Q4 2020 OSI Systems Inc Earnings Call
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The Oh inside systems, Inc. fourth quarter and fiscal year 2020 conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question answer session asking question during the session you'll need to press star one on your telephone. Please be advised that today's conference maybe recorded if you require any further assistance. Please press star zero.
I would now like in the conference over to Speaker today, Alan Edrick Chief Financial Officer. Please go ahead Sir.
Thank you good afternoon, and thank you for joining us I'm, Alan Edrick Executive Vice President and CFO of oversight systems and I'm here today with Deepak Chopra, our president and CEO.
Welcome to the other sites systems fiscal 2024th quarter and year end conference call. We're glad that you can join US we hope you and your families are safe and healthy as the global community continues the battle the Kobin 19 pandemic.
Earlier today, we issued a press release announcing our fourth quarter in fiscal year 20 financial results.
Before we discuss our results 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 all such 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 for new at four new information or otherwise.
During today's call.
We refer to both GAAP and non-GAAP financial measures when describing the company's results.
Information regarding non-GAAP measures and GAAP measures of the company's results in a quantitative reconciliation of those figures. Please refer to todays earnings release.
With that being said I will begin with a summary of our financial performance and then Deepak will take over the discussion.
I will then return to finish with more detail regarding our financial results and to discuss our outlook for fiscal 2021.
First we're quite pleased by the efforts of our global team that has risen to the occasion and to meet the needs of our customers and our partners, while emphasizing safety among our team members during this challenging time.
These efforts resulted in our non-GAAP Q4 earnings per share coming in at the upper end of the guidance. We provided in April despite the adverse impact on revenues of the pandemic.
Second we continue to drive operating margin expansion as our Q4 year over year adjusted operating margin increased from 11.1% to 12.3%.
Third our cash flow is substantial both during Q4 and for the full year.
We have consistently demonstrated strong cash flow conversion.
We delivered a solid 129 million of operating cash flow in fiscal 2020.
Our balance sheet a strong.
It is our goal to be active in capitalizing on acquisition and other strategic opportunities while simultaneously investing for the future.
In addition, as part of our capital allocation strategy, our board authorized an increase of 2 million shares to our stock buyback program.
And finally, our Q4 book to Bill ratio was a solid 1.0 during these challenging times and we can and we continue to see a robust pipeline of opportunities.
That deep up we'll touch on.
As the Cobot 19 situation continues to evolve we are monitoring the business environment.
We are committed to delivering the products and services needed for our customers and to maintaining a safe and healthy workplace for our employees.
Before diving more deeply into our financial results and discussing our fiscal 21 guidance.
Let me turn the call over city block.
Thank you Alan.
And again welcome to the Oversize systems earnings Conference call.
Each of our business has walked through a variety of challenges.
Stemming from the Colgate 19 pandemic yet.
Each team contributed to a solid Q4 and fiscal 2020.
As we grew earnings improved margins and achieved impressive cash flow for the year.
As we navigate through these unprecedented times.
We continue to focus on meeting our customer demands while simultaneously promoting the safety and the health of our employees.
As Alan just mentioned our board just expanded our share repurchase program.
This reaffirms the boards confidence in our future and provides the company significant flexibility and capital allocation to maximize shareholder value.
Discussing each division in more deck, starting mid security.
We had Q4 fiscal 20 revenues 164 million.
After being on a record revenue base.
Through the first nine months of physical 20.
We finished the year to bid security revenues of 742 million down slightly from the prior year.
We anticipate the revenue slowdown experienced in Q4 this year.
Continue at least three of Q1 fiscal 2021.
We have made operational improvements that are expected to help deliver.
Continued strong profitability and the security Division and Kisco 21.
That could positioned the business for accelerated growth long term and in fiscal 2002 and onwards.
As we mentioned on the call last quarter, we expected the security Division.
Do experienced some headwinds due to correlate with the downturn and airport traffic.
Challenges associated with site and factory acceptance tests.
As a result of travel restrictions and partially shut downs with certain customers.
We are working without airport customers as some facilities.
Have actually stockett accelerating installations, taking advantage of reduced activity, while others have pushed out certain initiatives even.
Even as Air Force face a tough environment, we have achieved several wins in this market.
As an example.
We have been recently notified.
Often award from an international airport more significant quantities apart, our DTA real time demography baggage scanners.
This is a great validation of our state of the odd RTT CD baggage scanners and this award.
Not in our backlog as yet.
We continue to see accelerated activity.
In the air cargo customers that we even mentioned last conference call.
That are shifting their resources to handle the higher demand for E commerce based products and services.
There has been continued activity elbit at a slower pace on some of the lot of jet initiatives video into us and international customers.
Some of the larger opportunities are getting pushed to the right due to the pandemic however, the opportunity pipeline.
Didn't used to remain very strong and via a very valid position to capitalize.
Our cargo business tends to see longer sales cycles.
We continue to see our customers vested in building, our upgrading existing security infrastructure, even during this time.
During the quarter, we announced a seat of orders totaling approximately $60 million from a us government customer to provide several platforms offer cargo inspection systems and solutions, including our new rail scanner platform.
Related upgrades integration and maintain and services.
We continue to perform well on our turnkey programs in Albania and got vertical.
As we've mentioned on our prior call.
We are in discussions with the Mexican government.
Two rigs the owned operations as the previous contract expired on June six.
Since the contracts exploration.
We are not permitted to operate in the government customs sites by law.
What we have maintained our infrastructure and employees in Mexico.
As we work towards and new potential contract.
Given the nature of the discussions as you can understand.
We cannot comment any further on this matter and there is no guarantee offer new contract. However, we remain optimistic.
The global pandemic has also contributed to the delayed stocked up our new turnkey programs inferior Lanka and Guatemala.
What we believe that we commenced operations at both of these locations in the next few months.
Our versatile technology platforms have allowed us to enter into other ancillary markets.
As an example, we have been working.
With Australias department of agriculture, water and the environment on innovative and inspection techniques.
We recently announced an order for approximately $5 million.
Right the Aart de de 110, Siti scanner and support the development and delivery of software algorithms for the automated detection of bio security risk items.
This is a very innovative and exciting project and can lead to revenue growth globally.
Our bio security in the coming years.
As we look ahead.
The pipeline continues to be very healthy for the security Division.
We have reduced our security cost structure.
Positions us well not only what a solid fiscal 2001 in security but beyond.
Moving to healthcare.
We're very pleased with the performance I'll, Spacelabs, which delivered Q4 revenues of 57 million.
A 15% higher than the prior year and saw increased demand for patient monitoring solution from hospitals.
As our healthcare Division traditionally has high contribution margins the division's operating profit in the quarter jumped to 17.4% as a result of the sales go up.
In addition to handling the customer demands arising from Corbett.
The team has done a great job of managing its overall cost structure, while still enhancing resources in key areas, such as marketing R&D and sales.
Shortly after the quarter end.
We acquired safe and sound and innovative cloud platform solution, which assists healthcare providers in achieving that aim of better outcomes improve patient experience higher staff satisfaction and lower costs.
Yes, what the technology acquisition.
And now the safe and sound team, but continue to develop innovative solutions that further enhance the value of our patient monitoring systems and enable us to entered into new markets such as remote patient monitoring.
Moving onto Opto electronics in the fourth quarter, Opto electronics and manufacturing Division stone revenues were down 10% to 67 million.
It was anticipated due primarily to this pandemic.
Our sensor product acquisition, primarily serving the defense and space that line markets that we completed earlier in the year performed well during the quarter.
On the bookings front.
The outdoor team did a great job and ended the year with a record backlog for the division.
In fiscal 21.
We will continue to serve our global customer base as we have the flexibility to manufacture in North America, Europe, and Asia, and we'll also look at acquisitions that expand our capabilities and market presence.
Overall.
I'm very proud of our team and what we have accomplished in Q4 and the fiscal year overall as we look ahead.
Our focus will be on executing our strategy staying agile to handle the challenges from covance and leveraging our strong balance sheet for future projects and strategic acquisitions.
We look forward to a successful fiscal 21 with that I'm going to turn the call back over to Alan to talk in more detail about our financial performance and guidance before opening the call for questions. Thank you.
Thank you defect.
Now I will review the financial results for the fourth quarter in greater detail.
Revenues in Q4 fiscal 20 were 277 million as compared to 308 million in the prior year Q4.
While we saw strengthen our health care division revenues, which increased 15% year over year due to increased demand the patient monitoring products.
As expected we saw reductions in revenues in each of the security and opto divisions.
Security sales were down 16% year over year, largely resulting from the impact of the pandemic on the fulfillment of orders in the backlog.
As well as the timing of new orders.
Auto sales were down 10% from the same quarter in the prior fiscal year.
Due to the macro uncertainties temporary global supply chain disruptions in the partial shutdown of certain operating facilities due to coated.
Our Q4 gross margin of 36.7% was comparable to the prior year fourth quarter.
Our reduced revenues were offset by a favorable revenue mix, including stronger healthcare sales, which generally carry higher gross margins than those in the other two divisions, along with proactive management and East division to improve operational efficiencies with heightened focus on costs.
As mentioned on previous calls our gross margin will fluctuate from period to period based on revenue mix and volume among other factors.
Moving to operating expenses.
The company moved early and throughout Q4 to adjust our cost structure.
SGN any expenses were down 9% on a year over year basis, and 8% on a sequential basis.
No. We are always attentive to managing our costs, we applied increased levels of scrutiny during the last quarter, which have continued into fiscal 21.
We work diligently across each of our divisions to improve efficiencies and prudently manage our cost structure.
R&D expenses in Q4, what's what were 12.8 million.
Down from the relatively large R&D amount in Q4 the prior year.
We continue to dedicate considerable resources R&D, particularly insecurity in health care.
We remain focused on innovative product development, which we view is vital to the long term success of the business.
In Q4 fiscal 2020, we recorded a 5 million impairment restructuring and other charge.
This charge was primarily related to reductions in our workforce facilities consolidation in the impairment of intangible asset in our security Division.
Moving to interest and taxes.
Net interest and other expense in Q4 fiscal 20 decreased to 4.5 million for 5.1 million in the same prior year period as a result of reduced average levels of borrowings under our revolving credit facility and lower average interest rates.
On the tax side, excluding the impact of discrete tax items, our effective tax rate in Q4 of 20 was 29.6% compared to 30.4% in Q4 fiscal 2019.
We recognize discrete tax benefits of 0.6 million in Q4 fiscal 20.
As compared to 0.9 million in the comparable prior year period.
As a result, we reported a tax provision under GAAP of 26.4% in Q4 fiscal 20.
The same rate as record in fiscal 19.
For the fiscal year ended June Thirtyth 20, our normalized effective tax rate, excluding discrete items was 27.3% compared to 28.9% in fiscal 19.
So now, let's turn to a discussion of our non-GAAP adjusted operating margin as defined in our press release.
Overall, our adjusted operating margin increased from 11.1% in Q4 fiscal 19% to 12.3% in Q4 fiscal 20, driven by both the security in the healthcare divisions.
We were pleased with this margin expansion in the face of overall topline headwinds.
The adjusted operating margin in our security division improved to 15.5%.
Compared to 13.5% in the prior year fourth quarter, driven by sound operational execution and cost controls.
Given increased revenues, our health care Division realized significant operating margin expansion from 13.1% in Q4 last year to 17.4% in Q4 fiscal 20, representing the highest quarterly adjusted operating margin for this division in five years.
These improvements were partially offset by a reduction in the adjusted operating margin in our Opto division to 10.8% compared to 11.9% in Q4 last year.
It should be noted that although opto saw a decrease in Q4, the full year adjusted operating margin in that division was a record 12.3%.
Moving to cash flow.
Fiscal 2000 continued the momentum of generating strong cash flow and Q4 was no exception with focus on improved profits in working capital management.
During Q4, we generated 24 million in operating cash flow.
For the year operating cash flow was 129 million.
While we saw improvement in inventory turns as days inventory was 125 in Q4 fiscal 20 compared to 127 in the fourth quarter the prior year.
We saw an increase in our day sales outstanding to 89 days in Q4 fiscal 20 as compared to 70 days in the prior period.
As a higher proportion of our sales occurred in the second half of the quarter given more pandemic operational challenges in the first half the quarter, thus leading to payments occurring subsequent to our fiscal year end.
Capex in the fourth fiscal quarter was $4.3 million, while depreciation and amortization expense in the quarter was $12 million.
Our cash flow conversion was strong.
The fiscal 2000 conversion of operating cash flow less capex to net income was 145%.
As mentioned earlier in April our board authorized a new 1 million share buyback program, which was increased to 3 million shares this month in total.
We did not make any stock repurchases during the last quarter. So the full share figure is available under the program.
Also as mentioned earlier about our balance sheet is strong with modest net leverage and no debt maturities until fiscal 2003.
And finally turning to guidance.
For fiscal 21.
The company anticipates revenue in the range of 1.09 billion to 1.14 billion.
Non-GAAP earnings per diluted share in the range of $4.50 to $5.05.
We expect to see revenue headwinds in the first half of fiscal 21 stemming from the pandemic and build positive moment momentum as the year precedes.
The non-GAAP diluted EPS range excludes potential impairment restructuring and other charges amortization of acquired intangible assets and noncash interest expense and their associated tax effects as well as discrete tax items.
We currently believe this revenue and non-GAAP earnings guidance reflect a reasonable estimates and we have reflected the anticipated impacted the cobot 19 pandemic in our guidance.
However, given uncertainties as to the duration and scope of the coated 19 pandemic as well as other variables the extent to which Kobin 19 may impact the Companys financial results is difficult to predict and could vary materially from the anticipated impact reflected in our estimates in guidance.
Actual revenues and non-GAAP earnings could vary from the anticipated ranges due to other risks and uncertainties discussed in our SEC filings as well.
In the face of these unusual times.
We continue to remain focused on the growth of our business.
Through investment in product development and strategic acquisitions, while also managing our cost structure.
We believe these efforts will enable lowest side to continue our leadership in providing innovative products and solutions.
Finally, and importantly, we would like to take this opportunity to recognize into thank the entire oversize systems team around the world for its commitment to safety dedication and supporting our customers and agility in the face of uncertainty all of which helps to create value for our stakeholders.
And at this time, we wouldnt be happy to open the call to questions.
Thank you.
A reminder to ask a question you'll need to press star 100 telephone to its related question press the pound Keith Please standby compile the Q and a roster.
Our first question comes from Jeff Martin with Roth Capital Partners. You May proceed with your question.
Thanks, Good afternoon, just want to commend you for.
Your execution in a very challenging environment and testing to see what you guys is accomplished so wanted to start with that.
Thank you Jeff Thanks.
And then on the plant to get a sense of some of the it sounds like you've got some new market opportunities.
Security being one remote patient monitoring being another.
Could you give us a sense of how how quickly expect that market to be those two markets become material telesat.
Jeff This is deeper cat.
The Biosecurity, we've been working in Australia with the government for last couple of years.
And actually we have multiple RTD systems in various Australian airports, what actually operating they add to check for these kinds of things coming into the country by there's food products by this animal things or anything else that could destroy the environment in Australia.
All New Zealand has caught on to it got to other countries looking at it and we believe that with the development and the integration together with the Australian government Agriculture Department.
This is all over the goal can have an impact. So we continue to management. It is and we think that this is the Rio revenue maker.
And not only that but as a fail. It could also be a turnkey service that we could apply at porch and other places as add onto our installed base following.
Regarding your question about the patient monitoring.
As you know you hair everyday you hear about Deli health Tele health Tele health.
You've seen some of the activity thats happening so that remote monitoring is becoming the norm.
People don't want to what are the hospitals people would rather go Duane urgent care center automate at home and getting into our action on even in a hospital if that doctors on the nurse does not have to come in contact with the patient and can stand outside and get the data that's fantastic and this technology that we bought.
Allows us to look at it we're going to integrated it and we think that as a new platforms are launched in the next 2012 months 18 months. This will have a big impact on what we call is a new norm and monitoring patients.
One item that.
That was good.
Okay. Thanks for that and then sticking with the healthcare segment the strength in Q4.
I'd say I don't think you arm.
Thanks to extrapolate that as Canada, the run rate level going forward I was curious if you could help us.
Discern between.
How much about 16% growth was improvements in general operations and.
Sales effectiveness in the period versus kind of a onetime uplift for from the need of additional patient monitoring from hospitals due to quibbled related.
Demand.
Jeff. This is Alan good question in our Spacelabs team really did an outstanding job.
Responding to the needs of our of our customer base and it was really a combination of both our sales teams have been very effective and going out in and getting new business or operational teams have been very effective at.
As streamlining the operations and an improving.
The efficiencies to drive higher levels of margins as well. In addition, we did see.
Cobot bump in inpatient monitoring, particularly on the in the international markets. So it's hard to quantify.
The impact from both because it goes kind of goes both ways, but it was definitely a combination of a great job by the team aided a little bit by some tailwinds with of it.
Yes, Gary add ons just to add onto Alan.
The strength.
It is going all the gift set it is going to continue and to enter into Q1.
Okay, Great to hear and then my last question answer with respect to the supply chain, where the disruptions that you mentioned in your script really isolated to the Opto electronics segment and then second part of that question is.
Have those.
Yes from a bookings.
Dissipated or are they still are they still.
Inhibiting our ability to fulfill orders.
So Jeff this is Alan so some of the supply chain disruptions. We saw were across the three different divisions, some felt a little bit more acutely than others. The team did a good job overcoming.
Those disruptions and well from time to time, there's still be might be certain delays for the most part.
We're past most most most of any significant type of supply chain issues.
Desktop get to add onto Alan.
As always pros and cons up yes like chain was was the challenging but we have an advantage as we mentioned to you before we had a vertically integrated company one of the only ones in our space, both for the healthcare and security, especially and the kinds of healthcare as the demand searched they wanted product.
And supply chain became a big issue, but we have what typically integrated and we were able to count on our factories, Bolton us and and in Malaysia.
Singapore to be able to counter to that we are not dependent on China material.
It's insignificant and we've been able to handle the well and that came along the way to broad what we've been saying in this environment vertical integration of that makes Trent.
Great. Thank you so much retire.
Your next question comes from Larry Solow CJS Securities. You May proceed with your question.
Great and.
Thanks again for taking my question Congrats on a obviously a challenging environment pretty okay quarter. There for you guys.
Just I guess couple of questions on the quarter and on the outlook just on security.
Thank you mentioned.
Operational improvements during the quarter.
Obviously, you guys reacted sounds like rather early.
Executed well.
Some of these things sort of seems like some could these could be sustainable could you sort of parse out what might have been temporary versus sustainable cost cuts. You think you lost about 25 million sequentially revenue and security, but you're actually kept operating income basically flat or slightly down maybe so could you maybe help us out a little bit with that.
I will end, but on one also added onto white, Chief financial officer depends a little bit more.
From a broader picture, yes, we reacted fast some of the things we did we looked at the forward looking.
More cash we looked at all we can increase the efficiency, how we can move products into various divisions again, they have a big advantage of various multiple divisions. So some of them are permanent in nature on yes, we cannot be looked at some cost reductions that will come back travel on reduced but have come back.
We changed the way be to service that has helped us so given us some lessons to learn like every other company of how to mostly you can do better a trade shows and things like back are definitely improves your ability to deliver product more efficiently Alan yes, Larry Good question, we were.
We're very pleased with the reaction by our management team, which included a relentless focus on operational efficiencies and cost given the unknowns associated with the pandemic.
Unlike many companies we did benefit from reduced travel and some other areas as Deepak mentioned, we do think these cost savings will continue through the first half in overtime and we have done a number of of cost reductions which are.
Sort of systematic and will be sustainable over time, so temporary ones are things like travel in all but we've done a number of what we would more classify as permanent cost reductions to which positions the company to be even stronger in fiscal 21, 22 and beyond so we really like the reaction by the team.
Okay, Great and then.
How about just on the just visibility your your outlook.
Obviously, it sounds like you listed a lot of certain positives and doesnt signing long term demand should be impacted.
In terms of coal do but.
As you look out and you certainly suggested a slower Q1.
How is your visibility in terms of talking with customers you have sounds like you are fairly confident you'll get a rebound in the back half of this year as fiscal year and into 22 and beyond and then.
How is your visibility on I guess I know if you can speak to Mexico, but do you see you incorporating the return in Mexico. During this fiscal year into your guidance.
Quick question, Larry the deeper here.
I'd love to hear portion and the different divisions, obviously sure insecurity, yes. There is there's a little bit of pushed to the right and also the delivery cycle is longer.
As you know.
For traffic is down four need infrastructure international customers have to sign off factory acceptance test site acceptance tests civil works have to be made all that become more challenging. During these times. Good news is that it's not a product on a project that the customer is.
I will walk away from most important is that all the customers even more so if they need to do that for example air cargo, it's a great growth opportunity for US all the airlines and all of the various freight forwarders, the at expanding that air cargo facilities and trying to make.
The more automated without equipment, that's a big positive.
Some of these things like the ports or the airport expansion that get slowed down sign offs are going to happen, but I. Just also mentioned to you that some imports from the other have taken disposition internationally, especially at let's use this time wisely to expand and modernize our facility and we announced today said.
That that we got it notification of a Big award for significant amount of our Dts, what a major international airport. So these are positives and they're up beyond that definitely count for Nick how long. This is going to last things have changed on the other side on the healthcare side.
There's a demand but that market is going to change.
How fast the elective synergies come back we'll have an impact of how fast they have the hospital stock buying but people want to make be ready for the next wave if it's going to happen. They wanted to home monitoring with becomes more suitable to kind of products regarding the opto side.
I doubt on as mentioned deal they had a significant very good bookings we are doing what I call essential services that is aerospace defense satellite program medical So all those services for our products are our customers want our product in some cases, we had to even ask for us mm.
These help.
To expedite our factories to orphan for important products to come in so that.
Some of them are continuing to grow I think of out you want to add into it but I think that long term, we are very boisterous and very confident and the pipeline has not changed.
And Larry with respect to the last part of your question about guidance and Mexico. As you know we don't breakout details on divisions of programs in our guidance. We provided the overall as I level, but we have provided a wider range for our guidance. This year to account for the delays associated with this program as by the best we can.
Got it okay that was sort of a lead into my next question what was through the low in the high end of the guidance range and so that's good for that and then it just.
Thank you touched on the auto for Q4, not really surprise being down, but I think pleasantly surprised to hear about the for.
Backlog being at record levels and it sounds like the book to Bill was.
Well over one in the quarter.
And my question was which you partially answered, but where are you seeing this to strength from and is it some of it it's actually covert benefited from covert or.
And or their piece of that business I would've thought that might have been impacted from coated.
Good question again, it's broad it's a very broad.
One of the one of went the strengths we have in the opto business, it's a very broad industry indicator aerospace defense traffic medical.
Security.
And by our meant name it.
Hi, guys.
Pickling ask anything it's the products are made for all these industries and it's a global requirement. So we are very excited about it I think Adam as mentioned it out of all the three divisions.
It's a very predictable strong growth and they're predicting a strong fiscal 21 in the opto business.
Okay, great. Thanks again.
Thank you. Our next question comes from Sheila.
Okay.
You May proceed with your question.
Good afternoon, guys and thanks for the time.
I guess, continuing along with the last line of questioning on the backlog specifically in the park I appreciate your comments on some of that.
Pipeline duration in terms of how long it takes to convert to order backlogs down.
Overall, two years and around for the company and you said opto had a great.
Record backlog here this year, so what does that kind of imply for security outlook as we look into 21.
And just maybe elaborate on that a little bit more.
Hi, Sheila it's Alan I'll take the first part of that and maybe talk about some additional color.
Yes, as as you know the Mexico program, we had when you talk about two years, we received our last contract about two years ago and as we fulfill the revenues on that contract.
Backlog only goes one direction associated with that there were planned bookings that moved to the right throughout the year and this of course has now reflected in our fiscal 21 guidance. We are really optimistic for strong bookings in fiscal 21, and the security business.
Which have realized would lead to a much higher book to bill ratio than than you've seen this this past year the business.
Okay. That's helpful. And then I just want to Mexico contact contract curious like who is operating at right now because you said.
You know you cannot operate that the contract I know that guidelines.
She other people care.
With that is nobody's operating it.
We operate we were operating at the Jones fixed.
And on June six by lobby cannot be that place because there's no active contract on nobody knows how to use them. So the systems are sitting idle.
We've been asked to do some inspections of the of the condition of the systems, which we still hopeful is that good sign up but right now.
The debt productivity is down because nobody can operate assistance.
Okay, that's super helpful.
And then my last question is in terms of profitability I think your guidance suggests margins are up quite have you know happily year over year, maybe 75.
I don't know Alan if this is for you.
You know kind of how do we think about how sustainable that 17% margin as within healthcare.
Okay, and you know what drives that is the biggest driver that margin improvement look at it would get this healthcare.
Yes. So this is Alan Sheila so the take your questions on health care. The healthcare margin is highly correlated to the top line. So when we had a strong topline in revenues.
Resulted in very strong operating margins.
And as Deepak said, the healthcare business has the highest contribution margin of our three divisions. So good revenues resulted in very strong.
Operating margins.
So at that type of revenue run rate.
Yes, we believe that those type of operating margins are very much sustainable of course, not every quarter is going to be at those levels, we see some seasonality in the business.
And otherwise so.
Bedded in our guidance for next years is certainly not a 17% operating margin for for the healthcare business.
But we're very pleased with the fourth quarter performance in terms of OSI overall.
Yes, you're absolutely right.
We are expecting operating margin expansion, we think thats going to come from.
All three of our businesses and all three businesses, what will drive operating margin expansion, which will then drive it on a consolidated level as well so.
As we're very pleased with our expectation of that.
Sorry, Ellen I just wanted to all three businesses will expand margins next year, then I just want to double check.
In this area that is our plan okay sounds good thank you very much.
Thank you and as a reminder is asking question you'll need to press star one on your telephone. Our next question comes from on gone with B. Riley.
Your question.
Hey, guys. Thanks for taking my question next if unit growth and margin expansion healthcare I wanted to ask how much visibility to having to spacelabs beyond fiscal.
The first quarter.
With covered hopper.
But as they continue to level off a little bit.
What do you see from a debt demand perspective for patient monitoring and cadence for the full year fiscal 21, I know the demand is a global so do you expect to be relatively strong segment for the full year.
Hi, Good question as you know all Spacelabs business tends to be book and ship.
And.
Monitoring is very important it is a global business and I think in the last conference call. We did say it again up to now our demand for monitoring has been relatively better in Latin America and EMEA.
As compared to us, but as us stops stabilizing on their demand will continue because their normal level. So overall, we think that this is going on.
Hi, good healthy demand.
We're also very encouraged that as the elective surgeries come back up cardiology, which is another very high margin product for US will continue to also show growth and supplies and accessories, which follow the backend of more installed base more supplies and accessories will continue to show growth.
So overall.
Globally, we think that.
We will be we had given again I share and we will continue to show growth at the same time Allen has mentioned we are investing significantly in R&D.