on that front, did you see any mix -- change in mix for your sales, lease versus purchase?

Rob Seim

Not really, we’re still doing about between 25% and 30% of our business that we leased on our own paper. A lot of our customers are purchasing from us now and we have an excellent long-term cost of ownership story in our systems last long time. And we provide upgrade task for our customer, so a lot of customers want to purchase the systems.

Margins, we have a high mix of new customers and those deals were always very competitive and they tend to be little bit lower margin than our consumer ongoing business but otherwise no real change in the mix of margins.

Steve Halper - FBR

Just going back to the lease comment, you said 25% to 30% you lease on your own paper?

Randall Lipps

Yeah.

Steve Halper - FBR

What percentage do you sell those leases?

Randall Lipps

We sold those leases off, the only leases that we hold are federal U.S. government leases and the government has not being doing a lot of leases lately.

Steve Halper - FBR

Okay, so the remaining let’s call it 65% is really purchased; is that higher than it has been in the past?

Randall Lipps

No, it’s been very consistent over the last few years. And some of those customers do lease from their own third party leasing line to cover all the capital that they buy.

Steve Halper - FBR

Right, so you don’t differentiate that that’s just an outright purchase for you?

Randall Lipps

That’s right.

Steve Halper - FBR

Yeah, okay. Thanks.

Operator

The next question comes from the line of Gene Mannheimer of B. Riley.

Gene Mannheimer - B. Riley

Thank you. And congrats on a great year guys.

Randall Lipps

Thank you.

Rob Seim

Thank you, Gene.

Gene Mannheimer - B. Riley

So just back to G4 for a minute, you have indicated 37% of the phase took orders for the year. So how does that translate into the number of units or console you can install this year and remind of the price per upgrade?

Randall Lipps

It was 37% on the installed base ordered program to-date, so it wasn’t just in 2013 but since we announced the G4 product in the middle of 2011, 37% of the installed base is ordered.

Gene Mannheimer - B. Riley

Got you. So how can I interpret that to mean how many might install this year?

Rob Seim

So, the time that it takes to install those upgrades is not that long, so they don’t sit in backlog for very long, they turn to backlog pretty quickly. To really just a portion of the fourth quarter orders that haven’t been installed, yes those customers that have already ordered. So really going forward we’re looking most of the orders that would happen in 2014 is probably being installed in 2014. And we'd expect the pace to continue, as Randy said, 2014 will probably be a peak year, so we’ll probably see another 28% or so something like that order in 2014.

Randall Lipps

Yes.

Gene Mannheimer - B. Riley

Thanks. And then with respect to the non-acute care business, what was the contract with the dollar value of Omnicell medication tablets you installed in the non-acute settings?

Randall Lipps

So we have been giving that through the year, there is kind of bridge of people that are trying to do, that’s probably not something that we’re going to be doing on a go forward basis, but about 5 million in the quarter.

Gene Mannheimer - B. Riley

Okay. Perfect, thanks. And congrats again.

Randall Lipps

Thank you.

Rob Seim

Thank you.

Operator

The next question comes from the line of Raymond Myers of Alere Financial.

Raymond Myers - Alere Financial

Thank you very much. My first question is about the service margin. If you look at the trend in service margins that’s has been steadily increasing for at least two years. Can you describe why that is and how much further margin improvement you expect in fiscal 2015?

Rob Seim

Yeah. Our service margins have been going up and I keep saying that they are going to plateau. Yeah, service margins are heavily affected by how many parts are used in the service process and how frequently the product breaks down. The G4 product was -- just had a significantly wonderful service record. We just have become very efficient with that product and we are not using as many parts and we are not doing as many service calls.

That being said, we are getting a lot more of them out in the field now. We continue to expand our installed base and we will be expanding our and just coverage of service people to other than increasing installed base. I really don’t expect that margin to increase I do expect the margin to be in the low to mid 50% range per service. Barring, it’s the product never breaking now we love to give it A tag with the amount here, I am guessing, not quite there yet.

Raymond Myers - Alere Financial

Yeah, I want to make sure I get this right, you say low to mid 50 service, but you averaged 56 for the year and it’s just every quarter is higher than the last...

Randall Lipps

That is true.

Raymond Myers - Alere Financial

I am also under promising and over delivering, but are we establishing a realistic bar?

Randall Lipps

Well, I can say that we do need to add in some -- we’ll be adding some folks to the service team in 2014. So I am sure that will impact a little bit.

Raymond Myers - Alere Financial

Okay. That sounds good. And then for the Congress converse question the product margin was I know we are training well was light in the fiscal fourth quarter was there a particular reason?

Rob Seim

Yeah, the larger order that we had, the larger international order they tend to carry lesser gross margins we don’t overtime spend as much in the sales process because we are using because we're using distribution partners and value add resellers, but since we've booked all that revenue for the Sidra order in Q4 that drove down the margins.

Operator

(Operator Instructions). And you have a follow-up from Matt Hewitt of Craig-Hallum.

Matt Hewitt - Craig-Hallum

Thanks. Just a couple of follow ups. I mean first of all on the Surgichem you're waiting for regulatory approval. Is there any chance given the market share dynamics of MTS and Surgichem that you're not able to complete that acquisition?

Randall Lipps

We just, we don't know. We're just going through the process and we'll find out what happens. They obviously believe that it will go through once we go into the process. But I think we've got a little way to go on that and it's just a matter of what time this year hopefully that will go through.

Matt Hewitt - Craig-Hallum

Okay. And then secondly, you’ve rolled out some new analytics functionality at HP this past December. And I'm curious what their feedback has been from your installed base and potentially new customers given those attributes.

Randall Lipps

Yeah, I think it's a real positive thing because in a world of analytics you really have to understand everything that's not only going in your hospital. But the things they are going at the enterprise level. So, we've been able to provide data beyond just the medication use systems on the floors and added to the pharmacy work flow the Anesthesia Workstation, supply chain station. And then also get the global view of that. And that’s a big driver when you go into see these big [IDMs] that really want to understand what’s going on in their institutions for a global and a corporate view. And it’s been the strongest month. So I am excited about because it’s great that people buy these very expensive systems and deploy them, but I really want them to get the maximum value out of it and it really takes the analytics that are easily use that’s really what our Pandora is all about.

Matt Hewitt - Craig-Hallum

Okay, great. Thanks again.

Operator

At this time, we would like to turn the floor back over to Mr. Randy Lipps for closing remarks.

Randall Lipps

Well, thanks for joining us today. We had a great 2013. I’d like to congratulate the management team and the team players throughout Omnicell for delivering on everything that we asked them to do and more. And it’s just exciting to be in a company that that will make a difference in healthcare and driving great results. We’ll see you next time.

Operator

This concludes today’s conference call. You may now disconnect.

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