Omnicell's (OMCL) CEO Randall Lipps on Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: Omnicell, Inc. (OMCL)

Omnicell (NASDAQ:OMCL)

Q2 2014 Earnings Call

July 31, 2014 4:30 pm ET

Executives

Robin G. Seim - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance, Administration & Manufacturing

Randall A. Lipps - Executive Chairman, Chief Executive Officer and President

Analysts

Mohan A. Naidu - Stephens Inc., Research Division

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Matthew G. Hewitt - Craig-Hallum Capital Group LLC, Research Division

Steven P. Halper - FBR Capital Markets & Co., Research Division

Charles Rhyee - Cowen and Company, LLC, Research Division

Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division

Raymond A. Myers - Alere Financial Partners LLC

Nina Deka - Piper Jaffray Companies, Research Division

Leo F. Carpio - HM Global Capital LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Omnicell Second Quarter Conference call. [Operator Instructions]

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

Robin G. Seim

Thank you. Good afternoon, and welcome to the Omnicell 2014 Second Quarter Results Conference Call. Joining me today is Randall Lipps, Omnicell's Chairman President and CEO. You can find our results in the Omnicell second quarter earning press release posted in 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 on our press release today, in the Omnicell annual report on Form 10-K filed with the SEC on March 17, 2014, and in other more recent reports filed with the SEC.

Please be aware that you should not place undue reliance on any forward-looking statements made today. The date of this conference call is July 31, 2014, and all forward-looking statements made on this call are made based on the beliefs of Omnicell as of this date only. Future events or simply the passage of time may cause these beliefs to change.

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

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

Randall A. Lipps

Thanks, Rob. We had an outstanding quarter in Q2. Strong customer demand for our solutions resulted in 47% of our orders from Automation and Analytics products, coming from new and competitive conversion customers. Included in those orders are several large multi-hospital systems, which converted from our competitors. Revenue and earnings results are ahead of analysts expectations. And topping it all off, Omnicell was chosen as top overall pharmacy automation vendor in the annual survey by KLAS, a prestigious third-party rating organization.

KLAS is a measure of customer satisfaction and highly-satisfied customers turn into great references that lead to competitive conversions for Omnicell. One example from this quarter, the Allina Health System in Minnesota, one of the pioneer accountable care organizations that selected Omnicell as its new system-wide medication automation partner earlier in Q2.

The Allina system is comprised of 12 hospitals with 2,500 beds, as well as multiple retail pharmacies, long-term care pharmacies and post-acute care clinics. Following an extensive internal review by Allina involving nursing, pharmacy, anesthesia providers, emergency medical services and information technology, the health system will be replacing a competitor's product with a full range of Omnicell solutions. The implementation will include OmniRx medication dispensing systems with 2 of our efficient workflow software products, single point and Anywhere RN, our Controlled Substance Management System, Anesthesia Workstations, and Pandora Analytics. Allina also utilizes our multi-med adherence products and skilled nursing facilities that are serviced by its pharmacy.

We also recently took orders from another of the nation's largest accountable care organizations, Atlantic Health System of New Jersey, where our solutions will replace competitive installations at 4 hospitals across the 1,600 bed system. Atlantic Health made an enterprise-wide decision to implement our unity platform with a single server and a single database, supporting a mix of Omnicell solutions, including systems for the nursing units and the operating room.

Continuing on our success in the Middle East, we recently signed a new contract for 3 hospitals in the SEHA Integrated Health Network of Abu Dhabi, a preeminent health system in the Middle East. These hospitals include Mafraq Hospital, the flagship of the 12 hospitals and the 2,600 SEHA Acute Care system. Mafraq is currently a 450-bed hospital that is expanding to a new 740-bed campus. They have standardized on our OmniRx and Anesthesia Workstations. These wins underscore the long-term value, design, and built into every Omnicell system. Our Unity platform puts medication and supply management from the central pharmacy to the nursing units and operating rooms into 1 comprehensive database [ph] for improved efficiency and patient safety. Our modular systems and practice of frequent software releases allow our customers the ultimate flexibility in configuration, and the capability to keep their systems technologically current while protecting their investment.

This is why the annual KLAS survey of medication automation users has highlighted Omnicell as the brand with the highest customer satisfaction year after year. KLAS announced this week that we won top honors in 5 product categories, including top honors for our OmniRx medication dispensing systems for the ninth year in a row. In the last 2 years, KLAS has also named a best overall pharmacy vendor, which we have won both years. We are proud of our accomplishments, but we are not standing still. We continue to invest in our 3-leg strategy of differentiated products, expansion into new markets and acquisition and partnerships, the same 3 legs that have driven our success today.

As an example of our acquisition growth strategy, we recently received some encouraging news from regulatory authorities in the U.K. regarding our pending acquisition of SurgiChem. While nothing is yet final, the regulators' provisional findings were for approval of the acquisition. We expect a final statement from the regulators later this quarter. So our 3-leg growth strategy is working, delivering state-of-the-art medication management and workflow efficiency to our customers, results for our investors and better health for everyone. I believe, we have all the ingredients for continued success.

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

Robin G. Seim

Thanks. So as Randy said, 47% of our Automation and Analytics orders were from new and competitive conversion customers in Q2, approximately 3/4 came from competitive conversions and 1/4 from greenfield customers who had never purchased automation before. Whether it's a competitive conversion or Greenfield, we go head-to-head with our competitor's products, and we are doing very well. Year-to-date, 40% of our orders are from new and competitive conversion customers, very consistent with the last 9 years.

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

GAAP earnings per share were $0.21, up 24% from Q2 2013. We did have some variations in GAAP gross margin in Q2, relative to prior quarters. Product gross margins were down 100 basis points, entirely due to product mix. Service gross margins were up 320 basis points. The high quality of our G4 product line and our other products that we deliver to customers, which is becoming an increasing percentage of our installed base resulted in fewer service calls, good news for our customers and good for our financial results.

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

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

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

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

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

During the second quarter, our cash grew $19 million to $126 million driven mostly by our operating performance. We have board authorization to repurchase up to $25 million of our stock, but we made no repurchases during Q2. Our intent to use the cash remains primarily to fund acquisitions. If we gain approval for the SurgiChem acquisition, it will consume approximately $20 million. In accounts receivables, day sales outstanding were 72, up 4 days from last quarter. Inventories were $31.5 million, up $0.5 million from Q1, and our headcount was 1,172.

Now looking forward, we do believe we're right on track to the guidance we gave in February, and we expect revenue to be between $415 million and $425 million for the year, an increase of 9% to 12% from 2013. We expect non-GAAP earnings to be $1.17 to $1.23 per share, up 8% to 14% year-to-year. Earnings per share estimates reflect an effective annual tax rate of 38% on GAAP earnings by year end. We expect to finish with an average annual operating income of approximately 15%. We expect 2014 product bookings to be between $340 million and $350 million. All this guidance is the same as we provided in February, excludes the pending acquisition of SurgiChem. And just as a reminder, SurgiChem has an annual revenue run rate of approximately $12 million. If the SurgiChem acquisition is completed, we'll update guidance at that time.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Mohan Naidu with Stephens Inc.

Mohan A. Naidu - Stephens Inc., Research Division

Randy or Rob, would you say the hospital spending environment has come back to basically in a healthy situation here. You guys had a very good series of quarters here, okay. Can you comment on hospital spending at this point?

Robin G. Seim

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

Mohan A. Naidu - Stephens Inc., Research Division

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

Robin G. Seim

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

Mohan A. Naidu - Stephens Inc., Research Division

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

Robin G. Seim

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

Operator

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

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

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

Randall A. Lipps

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

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

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

Randall A. Lipps

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

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

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

Randall A. Lipps

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

Robin G. Seim

You're probably looking for a precise number. We're 46% of the way through right now. So 41% last quarter, up to 46%.

Operator

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

Matthew G. Hewitt - Craig-Hallum Capital Group LLC, Research Division

You mentioned in the prepared remarks a couple of really nice competitive wins in the quarter. It sounds like one was -- there had been some consolidation with Atlantic Health, you may have had 1 of their 5 hospitals, and they -- when they went to go to a single vendor, you won the rest. But Allina, I think that was a straight out win. What is it about the G4 platform, about your current, I guess, solution pipeline, that is the 1 or 2 factors that's helping you win versus your competition?

Randall A. Lipps

Matt, so just let me clarify the Atlantic win, we did win the whole system, and we had no installations there prior. One of their hospitals, we'll be implementing a little bit later than the others, and so that's not in the first wave, so to speak. So Atlantic and Allina are pretty much in the same boat, but to get back to your question of what is it that's differentiating us. There are a lot of things about our systems, which differentiate us. We have a very broad product line, it's integrated onto 1 Unity platform now, which makes it very easy and efficient for the -- both clinicians than and IT shot to run the systems. Our systems are very configurable. We upgrade them and update them on a frequent basis. And because they're modular, customers have the ability to keep them current without having to replace the whole system. And we have a number of advanced features and a number of products in the product line that sort of fill out the whole medication management process that our competition does not have. Now all these things don't necessarily resonate with each and every customer, but sort of a group of them generally resonate with the customer like Allina or Atlantic, and make us a clear winner in their minds.

Matthew G. Hewitt - Craig-Hallum Capital Group LLC, Research Division

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

Randall A. Lipps

I don't know if I could give you a bed count. But the mobile carts are addition to our cabinet-based systems. They run off the same database, and they're intended to extend the reach to the bed side. That does appeal to a subset of the customers, but it is, in today's capital constrained environment, it is an additional expense for them. And I'd say, it's the more advanced customers that are really interested in getting that controlled over at the bed side of the funds that have taking back. I don't have numbers for you on exactly how many hospitals have penetrated theirs on a bed count.

Matthew G. Hewitt - Craig-Hallum Capital Group LLC, Research Division

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

Randall A. Lipps

So yes, the status in China hasn't really changed in terms of our penetration of the market. It's still very early. We're still learning. We are -- absolutely, we see a good market there, but I think it's going to take a while for the workflows to -- for us to adapt to the workflows that they use and for them to adapt to automation. We are putting additional effort into the marketplace with a few more feet on the street, and we're doing some localized development. So we are -- we remain committed to that market, as well as our other 2 focused areas in our -- outside the United States, which are the Middle East and Mafraq is a great win, fantastic win in the Middle East and Western Europe where we're doing quite a bit of business in the Medication Adherence part of our business, as well as with great customers like Guy's and St. Thomas' that we talked about last time.

Operator

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

Steven P. Halper - FBR Capital Markets & Co., Research Division

What is the reason behind the decline in profitability of the Medication Adherence segment?

Randall A. Lipps

So as we talked about in the past, we see a great opportunity with the multi-med, and there is a number of specific products that we would like to bring to market there. And we've been investing in that segment to sell the product line. In the single medication products that we sell, mostly for use in nursing homes, we have a wide variety of equipment that our customers can use and enter the market no matter what size they are. In the multi-med market, where we do just have 1 piece of equipment and 1 size doesn't fit all. So we've been doing a lot of work to understand what the market wants, to develop those solutions, to make sure that we're doing the right amount of marketing and market research, and so you see that in the expenses.

Steven P. Halper - FBR Capital Markets & Co., Research Division

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

Randall A. Lipps

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

Steven P. Halper - FBR Capital Markets & Co., Research Division

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

Randall A. Lipps

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

Operator

Your next question comes from the line of Charles Rhyee.

Charles Rhyee - Cowen and Company, LLC, Research Division

Rob, just going back to SurgiChem real briefly here, have you got any sort of indications from the U.K. authorities? What they're really looking at this point? Seems to -- obviously, have been dragging on for a while. Not a very large company. So I'm just curious, what is it about the market dynamics there do you think that they're concerned about?

Robin G. Seim

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

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. But the good news here is that you've got into early signals that there is not going to be anything really blocking at this point, just now procedural at this point. Is the right way to think about it?

Robin G. Seim

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

Charles Rhyee - Cowen and Company, LLC, Research Division

How long is the comment period?

Robin G. Seim

It's got a -- just another day, I think.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. So people had a month to make a comment and then without any of them, I guess, the provisional finding stands?

Robin G. Seim

Right. So probably be a couple of weeks for them to pull together all their finalized reports. There are no comments.

Charles Rhyee - Cowen and Company, LLC, Research Division

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

Robin G. Seim

Well, we've had a number of hurdles that we have to overcome. There's all-new different pharmacy information systems used in China. We were able to interface to those no problem, but then folks that actually utilize the systems have to figure out how they alter their workflow. You have our control systems in place in addition to their pharmacy information systems. We've done well with initial installations, sort of the trying it out, but we haven't got a hospital to a point where they're ready to go house-wide. Now all the installations we have are very, very large hospitals, and we're talking about hospitals that are much larger than hospitals in the United States. Randy talked about a lot of times our biggest competition is just the resistance to change. As a hospital gets larger and there's more and more people involved in decision-making process, change becomes harder and harder. So this isn't materially different than other markets that we've gone into where we have to do a lot of work to demonstrate the value of the systems and convince someone to take that first leap to make a big change. So we just haven't got to that point in China yet.

Charles Rhyee - Cowen and Company, LLC, Research Division

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

Robin G. Seim

It is not. SurgiChem is a relatively small company in the whole scheme of things. As I said, they're doing about $1 million a month in revenue. That will be a great addition to our product portfolio in the U.K. But we have an active business development department, and they are looking at potential additions to our product lines all the time.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. So it's not an impediment, you're just continuously evaluating?

Robin G. Seim

That's right.

Operator

The next question comes from the line of Eugene Mannheimer with Topeka.

Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division

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

Randall A. Lipps

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

Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division

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

Randall A. Lipps

Perhaps.

Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division

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

Randall A. Lipps

Yes, that is going very well.

Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division

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

Randall A. Lipps

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

Operator

[Operator Instructions] Your next question comes from the line of Raymond Myers with Alere Financial Partners.

Raymond A. Myers - Alere Financial Partners LLC

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

Randall A. Lipps

I think that competitor is always a strong competitor and they all are. And nobody likes losing a customer, and they've got a good set of products. And so many customers resign up with our competitors, so that we don't need to get access to those accounts to go through a competitive deal with. And we try to lock in somewhere around 100 competitive deals a year that we win with everybody in the market. And so it takes us a funnel of about a couple of hundred customers to do that. So half of those we win and other half, people typically choose to stick with their current vendor because it's just too hard to change. But I think we're positioned well to continue to grow the company, and continue to have the space of conversions that has been characteristic of our profile for many years. It's part of the culture in the company, it's part of who we are and it's part of how we think and work to be sure that we win over the long term.

Raymond A. Myers - Alere Financial Partners LLC

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

Randall A. Lipps

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

Raymond A. Myers - Alere Financial Partners LLC

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

Randall A. Lipps

Yes, a little bit under 25% for the dispensing systems.

Raymond A. Myers - Alere Financial Partners LLC

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

Randall A. Lipps

Between 1% to 2% a year.

Raymond A. Myers - Alere Financial Partners LLC

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

Randall A. Lipps

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

Raymond A. Myers - Alere Financial Partners LLC

And when would you expect that would be? Is that in '17 or further out?

Randall A. Lipps

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

Operator

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

Nina Deka - Piper Jaffray Companies, Research Division

This is Nina calling in for Sean Wieland. So now that you've hit your non-GAAP operating goal of 15%, where do you think you can go from here?

Randall A. Lipps

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

Operator

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

Steven P. Halper - FBR Capital Markets & Co., Research Division

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

Randall A. Lipps

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

Operator

Our next question, we have a follow-up from Matt Hewitt.

Matthew G. Hewitt - Craig-Hallum Capital Group LLC, Research Division

You mentioned Pandora a couple of times, and if I recall correctly a couple of years ago when you bought Pandora, it was largely a system that was utilized by your -- by hospitals using your competitors' adherence systems. And I'm curious how the cross-selling opportunity has played out. I think, 1 of the 2 that you just announced here recently had been using Pandora prior to your win. And I'm then curious how that cross-selling opportunity has played out? And whether or not you see that potentially ramping over the next year or 2.

Randall A. Lipps

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

Operator

Your final question comes from the line of Leo Carpio.

Leo F. Carpio - HM Global Capital LLC, Research Division

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

Robin G. Seim

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

Leo F. Carpio - HM Global Capital LLC, Research Division

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

Randall A. Lipps

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

Leo F. Carpio - HM Global Capital LLC, Research Division

Okay. And just the last question. So it looks like China is going to be on hold in terms of new markets for a while. What opportunity is left for you in the Middle East? You've winning deals quite frequently for the last couple of quarters. So what's left there in terms of opportunity?

Robin G. Seim

Well, the Middle East is growing because they're implementing health care, and they're implementing healthcare on the U.S. clinical model. And that's one of the reasons why our systems slide in so well. The Mafraq hospital is a -- well, there is an existing Mafraq hospital, 420 beds or so. They're building a brand-new hospital of 740 beds and implementing our systems there. And the other 2 hospitals, we want them to stay hospitals and at the same time, are new hospitals. Sidra, that we talked about last year, is a brand-new hospital in Qatar. So a lot of the business we're winning is expansion business. Now that there are some existing hospitals that we've also been able to win, ones that we're implementing automation for the first time and actually it had some competitive conversions in the Middle East. So the market is going well for us overall.

Operator

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

Randall A. Lipps

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

Operator

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

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