NASDAQ:OSIS OSI Systems Q1 2025 Earnings Report $17.70 +1.19 (+7.21%) Closing price 04/23/2025 03:58 PM EasternExtended Trading$17.39 -0.32 (-1.79%) As of 04/23/2025 06:57 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast NovoCure EPS ResultsActual EPS$1.25Consensus EPS $1.06Beat/MissBeat by +$0.19One Year Ago EPS$0.91NovoCure Revenue ResultsActual Revenue$344.01 millionExpected Revenue$318.66 millionBeat/MissBeat by +$25.35 millionYoY Revenue Growth+23.20%NovoCure Announcement DetailsQuarterQ1 2025Date10/24/2024TimeBefore Market OpensConference Call DateThursday, October 24, 2024Conference Call Time12:00PM ETUpcoming EarningsNovoCure's Q1 2025 earnings is scheduled for Thursday, April 24, 2025, with a conference call scheduled at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by NovoCure Q1 2025 Earnings Call TranscriptProvided by QuartrOctober 24, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00you for standing by, and welcome to the OSI Systems First Quarter 2025 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Alan Edrick, Executive Vice President and Chief Financial Officer of OSI. Please go ahead, sir. Speaker 100:00:36Well, thank you. Good morning and thank you for joining us. As said, I'm Alan Edrick, Executive Vice President and CFO of OSI Systems and I'm here today with Deepak Chopra, OSI's President and CEO. Welcome to the OSI Systems fiscal 2025 Q1 conference call. We are pleased that you can join us as we review our financial and operational results. Speaker 100:00:59Earlier today, we issued a press release announcing our fiscal 2025 Q1 financial results. Before we discuss these results, however, I would like to remind everyone that today's discussion will include forward looking statements and the company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to such forward looking statements. All forward looking statements made on this call are based on currently available information and the company undertakes no obligation to update any forward looking statement based on subsequent events or new information or otherwise. During today's call, we will refer to both GAAP and non GAAP financial measures when describing the company's results. For further information regarding non GAAP measures and comparable GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings press release. Speaker 100:01:57I will begin with a high level summary of our financial performance for the Q1 of fiscal 2025 and then turn the call over to Deepak for a discussion of our business and our operational performance. We will then finish with more detail regarding our financial results and a discussion of our updated outlook for fiscal year 2025. Following our fiscal 2024 financial performance featuring record revenues and non GAAP EPS, We started fiscal 2025 by posting record Q1 financial results led by the Security division resulting in robust year over year revenue growth and a significant increase in year over year operating income. We are encouraged by the momentum reflected in our Q1 financial performance. So I'll start with a high level summary of our fiscal 2025 Q1 results. Speaker 100:02:51First, revenues increased 23% year over year to a Q1 record of $344,000,000 driven by the performance in our security division where Q1 revenues were up 36% year over year. 2nd, the significant revenue growth led to record Q1 non GAAP adjusted earnings per share of $1.25 3rd, bookings were again solid and we ended the quarter with a backlog of approximately 1,800,000,000 dollars Our healthcare backlog excuse me, our healthy backlog and robust pipeline of opportunities provide good visibility going forward. 4th, we completed the convertible debt financing in July, raising gross proceeds of $350,000,000 which reduced our weighted average cost of borrowings and was immediately accretive. Concurrent with this transaction, we repurchased approximately 531,000 shares of our common stock. And finally, in September, we completed a strategic bolt on acquisition in our Security division. Speaker 100:03:58While the acquired business did not significantly enhance our Q1 revenues, this deal is expected to be accretive to fiscal 2025 non GAAP earnings per share. Before diving more deeply into our financial results and discussing the updated fiscal 2025 outlook, I will turn the call over to Deepak. Speaker 200:04:17Thank you, Alan, and good morning to everybody and afternoon. I'm pleased with the company's robust fiscal 2025 Q1 performance. As Alan mentioned, we achieved an impressive 23% revenue growth, leading to a higher year over year operating margin. We closed the quarter with a backlog near all time high of 1,800,000,000 dollars and are optimistic about the remainder of fiscal 2025 and beyond. So let's dive into the performance and highlights of each of our 3 divisions for the Q1. Speaker 200:04:55Beginning with the Security division, where Q1 revenues were up 36% year over year, resulting in increased operating profits. Also, security bookings were solid. During the quarter, we continued to deliver on port and border security initiatives with Mexico's defense agency, SEDENA, on the $500,000,000 plus contract and with the other international customer Speaker 300:05:22on the Speaker 400:05:23$200,000,000 contract. In addition, shortly after the quarter end, we announced the commencement of operations Speaker 200:05:32of our turnkey screening services in Uruguay, utilizing our cargo and vehicle inspection systems along with our proprietary surge scan integration platform. We will also provide on this contract ongoing management training, equipment maintenance and support as part of the Uruguay contract. The Uruguay program now joins a list of our long standing successful multi year turnkey projects in Puerto Rico, Albania and Guatemala and serves as further evidence for potential customers of the breadth of our capabilities to manage large scale security programs in various parts of the world. During Q1, we had several wins in security and announced these during the quarter. First, a $17,000,000 international order to provide Eagle P60 high energy drive through cargo and vehicle inspection systems and T-sixty trailer mounted vehicle inspection systems including maintenance, service and support. Speaker 200:06:432nd, a $26,000,000,000 services order from an international customer to maintain and service its existing installed base of cargo and vehicle inspection systems. 3rd, a $10,000,000 order from yet another international customer to provide the Z Backscatter Van, ZBB mobile cargo and vehicle inspection systems, including training, service and support. And finally, domestically, we announced a contract of order of about $27,000,000 for maintenance services and technology support for its installed base of Rapiscan cargo and vehicle inspection systems. The agreement contains potential options for orders totaling up to $117,000,000 over a 3 year period. In aviation, we continue to make progress on our existing international airport project awards as airports expand and upgrade existing infrastructure, especially in Europe, Middle East and Latin America. Speaker 200:07:54Our overall activity at airports and air cargo facilities continues to be robust. We have a good pipeline. We are also focused on developing new offerings for airport and air cargo customers such as providing employee screening solutions for these customers. In some instances, this could be opportunities for complete turnkey services or hardware sales with remote monitoring services possibility. As Alan mentioned, during the Q1 of fiscal 2025, we acquired a U. Speaker 200:08:32S.-based company that provides high power radio frequency based transmission and amplification solutions for critical military communication, space communications, navigation and surveillance applications, both in the U. S. And international customers. Like our company's legacy offerings, these products help provide security and safety for people and critical infrastructure. We work with numerous defense and security agencies that utilize this technology in communication and surveillance solutions. Speaker 200:09:14In summary, this acquisition adds proven radio frequency based technology and products to our portfolio, allowing us to leverage further our global manufacturing sales and service support infrastructure. Overall, the Security division had a strong start in fiscal 2025 and we look forward to Security again achieving a high level of performance to the balance of 25 and beyond. Moving to the Optoelectronics and Manufacturing division. Optoe reported revenues of $98,000,000 including intercompany sales to reach a new first quarter record while delivering solid profitability. We saw notable strength and growth in our Flex Circuits product line. Speaker 200:10:06Many of our customers for Flex Circuits are from consumer tech and advanced medical device industries. We also have many customers who are leading OEMs in defense electronics. To that end, we announced a $5,000,000 order for advanced optical sensors that the customer will integrate into its complex navigation and guidance systems. I should note here that an order of this size is relatively large for this division. Our operations in Mexico, which we began at the end of Q2 last year, are ramping up as we continue to introduce our existing and potential customer base to its capabilities and the net benefits of near shoring. Speaker 200:10:52The uncertainty and risk for OEMs with China centric supply chains have never been more significant and our global manufacturing presence in U. S, Mexico, UK, India, Indonesia and Malaysia provides a viable alternative to reducing these risks. Finally, Speaker 400:11:12on Speaker 200:11:12to the Healthcare division. Q1 sales were down slightly year over year due to challenging market conditions, as we mentioned before. Still, the division delivered improved profitability, in part due to a more streamlined infrastructure. To support our customers, this division continues to offer innovative solutions and market its differentiation offerings like the Rotman Index Based Predictive Analytics Software and Safe and Sound Patient Alarm Management Software. We are focused on developing the next generation of patient monitoring solutions and continue to progress accordingly with an improved cost structure and a growing opportunity pipeline. Speaker 200:11:57We expect Healthcare's performance to improve over the balance of fiscal 2025. In summary, with a significant backlog and a clear path to near term opportunities, we are increasingly confident about our prospects for fiscal 2025 and beyond. Our strategy of being a vertically integrated supplier with a flexible and responsive global footprint that meets its customers' needs while we continue to invest in and acquire strategic technologies and capabilities has created a robust business with a long term sustainable growth potential. Finally, as you know, I have announced my retirement from my position as Chief Executive Officer of the company at the end of calendar 2024, though I will remain as Executive Chairman of the Board. In 1987, we laid the foundation for what would become OSI Systems, starting as an Opto Sensors Inc. Speaker 200:13:02Company and embarked on a new chapter by going public in 1997. From the beginning, our mission has been unwavering to deliver essential components and systems that enhance the safety and health of society. With the seasoned expertise of our current OSI management team, I'm confident in our ability to ascend to even more significant achievements. We expect to announce a successor before the end of the quarter. As such, this is expected to be my last earnings call as CEO and it has been my privilege to lead the company over the past years and I look forward to supporting OSI's journey ahead. Speaker 200:13:51With that, I'll turn the call over to Alan to talk in more detail about our financial performance and updated guidance before opening the call for questions. Thank you. Speaker 100:14:02Thank you, Deepak. Now I will review in greater detail the financial results for the fiscal 2025 Q1. Again, Q1 revenues were up 23% compared with revenues in the Q1 of the prior fiscal year. This increase was primarily driven by our largest division Security. The 36% year over year increase in Q1 Security division revenues was led by strong growth in our cargo and vehicle inspection product sales as well as solid growth in our aviation and checkpoint product sales. Speaker 100:14:34Q1 revenues included continued shipments from the $200,000,000 plus cargo contract announced in January 23 and also from the $500,000,000 plus cargo contract announced in March 23. In addition, year over year security division services revenues increased 11%. 3rd party Opto sales were solid, delivering an 8% year over year increase driven by growth from our new Mexico operations. We continue to see certain Opto customers adjusting inventory levels and ordering patterns, which we anticipate seeing through the Q2 of fiscal 2025 and perhaps a little beyond. And revenues in the Healthcare division in the Q1 of 2025, as Deepak mentioned, were roughly the same as Q1 revenues in the last fiscal year. Speaker 100:15:24The fiscal 2025 Q1 gross margin of 35.3 percent was in line with the 35.4% gross margin in Q1 of last fiscal year and up sequentially from the 32.1% in Q4 of fiscal 2024. Our gross margin will generally fluctuate from period to period based on revenue mix and volume, impacts of changes in supply chain costs and inflation generally among other factors. Moving to operating expenses. We continue to work diligently across each of our divisions to improve efficiency and manage our SG and A cost structure. Q1 SG and A expenses were $72,000,000 or 21.0 percent of sales compared to $60,000,000 or 21.4 percent of sales in Q1 of the prior year. Speaker 100:16:13The year over year dollar increase in costs resulted primarily from higher compensation costs in support of the company's growth and the weakening of the U. S. Dollar creating unfavorable foreign exchange rates. Research and development expenses in Q1 of fiscal 2025 were 17,800,000 dollars or 5.2 percent of revenues compared to $15,900,000 or 5.7 percent of revenues in the same prior year quarter. We continue to dedicate considerable resources to R and D, particularly in our security and our healthcare divisions as we remain focused on innovative product development, which we view as vital to the long term success of our businesses. Speaker 100:16:57We recorded $1,200,000 of restructuring and other charges in Q1 of fiscal 2025 compared to $500,000 in the same quarter of the prior year. Moving to interest and taxes. Net interest and other expenses in Q1 increased to $7,400,000 in fiscal 2025 from $5,700,000 in fiscal 2024, primarily due to a higher amount of borrowings, partially offset by the favorable impact of the convertible notes issued during Q1, which were partially used to repay higher cost borrowings. Our reported effective tax rate under GAAP was 21.9 percent in Q1 of fiscal 2025 compared to 23.4% in Q1 last year. Excluding the impact of discrete tax items, our normalized effective tax rate, which is the rate reflected in our calculation of non GAAP adjusted EPS was 24% in Q1 of fiscal 2025 compared to 25.8% in Q1 of 2024. Speaker 100:17:58I will now turn to a discussion of our non GAAP adjusted operating margin. Overall, our adjusted operating margin in the Q1 of fiscal 2025 increased to 10.3% from 9.6% in Q1 of fiscal 2024. The Q1 fiscal 2025 non GAAP adjusted operating margin of 14.4% in the Security division was up slightly from the comparable prior year quarter and included the absorption of some notable adverse FX. The adjusted operating margin in our Opto division was 12.0% in the Q1 of fiscal 2025 compared to 12.8% in last year's Q1. Excluding the adverse impact of FX in the Opta division, the margin was relatively in line year over year. Speaker 100:18:46The Healthcare division reported a nominal increase in its adjusted operating margin. Moving to cash flow. Cash used in operations in the Q1 was $37,000,000 primarily in relation to higher inventories and receivables in support of the Security division's revenue growth. CapEx in the Q1 was $7,700,000 dollars while depreciation and amortization expense in Q1 was $11,500,000 With respect to cash flow, I wanted to take a moment to provide some additional accounting insight on our receivables and DSO, both of which have risen primarily due to our significant international security contracts. Under GAAP, we typically recognize revenue as we ship or deliver products depending upon the specific contractual obligations. Speaker 100:19:36For Civil Works, we typically recognize revenue over time as we complete the construction phase and ultimately install the products. On certain contracts, like our significant international security contracts we earlier referenced, billing is triggered by the achievement of certain project milestones, which are highly influenced by the customer's timeline and sign off. As such, an unbilled receivable is recorded as we recognize revenue under GAAP, but billing and the resulting cash collection occurs subsequent to the achievement of the milestone. Therefore, the elevated AR and DSO is normal course for large government contracts, does not factor into the cash economics of the transactions and is just timing related. Our goal is to collect cash as early as we can and the transfer typical build receivables remain strong as DSO for build receivables is approximately 87 days. Speaker 100:20:35We anticipate operating cash flow could be quite significant in the second half of fiscal twenty twenty five and potentially even stronger in fiscal twenty twenty six. Our balance sheet is solid with net leverage of about $2,300,000 as calculated under our credit facility. Aside from $7,500,000 of annual required principal repayments under our bank term loan, the bulk of our debt matures in fiscal 'twenty seven. As mentioned earlier, during Q1, we issued $350,000,000 of convertible notes with a coupon of 2.25 percent due in fiscal 'thirty and an initial conversion price of approximately $192 The proceeds were used to partially pay down our bank revolver and to purchase approximately 531,000 shares of our common stock as well as cover transaction costs. This transaction provides enhanced liquidity to capitalize on future strategic initiatives while simultaneously being immediately accretive given the significant reduction in interest costs and a reduction in our share count. Speaker 100:21:41As a result of completion of the convertible notes deal and partial pay down of our bank debt and the interest rate swap we entered into approximately 2 years ago, over 70% of our debt was fixed versus floating at the end of Q1. Finally, turning to guidance. We are updating our fiscal 2025 revenues and non GAAP diluted EPS guidance. For fiscal year 2025, we anticipate revenues in the range of $1,670,000,000 to $1,695,000,000 increasing our guidance on year over year revenue growth from a range of 5.3% to 7.2% to a range of 8.5% to 10.2% growth. We are also increasing fiscal 2025 non GAAP adjusted earnings per diluted share guidance to a range of $9 to $9.30 per share or 10.7% to 14.4 percent growth. Speaker 100:22:38This fiscal 2025 non GAAP diluted EPS guidance excludes potential impairment restructuring and other charges, amortization of acquired intangible assets and their associated tax effects as well as discrete tax and other non recurring items. We currently believe this guidance reflects reasonable estimates. The actual impact on the company's financial results of timing changes on the expected conversion of backlog to revenues, disruptions in the supply chain and inflation is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non GAAP EPS could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings. We continue to remain focused on the growth of our businesses. Speaker 100:23:27We believe our efforts will enable OSI to continue providing innovative and solutions. We would like to take this opportunity to thank the global OSI team for its continued dedication in supporting our customers and partners. And as a lifelong Dodgers fan, while we respect the Yankees, I must conclude with go Dodgers. At this time, we will open the call to questions. Operator00:23:51Certainly. And our first question for today comes from the line of Josh Nichols from B. Riley. Your question please. Speaker 300:23:59Yes, thanks and go Dodgers indeed. I guess just looking at this, I wanted to get a little bit more color. I mean this is actually usually the seasonally slower quarter, particularly in Europe in the later summer months, but the security backlog is doing quite well. The overall backlog actually kind of increased $100,000,000 sequentially. I know you announced $80 plus 1,000,000 or so like security awards during the quarter, but you did have about $250,000,000 of security revenue. Speaker 300:24:31Could you provide just a little bit more granularity on what's been driving that backlog growth overall, despite it being a little bit seasonally slower as we kind of touched Speaker 100:24:46on? Sure, Josh. This is Alan. Great question. So yes, we've seen strength in our security division and you're right with sometimes a typically slower seasonal quarter on the revenue side. Speaker 100:24:58We really saw strength across our businesses. We saw it across the geographies, the Americas, Asia Pacific and the EMEA region. We saw strength across our product lines in the aviation and the cargo and solutions. So it was really a nice bookings quarter for us, positioning us with an excellent backlog as we look out to the rest of fiscal 2025 and beyond. Speaker 300:25:25Thanks. And then just kind of curious, you've clearly the lead horse when you look at security, cargo, vehicle inspection. You did note that you're seeing good revenue as well as opportunities on aviation and things like that as well. What's the opportunity do you think to potentially increase size and market share on that piece of the business where you're still probably like a number 2 or number 3 player instead of the lead player like you are on traditional cargo and vehicle inspection systems? Speaker 200:26:02Good question again. This is Deepak here. Definitely, we see good pipeline, strong expectations in the aviation and air cargo space, primarily into the international sector. As I mentioned in Latin America, in Asia and in Europe, everywhere, there is much more traffic of passengers going, which is making the airports get to the next level of upgrading their systems. At the same time, we have said many times before on our calls, air cargo is a very focused space for us and we continue to grow in that business. Speaker 200:26:42And our idea also is that we want to do something different, innovative, what I said mentioned, employee screening, both at the airports and at air cargo freight facilities. So all that adds up to, in our opinion, that whole area will continue to see growth and we are well positioned into it. At the same time, I know that people ask us about the U. S. We are working with TSA and whenever the next replacement cycle comes in, we'll be ready. Speaker 300:27:18Thanks. And then just last question for me, just touching on the acquisition. Good to see the company adding some RF to the product portfolio. I know you described it as a bolt on acquisition. So I assume it's not going to be a huge contributor to revenue or EPS for this year. Speaker 300:27:37But if you could provide any additional color on that and then also expectations in terms of potential synergies or how you could layer this into your global footprint for sales and manufacturing and potentially ramp up sales or expand margins on that front? Speaker 200:27:55Again, good question. As you know that our strategy is that we look at 1 plus 1 must make more than 2. This is a strategic acquisition. It's a little different technology, but it fits very well in because the same customers that this company works with, we work with the same customers, both domestically and international. And with our footprint being larger, we expect that we'll be able to put this together and be able to go after a much broader customer base. Speaker 200:28:27At the same time, with our service support, with our manufacturing, it definitely has synergy into it. But more important into it, it broadens our technology platform, which is what we've been doing for the last decade or so to broaden our product portfolio. Speaker 300:28:47Appreciate, Deepak, and congratulations again. Speaker 200:28:52Thank you. Operator00:28:54Thank you. And our next question comes from the line of Mariana Perez Mora from Bank of America. Your question Speaker 500:29:03please. Thank you so much. And Deepak, congratulations on the professional journey and also on the, well, like partial retirement, I guess. So my first question is about the pipeline. And I understand for competitive reasons, you cannot give like a lot of like granularity into it. Speaker 500:29:23But like how should we think about the pipeline of opportunities in the next like, call it like, 6 months or 12 months? And is there like particular like, I don't know, big contracts there that we should be watchful for, specific regions? Like how should we think about that? Speaker 200:29:44Again, good question, but you also answered it too that we can't be very specific. Basically, we have been saying for a long time, we consider ourselves in the cargo space as a leading company. We are very much focused on to it domestically with CBP and other State Department and other customers here. Internationally, with the broad base that we have, there's a lot of activity. And the other thing that it's tough to say it, but as the world becomes more unsafe, requires more security awareness and we have the products for that and we have a very broad reach. Speaker 200:30:30So we look at this as a very strong pipeline, very strong globally. And with our name and our reputation and our turnkey services in various parts of the world, we definitely get invited to every dance there is. Speaker 500:30:49So if I were to let me ask it in a different way. If I were to assume about like 50% of your backlog is going to convert into the next like 12 months and then the services or a piece of that of the aftermarket that you're going to support is not there. I'm still missing about like what like around like a fourth of the revenues that you need to still like get into contracts. Like the how strong is the pipeline compared to that? Speaker 200:31:21Very strong. And all the time we've been saying it, these kind of contracts take longer years and time, the bigger the size it is. So we've been working with these customers for a long time. And with our reputation and our success in U. S. Speaker 200:31:42And Mexico and other places, we feel very good about it that these things will mature in a timely fashion. Speaker 500:31:53What are the key risks that you're looking at in terms of like timing of those opportunities? Speaker 200:32:00Would you repeat it again? I didn't get the last one. Speaker 500:32:03What are the key risks that could delay some of these opportunities? Speaker 200:32:09Key risks? Speaker 500:32:10Key risks. Well? Any challenges, yes. Speaker 200:32:15Well, obviously the economy, the world economy is always a potential risk. But besides that, from time to time, things can change, unrest there or something else there, government funding. So I don't see any specific risk. History speaks for itself. We already are in this unrest both in Middle East and in the Ukraine, Russia area. Speaker 200:32:43Our requirement, our pipeline has not weakened. We continue to look at it. And as I mentioned, as you go what is called the other side of the coin, not security, as you look at what is called people are moving away from China, they want to set up manufacturing in other parts of the world. We have the product and the infrastructure to be there for ports and borders, for crossings, for airports, air cargo. So we look at that. Speaker 200:33:12We don't look at it as any risk anyway. Speaker 500:33:16Great. And then let me double tap into what you just mentioned, but not only from a security point of view, but from the optoelectronics type of opportunity. You mentioned this like $5,000,000 order that you received. Could you please give us some color around the demand, especially in the U. S. Speaker 500:33:33Or the U. K. For this type of like niche sensors or electronics? Speaker 200:33:42Again, good question. So the reason we mentioned that $5,000,000 is a significant order, that's in the optoelectronic side. Those are components and sub assemblies that we make for other OEMs. And what we mentioned is that that pipeline is a very reliable pipeline because we are designed into those customers in the medical industry, in aerospace industry, defense industry, consumer industry, so that we have a very good foresight into that pipeline and our customer base is very strong and our manufacturing global in Malaysia, Indonesia, India, UK that helps us very much and the new facility in Mexico as people start looking at more alternate to China. So that looks like again a good opportunity and a good strong visibility. Speaker 500:34:35Thank you. And last one from me on the receivables. Thank you for the color on the unbilled receivables. But when you think about like future contracts, considering these like accounting issues, but also that you're actually transferring some of your assets, like is there any way you can like request earlier payment or a down payment from these international customers in contracts that are this large or how that works? Speaker 100:35:03Yes, Mariana, this is Alan. Great question. We have very often in the past requested considerable advances in down payments, which helped to fray some of the inventory buildup and some of the AR. When we can get that, we absolutely do. There are certain contracts that go out by RFP where we cannot really dictate terms. Speaker 100:35:26The terms are kind of dictated by the customers in those regards. And if they make good strong economic sense for us to take the contract even though it might require some adverse cash flow on a short term basis, we will go ahead and proceed with that. But whenever we can get customer advances or can negotiate payment terms that are more favorable to us, we absolutely do. We're keenly in tune with that. Speaker 500:35:54Great. Thank you so much. Operator00:35:57Thank you. And our next question comes from the line of Matt Akers from Wells Fargo. Your question please. Speaker 600:36:05Yes. Hi. Thanks for the question. I guess following up on the working capital and thanks for the color, Alan. I guess, is there a target we should think about getting back to like phase of receivables or sort of however you want to frame it? Speaker 600:36:20I'm just trying to think if there's an opportunity to get back to kind of the level of receivables we're at 2, 3 years ago or has something in the business changed that maybe that's kind of lingered a little bit higher than it had been in the past? Speaker 100:36:33Yes. Good question, Matt. This is Alan. Yes, we do believe that we can get back to the DSO levels that we had experienced in the past as you mentioned. A big part of the higher DSO and unbilled receivable relates to the big Mexico contract, the Sedena contract that we referred to. Speaker 100:36:51And while that's a great contract from us, from a sales and an earnings perspective and a great beachhead for us, it does have milestones where the cash flow isn't necessarily as strong. We'll certainly look to get more contracts like that in the future and that could have an adverse impact in our DSO from time to time. But if you look at us from a historical perspective, we operate generally speaking in a relatively narrow band of DSO that is much lower than where it is today. And we would anticipate kind of returning to that norm in the future. Speaker 600:37:31Yes, got it. Okay, thanks. And I Speaker 400:37:33guess on the healthcare business, Speaker 600:37:36nice good to see the profit up even with sales kind of flattish. Is there I guess you talked a little bit about how you got there and should we see kind of a similar benefit year over year for the rest of the quarter? I know there's some seasonality in there, but kind of a similar kind of uptick. Speaker 100:37:52Yes, Matt, this is Alan. You're right. Seasonally speaking, the healthcare business is slowest in the Q1 in the September quarter. So as Deepak mentioned in his earlier remarks, we do expect an improved performance through the rest of the year. The way we got to stronger profits on similar or slightly down revenues was also the initiatives that Deepak referred to where we enhanced the operational infrastructure and took out some costs. Speaker 100:38:21The healthcare business for us is the highest contribution margin business. So as revenues go up, there's an awful big pull through to operating income and EBITDA. So as we do anticipate revenues being stronger in future quarters than they were in Q1 coupled with the linear cost structure that we have, there's a really nice opportunity for some nice margin expansion. Speaker 600:38:44Yes, got it. Thanks. I guess if I could squeeze in one more that I guess the acquisition, maybe I missed this, but is it possible to size that or at least I guess if we think about the guidance raise kind of was most of that organic or was sort of the acquisition a big chunk of that? Speaker 100:39:02Sure. Good question. The guidance raised really factored in our increasing confidence in the outlook, which was based upon the strong bookings along with the contributions from the security acquisition that you just mentioned, partly offset on the earnings side by forecasted increased and some interest costs and maybe some general conservatism based on market uncertainty. But the guidance raised was a factor of the acquisition and increased confidence in our overall business. Speaker 600:39:30Got it. Thank you. Operator00:39:33Thank you. And our next question comes from the line of Larry Solow from CJS Securities. Your question please. Speaker 400:39:42Great. Thank you. And first of all, Deepak, congratulations. It's been a good almost 10 year run for us working with you. And I wish you best of luck in the transition. Speaker 400:39:51I'm sure you're not going anywhere so fast, but best of luck to you. I guess just following up on that first and that last question, Alan, just on the acquisition. I know you increased guidance by $0.15 Just any more granularity? Is the acquisition like half of that increase? And is it most of the increase? Speaker 400:40:11Just trying to get a little more specifics on that if you can. Speaker 100:40:15Sure. So the acquisition did contribute to both the top line increase and the bottom line increase. I mentioned earlier that the acquisition is expected to be accretive to us in fiscal 2025. And we probably went a little bit conservative as we get to know the business even better. But yes, you could say that the increase in guidance was split between the acquisition as well as just our greater confidence in our own organic business. Speaker 400:40:46Okay, fair. And then just on the bookings and the backlog, I think it seems like it grew about $100,000,000 from the end of the year over the last quarter. Can you just give us any granular just specifically, I imagine most of it was securities. Was the book to bill above 1 in the quarter? Any Speaker 600:41:08more color on that? Speaker 100:41:10Sure. So, good strong bookings by the security business. The book to bill was approximately 1 for the quarter. The backlog grew a little bit associated with some acquired backlog as well. The growth in the backlog was really entirely attributable to our security division. Speaker 400:41:28Got you. And you mentioned the margin, which I think was up a little bit year over year or roughly flat on an adjusted basis on the in just security. But I think you did mention there was down a few sort of one timers or non recurring things. Did I hear that correctly? Speaker 100:41:45Really the main item that adversely impacted our operating margin, both in security and in Opto and then of course which led to OSI was FX with the weakening dollar that had an adverse effect on us this quarter and not to an insignificant amount, but we were able to absorb all that and still report what we believe to be very strong results. So I think there's some upside to that based upon what happens in FX in the future. Speaker 600:42:13Got you. Speaker 400:42:13And just on the service portion, I know a nice increase. I think revenue grew 11%. Again, that's mostly security, I think. Do we expect that service kind of piece to continue to kind of perhaps even grow faster than product revenue? Well, assuming you don't get much hopefully you get big larger deals going forward too. Speaker 400:42:32But in the near term, should that service piece sort of maybe grow faster as some of these contracts, some of these newly installed things come off warranty and whatnot and you get more of that service piece kicking in? Is that sort of fair to say? Any thoughts on that? Speaker 100:42:47Yes. Larry, it's Alan. Excellent insight and good question. You're right, our product revenue growth was far superior to our service revenue growth last year and even into Q1 as we've been fulfilling some of these large contracts. But as we do fulfill them and they start rolling off of warranty, the service revenue really significantly increases. Speaker 100:43:09So you're right, there's a very good chance that our service revenue growth, our nice recurring revenue will grow through the balance of the year at a faster clip than our product revenue. Now of course, we hope to get some new very nice size product revenue deals too and fully expect we will. But you're right, it will we do expect to see an acceleration of our service revenue growth. Speaker 400:43:32Got it. And then just if I can squeeze one more in, just on the OpCo piece. I know you mentioned still some inventory management, but actually Speaker 600:43:39I think it looks like Speaker 400:43:40if we kind of adjust out for the intersegment sales, you had some pretty nice growth in the quarter. I think revenue would have been grew 8%, right, all in there, on an external basis. Is that which is a pretty nice growth rate, do you expect that kind of to continue through the year? And the second part of the question is it looks like margin was a little offset and that was a little bit down. Anything to read into that? Speaker 400:44:02Thanks. Speaker 100:44:03Sure. It's Alan again. So good questions. So two things on the Optimum. On the revenues, you're right, the 8% external revenue growth was fantastic. Speaker 100:44:11I think we're still seeing some inventory rightsizing and corrections by our customers. So I think that number will moderate here as we move into Q2. But as we move into the second half of the year, we expect stronger sales growth in Opto. In terms of the margin, the margin impact on Opto similar to securities in some sense was impacted by FX when we put some notable FX hit in Opto. Outside of that, our operating income in Opto increased as well. Speaker 100:44:39So we would expect to see improved operating profits in the Opto business, particularly as we hit the back half of the year as well. Speaker 300:44:48Got it. Speaker 400:44:49Thanks for all the color. Speaker 200:44:50Appreciate it and good luck again, Deepak. Thanks. Operator00:44:57Thank you. And our next question comes from the line of Christopher Glynn from Oppenheimer. Your question please. Speaker 700:45:05Thanks. First off, Deepak, congratulations on your pending transition and the success of the company here. I had a question on the Opto segment. Are you seeing any end markets as you try to look through reshoring, near shoring and inventory adjustments, which that pattern must be getting a little long in the tooth. You see any actual like end demand or customer production start to see any cyclical recovery? Speaker 200:45:43Well, if I understand your question, we don't see any end of any of our big products in Opto. Is that what the question is? No, no, Speaker 100:45:51no, sorry about the end markets. Speaker 700:45:53Any end markets starting to move favorably from a cyclical perspective. Speaker 100:46:01Yes, we are maybe you want to answer it. I didn't understand it. Sure, sure. Chris, this is Alan. Yes, we are seeing some strength in defense. Speaker 100:46:09So we're seeing some strength in the defense markets, maybe some continued softness in the medical markets with OEMs, but overall probably strength in the defense and the other markets being a bit more neutral. Speaker 200:46:21Just to add on it, now that I understand it, again, even in the Opto area, we have a very good product line support for the defense business. And as there is more unrest in the world, that puts a little bit more requirement for optoelectronic products for various defense equipment that is being asked for in these places. So we look at it that our opto defense business has seen some good pipeline growth and looks like good forecast going forward. Speaker 700:47:00Great. Thank you for that. And on the putting the acquisition aside on the organic component of the raised revenue guidance, is that more reflecting the pacing of Mexico or the other international or some of the activity on the normal kind of shorter lead time projects? Speaker 100:47:29Sure, Chris. Good question. This is Alan. It's really more on the other part of the business. I wouldn't say any of our increase really relates to Mexico. Speaker 100:47:37It's much more the other strong business that we do throughout the world in our various product lines in the security business. Speaker 400:47:45Great. Thank you. That's all I've got. Operator00:47:49Thank you. Our next question comes from the line of Jeff Martin from ROTH Capital Partners. Your question please. Speaker 800:48:02Thank you. Good morning Deepak and Alan. Speaker 600:48:06I wanted to dive in Speaker 800:48:07a little more on aviation. It was interesting that you talked about remote monitoring capabilities. Do you see that being a near term driver or is that more of an intermediate to longer term driver? Speaker 200:48:20I think it's a question of intermediate to longer term. We have some pilot projects already in the making. And just like what we did in the cargo side and the turnkey business, these kind of products take some time. And we've had a control room that we are doing remote monitoring of the employee screening. We are looking at some talking to some airports for their employee screening. Speaker 200:48:45So the answer is, it's a longer term. And again, we think that this is a good potential and we are capable of doing it. We have the strength and the technology behind it, learning from the cargo side. So that this looks like a good product line to go after. Speaker 800:49:05Okay. And then with respect to the RF technology acquisition, help us understand strategically how RF fits into your existing product line? How much market opportunity this might open up? And is this something that you felt was lacking within your product portfolio that you needed to pursue? And then secondarily, could you just generally comment on the M and A environment, if there's an acceleration potentially forthcoming for OSI. Speaker 800:49:40I know you've been opportunistic with your M and A historically, but just curious if you expect M and A to be a more prominent contributor in the next couple of years here. Speaker 200:49:52Good question, Jeff. Trust the answer to your first question. This particular acquisition was a product line that is not in our other products. We looked at that as a complementary because we cater to the same customers, both domestically and internationally. So we looked at it and said this technology fits very well into a broader portfolio, so that we can offer a broader service and be able to get to customers where this company had the product and by the way they have some proprietary products that they can sell, but they don't have the size. Speaker 200:50:30We have the size and we have the infrastructure globally. So this fitted very well into it that we could go back and go to a broader base and grow the business. Reverse of that, bearing certain customers where we think that now that we are in that we can sell some of the other products that we have and into the same customer base. So that way it gives us what we call 1 plus 1 is more than 2 and we can go grow the business as it grows. Speaker 800:51:03Thank you for that. With respect to the second part of that question, M and A going forward, it seems like you've got significant potential to layer and leverage in the model from both the sales and manufacturing side of things. Is that something you foresee being more prominent contributor going forward? Speaker 200:51:22We've always looked at it. Like Alan mentioned, we have a good strong balance sheet. We have very big focus to look at it, but we are very selective. It must make sense 1 plus 1 more than 2. We continue to look at it. Speaker 200:51:38Are there opportunities? We are not going to say which specifically, but we keep looking at a broader area all the time. And to answer your question, focus is going to be more focused on the security side than the other side, but we also look at the after side. Speaker 800:51:57Great. And then last one for me. Alan, if you could comment a little more detail on the guidance relative to maybe a shift push to the right of your free cash flow expectations. I mean, you do have significant working capital to unwind here. But just curious if you can quantify perhaps the EPS impacts, current guidance versus previous guidance with respect purely to the interest expense? Speaker 100:52:26Yes. Good question, Jeff. I would say that there was probably a $0.05 to $0.10 impact to the additional borrowings and the cash flow moving a little bit to the right, to our overall EPS guidance that we just provided, which compared to what we provided in our previous call. Speaker 800:52:45Very helpful. Thank you so much. Operator00:52:49Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Deepak Chopra for any further remarks. Speaker 200:52:59I want to thank everybody for listening to us and I want to thank all the employees and our customers for trusting in us. And I'm looking forward to continued growth and I'm there to support the management of OSI. Thank you. Operator00:53:17Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNovoCure Q1 202500:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) NovoCure Earnings HeadlinesHere's How Much You Would Have Made Owning OSI Systems Stock In The Last 15 YearsApril 23 at 9:42 PM | benzinga.comMoore Law Encourages OSI Systems, Inc. (OSIS) Investors to Contact Law FirmApril 23 at 4:04 PM | gurufocus.comTrump Orders 'National Digital Asset Stockpile'‘Digital Asset Reserve’ for THIS Coin??? Get all the details before this story gains even more tractionApril 24, 2025 | Crypto 101 Media (Ad)3 Profitable Stocks with Solid FundamentalsApril 23 at 11:38 AM | finance.yahoo.comINVESTOR ALERT: Pomerantz Law Firm Investigates Claims On Behalf of Investors of OSI Systems, Inc. - OSISApril 22 at 3:58 PM | prnewswire.comINVESTOR ALERT: Pomerantz Law Firm Investigates Claims On Behalf of Investors of OSI Systems, Inc. - OSISApril 21 at 3:00 PM | globenewswire.comSee More OSI Systems Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like NovoCure? Sign up for Earnings360's daily newsletter to receive timely earnings updates on NovoCure and other key companies, straight to your email. Email Address About NovoCureNovoCure (NASDAQ:NVCR), an oncology company, engages in the development, manufacture, and commercialization of tumor treating fields (TTFields) devices for the treatment of solid tumor cancers in the United States, Germany, Japan, Greater China, and internationally. The company's TTFields devices include Optune Gio and Optune Lua. It also has ongoing clinical trials investigating TTFields in brain metastases, gastric cancer, glioblastoma, liver cancer, non-small cell lung cancer, pancreatic cancer, and ovarian cancer. 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There are 9 speakers on the call. Operator00:00:00you for standing by, and welcome to the OSI Systems First Quarter 2025 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Alan Edrick, Executive Vice President and Chief Financial Officer of OSI. Please go ahead, sir. Speaker 100:00:36Well, thank you. Good morning and thank you for joining us. As said, I'm Alan Edrick, Executive Vice President and CFO of OSI Systems and I'm here today with Deepak Chopra, OSI's President and CEO. Welcome to the OSI Systems fiscal 2025 Q1 conference call. We are pleased that you can join us as we review our financial and operational results. Speaker 100:00:59Earlier today, we issued a press release announcing our fiscal 2025 Q1 financial results. Before we discuss these results, however, I would like to remind everyone that today's discussion will include forward looking statements and the company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to such forward looking statements. All forward looking statements made on this call are based on currently available information and the company undertakes no obligation to update any forward looking statement based on subsequent events or new information or otherwise. During today's call, we will refer to both GAAP and non GAAP financial measures when describing the company's results. For further information regarding non GAAP measures and comparable GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings press release. Speaker 100:01:57I will begin with a high level summary of our financial performance for the Q1 of fiscal 2025 and then turn the call over to Deepak for a discussion of our business and our operational performance. We will then finish with more detail regarding our financial results and a discussion of our updated outlook for fiscal year 2025. Following our fiscal 2024 financial performance featuring record revenues and non GAAP EPS, We started fiscal 2025 by posting record Q1 financial results led by the Security division resulting in robust year over year revenue growth and a significant increase in year over year operating income. We are encouraged by the momentum reflected in our Q1 financial performance. So I'll start with a high level summary of our fiscal 2025 Q1 results. Speaker 100:02:51First, revenues increased 23% year over year to a Q1 record of $344,000,000 driven by the performance in our security division where Q1 revenues were up 36% year over year. 2nd, the significant revenue growth led to record Q1 non GAAP adjusted earnings per share of $1.25 3rd, bookings were again solid and we ended the quarter with a backlog of approximately 1,800,000,000 dollars Our healthcare backlog excuse me, our healthy backlog and robust pipeline of opportunities provide good visibility going forward. 4th, we completed the convertible debt financing in July, raising gross proceeds of $350,000,000 which reduced our weighted average cost of borrowings and was immediately accretive. Concurrent with this transaction, we repurchased approximately 531,000 shares of our common stock. And finally, in September, we completed a strategic bolt on acquisition in our Security division. Speaker 100:03:58While the acquired business did not significantly enhance our Q1 revenues, this deal is expected to be accretive to fiscal 2025 non GAAP earnings per share. Before diving more deeply into our financial results and discussing the updated fiscal 2025 outlook, I will turn the call over to Deepak. Speaker 200:04:17Thank you, Alan, and good morning to everybody and afternoon. I'm pleased with the company's robust fiscal 2025 Q1 performance. As Alan mentioned, we achieved an impressive 23% revenue growth, leading to a higher year over year operating margin. We closed the quarter with a backlog near all time high of 1,800,000,000 dollars and are optimistic about the remainder of fiscal 2025 and beyond. So let's dive into the performance and highlights of each of our 3 divisions for the Q1. Speaker 200:04:55Beginning with the Security division, where Q1 revenues were up 36% year over year, resulting in increased operating profits. Also, security bookings were solid. During the quarter, we continued to deliver on port and border security initiatives with Mexico's defense agency, SEDENA, on the $500,000,000 plus contract and with the other international customer Speaker 300:05:22on the Speaker 400:05:23$200,000,000 contract. In addition, shortly after the quarter end, we announced the commencement of operations Speaker 200:05:32of our turnkey screening services in Uruguay, utilizing our cargo and vehicle inspection systems along with our proprietary surge scan integration platform. We will also provide on this contract ongoing management training, equipment maintenance and support as part of the Uruguay contract. The Uruguay program now joins a list of our long standing successful multi year turnkey projects in Puerto Rico, Albania and Guatemala and serves as further evidence for potential customers of the breadth of our capabilities to manage large scale security programs in various parts of the world. During Q1, we had several wins in security and announced these during the quarter. First, a $17,000,000 international order to provide Eagle P60 high energy drive through cargo and vehicle inspection systems and T-sixty trailer mounted vehicle inspection systems including maintenance, service and support. Speaker 200:06:432nd, a $26,000,000,000 services order from an international customer to maintain and service its existing installed base of cargo and vehicle inspection systems. 3rd, a $10,000,000 order from yet another international customer to provide the Z Backscatter Van, ZBB mobile cargo and vehicle inspection systems, including training, service and support. And finally, domestically, we announced a contract of order of about $27,000,000 for maintenance services and technology support for its installed base of Rapiscan cargo and vehicle inspection systems. The agreement contains potential options for orders totaling up to $117,000,000 over a 3 year period. In aviation, we continue to make progress on our existing international airport project awards as airports expand and upgrade existing infrastructure, especially in Europe, Middle East and Latin America. Speaker 200:07:54Our overall activity at airports and air cargo facilities continues to be robust. We have a good pipeline. We are also focused on developing new offerings for airport and air cargo customers such as providing employee screening solutions for these customers. In some instances, this could be opportunities for complete turnkey services or hardware sales with remote monitoring services possibility. As Alan mentioned, during the Q1 of fiscal 2025, we acquired a U. Speaker 200:08:32S.-based company that provides high power radio frequency based transmission and amplification solutions for critical military communication, space communications, navigation and surveillance applications, both in the U. S. And international customers. Like our company's legacy offerings, these products help provide security and safety for people and critical infrastructure. We work with numerous defense and security agencies that utilize this technology in communication and surveillance solutions. Speaker 200:09:14In summary, this acquisition adds proven radio frequency based technology and products to our portfolio, allowing us to leverage further our global manufacturing sales and service support infrastructure. Overall, the Security division had a strong start in fiscal 2025 and we look forward to Security again achieving a high level of performance to the balance of 25 and beyond. Moving to the Optoelectronics and Manufacturing division. Optoe reported revenues of $98,000,000 including intercompany sales to reach a new first quarter record while delivering solid profitability. We saw notable strength and growth in our Flex Circuits product line. Speaker 200:10:06Many of our customers for Flex Circuits are from consumer tech and advanced medical device industries. We also have many customers who are leading OEMs in defense electronics. To that end, we announced a $5,000,000 order for advanced optical sensors that the customer will integrate into its complex navigation and guidance systems. I should note here that an order of this size is relatively large for this division. Our operations in Mexico, which we began at the end of Q2 last year, are ramping up as we continue to introduce our existing and potential customer base to its capabilities and the net benefits of near shoring. Speaker 200:10:52The uncertainty and risk for OEMs with China centric supply chains have never been more significant and our global manufacturing presence in U. S, Mexico, UK, India, Indonesia and Malaysia provides a viable alternative to reducing these risks. Finally, Speaker 400:11:12on Speaker 200:11:12to the Healthcare division. Q1 sales were down slightly year over year due to challenging market conditions, as we mentioned before. Still, the division delivered improved profitability, in part due to a more streamlined infrastructure. To support our customers, this division continues to offer innovative solutions and market its differentiation offerings like the Rotman Index Based Predictive Analytics Software and Safe and Sound Patient Alarm Management Software. We are focused on developing the next generation of patient monitoring solutions and continue to progress accordingly with an improved cost structure and a growing opportunity pipeline. Speaker 200:11:57We expect Healthcare's performance to improve over the balance of fiscal 2025. In summary, with a significant backlog and a clear path to near term opportunities, we are increasingly confident about our prospects for fiscal 2025 and beyond. Our strategy of being a vertically integrated supplier with a flexible and responsive global footprint that meets its customers' needs while we continue to invest in and acquire strategic technologies and capabilities has created a robust business with a long term sustainable growth potential. Finally, as you know, I have announced my retirement from my position as Chief Executive Officer of the company at the end of calendar 2024, though I will remain as Executive Chairman of the Board. In 1987, we laid the foundation for what would become OSI Systems, starting as an Opto Sensors Inc. Speaker 200:13:02Company and embarked on a new chapter by going public in 1997. From the beginning, our mission has been unwavering to deliver essential components and systems that enhance the safety and health of society. With the seasoned expertise of our current OSI management team, I'm confident in our ability to ascend to even more significant achievements. We expect to announce a successor before the end of the quarter. As such, this is expected to be my last earnings call as CEO and it has been my privilege to lead the company over the past years and I look forward to supporting OSI's journey ahead. Speaker 200:13:51With that, I'll turn the call over to Alan to talk in more detail about our financial performance and updated guidance before opening the call for questions. Thank you. Speaker 100:14:02Thank you, Deepak. Now I will review in greater detail the financial results for the fiscal 2025 Q1. Again, Q1 revenues were up 23% compared with revenues in the Q1 of the prior fiscal year. This increase was primarily driven by our largest division Security. The 36% year over year increase in Q1 Security division revenues was led by strong growth in our cargo and vehicle inspection product sales as well as solid growth in our aviation and checkpoint product sales. Speaker 100:14:34Q1 revenues included continued shipments from the $200,000,000 plus cargo contract announced in January 23 and also from the $500,000,000 plus cargo contract announced in March 23. In addition, year over year security division services revenues increased 11%. 3rd party Opto sales were solid, delivering an 8% year over year increase driven by growth from our new Mexico operations. We continue to see certain Opto customers adjusting inventory levels and ordering patterns, which we anticipate seeing through the Q2 of fiscal 2025 and perhaps a little beyond. And revenues in the Healthcare division in the Q1 of 2025, as Deepak mentioned, were roughly the same as Q1 revenues in the last fiscal year. Speaker 100:15:24The fiscal 2025 Q1 gross margin of 35.3 percent was in line with the 35.4% gross margin in Q1 of last fiscal year and up sequentially from the 32.1% in Q4 of fiscal 2024. Our gross margin will generally fluctuate from period to period based on revenue mix and volume, impacts of changes in supply chain costs and inflation generally among other factors. Moving to operating expenses. We continue to work diligently across each of our divisions to improve efficiency and manage our SG and A cost structure. Q1 SG and A expenses were $72,000,000 or 21.0 percent of sales compared to $60,000,000 or 21.4 percent of sales in Q1 of the prior year. Speaker 100:16:13The year over year dollar increase in costs resulted primarily from higher compensation costs in support of the company's growth and the weakening of the U. S. Dollar creating unfavorable foreign exchange rates. Research and development expenses in Q1 of fiscal 2025 were 17,800,000 dollars or 5.2 percent of revenues compared to $15,900,000 or 5.7 percent of revenues in the same prior year quarter. We continue to dedicate considerable resources to R and D, particularly in our security and our healthcare divisions as we remain focused on innovative product development, which we view as vital to the long term success of our businesses. Speaker 100:16:57We recorded $1,200,000 of restructuring and other charges in Q1 of fiscal 2025 compared to $500,000 in the same quarter of the prior year. Moving to interest and taxes. Net interest and other expenses in Q1 increased to $7,400,000 in fiscal 2025 from $5,700,000 in fiscal 2024, primarily due to a higher amount of borrowings, partially offset by the favorable impact of the convertible notes issued during Q1, which were partially used to repay higher cost borrowings. Our reported effective tax rate under GAAP was 21.9 percent in Q1 of fiscal 2025 compared to 23.4% in Q1 last year. Excluding the impact of discrete tax items, our normalized effective tax rate, which is the rate reflected in our calculation of non GAAP adjusted EPS was 24% in Q1 of fiscal 2025 compared to 25.8% in Q1 of 2024. Speaker 100:17:58I will now turn to a discussion of our non GAAP adjusted operating margin. Overall, our adjusted operating margin in the Q1 of fiscal 2025 increased to 10.3% from 9.6% in Q1 of fiscal 2024. The Q1 fiscal 2025 non GAAP adjusted operating margin of 14.4% in the Security division was up slightly from the comparable prior year quarter and included the absorption of some notable adverse FX. The adjusted operating margin in our Opto division was 12.0% in the Q1 of fiscal 2025 compared to 12.8% in last year's Q1. Excluding the adverse impact of FX in the Opta division, the margin was relatively in line year over year. Speaker 100:18:46The Healthcare division reported a nominal increase in its adjusted operating margin. Moving to cash flow. Cash used in operations in the Q1 was $37,000,000 primarily in relation to higher inventories and receivables in support of the Security division's revenue growth. CapEx in the Q1 was $7,700,000 dollars while depreciation and amortization expense in Q1 was $11,500,000 With respect to cash flow, I wanted to take a moment to provide some additional accounting insight on our receivables and DSO, both of which have risen primarily due to our significant international security contracts. Under GAAP, we typically recognize revenue as we ship or deliver products depending upon the specific contractual obligations. Speaker 100:19:36For Civil Works, we typically recognize revenue over time as we complete the construction phase and ultimately install the products. On certain contracts, like our significant international security contracts we earlier referenced, billing is triggered by the achievement of certain project milestones, which are highly influenced by the customer's timeline and sign off. As such, an unbilled receivable is recorded as we recognize revenue under GAAP, but billing and the resulting cash collection occurs subsequent to the achievement of the milestone. Therefore, the elevated AR and DSO is normal course for large government contracts, does not factor into the cash economics of the transactions and is just timing related. Our goal is to collect cash as early as we can and the transfer typical build receivables remain strong as DSO for build receivables is approximately 87 days. Speaker 100:20:35We anticipate operating cash flow could be quite significant in the second half of fiscal twenty twenty five and potentially even stronger in fiscal twenty twenty six. Our balance sheet is solid with net leverage of about $2,300,000 as calculated under our credit facility. Aside from $7,500,000 of annual required principal repayments under our bank term loan, the bulk of our debt matures in fiscal 'twenty seven. As mentioned earlier, during Q1, we issued $350,000,000 of convertible notes with a coupon of 2.25 percent due in fiscal 'thirty and an initial conversion price of approximately $192 The proceeds were used to partially pay down our bank revolver and to purchase approximately 531,000 shares of our common stock as well as cover transaction costs. This transaction provides enhanced liquidity to capitalize on future strategic initiatives while simultaneously being immediately accretive given the significant reduction in interest costs and a reduction in our share count. Speaker 100:21:41As a result of completion of the convertible notes deal and partial pay down of our bank debt and the interest rate swap we entered into approximately 2 years ago, over 70% of our debt was fixed versus floating at the end of Q1. Finally, turning to guidance. We are updating our fiscal 2025 revenues and non GAAP diluted EPS guidance. For fiscal year 2025, we anticipate revenues in the range of $1,670,000,000 to $1,695,000,000 increasing our guidance on year over year revenue growth from a range of 5.3% to 7.2% to a range of 8.5% to 10.2% growth. We are also increasing fiscal 2025 non GAAP adjusted earnings per diluted share guidance to a range of $9 to $9.30 per share or 10.7% to 14.4 percent growth. Speaker 100:22:38This fiscal 2025 non GAAP diluted EPS guidance excludes potential impairment restructuring and other charges, amortization of acquired intangible assets and their associated tax effects as well as discrete tax and other non recurring items. We currently believe this guidance reflects reasonable estimates. The actual impact on the company's financial results of timing changes on the expected conversion of backlog to revenues, disruptions in the supply chain and inflation is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non GAAP EPS could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings. We continue to remain focused on the growth of our businesses. Speaker 100:23:27We believe our efforts will enable OSI to continue providing innovative and solutions. We would like to take this opportunity to thank the global OSI team for its continued dedication in supporting our customers and partners. And as a lifelong Dodgers fan, while we respect the Yankees, I must conclude with go Dodgers. At this time, we will open the call to questions. Operator00:23:51Certainly. And our first question for today comes from the line of Josh Nichols from B. Riley. Your question please. Speaker 300:23:59Yes, thanks and go Dodgers indeed. I guess just looking at this, I wanted to get a little bit more color. I mean this is actually usually the seasonally slower quarter, particularly in Europe in the later summer months, but the security backlog is doing quite well. The overall backlog actually kind of increased $100,000,000 sequentially. I know you announced $80 plus 1,000,000 or so like security awards during the quarter, but you did have about $250,000,000 of security revenue. Speaker 300:24:31Could you provide just a little bit more granularity on what's been driving that backlog growth overall, despite it being a little bit seasonally slower as we kind of touched Speaker 100:24:46on? Sure, Josh. This is Alan. Great question. So yes, we've seen strength in our security division and you're right with sometimes a typically slower seasonal quarter on the revenue side. Speaker 100:24:58We really saw strength across our businesses. We saw it across the geographies, the Americas, Asia Pacific and the EMEA region. We saw strength across our product lines in the aviation and the cargo and solutions. So it was really a nice bookings quarter for us, positioning us with an excellent backlog as we look out to the rest of fiscal 2025 and beyond. Speaker 300:25:25Thanks. And then just kind of curious, you've clearly the lead horse when you look at security, cargo, vehicle inspection. You did note that you're seeing good revenue as well as opportunities on aviation and things like that as well. What's the opportunity do you think to potentially increase size and market share on that piece of the business where you're still probably like a number 2 or number 3 player instead of the lead player like you are on traditional cargo and vehicle inspection systems? Speaker 200:26:02Good question again. This is Deepak here. Definitely, we see good pipeline, strong expectations in the aviation and air cargo space, primarily into the international sector. As I mentioned in Latin America, in Asia and in Europe, everywhere, there is much more traffic of passengers going, which is making the airports get to the next level of upgrading their systems. At the same time, we have said many times before on our calls, air cargo is a very focused space for us and we continue to grow in that business. Speaker 200:26:42And our idea also is that we want to do something different, innovative, what I said mentioned, employee screening, both at the airports and at air cargo freight facilities. So all that adds up to, in our opinion, that whole area will continue to see growth and we are well positioned into it. At the same time, I know that people ask us about the U. S. We are working with TSA and whenever the next replacement cycle comes in, we'll be ready. Speaker 300:27:18Thanks. And then just last question for me, just touching on the acquisition. Good to see the company adding some RF to the product portfolio. I know you described it as a bolt on acquisition. So I assume it's not going to be a huge contributor to revenue or EPS for this year. Speaker 300:27:37But if you could provide any additional color on that and then also expectations in terms of potential synergies or how you could layer this into your global footprint for sales and manufacturing and potentially ramp up sales or expand margins on that front? Speaker 200:27:55Again, good question. As you know that our strategy is that we look at 1 plus 1 must make more than 2. This is a strategic acquisition. It's a little different technology, but it fits very well in because the same customers that this company works with, we work with the same customers, both domestically and international. And with our footprint being larger, we expect that we'll be able to put this together and be able to go after a much broader customer base. Speaker 200:28:27At the same time, with our service support, with our manufacturing, it definitely has synergy into it. But more important into it, it broadens our technology platform, which is what we've been doing for the last decade or so to broaden our product portfolio. Speaker 300:28:47Appreciate, Deepak, and congratulations again. Speaker 200:28:52Thank you. Operator00:28:54Thank you. And our next question comes from the line of Mariana Perez Mora from Bank of America. Your question Speaker 500:29:03please. Thank you so much. And Deepak, congratulations on the professional journey and also on the, well, like partial retirement, I guess. So my first question is about the pipeline. And I understand for competitive reasons, you cannot give like a lot of like granularity into it. Speaker 500:29:23But like how should we think about the pipeline of opportunities in the next like, call it like, 6 months or 12 months? And is there like particular like, I don't know, big contracts there that we should be watchful for, specific regions? Like how should we think about that? Speaker 200:29:44Again, good question, but you also answered it too that we can't be very specific. Basically, we have been saying for a long time, we consider ourselves in the cargo space as a leading company. We are very much focused on to it domestically with CBP and other State Department and other customers here. Internationally, with the broad base that we have, there's a lot of activity. And the other thing that it's tough to say it, but as the world becomes more unsafe, requires more security awareness and we have the products for that and we have a very broad reach. Speaker 200:30:30So we look at this as a very strong pipeline, very strong globally. And with our name and our reputation and our turnkey services in various parts of the world, we definitely get invited to every dance there is. Speaker 500:30:49So if I were to let me ask it in a different way. If I were to assume about like 50% of your backlog is going to convert into the next like 12 months and then the services or a piece of that of the aftermarket that you're going to support is not there. I'm still missing about like what like around like a fourth of the revenues that you need to still like get into contracts. Like the how strong is the pipeline compared to that? Speaker 200:31:21Very strong. And all the time we've been saying it, these kind of contracts take longer years and time, the bigger the size it is. So we've been working with these customers for a long time. And with our reputation and our success in U. S. Speaker 200:31:42And Mexico and other places, we feel very good about it that these things will mature in a timely fashion. Speaker 500:31:53What are the key risks that you're looking at in terms of like timing of those opportunities? Speaker 200:32:00Would you repeat it again? I didn't get the last one. Speaker 500:32:03What are the key risks that could delay some of these opportunities? Speaker 200:32:09Key risks? Speaker 500:32:10Key risks. Well? Any challenges, yes. Speaker 200:32:15Well, obviously the economy, the world economy is always a potential risk. But besides that, from time to time, things can change, unrest there or something else there, government funding. So I don't see any specific risk. History speaks for itself. We already are in this unrest both in Middle East and in the Ukraine, Russia area. Speaker 200:32:43Our requirement, our pipeline has not weakened. We continue to look at it. And as I mentioned, as you go what is called the other side of the coin, not security, as you look at what is called people are moving away from China, they want to set up manufacturing in other parts of the world. We have the product and the infrastructure to be there for ports and borders, for crossings, for airports, air cargo. So we look at that. Speaker 200:33:12We don't look at it as any risk anyway. Speaker 500:33:16Great. And then let me double tap into what you just mentioned, but not only from a security point of view, but from the optoelectronics type of opportunity. You mentioned this like $5,000,000 order that you received. Could you please give us some color around the demand, especially in the U. S. Speaker 500:33:33Or the U. K. For this type of like niche sensors or electronics? Speaker 200:33:42Again, good question. So the reason we mentioned that $5,000,000 is a significant order, that's in the optoelectronic side. Those are components and sub assemblies that we make for other OEMs. And what we mentioned is that that pipeline is a very reliable pipeline because we are designed into those customers in the medical industry, in aerospace industry, defense industry, consumer industry, so that we have a very good foresight into that pipeline and our customer base is very strong and our manufacturing global in Malaysia, Indonesia, India, UK that helps us very much and the new facility in Mexico as people start looking at more alternate to China. So that looks like again a good opportunity and a good strong visibility. Speaker 500:34:35Thank you. And last one from me on the receivables. Thank you for the color on the unbilled receivables. But when you think about like future contracts, considering these like accounting issues, but also that you're actually transferring some of your assets, like is there any way you can like request earlier payment or a down payment from these international customers in contracts that are this large or how that works? Speaker 100:35:03Yes, Mariana, this is Alan. Great question. We have very often in the past requested considerable advances in down payments, which helped to fray some of the inventory buildup and some of the AR. When we can get that, we absolutely do. There are certain contracts that go out by RFP where we cannot really dictate terms. Speaker 100:35:26The terms are kind of dictated by the customers in those regards. And if they make good strong economic sense for us to take the contract even though it might require some adverse cash flow on a short term basis, we will go ahead and proceed with that. But whenever we can get customer advances or can negotiate payment terms that are more favorable to us, we absolutely do. We're keenly in tune with that. Speaker 500:35:54Great. Thank you so much. Operator00:35:57Thank you. And our next question comes from the line of Matt Akers from Wells Fargo. Your question please. Speaker 600:36:05Yes. Hi. Thanks for the question. I guess following up on the working capital and thanks for the color, Alan. I guess, is there a target we should think about getting back to like phase of receivables or sort of however you want to frame it? Speaker 600:36:20I'm just trying to think if there's an opportunity to get back to kind of the level of receivables we're at 2, 3 years ago or has something in the business changed that maybe that's kind of lingered a little bit higher than it had been in the past? Speaker 100:36:33Yes. Good question, Matt. This is Alan. Yes, we do believe that we can get back to the DSO levels that we had experienced in the past as you mentioned. A big part of the higher DSO and unbilled receivable relates to the big Mexico contract, the Sedena contract that we referred to. Speaker 100:36:51And while that's a great contract from us, from a sales and an earnings perspective and a great beachhead for us, it does have milestones where the cash flow isn't necessarily as strong. We'll certainly look to get more contracts like that in the future and that could have an adverse impact in our DSO from time to time. But if you look at us from a historical perspective, we operate generally speaking in a relatively narrow band of DSO that is much lower than where it is today. And we would anticipate kind of returning to that norm in the future. Speaker 600:37:31Yes, got it. Okay, thanks. And I Speaker 400:37:33guess on the healthcare business, Speaker 600:37:36nice good to see the profit up even with sales kind of flattish. Is there I guess you talked a little bit about how you got there and should we see kind of a similar benefit year over year for the rest of the quarter? I know there's some seasonality in there, but kind of a similar kind of uptick. Speaker 100:37:52Yes, Matt, this is Alan. You're right. Seasonally speaking, the healthcare business is slowest in the Q1 in the September quarter. So as Deepak mentioned in his earlier remarks, we do expect an improved performance through the rest of the year. The way we got to stronger profits on similar or slightly down revenues was also the initiatives that Deepak referred to where we enhanced the operational infrastructure and took out some costs. Speaker 100:38:21The healthcare business for us is the highest contribution margin business. So as revenues go up, there's an awful big pull through to operating income and EBITDA. So as we do anticipate revenues being stronger in future quarters than they were in Q1 coupled with the linear cost structure that we have, there's a really nice opportunity for some nice margin expansion. Speaker 600:38:44Yes, got it. Thanks. I guess if I could squeeze in one more that I guess the acquisition, maybe I missed this, but is it possible to size that or at least I guess if we think about the guidance raise kind of was most of that organic or was sort of the acquisition a big chunk of that? Speaker 100:39:02Sure. Good question. The guidance raised really factored in our increasing confidence in the outlook, which was based upon the strong bookings along with the contributions from the security acquisition that you just mentioned, partly offset on the earnings side by forecasted increased and some interest costs and maybe some general conservatism based on market uncertainty. But the guidance raised was a factor of the acquisition and increased confidence in our overall business. Speaker 600:39:30Got it. Thank you. Operator00:39:33Thank you. And our next question comes from the line of Larry Solow from CJS Securities. Your question please. Speaker 400:39:42Great. Thank you. And first of all, Deepak, congratulations. It's been a good almost 10 year run for us working with you. And I wish you best of luck in the transition. Speaker 400:39:51I'm sure you're not going anywhere so fast, but best of luck to you. I guess just following up on that first and that last question, Alan, just on the acquisition. I know you increased guidance by $0.15 Just any more granularity? Is the acquisition like half of that increase? And is it most of the increase? Speaker 400:40:11Just trying to get a little more specifics on that if you can. Speaker 100:40:15Sure. So the acquisition did contribute to both the top line increase and the bottom line increase. I mentioned earlier that the acquisition is expected to be accretive to us in fiscal 2025. And we probably went a little bit conservative as we get to know the business even better. But yes, you could say that the increase in guidance was split between the acquisition as well as just our greater confidence in our own organic business. Speaker 400:40:46Okay, fair. And then just on the bookings and the backlog, I think it seems like it grew about $100,000,000 from the end of the year over the last quarter. Can you just give us any granular just specifically, I imagine most of it was securities. Was the book to bill above 1 in the quarter? Any Speaker 600:41:08more color on that? Speaker 100:41:10Sure. So, good strong bookings by the security business. The book to bill was approximately 1 for the quarter. The backlog grew a little bit associated with some acquired backlog as well. The growth in the backlog was really entirely attributable to our security division. Speaker 400:41:28Got you. And you mentioned the margin, which I think was up a little bit year over year or roughly flat on an adjusted basis on the in just security. But I think you did mention there was down a few sort of one timers or non recurring things. Did I hear that correctly? Speaker 100:41:45Really the main item that adversely impacted our operating margin, both in security and in Opto and then of course which led to OSI was FX with the weakening dollar that had an adverse effect on us this quarter and not to an insignificant amount, but we were able to absorb all that and still report what we believe to be very strong results. So I think there's some upside to that based upon what happens in FX in the future. Speaker 600:42:13Got you. Speaker 400:42:13And just on the service portion, I know a nice increase. I think revenue grew 11%. Again, that's mostly security, I think. Do we expect that service kind of piece to continue to kind of perhaps even grow faster than product revenue? Well, assuming you don't get much hopefully you get big larger deals going forward too. Speaker 400:42:32But in the near term, should that service piece sort of maybe grow faster as some of these contracts, some of these newly installed things come off warranty and whatnot and you get more of that service piece kicking in? Is that sort of fair to say? Any thoughts on that? Speaker 100:42:47Yes. Larry, it's Alan. Excellent insight and good question. You're right, our product revenue growth was far superior to our service revenue growth last year and even into Q1 as we've been fulfilling some of these large contracts. But as we do fulfill them and they start rolling off of warranty, the service revenue really significantly increases. Speaker 100:43:09So you're right, there's a very good chance that our service revenue growth, our nice recurring revenue will grow through the balance of the year at a faster clip than our product revenue. Now of course, we hope to get some new very nice size product revenue deals too and fully expect we will. But you're right, it will we do expect to see an acceleration of our service revenue growth. Speaker 400:43:32Got it. And then just if I can squeeze one more in, just on the OpCo piece. I know you mentioned still some inventory management, but actually Speaker 600:43:39I think it looks like Speaker 400:43:40if we kind of adjust out for the intersegment sales, you had some pretty nice growth in the quarter. I think revenue would have been grew 8%, right, all in there, on an external basis. Is that which is a pretty nice growth rate, do you expect that kind of to continue through the year? And the second part of the question is it looks like margin was a little offset and that was a little bit down. Anything to read into that? Speaker 400:44:02Thanks. Speaker 100:44:03Sure. It's Alan again. So good questions. So two things on the Optimum. On the revenues, you're right, the 8% external revenue growth was fantastic. Speaker 100:44:11I think we're still seeing some inventory rightsizing and corrections by our customers. So I think that number will moderate here as we move into Q2. But as we move into the second half of the year, we expect stronger sales growth in Opto. In terms of the margin, the margin impact on Opto similar to securities in some sense was impacted by FX when we put some notable FX hit in Opto. Outside of that, our operating income in Opto increased as well. Speaker 100:44:39So we would expect to see improved operating profits in the Opto business, particularly as we hit the back half of the year as well. Speaker 300:44:48Got it. Speaker 400:44:49Thanks for all the color. Speaker 200:44:50Appreciate it and good luck again, Deepak. Thanks. Operator00:44:57Thank you. And our next question comes from the line of Christopher Glynn from Oppenheimer. Your question please. Speaker 700:45:05Thanks. First off, Deepak, congratulations on your pending transition and the success of the company here. I had a question on the Opto segment. Are you seeing any end markets as you try to look through reshoring, near shoring and inventory adjustments, which that pattern must be getting a little long in the tooth. You see any actual like end demand or customer production start to see any cyclical recovery? Speaker 200:45:43Well, if I understand your question, we don't see any end of any of our big products in Opto. Is that what the question is? No, no, Speaker 100:45:51no, sorry about the end markets. Speaker 700:45:53Any end markets starting to move favorably from a cyclical perspective. Speaker 100:46:01Yes, we are maybe you want to answer it. I didn't understand it. Sure, sure. Chris, this is Alan. Yes, we are seeing some strength in defense. Speaker 100:46:09So we're seeing some strength in the defense markets, maybe some continued softness in the medical markets with OEMs, but overall probably strength in the defense and the other markets being a bit more neutral. Speaker 200:46:21Just to add on it, now that I understand it, again, even in the Opto area, we have a very good product line support for the defense business. And as there is more unrest in the world, that puts a little bit more requirement for optoelectronic products for various defense equipment that is being asked for in these places. So we look at it that our opto defense business has seen some good pipeline growth and looks like good forecast going forward. Speaker 700:47:00Great. Thank you for that. And on the putting the acquisition aside on the organic component of the raised revenue guidance, is that more reflecting the pacing of Mexico or the other international or some of the activity on the normal kind of shorter lead time projects? Speaker 100:47:29Sure, Chris. Good question. This is Alan. It's really more on the other part of the business. I wouldn't say any of our increase really relates to Mexico. Speaker 100:47:37It's much more the other strong business that we do throughout the world in our various product lines in the security business. Speaker 400:47:45Great. Thank you. That's all I've got. Operator00:47:49Thank you. Our next question comes from the line of Jeff Martin from ROTH Capital Partners. Your question please. Speaker 800:48:02Thank you. Good morning Deepak and Alan. Speaker 600:48:06I wanted to dive in Speaker 800:48:07a little more on aviation. It was interesting that you talked about remote monitoring capabilities. Do you see that being a near term driver or is that more of an intermediate to longer term driver? Speaker 200:48:20I think it's a question of intermediate to longer term. We have some pilot projects already in the making. And just like what we did in the cargo side and the turnkey business, these kind of products take some time. And we've had a control room that we are doing remote monitoring of the employee screening. We are looking at some talking to some airports for their employee screening. Speaker 200:48:45So the answer is, it's a longer term. And again, we think that this is a good potential and we are capable of doing it. We have the strength and the technology behind it, learning from the cargo side. So that this looks like a good product line to go after. Speaker 800:49:05Okay. And then with respect to the RF technology acquisition, help us understand strategically how RF fits into your existing product line? How much market opportunity this might open up? And is this something that you felt was lacking within your product portfolio that you needed to pursue? And then secondarily, could you just generally comment on the M and A environment, if there's an acceleration potentially forthcoming for OSI. Speaker 800:49:40I know you've been opportunistic with your M and A historically, but just curious if you expect M and A to be a more prominent contributor in the next couple of years here. Speaker 200:49:52Good question, Jeff. Trust the answer to your first question. This particular acquisition was a product line that is not in our other products. We looked at that as a complementary because we cater to the same customers, both domestically and internationally. So we looked at it and said this technology fits very well into a broader portfolio, so that we can offer a broader service and be able to get to customers where this company had the product and by the way they have some proprietary products that they can sell, but they don't have the size. Speaker 200:50:30We have the size and we have the infrastructure globally. So this fitted very well into it that we could go back and go to a broader base and grow the business. Reverse of that, bearing certain customers where we think that now that we are in that we can sell some of the other products that we have and into the same customer base. So that way it gives us what we call 1 plus 1 is more than 2 and we can go grow the business as it grows. Speaker 800:51:03Thank you for that. With respect to the second part of that question, M and A going forward, it seems like you've got significant potential to layer and leverage in the model from both the sales and manufacturing side of things. Is that something you foresee being more prominent contributor going forward? Speaker 200:51:22We've always looked at it. Like Alan mentioned, we have a good strong balance sheet. We have very big focus to look at it, but we are very selective. It must make sense 1 plus 1 more than 2. We continue to look at it. Speaker 200:51:38Are there opportunities? We are not going to say which specifically, but we keep looking at a broader area all the time. And to answer your question, focus is going to be more focused on the security side than the other side, but we also look at the after side. Speaker 800:51:57Great. And then last one for me. Alan, if you could comment a little more detail on the guidance relative to maybe a shift push to the right of your free cash flow expectations. I mean, you do have significant working capital to unwind here. But just curious if you can quantify perhaps the EPS impacts, current guidance versus previous guidance with respect purely to the interest expense? Speaker 100:52:26Yes. Good question, Jeff. I would say that there was probably a $0.05 to $0.10 impact to the additional borrowings and the cash flow moving a little bit to the right, to our overall EPS guidance that we just provided, which compared to what we provided in our previous call. Speaker 800:52:45Very helpful. Thank you so much. Operator00:52:49Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Deepak Chopra for any further remarks. Speaker 200:52:59I want to thank everybody for listening to us and I want to thank all the employees and our customers for trusting in us. And I'm looking forward to continued growth and I'm there to support the management of OSI. Thank you. Operator00:53:17Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.Read morePowered by