Q4 2024 OSI Systems Inc Earnings Call

Okay.

Operator: Hello, and thank you for standing by.

Speaker Change: Hello, and thank you for standing by walking to OSI systems, Inc, fourth quarter and fiscal year 'twenty 'twenty four conference call.

Operator: Welcome to OSI Systems Inc. fourth quarter and fiscal year 2024 conference call.

Operator: At this time, all participants are in a listen-only mode.

You may now disconnect.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you weren't didn't hear automated message advising your hand is raised.

Operator: After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Operator: I would now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI.

Speaker Change: To withdraw your question. Please press star one again.

Alan <unk>: I would now like to turn the call over to Alan <unk> Executive Vice President and Chief Financial Officer of OSI, Sir you may begin.

Operator: Sir, you may begin.

Alan Edric: Well. Thank you good morning, and thank you for joining us I'm, Alan Edric Executive Vice President and CFO of OSI systems, and I'm here today, with Deepak Chopra, OSI as president and CEO welcome.

Alan Edrick: Well, thank you.

Welcome to the OSI systems fiscal 'twenty for fourth quarter and year end conference call. We are pleased that you can join US as we review, both our financial and our operational results.

Alan Edrick: Good morning, and thank you for joining us.

Earlier today, we issued a press release announcing our fiscal 'twenty for fourth quarter and full year financial results.

Alan Edrick: 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.

Alan Edric: 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.

Alan Edric: 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 statements based upon subsequent events or new information or otherwise.

Alan Edric: During today's call, we will refer to both GAAP.

Alan Edric: And non-GAAP financial measures when describing the company's results.

Alan Edric: For further information regarding non-GAAP measures and comparable GAAP measures of the company's results and to go and a quantitative reconciliation of those figures. Please refer to today's earnings press release.

Alan Edrick: Welcome to the OSI Systems fiscal 24 fourth quarter and year-end conference call.

Speaker Change: I will begin with a high level summary of our financial performance for the fourth quarter of fiscal 'twenty four.

Speaker Change: And then turn the call over to Deepak for a discussion of our business and operational highlights.

Speaker Change: We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025.

Speaker Change: Following record revenues and non-GAAP EPS in each of Q2 and Q3, we again saw a record financial results in the fourth quarter led by the security Division, resulting in outstanding revenue growth and a significant increase in year over year operating income.

We are encouraged by the momentum in our business.

Speaker Change: Let's start with a high level summary of our fiscal 2020 for Q4 and full year results.

Speaker Change: First revenues increased 17% year over year to a Q4 record of $481 million.

Speaker Change: Driven by the performance of our security Division, where Q4 revenues were up 27% year over year.

For the full year fiscal 'twenty four revenues were a record 154, billion% to 20% increase over fiscal 'twenty three.

Speaker Change: Second the significant revenue growth led to a record Q4 non-GAAP adjusted earnings per share of $2 84.

Speaker Change: For the full year fiscal 'twenty for non-GAAP adjusted EPS was a record $8 13.

Speaker Change: A 31% increase over the prior fiscal year.

Third book.

Speaker Change: Bookings were again solid and we ended the quarter with a backlog of approximately $1 7 billion.

Our healthy backlog and robust pipeline of opportunities provide good visibility as we enter fiscal year 2025.

Operator: Hello, and thank you for standing by.

Operator: Welcome to OSI Systems Inc.

Operator: Fourth quarter and fiscal year 2024 conference call.

Speaker Change: Before diving more deeply into our financial results and discussing the fiscal 'twenty five outlook I will turn the call over to <unk>.

Operator: At this time, all participants aren't in listen only mode.

Operator: After the speaker's presentation, there would be a question and answer session to ask the question during the session, you will need to press start one one on your telephone. You would then hear automated message advising your hand is raised to withdraw your question, please press start one one again.

Speaker Change: Thank you Alan.

Speaker Change: Good morning, everyone.

Alan Edrick: We are pleased that you can join us as we review both our financial and our operational results. Earlier today, we issued a press release announcing our fiscal 24 fourth quarter and full year financial results.

Speaker Change: For joining us today as we discuss OSI systems strong performance for.

Speaker Change: For the 2020 for fourth quarter and full fiscal year.

Alan Edrick: 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.

Alan: As Alan mentioned.

Alan Edrick: 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 upon subsequent events or new information or otherwise.

Operator: I will now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI.

Speaker Change: I am proud to say our revenues grew year over year by 17% in Q4.

Speaker Change: And 20% for the full fiscal year, resulting in record revenues for both of these periods.

Operator: Sir, you may begin.

Alan Edrick: 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.

Alan Edrick: Well, thank you.

Alan Edrick: Good morning and thank you for joining us.

Alan Edrick: I'm Alan Edrick, Executive Vice President and CFO of OSI Systems.

Alan Edrick: I will begin with a high-level summary of our financial performance for the fourth quarter of fiscal 24, and then turn the call over to Deepak for a discussion of our business and operational highlights.

Speaker Change: We ended the fiscal year with a significant backlog of approximately $1 7 billion, which combined with the strength.

Alan Edrick: We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025. Following record revenues and non-GAAP EPS in each of Q2 and Q3, we again saw record financial results in the fourth quarter, led by the Security Division, resulting in outstanding revenue growth and a significant increase in year-over-year operating income.

Speaker Change: Very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Alan Edrick: We are encouraged by the momentum in our business.

Speaker Change: Diving into the highlights.

Alan Edrick: Let's start with a high-level summary of our fiscal 2024 Q4 and full-year results. First, revenues increased 17% year-over-year to a Q4 record of $481 million, driven by the performance in our Security Division, where Q4 revenues were up 27% year-over-year.

Speaker Change: The security Division again delivered fantastic results with year over year revenues, increasing 27% in Q4.

Alan Edrick: For the full year, fiscal 24 revenues were a record $1.54 billion, a 20% increase over fiscal 23.

Speaker Change: 37% for the full fiscal year.

Alan Edrick: Second, the significant revenue growth led to record Q4 non-GAAP adjusted earnings per share of $2.84.

This growth was spread across many of our offerings and geographic regions.

Alan Edrick: For the full year, fiscal 24 non-gap adjusted EPS was a record $8.13, a 31% increase over, the prior fiscal year.

Speaker Change: What was particularly notable in Latin America, Middle East and Asia Pac regions.

Alan Edrick: Third, bookings were again solid, and we ended the quarter with a backlog of approximately, $1.7 billion. Our healthy backlog and robust pipeline of opportunities provide good visibility as we, enter fiscal year 2025.

Speaker Change: During Q4, we continued to successfully execute.

Speaker Change: On a major program with Mexico's Department of National Defence, No Nash sedan.

Deepak Chopra: Before diving more deeply into our financial results and discussing the fiscal 2025 outlook, I will turn the call over to Deepak.

Speaker Change: Which is expected to generate.

Speaker Change: More than $500 million in total revenue over the length of the contract.

Deepak Chopra: Thank you, Alan.

Deepak Chopra: Good morning, everyone.

Speaker Change: Our Savannah, we provide a range of inspection systems, including the Eagle high energy and low energy cargo inspection portals, the cardio vehicle inspection system and the search scan multi site integration platform what it is.

Deepak Chopra: Thank you for joining us today as we discuss OSI Systems' strong performance for the 2024, fourth quarter and the full fiscal year. As Alan mentioned, I'm proud to say our revenues grew year over year by 17% in Q4 and 20% in, the full fiscal year, resulting in record revenues for both of these periods. We ended the fiscal year with a significant backlog of approximately $1.7 billion, which, combined with the strength of our very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Deepak Chopra: Diving into the highlights, the Security Division again delivered fantastic results, with year-over-year revenues increasing 27% in Q4 and 37% for the full fiscal year. This growth was spread across many of our offerings and geographic regions, but was, particularly notable in Latin America, Middle East, and Asia-Pacific regions.

Speaker Change: Expected trucks buses and cars at Mexico, Northern and southern border checkpoints.

Deepak Chopra: In Q4, we continued to successfully execute on our major program with Mexico's Department, of National Defense, known as SEDANA, which is expected to generate more than $500 million in total revenue over the length of the contract. For SEDANA, we provide a range of inspection systems, including the EGLE high-energy and, low-energy cargo inspection portals, the CarView vehicle inspection system, and the CertScan multi-site integration platform for inspecting trucks, buses, and cars at Mexico's, northern and southern border checkpoints.

Deepak Chopra: We also continue to successfully deliver on another major cargo program, the $200 million, contract with an international customer.

Speaker Change: We also continued to successfully deliver on another major cargo program with $200 million contract with an international customer.

Deepak Chopra: We are performing well with these programs, and they are expected to be nice contributors, again in fiscal 2025.

Speaker Change: We are performing well with these programs and they are expected to be nice contributors again.

Speaker Change: Fiscal 'twenty five.

Deepak Chopra: The additional program we won from SEDANA, valued at over $100 million, is well underway, also with revenues expected to commence in mid-fiscal 2025.

Speaker Change: The additional program the one from sedan Val.

Speaker Change: Valued at over $100 million is well under way also with revenues expected to commence in mid fiscal 2025.

Speaker Change: Our turnkey projects in Albania, Puerto Rico, Guatemala.

Deepak Chopra: Our turnkey projects in Albania, Puerto Rico, Guatemala, and a European airport continue, to perform seamlessly, providing strong recurring revenues and serving as great reference points on further opportunities.

Speaker Change: And a European airport continued to perform seamlessly providing strong recurring revenues.

Speaker Change: And serving as great reference points on further opportunities.

Deepak Chopra: Our latest cargo turnkey project in Uruguay is expected to commence operations before, the end of the calendar year. These successful projects, each with their unique security requirements, demonstrate, our ability to deliver highly customized solutions to meet our customers' needs.

Speaker Change: Our latest cargo turnkey project in Uruguay.

Expected to commence operations before the end of the calendar year.

Speaker Change: These successful projects each with their unique security requirements.

Speaker Change: Demonstrate our ability to deliver highly customized solutions to meet our customers' needs.

Deepak Chopra: Many of our turnkey and hardware projects also utilize CertScan, our multi-site integration, platform that is increasingly adopted by port and border customs agencies worldwide. CertScan sets us apart from competitors, enhancing the value of our offerings beside our broad, product portfolio.

Many of our town <unk> hardware projects also utilized search scan our multi site integration platform that is increasingly adopted by port and border customs agencies worldwide.

So its scanned sets us apart from competitors enhancing the value of our offerings beside our broad product portfolio.

Speaker Change: We were active throughout fiscal 2024 with aviation customers also.

Deepak Chopra: We were active throughout fiscal 2024 with aviation customers also.

Deepak Chopra: As passenger traffic continued to increase, we expect this general trend to continue.

Speaker Change: Passenger traffic continued to increase.

Speaker Change: Expect this general trend to continue.

Speaker Change: As our aviation related bookings were particularly strong.

Deepak Chopra: As our aviation-related bookings were particularly strong in the second half of fiscal 2024, to that end, during Q4, we announced orders totaling approximately $52 million from two international airports to furnish a comprehensive array of security solutions, including the RTT 110 for hold baggage screening and the Orion 920CT for checkpoint security, with, extensive service and support commitments and recurring revenue.

Speaker Change: In the second half of fiscal 2024 does that end.

Speaker Change: During Q4, we announced orders totaling approximately 52 million.

Deepak Chopra: And I'm here today with Deepak Chopra, OSI's President and CEO.

Speaker Change: From two international airports to furnish a comprehensive array of security solutions, including the <unk> 10 for hold baggage screening and the already on 920 <unk> four checkpoint security.

Alan Edrick: Welcome to the OSI Systems fiscal 24 fourth quarter and year end conference call.

Speaker Change: With extensive service and support commitments and recurring revenue.

Alan Edrick: We are pleased that you can join us as we review both our financial and our operational results. Earlier today, we issued a press release announcing our fiscal 24 fourth quarter and full year financial results.

Deepak Chopra: For ports and border security applications in Q4, we announced two awards from international, customers, totaling about $20 million for the Eagle M60 mobile cargo and vehicle inspection systems, including follow-on maintenance and support. These M60 platforms enable efficient and flexible relocation of security checkpoints to optimize, security for borders and critical infrastructure.

Speaker Change: For ports and border security applications in Q4, we announced two awards from international customers totaling about $20 million for the Eagle <unk> mobile cargo and vehicle inspection systems, including follow on maintenance and support.

Alan Edrick: 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.

Speaker Change: These M 60 platforms enable efficient and flexible relocation of security checkpoints to optimize security for borders and critical infrastructure.

Deepak Chopra: We also announced an award from an international border security customer of approximately, $11 million for radiation monitoring solutions and related services and support.

Speaker Change: We also announced an award from an international border security customer.

Alan Edrick: All forward looking statements made on the business call are based on currently available information in the company undertakes no obligation to update any forward looking statement based upon subsequent events or new information or otherwise.

Approximately $11 million for radiation monitoring solutions and related services and support.

Speaker Change: This has been a breakthrough year for the security Division.

Deepak Chopra: This has been a breakthrough year for the security division. In addition to robust revenue and profit growth, our continued success in securing major projects, in ports, borders, and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs effectively and efficiently. This approach ensures that we deliver solutions that offer the best value, further solidifying, our position as a leader in the industry.

Deepak Chopra: With a strong backlog and strong pipeline, we are enthusiastic about the division's long-term, growth prospects in fiscal 2025 and beyond.

Speaker Change: In addition to a robust revenue and profit growth.

Speaker Change: Continued success in securing major projects in porch borders and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs.

Speaker Change: Activity and efficiently.

Speaker Change: This approach ensures that we deliver solutions that offer the best value.

Speaker Change: Further solidifying our position as a leader in the industry.

Speaker Change: With a strong backlog.

Speaker Change: And strong pipeline, we are enthusiastic about the division's long term growth prospects in fiscal 2025 and beyond.

Deepak Chopra: Moving on to the Opto Group, the Opto Electronics Manufacturing Division achieved a significant, milestone with record Q4 revenues, including intercompany sales of $102 million.

Speaker Change: Moving on to the auto group, the Optoelectronics and manufacturing division achieved a significant milestone with a record Q4 revenues.

Speaker Change: Including intercompany sales of $102 million.

Deepak Chopra: Throughout fiscal 2024, including the fourth quarter, we continue to work with our customers, to adjust to their demand forecast, and we believe we have made progress in right-sizing to this demand, putting this activity behind us in the coming months.

Speaker Change: Throughout fiscal 2024, including the fourth quarter.

Speaker Change: We continue to work with our customers to adjust to their demand forecasts and we believe we have made progress in right sizing to this demand.

Putting this activity behind us in the coming months.

Deepak Chopra: We announced a couple of nice wins during the quarter. We announced a $7 million repeat order from a leading healthcare OEM customer for portable, device assemblies. We also received another $7 million order to provide electronic subassemblies to an, advanced engineering solutions OEM.

We announced a couple of nice wins during the quarter.

Speaker Change: We announced a $7 million repeat order from a leading healthcare OEM customer for portable device assemblies.

Speaker Change: We also received another $7 million order to provide electronic sub assemblies to an advanced engineering solutions OEM.

Deepak Chopra: In fiscal 2025, we believe that our recent expansion into Mexico, the Tecate operation, will benefit us for nearshoring customer activity, along with our favorable position globally in South Asia PAC region and in UK, as large OEMs are seeking to establish or expand their supply chain to de-risk their exposure to China-centric supply chains.

Speaker Change: In fiscal 2025, we believe that our recent expansion into Mexico.

Speaker Change: <unk> operation will.

Speaker Change: It will benefit us for near shoring customer activity.

Speaker Change: Along with our favorable position globally in South Asia Pac region.

Speaker Change: And in UK as large Oems are seeking to establish or expand their supply chain to de risk their exposure to China centric supply change.

Deepak Chopra: Based on the ability of our Opto division to effectively adjust to market trends and, changes in customer demand, we believe Opto will continue to achieve profitable growth.

Speaker Change: Based on the ability of our opto division to effectively adjust to market trends and changes in customer demand. We believe opto will continue to achieve profitable growth.

Speaker Change: <unk>.

Deepak Chopra: Now let's turn our attention to the healthcare division, where Q4 revenues were the strongest, for the fiscal year 2024, though down year-over-year on a tough comparison.

Speaker Change: Now, let's turn our attention to the health care Division, where Q4 revenues were the strongest for the fiscal year 2020 for Dol down year over year on a tough comparison.

Speaker Change: Fiscal 2024 brought significant challenges for patient monitoring in the U S primarily as hospitals continue to defer capital purchases.

Deepak Chopra: Fiscal 2024 brought significant challenges for patient monitoring in the U.S., primarily, as hospitals continue to defer capital purchases. Despite these hurdles, during the quarter, we secured a $6 million award from a U.S.-based, hospital to provide patient monitoring solutions and related accessories, including Exhibit, Central Stations, Expression patient monitors, and Q patient monitors.

Deepak Chopra: Additionally, our Rothman Index predictive and analytic solution is seeing increased, success.

Despite these hurdles during the quarter, we secured a $6 million award from a U S based hospital to provide patient monitoring solutions and related accessories, including exhibit central stations expression patient monitors and key patient monitors.

Speaker Change: Additionally, our argument index predictive analytic solution is seeing increased success.

Deepak Chopra: Our clinical services offerings also continue to be well-received by our clients. We are committed to advancing our next-generation patient monitoring solutions and enhancing, the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

Speaker Change: Our clinical services offerings also continue to be well received by our clients.

Deepak Chopra: We adjusted the healthcare division cost structure in the quarter also, the benefits of which, are expected to primarily start realizing in fiscal 2025.

Speaker Change: We are committed to advancing our next generation patient monitoring solutions enhanced enhancing the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

Deepak Chopra: To sum it up, we are confident about our company's future and excited to build on our stellar, fiscal 2024 performance.

Speaker Change: <unk> adjusted the healthcare division cost structure in the quarter also the benefits of which are expected to primarily start realizing in fiscal 2025.

Speaker Change: To sum it up we.

We're confident about our company's future and excited to build on our stellar fiscal 2020 for performance.

Deepak Chopra: We are extremely excited and confident about fiscal 2025 and beyond.

Speaker Change: We are extremely excited and confident about fiscal 'twenty five and beyond.

Deepak Chopra: I will close this portion of the discussion by thanking all our employees, customers, and stakeholders who have played a part in OSI Systems' success.

Speaker Change: The closest portion of the discussion by thanking all our employees customers and stakeholders, who have played a part in OSI systems' success with that I will turn the call back over to Alan to discuss our financial results and fiscal 2025 guidance in more detail before we open the call to questions. Thank you very much.

Alan Edrick: With that, I will turn the call back over to Alan to discuss our financial results and, fiscal 2025 guidance in more detail before we open the call to questions.

Alan Edrick: Thank you very much.

Alan Edrick: Well, thank you, Deepak.

Alan: Well, thank you Deepak.

Alan Edrick: So let's review in greater detail the financial results for our fiscal 2024 fourth quarter. Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the, prior fiscal year. This was primarily driven by our largest division, security. The 27% year-over-year increase in Q4 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. Q4 revenues included continued shipments from the $200 million-plus cargo contract announced, in January 23 and from the $500 million-plus cargo contract announced in March 23.

Alan: So let's review in greater detail the financial results for our fiscal 'twenty for fourth quarter.

Alan Edrick: Third-party opto sales bounced back nicely, as sales increased 6% year-over-year.

Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the prior fiscal year.

This was primarily driven by our largest division securities.

Alan: The 27% year over year increase in Q4, our security Division revenues.

Alan: What's led by strong growth in our cargo and vehicle inspection product sales as well as solid growth in our aviation and checkpoint product sales.

Alan: Q4 revenues included continued shipments from the $200 million plus cargo contract announced in January 23.

Alan: The $500 million plus cargo contract announced in March 23.

Alan: Third party opto sales bounced back nicely as sales increased 6% year over year.

Alan Edrick: We continue to see certain opto customers adjusting inventory levels and or ordering, patterns, which we anticipate through the balance of calendar 24.

Alan: We continue to see certain auto customers adjusting inventory levels and ordering patterns, which we anticipate through the balance of calendar 'twenty four.

Alan Edrick: Although the healthcare division's Q4 sales were the strongest of the fiscal year, as, Deepak mentioned, revenues were 15% lower than Q4 the prior year due to a particularly challenging comparison period, along with a challenging hospital spending environment.

Speaker Change: Although the healthcare division's Q4 sales were the strongest of the fiscal year as Deepak mentioned revenues were 15% lower than Q4, the prior year due to a particularly challenging comparison period, along with a challenging hospital spending environment.

Alan Edrick: The fiscal 24 Q4 gross margin of 32.1% was down from the 34.7% gross margin in Q4 of, last fiscal year. This was largely due to the mix of revenues, as Q4 growth was driven by a significant increase, in security product revenues, which typically carry a less favorable margin than security service revenues, as well as a less favorable mix of security service revenues in the quarter.

Deepak: The fiscal 'twenty four Q4 gross margin of 32, 1% was down from 34, 7% gross margin in Q4 of last fiscal year.

Alan Edrick: The year-over-year decrease in revenues in the healthcare division, which inherently, carries the highest gross margin of all three divisions, also contributed to the lower gross margin.

Alan Edrick: As a result, 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.

Speaker Change: This was largely due to the mix of revenues as Q4 growth was driven by a significant increase in security product revenues, which typically carry a less favorable margin than security service revenues.

Speaker Change: As well as a less favorable mix of security service revenues in the quarter.

The year over year decrease in revenues in the healthcare division, which inherently carries the highest gross margin of all three divisions also contributed to the lower gross margin.

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.

Alan Edrick: Moving to operating expenses, we continue to work diligently across each of our divisions, to improve efficiency and to manage our SG&A cost structure. Q4 SG&A expenses were $71.7 million, or 14.9% of sales, compared to $67.1 million, or 16.3% of sales in Q4 of the prior year.

Speaker Change: Moving to operating expenses.

Speaker Change: We continue to work diligently across each of our divisions to improve efficiency and to manage our SG&A cost structure.

Speaker Change: Q4, SG&A expenses were $71 7 million or 14, 9% of sales compared to $67 1 million or 16, 3% of sales in Q4 of the prior year.

Alan Edrick: The year-over-year dollar increase in cost was driven by higher compensation costs, including, incentive compensation linked to our significant sales growth, increased professional fees, and unfavorable foreign exchange rates, among other items.

Speaker Change: The year over year dollar increase in cost was driven by higher compensation costs costs, including incentive compensation linked to our significant sales growth increased professional fees and unfavorable foreign exchange rates among other items.

Speaker Change: Research and development expenses in Q4 of fiscal 'twenty, four were $15 9 million compared to $15 5 million in the same prior year quarter.

Alan Edrick: Research and development expenses in Q4 of fiscal 24 were $15.9 million, compared to, $15.5 million in the same prior year quarter. We continue to dedicate considerable resources to R&D, and we anticipate further increases, in such investment in fiscal 25, particularly in our security division, as we remain focused on innovative product development, which we view as vital to the long-term success of our businesses.

Alan Edrick: We recorded $3.9 million of restructuring and other charges in Q4 of fiscal 24, compared, to $3.2 million in the same quarter of the prior year.

Speaker Change: We continue to dedicate considerable resources to R&D.

Speaker Change: And we anticipate further increases in such investment in fiscal 'twenty five, particularly in our security Division as we remain focused on innovative product development, which we view as vital to the long term success of our businesses.

Speaker Change: We recorded $3 9 million of restructuring and other charges in Q4 of fiscal 'twenty four compared to $3 2 million in the same quarter of the prior year.

Alan Edrick: Moving to interest and taxes. Net interest and other expenses in Q4 increased to $8.2 million in fiscal year 24, from $5.7, Subsequent to fiscal year-end, we completed a convertible notes financing, which is expected to reduce our future interest expense, which I'll talk more about shortly.

Speaker Change: Moving to interest and taxes.

Speaker Change: Net interest and other expenses in Q4 increased to $8 2 million in fiscal year 'twenty four.

Speaker Change: From $5 7 million in fiscal year, 'twenty, three primarily due to increased interest rates on a higher level of borrowings.

Speaker Change: Subsequent to fiscal year end, we completed a convertible notes financing, which is expected to reduce our future interest expense, which I'll talk more about shortly.

Speaker Change: Our reported effective tax rate under GAAP was 18, 3% in Q4 of fiscal 'twenty four compared to 17, 6% in Q4 of fiscal 'twenty three.

Alan Edrick: Our reported effective tax rate under GAAP was 18.3% in Q4 of fiscal 24 compared to 17.6% in Q4 of fiscal 23. Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24, was 21.2% compared to a normalized effective tax rate of 21.9% in Q4 of fiscal 23.

Alan Edrick: During today's call, we will we will refer to both gap and non-gap financial measures when describing the company's results. For further information regarding non-gap measures and comparable gap measures of the company's results, and the quantitative reconciliation of those figures, please refer to today's earnings press release.

Alan Edrick: I will begin with a high level summary of our financial performance for the fourth quarter of fiscal 24 and then turn the call over to Deepak for a discussion of our business and operational highlights.

Speaker Change: Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24 was 21, 2% compared to a normalized effective tax rate of 21, 9% in Q4 of fiscal 'twenty three four.

Alan Edrick: We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025. Following record revenues and non-gap EPS and each of Q2 and Q3, we again saw record financial results in the fourth quarter led by the security division resulting in outstanding revenue growth and a significant increase in year over year operating income.

Alan Edrick: We are encouraged by the momentum in our business.

Alan Edrick: For the year, the normalized effective tax rate in fiscal 24 was 23.4% compared to 22.8% in the prior fiscal year.

Speaker Change: For the year, the normalized effective tax rate in fiscal 'twenty, four was 23, 4% compared to 22, 8% in the prior fiscal year.

Alan Edrick: I will now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our adjusted operating margin in the fourth quarter of fiscal 24 was 14.8% compared to 15.6% in Q3 of fiscal 24, driven by the top-line reductions in health care and a less favorable mix of sales in the security division. The adjusted operating margin in the security division was 18.5% in Q4 of fiscal 24, which, was roughly in line with that of Q3, but down from 19.3% in Q4 of fiscal 23, given the less favorable revenue mix in the division.

Speaker Change: I will now turn to a discussion of our non-GAAP adjusted operating margin.

Alan Edrick: Let's start with a high level summary of our fiscal 2024 Q4 and full year results. First, revenues increase 17% year over year to a Q4 record of $481 million driven by the performance in our security division where Q4 revenues were up 27% year over year.

Speaker Change: Overall, our adjusted operating margin in the fourth quarter of fiscal 'twenty four it was 14, 8% compared to 15, 6% in Q3 of fiscal 'twenty four driven by the top line reductions in healthcare and a less favorable mix of sales in the security Division.

Alan Edrick: For the full year, fiscal 24 revenues were a record 1.54 billion, a 20% increase over fiscal 23.

Alan Edrick: Second, the significant revenue growth led to record Q4 non-gap adjusted earnings per share of $2.84, for the full year, fiscal 24 non-gap adjusted DPS was a record $8.13, a 31% increase over the prior fiscal year.

Speaker Change: The adjusted operating margin in the Security Division was 18, 5% in Q4 of fiscal 'twenty four.

Alan Edrick: Third, bookings were again solid and we ended the quarter with a backlog of approximately 1.7 billion. Our healthy backlog in robust pipeline of opportunities provide good visibility as we enter fiscal year 2025.

Which was roughly in line with out of Q3, but down from 19, 3% in Q4 of fiscal 'twenty three given the less favorable mix revenue mix in the division.

Alan Edrick: The adjusted operating margin in our opto division increased to 13.9% in the fourth, quarter of fiscal 24 from 13.8% in last year's Q4.

The adjusted operating margin in our Opto Division increased 13, 9% in the fourth quarter of fiscal 'twenty four from 13, 8% in last year's Q4.

Deepak Chopra: Before diving more deeply into our finance results and discussing the fiscal 25 outlook, I will turn the call over to Deepak.

Alan Edrick: The health care division reported its strongest quarter of adjusted operating margin for the, fiscal year, though a decrease to 9.3% in Q4 of fiscal 24 compared to 12.1% in the prior year on lower year-over-year revenues.

The healthcare Division reported its strongest quarter of adjusted operating margin for the fiscal year.

Deepak Chopra: Thank you, Alan.

Speaker Change: So a decreased to nine 3% in Q4 of fiscal 'twenty four compared to 12, 1% in the prior year on lower year over year revenues.

Speaker Change: Moving to cash flow.

Alan Edrick: Moving to cash flow. In Q4 of fiscal 24, we invested significant amounts in working capital and supported the, company's growth. Cash used in operations in the quarter was $29 million, primarily due to increases in, accounts receivable associated with the security division revenue growth. Cap X in the 2024 fiscal fourth quarter was $8.5 million, while depreciation and amortization, expense in Q4 was $11.7 million.

Speaker Change: In Q4 of fiscal 'twenty, four we invested significant amounts in working capital and supported the company's growth.

Deepak Chopra: Good morning, everyone.

Speaker Change: Cash used in operations in the quarter was $29 million, primarily due to increases in accounts receivable associated with the security Division revenue growth.

Deepak Chopra: Thank you for joining us today as we discuss OSI Systems Strong Performance for the 2024 fourth quarter and the full fiscal year. As Alan mentioned, I'm proud to say our revenues grew here over year by 17% in Q4 and 20% for the full fiscal year, resulting in record revenues for both of these periods. We ended the fiscal year with a significant backlog of approximately 1.7 billion which combined with the strength of our very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Capex in the 2020 for fiscal fourth quarter was $8 5 million, while depreciation and amortization expense in Q4 was $11 7 million.

Deepak Chopra: Diving into the highlights, the security division again delivered fantastic results with year over year revenues increasing 27% in Q4 and 37% for the full fiscal year. This growth was spread across many of our offerings and geographic regions, but was particularly notable in Latin America, Middle East, and Asia-Pac regions.

Alan Edrick: Our balance sheet is solid, with modest net leverage of 1.6. Aside from $7.5 million of annual required principal payments under our bank term loan, the bulk of our bank debt matures in fiscal 27. As mentioned earlier, subsequent to fiscal year-end, we issued $350 million of convertible, notes, with a coupon of 2.25%, due in fiscal 2030, and an initial conversion price of approximately, $192. The proceeds were used to pay down our bank revolver and repurchase approximately 550,000, shares of common stock, as well as cover transaction costs.

Speaker Change: Our balance sheet is solid with modest net leverage of one six.

Speaker Change: Aside from $7 $5 million of annual required principal payments under our bank term loan the bulk of our bank debt matures in fiscal 2007.

Deepak Chopra: During Q4, we continued to successfully execute on a major program with Mexico's Department of National Defense known as Sedanah, which is expected to generate more than $500 million in total revenue over the length of the contract. For Sedanah, we provide a range of inspection systems including the eagle high energy and low energy cargo inspection portals, the car view vehicle inspection system, and the cert scan multi-site integration platform when inspecting trucks, buses, and cars at Mexico's northern and southern border checkpoints.

Speaker Change: As mentioned earlier subsequent to fiscal year end, we issued $350 million of convertible notes with a coupon of 225% due in fiscal 2030, and an initial conversion price of approximately $192.

Deepak Chopra: We also continue to successfully deliver on another major cargo program the 200 million dollar contract with an international customer. We are performing well with these programs and they are expected to be nice contributors again in fiscal 25.

Speaker Change: The proceeds were used to pay down our bank revolver and repurchase approximately 550000 shares of common stock as well as covered transaction cost.

Alan Edrick: This transaction provides enhanced liquidity to capitalize on future strategic initiatives, while simultaneously being immediately accretive, given a significant reduction in interest cost and a reduction in the share count. In combination with the interest rate swap entered into approximately two years ago, well over three-quarters of our existing debt is now fixed versus floating.

Speaker Change: This transaction provides enhanced liquidity to capitalize on future strategic initiatives, while simultaneously being immediately accretive given the significant reduction in interest cost and a reduction in the share count.

Deepak Chopra: The additional program we won from Sedanah valued at over 100 million as well underway also with revenues expected to commence in mid fiscal 2025.

Speaker Change: In combination with the interest rate swap entered into approximately two years ago well.

Well over three quarters of our existing debt is now fixed versus floating.

Deepak Chopra: Our turnkey projects in Albania, Puerto Rico, Guatemala, and a European airport continue to perform seamlessly providing strong recurring revenues and serving as great reference points on further opportunity.

Alan Edrick: Finally, turning to guidance.

Speaker Change: Finally, turning to guidance.

Alan Edrick: We are introducing our Fiscal 25 Sales and Non-Gap Adjusted Diluted EPS Guidance. For Fiscal Year 25, we anticipate revenues in the range of $1.62 billion to $1.65 billion, and non-gap adjusted earnings per diluted share in the range of $8.80 to $9.15. This Fiscal 25 non-gap diluted EPS guidance excludes potential impairment restructuring and other charges, amortization of acquired intangible assets, and non-cash interest expense and their associated tax effects, as well as discrete tax and other non-recurring items.

Speaker Change: We are introducing our fiscal 'twenty five sales and non-GAAP adjusted.

Deepak Chopra: Our latest cargo turnkey project in Uruguay is expected to commence operations before the end of the calendar year. These successful projects, each with their unique security requirements, demonstrate our ability to deliver highly customized solutions to meet our customers' needs.

Speaker Change: Diluted EPS guidance.

For fiscal year 'twenty fives.

Speaker Change: We anticipate revenues in the range of $1 six 2 billion to $1 65 billion.

Speaker Change: And non-GAAP adjusted earnings per diluted share in the range of $8 82.

Deepak Chopra: Many of our turnkey and hardware projects also utilize CertScan, our multi-site integration platform that is increasingly adopted by Port and Border Customs agencies worldwide.

To $9 15.

Speaker Change: This fiscal 'twenty, five non-GAAP diluted EPS guidance excludes potential impairment restructuring and other charges.

Speaker Change: Amortization of acquired intangible assets and noncash interest expense and their associated tax effects.

Deepak Chopra: CertScan sets us apart from competitors and answering the value of our offerings beside our broad product portfolio.

As well as discrete tax and other nonrecurring items.

Alan Edrick: 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 in interest rates is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non-gap earnings per diluted share could also vary from the guidance indicated above, due to other risks and uncertainties discussed in our SEC filings.

Speaker Change: We currently believe this guidance reflects reasonable estimates.

Deepak Chopra: We were active throughout fiscal 2014 with aviation customers also, as passenger traffic continued to increase.

Alan Edrick: We continue to remain focused on the growth of our businesses.

Speaker Change: The actual impact on the Companys financial results of timing changes on the expected conversion of backlog to revenues disruptions in the supply chain and inflation and interest rates is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance.

Actual revenues and non-GAAP earnings per diluted share could also vary from the guidance indicated above.

Speaker Change: Due to other risks and uncertainties discussed in our SEC filings.

Speaker Change: We continue to remain focused on the growth of our businesses. We believe our efforts will enable OSI to continue providing innovative products and solutions.

Alan Edrick: We believe our efforts will enable OSI to continue providing innovative products and solutions.

Operator: At this time, we would like to open the call to questions.

Speaker Change: At this time, we would like to open the call to questions.

Speaker Change: Thank you.

Operator: Thank you.

Operator: Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone, and then wait to hear your name announced.

Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announced.

Speaker Change: Or withdraw your question. Please press star one again.

Operator: To withdraw your question, please press star 1-1 again.

Speaker Change: Please standby, while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Josh Nichols with B Riley Your line is open.

Josh Nichols: Yes, Thanks for taking my question I guess first off Deepak.

Josh Nichols: Our first question comes from the line of Josh Nichols with B Rally.

Josh Nichols: Congratulations on the retirement, although I know youre going to be staying on the board to oversee things.

Josh Nichols: Your line is open.

Josh Nichols: Yeah, thanks for taking my question.

Speaker Change: Clearly the company has been having.

Speaker Change: A great a great run and it looks like set for another year and fiscal year 'twenty.

Speaker Change: <unk> 25, as well too.

Speaker Change: If I wanted to dive into a question or I guess, good to see that the growth for this coming year north of 6% coming in better than what we had thought I'm just kind of curious given that we're already kind of close to two months through the first quarter I know.

Josh Nichols: I guess, first of all, Deepak, congratulations on the retirement, although I know you're going to be staying on the board to oversee things.

Speaker Change: September quarter is a little bit seasonally slower just because theres not much activity in Europe could you just provide a little bit.

Speaker Change: Color about how you expect the cadence of that growth rate to kind of play out as we go through the first quarter and kind of build from there.

Speaker Change: Josh This is Alan I'll take that question so really good question.

Josh Nichols: Yes, typically we see that Q1 is our slowest quarter of the year given the given the summer in some of the holidays in various countries that you are discussing and suggesting.

Josh Nichols: That being said given our strong backlog, we do anticipate.

Josh Nichols: Robust growth even in Q1, certainly down sequentially from where we were but on a year over year basis, we would anticipate.

Josh Nichols: Our strong Q1 on a year over year basis, and then our revenues kind of building.

Josh Nichols: Into Q2 and into Q3.

Speaker Change: Great. Thanks.

Speaker Change: Just wanted to make sure I got the cadence right now.

Speaker Change: I wanted to just kind of touch on gross margin and free cash flow clearly the company has been investing a lot.

Josh Nichols: Clearly, the company has been having a great run, and it looks like set for another year, right, and fiscal year 25 as well, too.

Josh Nichols: If I want to dive into a questionnaire, I guess good to see that the growth for this coming year, north of 6%, right, coming in better than what we had thought.

Deepak Chopra: We expect this general trend to continue.

Speaker Change: In things like inventory this past year.

Deepak Chopra: As our aviation-related bookings were particularly strong in the second half of fiscal 2024. To that end, during Q4, we announced orders totaling approximately 52 million from two international airports to furnish a comprehensive array of security solutions, including the RTT110 for whole baggage screening and the Orion 920CT for checkpoint security, with extensive service and support commitments and recurring revenue.

Speaker Change: I'm wondering like what the expectations are for gross margins and how that will impact free cash flow for fiscal year 'twenty five as you get behind some of these large like more products heavy deliveries and services revenue starts to become.

Josh Nichols: I'm just kind of curious, given that we're already kind of close to two months through the first quarter.

Deepak Chopra: For ports and border security applications in Q4, we announced two awards from international customers totaling about 20 million dollars for the Eagle M60 mobile cargo and vehicle inspection systems, including follow-on maintenance and support. These M60 platforms enable efficient and flexible relocation of security checkpoints to optimize security for borders and critical infrastructure.

Speaker Change: A bigger component of the mix or do you think with the backlog is large it is today that the gross margins are likely to remain where they are and get given the order cadence that we're seeing that's been persistently high.

Deepak Chopra: We also announced an award from an international border security customer of approximately 11 million dollars for radiation monitoring solutions and related services and support.

Josh Nichols: I know the September quarter is a little bit seasonally slower just because there's not much activity in Europe.

Yes, Josh this is Alan again again again really good question Neil on the gross margins. They will fluctuate from period to period based upon a number of factors some of which I had described earlier in the comments.

Josh Nichols: Could you just provide a little bit of color about how you expect the cadence of that growth rate to kind of play out, as we go through the first quarter and kind of build from there?

Alan Edrick: Josh, this is Alan.

Speaker Change: That being said on an annual basis, I think we see an opportunity to expand the gross margins.

Alan Edrick: I'll take that question.

Alan Edrick: So, really good question.

Speaker Change: Particularly as service becomes a bigger component, which inherently carries a higher margin than our products generally speaking so I think there's some opportunity for gross margin expansion this year and as we move into into future years from a cash flow perspective. This was a year of.

Alan Edrick: Yes, typically we see that Q1 is our slowest quarter of the year, given the summer and some of the holidays in various countries that you're discussing and suggesting.

Speaker Change: Significant investment in working capital we concluded the year with a big investment in receivables.

Alan Edrick: That being said, given our strong backlog, we do anticipate robust growth even in Q1, certainly down sequentially from where we were, but on a year-over-year basis, we would anticipate a strong Q1 on a year-over-year basis, and then our revenues kind of building into Q2 and into Q3.

Speaker Change: As as we have a strong sales growth so that being said, we do expect that effectively flip so the higher DSO in higher days inventory that we have associated with the growth. When we grew 20% or so last year with kind of the guidance that we're providing this year for sales growth as we do see and.

Josh Nichols: Great.

Deepak Chopra: This has been a breakthrough year for the security division in addition to robust revenue and profit growth. Our continued success in securing major projects in ports, borders and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs effectively and efficiently. This approach ensures that we deliver solutions that offer the best value further solidifying our position as a leader in the industry.

Josh Nichols: Just thanks.

Josh Nichols: Just want to make sure I got the cadence right.

Speaker Change: <unk> to generate very meaningful free cash flow in fiscal 'twenty, five and beyond so it's an exciting exciting period for us.

Josh Nichols: Now, I want to just, kind of touch on gross margin and free cash flow.

Josh Nichols: Clearly, the company has been investing a lot in things like inventory this past year, and I'm wondering, like, what the expectations are for gross margins and how that will impact free cash flow for fiscal year 25 as you get behind some of these large, like, more product-heavy deliveries and services.

Speaker Change: Okay. Thanks, and then last question for me I know Theres been a lot of skepticism over the last year year and a half about like how sustainable are these award wins the company has been securing and when you look at the backlog today. Despite the record quarter that you guys had still near record levels at $1 7 billion.

Josh Nichols: Revenue starts to become a bigger component of the mix, or do you think, with the backlog as large as it is today, that the gross margins are likely to remain where they are, given the order cadence that we're seeing that's been persistently high?

Alan Edrick: Yeah, Josh, this is Alan again.

Alan Edrick: Again, really good question.

Alan Edrick: You know, on the gross margins, they will fluctuate from period to period based upon a number of factors, some of which I had described earlier in the comments.

Speaker Change: I think people are starting to come around to the fact that that this is a durable growth story and with that you'll start seeing the share price continue to grind higher overtime. When you look out to this next fiscal year I'm just kind of curious like how much do you think of that current backlog is likely to be recognized and also equally.

Alan Edrick: You know, sort of that being said, on an annual, basis, you know, I think we see an opportunity to expand the gross margins, particularly as service becomes a bigger component, which inherently carries a higher margin than our products, generally speaking. So I think there's some opportunity for gross margin expansion this year and as we move into future years.

Deepak Chopra: With a strong backlog and strong pipeline, we are enthusiastic about the division's long-term growth prospects in fiscal 2025 and beyond.

Alan Edrick: From a cash flow perspective, this was a year of significant investment in working capital. We concluded the year with a big investment in receivables as we had strong sales growth.

Alan Edrick: So that being said, we do expect that to effectively flip.

Speaker Change: Importantly, what do you think is the potential.

Alan Edrick: So the higher DSO and higher days inventory that we have associated with the growth when we grew 20 percent or so last year, with kind of the guidance that we're providing this year for sales growth, is we do see an opportunity to generate very meaningful free cash flow in fiscal 25 and beyond.

Deepak Chopra: Moving on to the APTO Group, the APTO Electronics Manufacturing Division achieved a significant milestone with record Q4 revenues including inter-company sales of 102 million dollars.

Speaker Change: Large opportunity wins that you still have in the pipeline today. So that you are kind of be able to to replenish that backlog as you have recently with other large opportunities that come to market.

Alan Edrick: So it's an exciting, exciting period for us.

Josh Nichols: Thanks.

Deepak Chopra: Through our fiscal 2024, including the fourth quarter, we continue to work with the customers to adjust to their demand forecast and we believe we have made progress in right sizing to this demand, putting this activity behind us in the coming months.

Deepak Chopra: We announced a couple of nice wins during the quarter. We announced a $7 million repeat order from a leading healthcare OEM customer for portable device assemblies. We also received another $7 million order to provide electronic subassemblies to an advanced engineering solutions OEM.

Speaker Change: Good question. This is deepak here.

Josh Nichols: And then last question for me, I know there's been a lot of skepticism over the, last year, year and a half about like how sustainable all these award wins that the company has been securing.

Speaker Change: Obviously, we can't break it down how much of your current backlog get shipped out outset. Alan has mentioned to you many times that it varies from quarter to quarter, depending upon the readiness of the customer to supply chain and stuff.

Deepak Chopra: In fiscal 2025, we believe that our recent expansion into Mexico, the Taccate operation will benefit us for near-shorting customer activity along with our favorable position globally in South Asia-Pac region and in UK as large OEMs are seeking to establish or expand their supply chain to de-risk their exposure to China-centric supply chains.

Josh Nichols: And when you look at the backlog today, right, despite the record quarter that you guys had still near record levels of one point seven billion, I think people are starting to come around to the fact that that this is a durable growth story.

Deepak Chopra: Based on the ability for optical division to effectively adjust to market trends and changes in customer demand, we believe Opto will continue to achieve profitable growth.

Speaker Change: Regarding the opportunities like I said in my my.

Deepak Chopra: Now, let's turn our attention to the healthcare division, where Q4 revenues were the strongest for the fiscal year 2024, though down year over year on a tough comparison. Fiscal 2024 brought significant challenges for patient monitoring in the US, primarily as hospitals continue to defer capital purchases.

Deepak Chopra: Despite these hurdles during the quarter, we secured a 6-minute order award from a US-based hospital to provide patient monitoring solutions and related accessories, including exhibit, central stations, expression, patient monitors, and Q patient monitors.

Deepak Chopra: Additionally, our Rothman Index predictive and analytic solution is seeing increased success.

Speaker Change: Message, we are very confident about it our pipeline is very strong and we've been saying for some time as we get larger and larger and get bigger customers.

Deepak Chopra: Our clinical services offerings also continue to be well received by our clients. We are committed to advancing our next generation patient monitoring solutions and enhancing the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

Speaker Change: <unk> got a good reputation.

Speaker Change: We distinguish ourselves from our competitors.

Speaker Change: And the customers all over the globe are looking at it and the reference checks out we are very confident that this pipeline is very strong and there are significant large opportunities that are there internationally.

Deepak Chopra: We adjusted the healthcare division cost structure in the quarter also, the benefits of which are expected to primarily start realising in fiscal 2025.

Speaker Change: At the same time the aviation sector is coming back that's another positive for us air cargo and keep in mind that.

Speaker Change: U S business, especially CBD.

Speaker Change: It was not a big contributor in 2024 and as it comes into 2025 and beyond we are quite confident that we'll be a big participant in the business. So all in all we feel very good about it and it's been a very very positive.

Speaker Change: Moving to the next year 2025, and beyond that we're sitting on a strong backlog great reputation.

Speaker Change: And maybe I want to add it onto it maybe not trying to show up but we cross the $1 billion Mark in our security Division and can proudly say that we are now maybe number one size wise in our space and severity worldwide.

Speaker Change: I appreciate the color. Thanks.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Jeff Martin with Roth Capital Partners. Your line is open.

Josh Nichols: And with that, you start seeing the share price continue to grind higher over time.

Jeff Martin: Thanks, Good morning, Deepak and Alan Congratulations on a fantastic fiscal 'twenty four.

Josh Nichols: When you look out for this next fiscal year, I'm just kind of curious, like how much do, you think of that current backlog is likely to be recognized?

Josh Nichols: And also, equally as importantly, what do you think is the potential large opportunity wins that you still have in the pipeline today so that you're going to be able to replenish that backlog as you have recently with other large opportunities that come to market?

Dave: Dave has kind of segue off your answer to the last question there with USC.

Jeff Martin: U S. CBP just curious what you're hearing out there in terms of potential timing of follow on orders I think everybody feels.

Josh Nichols: Good question.

Deepak Chopra: This is Deepak here.

Speaker Change: Feels pretty confident that you are well positioned to win a good portion of it.

Deepak Chopra: Obviously, we can't break it down how much of the current, backlog gets shipped out.

Speaker Change: Potential follow on order there.

Deepak Chopra: Also, Alan has mentioned to you many times that it varies from quarter to quarter, depending on the readiness of the customer, the supply chain and stuff.

Speaker Change: Well.

Speaker Change: Basically.

<unk>: Comment on specifically, but we are very well positioned as <unk> said.

<unk>: CBP.

Deepak Chopra: Regarding the opportunities, like I said in my message, we are very confident about it.

Speaker Change: We are very happy with our performance.

Deepak Chopra: Our pipeline is very strong.

Speaker Change: There are some <unk> that is presently still have some room left onto it that has more been talked about the budgets are being looked at it and we think that has strong possibility of growth in CVP business and.

Deepak Chopra: And we've been saying for some time, as we get larger and, larger and get bigger customers.

Deepak Chopra: We are very confident that the pipeline is very strong, and there are significant large, opportunities that are there internationally.

Deepak Chopra: At the same time, the aviation sector is coming back.

Speaker Change: And we should get a good share of it.

Speaker Change: More than that I can't comment.

Deepak Chopra: That's another positive for us, air cargo.

Deepak Chopra: To sum it up, we are confident about our company's future and excited to build on our stellar fiscal 2024 performance.

Yes, that's fair.

Speaker Change: Fair.

Deepak Chopra: And keep in mind that U.S. business, especially CBP, was not a big contributor in 2024, and, as it comes into 2025 and beyond, we are quite confident that we'll be a big participant in the business.

Speaker Change: With respect to this the Dana in that $200 million International.

Speaker Change: Order I was just curious if you could give some perspective on.

Deepak Chopra: So all in all, we feel very good about it, and it's been a very, very positive move into, the next year, 2025 and beyond, that we're sitting on a strong backlog, great reputation. And maybe I want to add on to it, maybe not trying to show off, but we crossed the billion, dollar mark in our security division, and can proudly say that we are now maybe number one size-wise in our space in security, worldwide.

Speaker Change: What percent complete those those two contracts are.

Deepak Chopra: Appreciate the cover.

Alan: Jeff This is Alan.

Deepak Chopra: Thanks.

Alan: While we don't go into specifics on individual programs I would offer that we're further along on the $200 million International order given that we received that order a few months prior to the previous order. So significant shipments on that occurred in fiscal 'twenty, four which as you might remember we started to see.

Deepak Chopra: Thank you.

Operator: Please stand by for our next question.

Jeff Martin: Our next question comes from the line of Jeff Martin with Roth Capital Partners.

Jeff Martin: Your line is open.

Alan: That actually in Q4 fiscal 'twenty three.

Alan: We did make significant shipments on the <unk> $500 million plus order as well, but a lot more a lot more shipments to come on that on that project.

Jeff Martin: Thanks.

Jeff Martin: Good morning, Deepak and Ellen.

Jeff Martin: Congratulations on a fantastic fiscal 24.

And of course, we also got yes, and as a reminder, we also got the follow on order was to Dana for another $100 million order.

Jeff Martin: Deepak, kind of segueing off your answer to the last question there with U.S. CBP, just, curious what you're hearing out there in terms of potential timing of follow-on orders.

Alan: That.

Alan: We're gearing up here in fiscal 'twenty five.

Alan: Yes. Thanks for the reminder, on that and then and then.

Deepak Chopra: I think everybody feels pretty confident that you're well-positioned to win a good, portion of a potential follow-on order there.

Alan: Can you talk you mentioned.

Alan: Maybe it was Alan I mentioned that significant R&D spending in security was just curious if you have any planned submissions for approvals on on products and maybe what end markets those might be geared towards.

Deepak Chopra: Well, basically, can't comment on specifically, but we are very well-positioned, as you said.

Deepak Chopra: CBP, we are very happy with our performance.

Deepak Chopra: There are some IDIQs that are presently still have some room left onto it.

Deepak Chopra: There's more being talked about.

Alan: Well.

Amit: Amit good question anyway by the accrual separate things, we continue to look at certification and various of our products and technology, but in the R&D spend.

Deepak Chopra: The budgets are being looked at it, and we think there is strong possibility of growth, in CBP business, and we should get a good share of it.

Deepak Chopra: More than that, I can't comment on.

Deepak Chopra: We are extremely excited and confident about fiscal 2025 and beyond.

Speaker Change: One of the success stories that we have and we're very proud about it we have the broadest product portfolio compared to any of our competitors.

Deepak Chopra: Our closest portion of the discussion by thanking all our employees, customers, and stakeholders who have played a part in OSS system success.

Jeff Martin: Yep.

Jeff Martin: That's fair.

Speaker Change: So that we've continued to innovate and spend investment to continue to broaden it to put more AI into it to be more efficient into it and to work with our customers for their customer needs.

Alan Edrick: With that, I will turn the call back over to Alan to discuss our financial results and fiscal 2025 guidance in more detail before we open the call to questions.

Speaker Change: Especially doing the search scan.

Speaker Change: Integration into the product line customized to our customers' needs and that's the kind of innovation, we are doing but we want to continue to remain ahead of the market compared to our competitors with our product breadth and that way. We can continue to grow that's very important and thats in our DNA.

Alan Edrick: Thank you very much.

Alan Edrick: Thank you, Deepak.

Speaker Change: Thank you.

Alan Edrick: Let's review in greater detail the financial results for our fiscal 24-4th quarter. Again, our Q4 revenues were up 17%, compared with revenues in the fourth quarter of the prior fiscal year. This was primarily driven by our largest division, security. The 27% Eurover year increase in Q4 security division revenues, what's 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 Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Alright.

Speaker Change: Our next.

Jeff Martin: With respect to the Sedana and that $200 million international order, I was just curious if, you could give some perspective on what percent complete those two contracts are.

Speaker Change: Comes from the line of Larry Solow with CJS Securities. Your line is open.

Larry Solow: Great. Thank you.

Alan Edrick: Jeff, this is Alan.

Larry Solow: Good afternoon. Good morning, I guess first question.

Alan Edrick: While we don't go into specifics on individual programs, I would offer that we are further, along on the $200 million international order, given that we received that order a few months prior to the previous order.

Alan Edrick: Significant shipments on that occurred in fiscal 24, which, as you might remember, we, started shipping that actually in Q4 fiscal 23. We did make significant shipments on the Sedana, $500 million plus order as well, but a lot, more shipments to come on that project.

Larry Solow: You guys don't provide specific segment guidance, but just curious any color sort of in that 5% to 7% growth. It sounds like all your segments Youre complex, probably improving maybe all will grow year over year. Obviously security grew 30 last year. So reach type office slow down does it does.

Alan Edrick: And as a reminder, we also got the follow-on order with Cedena for another $100 million, order that we're gearing up here in Fiscal 25.

Speaker Change: Is it fair to just use like that mid single digit as a starting point for all of the segments.

Speaker Change: The security, maybe grow a little bit slower than that whats like bookings or economy.

Speaker Change: You had a great last couple of years and they are kept up with that but in order to grow faster do we need.

Speaker Change: Acceleration of bookings or is that service component kind of kind of kickoff kick in and drive that sort of mid single digit growth I guess over the first question.

Alan Edrick: $200 million plus cargo contract announced in January 23 and from the $500 million plus cargo contract announced in March 23.

Jeff Martin: Deepak, you mentioned, or maybe it was Alan that mentioned that significant R&D spending, and security.

Speaker Change: Larry This is Alan so good question and you are correct. We generally don't provide guidance by division, but that being said to give you. Some direction, we would anticipate the strongest growth to occur in our security Division.

Deepak Chopra: I was just curious if you have any planned submissions for approvals on products and, maybe what end markets those might be geared towards.

Deepak Chopra: Well, you know, I'm a good question in a way, but they are two little separate things.

Deepak Chopra: We continue to look at certification of various of our products and technology.

Deepak Chopra: But in the R&D spend, one of the success stories that we have, and we are very proud about, it, we have the broadest product portfolio compared to any of our competitors.

Speaker Change: We're again anticipating a good year, probably followed by Opdivo as I mentioned in the comments more weighted to the second half than the first half is as more right sizing of inventories occurring but we would expect.

No.

Speaker Change: Solid growth in opto for the fiscal year.

Speaker Change: And then healthcare.

Speaker Change: Maybe just some small modest growth.

Speaker Change: Gotcha and just in terms of the service piece I know you mentioned mix down year over year.

Speaker Change: It looks like service revenue was basically flat.

Speaker Change: Year over year and grew a lot I know Q4 of last year.

Speaker Change: What's sort of the outlook.

I guess does the service component sort of kick in.

Speaker Change: Next few quarters as your installed base, obviously has grown significantly in the last year I assume that some kind of warranty period or a period, where you don't actually get more service revenue is there any more color you can give us on that and remind us sort of the difference in gross margin between product and service.

Speaker Change: A general directional.

Speaker Change: Sure Larry This is Alan so sorry.

Larry Solow: Sort of hit the nail on the head as we've gotten larger and larger installed base of our security products and as they roll off of warranty.

Larry Solow: Service revenues begin to kick in so we would anticipate some nice growth in our service revenues throughout the throughout fiscal 'twenty, five and as you correctly point out as well on the margin profile.

Larry Solow: Of service revenues is generally superior to that of product revenues on a on a kind of a consolidated basis and there is a meaningful meaningful difference between the two so all of that can can lead to some enhanced margins for us not just this year, but as we move into future years as well so.

Larry Solow: We look at the service revenues, which are good recurring revenues as is vital for us.

Speaker Change: Gotcha and just a question just the pack just a follow up on the CBP question I know you can't cancel timing and whatnot, but I guess there I know there is another I guess.

There's still a piece of the <unk> outstanding.

Speaker Change: So hopefully that.

And the next year or so whenever but I guess my question here is are there other U S agencies. It looks like a lot of your growth has been international.

Speaker Change: The other U S agent team decided TVT.

Speaker Change: There are sort of in that funnel of opportunities Hugo.

Speaker Change: Good question.

Speaker Change: And the answer is yes, yes, and yes, one is on the CBD side as we are sitting here they are getting their budgets approved into it.

Speaker Change: From it looks like it's a pretty strong significant budgets for CVP going into the next year on top of that the other question. Yes. There are other agencies Vod is a big customer for us.

Speaker Change: It continues to do look at it.

Alan Edrick: Third party Opto Sales bounced back nicely, as sales increased 6% year over year.

Speaker Change: There's air cargo in a way that is also deeply.

Speaker Change: The department of defense.

Speaker Change: <unk>.

Speaker Change: All of these especially one of the things that we all talk about it with you a little bit.

Speaker Change: Awkward to say that as the world goes through this unrest.

Speaker Change: And middle East order in Ukraine and staff.

Speaker Change: Estimated area as it settles down requires more security around that area and that continues to grow for US Department of state is a big customer of us. So we look at other agencies. Besides CVP.

Speaker Change: Right now Theres a lot of interest.

Speaker Change: I guess just last question.

Speaker Change: Deepak I expect and hope Youll remain active for expect you all.

Speaker Change: Chairman.

Speaker Change: When we found the replacement for Ya I imagine that search is probably a slow process, probably not that easy to find someone like yourself, but any timeline in terms of the timeline on that.

Alan Edrick: We continue to see certain Opto customers adjusting inventory levels and or ordering patterns, which we anticipate through the balance of calendar 24.

Speaker Change: Is it like before year end, you think youll have someone in place or what are your thoughts there. Thanks.

Speaker Change: Well, that's the plan and.

Part of our announcement before that.

Speaker Change: By January one.

Speaker Change: We should have the new person on board and as you mentioned I will still be there.

As executive Chairman.

Alan Edrick: Although the health care divisions Q4 sales were the strongest of the fiscal year as Deepak mentioned, revenues were 15% lower than Q4 the prior year, due to a particularly challenging comparison period along with the challenging hospital spending environment.

Alan Edrick: The fiscal 24 Q4 gross margin of 32.1% was down from the 34.7% gross margin in Q4 last fiscal year. This was largely due to the mix of revenues, as Q4 growth was driven by a significant increase in security product revenues, which typically carry a less favorable margin than security service revenues, as well as a less favorable mix of security service revenues in the quarter.

Speaker Change: That's our plan right now and we are quite quite deeply involved in it right now.

Alan Edrick: The year over year decrease in revenues in the health care division, which inherently carries the highest gross margin of all three divisions, also contributed to the lower gross margin.

Speaker Change: Collection.

Speaker Change: Okay, great. Thanks, and thanks for all the color.

Speaker Change: Thank you.

Speaker Change: And Sir ladies and gentlemen that star one to ask the question.

Speaker Change: I'm showing no further questions in the queue.

Speaker Change: Well. Thank you very much once again for attending our conference call I again once for all but one of our employees customers and stakeholders.

And looking forward to the October call after the first quarter.

Speaker Change: Very much and thanks for your support.

Alan Edrick: Our gross margin will generally fluctuate from periods of period based on revenue mix and volume, impacts of changes in supply chain costs and inflation generally among other factors.

Speaker Change: Sure.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Alan Edrick: Moving on to operating expenses, we continue to work diligently across each of our divisions to improve efficiency and to manage our SG&A cost structure. Q4 SG&A expenses were 71.7 million or 14.9% of sales compared to 67.1 million or 16.3% of sales in Q4 of the prior year. The year over year dollar increase in cost was driven by higher compensation costs, including incentive compensation linked to our significant sales growth, increased professional fees and unfavorable foreign exchange rates among other items.

Speaker Change: Yes.

Alan Edrick: Research and development expenses in Q4 of fiscal 24 were 15.9 million compared to 15.5 million in the same prior year quarter. We continue to dedicate considerable resources to R&D and we anticipate further increases in such investment in fiscal 25, particularly in our security division as we remain focused on innovative product development, which we view as vital to the long term success of our businesses.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: Hello, and thank you for standing by welcome to OSI Systems, Inc, fourth quarter and fiscal year 2024 conference call.

Deepak Chopra: So that we continue to innovate and spend investment to continue to broaden it, to put, more AI into it, to be more efficient into it, and to work with our customers for their custom needs, especially doing the third scan integration into the product line, customized to our customers' needs.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you weren't didn't hear automated message advising your hand is raised to withdraw your question. Please press star one again.

Alan <unk>: I would now like to turn the call over to Alan <unk> Executive Vice President and Chief Financial Officer of OSI, Sir you may begin.

Alan Edric: Well. Thank you good morning, and thank you for joining us I'm, Alan Edric Executive Vice President and CFO of OSI systems, and I'm here today, with Deepak Chopra, OSI as president and CEO welcome.

Deepak Chopra: And that's the kind of innovation we are doing.

Deepak Chopra: But we want to continue to remain ahead of the market compared to our competitors with, a product breadth. And that way we can continue to grow.

Speaker Change: Welcome to the OSI systems fiscal 'twenty for fourth quarter and year end conference call. We are pleased that you can join US as we review, both our financial and our operational results.

Deepak Chopra: So that's very important and that's in our DNA.

Deepak Chopra: Thank you.

Speaker Change: Earlier today, we issued a press release announcing our fiscal 'twenty for fourth quarter and full year financial results.

Operator: Please stand by for our next question.

Speaker Change: 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 1095 with respect to such forward looking statements.

Larry Solow: Our next question comes from the line of Larry Solo with CJS Securities.

Larry Solow: Your line is open.

Speaker Change: 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 statements based upon subsequent events or new information or otherwise.

Larry Solow: Great.

Larry Solow: Thank you.

Speaker Change: During today's call, we will refer to both GAAP.

Speaker Change: And non-GAAP financial measures when describing the company's results.

Larry Solow: Good afternoon.

Speaker Change: For further information regarding non-GAAP measures and comparable GAAP measures of the company's results and to go and a quantitative reconciliation of those figures. Please refer to today's earnings press release.

Larry Solow: Good morning.

Speaker Change #100: I will begin with a high level summary of our financial performance for the fourth quarter of fiscal 'twenty four.

<unk>: And then turn the call over to <unk> for a discussion of our business and operational highlights.

We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025.

Larry Solow: I guess first question, I know you guys don't provide specific segment guidance, but just, curious, any color sort of in that 5% to 7% growth, it sounds like all your segments, your company are probably improving, maybe all will grow year over year.

Speaker Change #101: Following record revenues and non-GAAP EPS in each of Q2 and Q3, we again saw a record financial results in the fourth quarter led by the security Division, resulting in outstanding revenue growth and a significant increase in year over year operating income.

Speaker Change #101: We are encouraged by the momentum in our business.

Larry Solow: Obviously, security grew mid-30s last year, so we expect that to slow down.

Speaker Change #102: Let's start with a high level summary of our fiscal 2020 for Q4 and full year results.

Larry Solow: Is it fair to just use like that mid-single digit as a starting point for all the segments?

First revenues increased 17% year over year to a Q4 record of $481 million driven by the performance of our security Division, where Q4 revenues were up 27% year over year.

Speaker Change #102: For the full year fiscal 'twenty four revenues were a record 154, billion% to 20% increase over fiscal 'twenty three.

Speaker Change #102: Second the significant revenue growth led to a record Q4 non-GAAP adjusted earnings per share of $2 84.

Speaker Change #102: For the full year fiscal 'twenty for non-GAAP adjusted EPS was a record $8 13 a.

Speaker Change #102: A 31% increase over the prior fiscal year.

Speaker Change #102: Third book.

Speaker Change #102: Bookings were again solid and we ended the quarter with a backlog of approximately $1 7 billion.

Speaker Change #102: Our healthy backlog and robust pipeline of opportunities provide good visibility as we enter fiscal year 2025.

Alan Edrick: We recorded 3.9 million of restructuring and other charges in Q4 of fiscal 24 compared to 3.2 million in the same quarter of the prior year.

Speaker Change #103: Before diving more deeply into our financial results and discussing the fiscal 'twenty five outlook I will turn the call over to <unk>.

Speaker Change #104: Thank you Alan and good morning, everyone. Thank you for joining us today as we discuss OSI systems strong performance.

Larry Solow: Does security maybe grow a little bit slower than that?

Speaker Change #105: For the 2020 for fourth quarter and full fiscal year.

Larry Solow: It looks like bookings are kind of, you had a great last couple of years and they've kept, up with that.

Speaker Change #106: As Alan mentioned.

Speaker Change #107: I'm proud to say our revenues grew year over year by 17% in Q4.

Speaker Change #107: And 20% for the full fiscal year, resulting in record revenues for both of these periods.

Larry Solow: But in order to grow faster, do we need acceleration of bookings or is that service component going, to kind of kick in and drive that sort of mid-single digit growth?

Larry Solow: I guess that would be the first question.

We ended the fiscal year with a significant backlog of approximately $1 7 billion, which combined with the strength of our.

Alan Edrick: Larry, this is Alan.

Alan Edrick: Moving to interest in taxes, net interest and other expenses in Q4 increased to 8.2 million in fiscal year 24, from 5.7 million in fiscal year 23, primarily due to increased interest rates on a higher level of borrowing.

Speaker Change #107: Very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Alan Edrick: So good question and you're correct, we generally don't provide guidance by division.

Alan Edrick: Subsequent to Fiscal Year End, we completed a convertible notes financing, which is expected to reduce our future interest expense, which I'll talk more about shortly.

Alan Edrick: But that being said, to give you some direction, we would anticipate the strongest growth to, occur in our security division.

Speaker Change #107: Diving into the highlights.

Speaker Change #107: The security Division again delivered fantastic results with year over year revenues, increasing 27% in Q4.

Alan Edrick: Our reported effective tax rate under GAP was 18.3% in Q4 of fiscal 24 compared to 17.6% in Q4 of fiscal 23. Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24 was 21.2% compared to a normalized effective tax rate of 21.9% in Q4 of fiscal 23.

Alan Edrick: We're, again, anticipating a good year, probably followed by opto, as I mentioned in the comments, more weighted to the second half than the first half as more right-sizing of inventory is occurring.

Speaker Change #107: And 37% for the full fiscal year.

Alan Edrick: But we'd expect, you know, solid growth in opto for the fiscal year.

Speaker Change #107: This growth was spread across many of our offerings and geographic regions.

Speaker Change #107: What was particularly notable in Latin America, Middle East and Asia Pac regions.

Alan Edrick: And then healthcare, you know, maybe just some small modest growth.

During Q4, we continued to successfully execute.

Speaker Change #107: On a major program with Mexico's Department of National Defence, No Nash sedan.

Larry Solow: Gotcha.

Speaker Change #107: Which is expected to generate.

Speaker Change #107: More than $500 million in total revenue over the length of the contract.

Larry Solow: And just in terms of the service piece, I know you mentioned mixed down year-over-year.

Larry Solow: It looks like service revenue was basically flat year-over-year, and it grew a lot, I know, compared to last year.

Speaker Change #107: Our Savannah, we provide a range of inspection systems, including the Eagle high energy and low energy cargo inspection portals.

Larry Solow: What's sort of the outlook?

Speaker Change #107: <unk> inspection system and the search scan multi site integration platform.

Larry Solow: I guess, does the service component sort of kick in the next few quarters as your install base obviously has grown significantly in the last year?

Speaker Change #107: Inspecting trucks buses and cars at Mexico, Northern and southern border checkpoints.

Larry Solow: I assume there's some kind of warranty period or period where you don't actually get more service revenue.

Larry Solow: Is there any more call you can give us on that and remind us sort of the difference in gross margin between product and service in a general direction?

Speaker Change #107: We also continued to successfully deliver on another major cargo program with $200 million contract with an international customer.

Alan Edrick: Sure, Larry.

Alan Edrick: This is Alan.

Speaker Change #107: We are performing well with these programs and they are expected to be nice contributors again.

Alan Edrick: So you've sort of hit the nail on the head.

Speaker Change #107: In fiscal 'twenty five.

Speaker Change #107: Additional program the one from Savannah valued at over $100 million is well under way also with revenues expected to commence in mid fiscal 2025.

Speaker Change #107: Our turnkey projects in Albania, Puerto Rico, Guatemala.

Speaker Change #107: And a European airport continued to perform seamlessly providing strong recurring revenues and serving as great reference points on further opportunities.

Speaker Change #107: Our latest cargo turnkey project in Uruguay.

Speaker Change #107: He is expected to commence operations before the end of the calendar year.

Alan Edrick: As we've gotten a larger and larger install base of our security products and as they roll off of warranty, the service revenues begin to kick in. So we would anticipate some nice growth in our service revenues throughout fiscal 25. And as you correctly point out as well, the margin profile of service revenues is generally superior to that of product revenues on a kind of a consolidated basis.

Speaker Change #107: These successful projects each with their unique security requirements.

Alan Edrick: And there's a meaningful difference between the two.

Speaker Change #107: First our ability to deliver highly customized solutions to meet our customers' needs.

Alan Edrick: So all of that can lead to some enhanced margins for us, not just this year but as we move into future years as well.

Speaker Change #107: Many of our town <unk> hardware projects also utilized search scan our multi site integration platform that is increasingly adopted by port and border customs agencies worldwide.

Alan Edrick: So we look at these service revenues, which are good recurring revenues, as vital for us.

Larry Solow: Gotcha.

Speaker Change #107: So its scanned sets us apart from competitors enhancing the value of our offerings beside our broad product portfolio.

Larry Solow: And just a question, just a follow-up on the CBP question.

Larry Solow: I know you can't answer timing and whatnot, but I guess there's still a piece of the IDIQ outstanding.

Speaker Change #107: We were active throughout fiscal 2024 with aviation customers also.

Larry Solow: So hopefully that will happen in the next year or so or whenever.

Speaker Change #107: As passenger traffic continued to increase.

Speaker Change #107: We expect this general trend to continue.

Larry Solow: I guess my question here is are there other U.S. agencies?

Speaker Change #107: As I aviation related bookings were particularly strong.

Larry Solow: It looks like a lot of your growth has been international.

Speaker Change #107: In the second half of fiscal 2024 to that end during Q4, we announced orders totaling approximately $52 million.

Alan Edrick: For the year, the normalized effective tax rate in fiscal 24 was 23.4% compared to 22.8% in the prior fiscal year.

Larry Solow: Are there other U.S. agencies besides CBP where they're sort of in that funnel of opportunities for you guys?

From two international airports to furnish a comprehensive array of security solutions.

Deepak Chopra: Good question.

Speaker Change #107: Including the <unk> 10 for hold baggage screening and the already on 920, <unk> deeper checkpoint security with extensive service and support commitments and recurring revenue.

Deepak Chopra: And the answer is yes, yes, and yes.

Deepak Chopra: One is on the CBP side, as we are sitting here, they're getting their budgets approved into it, and it looks like it's a pretty strong, significant budget for CBP going into the next year.

Speaker Change #107: For ports and border security applications in Q4, we announced two awards from international customers totaling about $20 million for the Eagle <unk> mobile cargo and vehicle inspection systems, including follow on maintenance and support.

Deepak Chopra: On top of that, the other question, yes, there are other agencies.

Deepak Chopra: DOD is a big customer for us.

Alan Edrick: I will now turn to a discussion of our non-GAP adjusted operating margin. Overall, our adjusted operating margin in fourth quarter of fiscal 24 was 14.8% compared to 15.6% in Q3 of fiscal 24 driven by the top line reductions in healthcare in a less favorable mix of sales in the security division. The adjusted operating margin in the security division was 18.5% in Q4 of fiscal 24, which was roughly in line with out of Q3, but down from 19.3% in Q4 of fiscal 23 given the less favorable mix revenue mix in the division.

Deepak Chopra: That continues to do look at it.

Speaker Change #107: These <unk> platforms enable efficient and flexible relocation of security checkpoints to optimize security for borders and critical infrastructure.

Deepak Chopra: There's Air Cargo in a way.

Deepak Chopra: There's also the Department of Defense.

Speaker Change #107: We also announced an award from an international border security customer.

Deepak Chopra: And all these, especially one of the things that we all talk about it, which is a little bit awkward to say, that as the world goes through this unrest in Middle East or in Ukraine and stuff, ultimately all that area, as it settles down, requires more security around that area.

Of approximately $11 million for radiation monitoring solutions and related services and support.

Deepak Chopra: And that continues to grow for us.

Speaker Change #107: This has been a breakthrough year for the security Division.

Deepak Chopra: Department of State is a big customer of us.

Speaker Change #107: In addition to robust revenue and profit growth.

Speaker Change #107: Continued success in securing major projects and Butch borders and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs.

Deepak Chopra: So we look at other agencies besides CBP.

Deepak Chopra: And right now there's a lot of interest.

Deepak Chopra: Gotcha.

Speaker Change #107: Activity and efficiently.

Speaker Change #107: This approach ensures that we deliver solutions that offer the best value.

Speaker Change #107: Further solidifying our position as a leader in the industry.

Speaker Change #107: With a strong backlog.

Speaker Change #107: And strong pipeline, we are enthusiastic about the division's long term growth prospects in fiscal 2025 and beyond.

Speaker Change #107: Moving on to the auto group, the Optoelectronics and manufacturing division achieved a significant milestone with a record Q4 revenues.

Including intercompany sales of $102 million.

Speaker Change #107: Throughout fiscal 2024, including the fourth quarter.

Speaker Change #107: We continue to work with our customers to adjust to their demand forecasts and we believe we have made progress in right sizing to this demand.

Speaker Change #107: Putting this activity behind us in the coming months.

Speaker Change #107: We announced a couple of nice wins during the quarter.

We announced a $7 million a repeat order from a leading healthcare OEM customer for portable device assemblies.

Speaker Change #107: We also received another $7 million order to provide electronic sub assemblies to an advanced engineering solutions OEM.

Speaker Change #107: In fiscal 2025, we believe that our recent expansion into Mexico.

<unk> operation will.

Speaker Change #107: It will benefit us for near shoring customer activity.

Speaker Change #107: Along with our favorable position globally in South Asia Pac region.

Speaker Change #107: And in UK as large Oems are seeking to establish or expand their supply chain to de risk their exposure to China centric supply change.

Speaker Change #107: Based on the ability of our opto division to effectively adjust to market trends and changes in customer demand. We believe auto will continue to achieve profitable growth.

Speaker Change #107: <unk>.

Now, let's turn our attention to the health care Division, where Q4 revenue.

Speaker Change #107: Stronger.

Speaker Change #107: For the fiscal year 2024, dull down year over year on a tough comparison.

Speaker Change #107: Fiscal 2024 brought significant challenges for patient monitoring in the U S.

Speaker Change #107: Primarily as hospitals continue to deploy capital purchases.

Speaker Change #107: Despite these hurdles during the quarter, we secured a $6 million award from a U S based hospital to provide patient monitoring solutions and related accessories.

Speaker Change #107: Including exhibit central stations expression patient monitors and cube patient monitors.

Speaker Change #107: Additionally, our augment index predict.

Speaker Change #107: <unk> solution is seeing increased success.

Speaker Change #107: Our clinical services offerings also continue to be well received by our clients.

Speaker Change #107: We are committed to advancing our next generation patient monitoring solutions and.

Speaker Change #107: Hansen the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

Speaker Change #107: We adjusted the healthcare division cost structure in the quarter also the benefits of which are expected to primarily start realizing in fiscal 2025.

To sum it up.

Speaker Change #107: We are confident about our company's future and excited to build on our stellar fiscal 'twenty. Four performance. We are extremely excited and confident about fiscal 'twenty five and beyond.

Speaker Change #107: The closest port discussion by thanking all our employees customers and stakeholders, who have played a part in OSI systems' success with that I will turn the call back over to Adam to discuss our financial results and fiscal 2025 guidance in more detail before we open the call to questions. Thank you very much.

Larry Solow: I guess just last question, Deepak, I expect and hope you'll remain active, so I expect you will as the chairman when we find a replacement for you.

Larry Solow: I imagine that search is probably a slow process, probably not that easy to find someone like yourself.

Adam: Well, thank you Deepak.

Adam: So let's review in greater detail the financial results for our fiscal 'twenty for fourth quarter.

Larry Solow: But any timeline, any sense of a timeline on that?

Adam: Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the prior fiscal year.

Larry Solow: Is it like before year end?

Larry Solow: You think you'll have someone in place or what are your thoughts?

Deepak Chopra: Well, that's the plan, and per our announcement before, that by January 1, we should have, the new person on board, and as you mentioned, I'll still be there as Executive Chairman, but that's our plan right now, and we are quite, quite deeply involved in it right now of the selection.

Adam: This was primarily driven by our largest division securities.

Adam: The 27% year over year increase in Q4 Security Division revenues.

Alan Edrick: The adjusted operating margin in our opt-of division increased to 13.9% in the fourth quarter of fiscal 24 from 13.8% in last year's Q4.

Deepak Chopra: That's great.

Adam: Led by strong growth in our cargo and vehicle inspection product sales as well as solid growth in our aviation and checkpoint product sales.

Larry Solow: Thanks.

Larry Solow: Thanks for all the color.

Q4 revenues included continued shipments from the $200 million plus cargo contract announced in January 23, and from the $500 million plus cargo contract announced in March 23.

Operator: Thank you.

Operator: As for the ladies and gentlemen, that's star 11 to ask the question.

Speaker Change #109: Third party opto sales bounce back nicely as sales decreased 6% year over year.

Operator: I'm showing no further questions in the queue.

Deepak Chopra: Well, thank you very much once again for attending our conference call.

Deepak Chopra: I again, once for all, want to thank our employees, customers, and stakeholders, and looking forward, to the October call after the first quarter.

Speaker Change #109: We continue to see certain auto customers adjusting inventory levels and ordering patterns, which we anticipate through the balance of calendar 'twenty four.

Deepak Chopra: Thank you very much, and thanks for your support.

Deepak Chopra: Cheers.

Speaker Change #110: Although the healthcare division's Q4 sales were the strongest of the fiscal year as Deepak mentioned revenues were 15% lower than Q4, the prior year due to a particularly challenging comparison period, along with the challenging hospital spending environment.

Operator: Ladies and gentlemen, this concludes today's conference call.

Operator: Thank you for your participation.

Operator: You may now disconnect.

Deepak: The fiscal 'twenty four Q4 gross margin of 32, 1% was down from the 34, 7% gross margin in Q4 of last fiscal year.

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Welcome to OSI Systems Inc. Fourth Quarter and Fiscal Year 2024 Conference Call. At this time, all participants are in a listen-only mode.

After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Speaker Change #111: This was largely due to the mix of revenues as Q4 growth was driven by a significant increase in security product revenues, which typically carry a less favorable margin than security service revenues.

Speaker Change #111: As well as a less favorable mix of security service revenues in the quarter.

Speaker Change #111: The year over year decrease in revenues in our healthcare division, which inherently carries the highest gross margin of all three divisions also contributed to lower gross margin.

Speaker Change #111: Our gross margin will generally fluctuate from period to period.

Speaker Change #112: Just on revenue mix and volume impacts.

I would now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI.

Speaker Change #112: The impacts of changes in supply chain costs and inflation generally among other factors.

Sir, you may begin.

Speaker Change #112: Moving to operating expenses.

Well, thank you.

Good morning, and thank you for joining us.

Speaker Change #112: We continue to work diligently across each of our divisions to improve efficiency and to manage our SG&A cost structure Q.

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.

Speaker Change #112: Q4, SG&A expenses were $71 7 million or 14, 9% of sales compared to $67 1 million or 16, 3% of sales in Q4 of the prior year.

Welcome to the OSI Systems Fiscal 24 Fourth Quarter and Year-End Conference Call.

We are pleased that you can join us as we review both our financial and our operational results. Earlier today, we issued a press release announcing our fiscal 24 fourth quarter and full year 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.

Speaker Change #112: The year over year dollar increase in cost was driven by higher compensation costs costs, including incentive compensation linked to our significant sales growth <unk>.

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 upon 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.

Speaker Change #112: Increased professional fees and unfavorable foreign exchange rates among other items.

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 Change #112: Research and development expenses in Q4 of fiscal 'twenty, four were $15 9 million compared to $15 5 million in the same prior year quarter.

I will begin with a high-level summary of our financial performance for the fourth quarter of fiscal 24, and then turn the call over to Deepak for a discussion of our business and operational highlights.

We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025. Following record revenues and non-GAAP EPS in each of Q2 and Q3, we again saw record financial results in the fourth quarter, led by the Security Division, resulting in outstanding revenue growth and a significant increase in year-over-year operating income.

Speaker Change #112: We continue to dedicate considerable resources to R&D and we anticipate further increases in such investment in fiscal 'twenty five.

We are encouraged by the momentum in our business.

Let's start with a high-level summary of our fiscal 2024 Q4 and full-year results. First, revenues increased 17% year-over-year to a Q4 record of $481 million, driven by the performance in our Security Division, where Q4 revenues were up 27% year-over-year.

Speaker Change #112: Particularly in our security Division as we remain focused on innovative product development, which we view as vital to the long term success of our businesses.

For the full year, fiscal 24 revenues were a record $1.54 billion, a 20% increase over fiscal 23.

Second, the significant revenue growth led to record Q4 non-GAAP adjusted earnings per share of $2.84.

Speaker Change #112: We recorded $3 9 million of restructuring and other charges in Q4 of fiscal 'twenty four compared to $3 2 million in the same quarter of the prior year.

Speaker Change #112: Moving to interest and taxes.

Net interest and other expenses in Q4 increased to $8 2 million in fiscal year 'twenty four.

Speaker Change #112: From $5 7 million in fiscal year 'twenty three.

Speaker Change #112: Primarily due to increased interest rates on a higher level of borrowings.

Speaker Change #112: Subsequent to fiscal year end, we completed a convertible notes financing, which is expected to reduce our future interest expense, which I'll talk more about shortly.

Alan Edrick: The healthcare division reported its strongest quarter of adjusted operating margin for the fiscal year, though it decreased to 9.3% in Q4 of fiscal 24 compared to 12.1% in the prior year, on lower year-over-year revenues.

Alan Edrick: Moving to cash flow, in Q4 of fiscal 24 we invested significant amounts in working capital and supported the company's growth. Cash used in operations in the quarter was 29 million, primarily due to increases in accounts receivable associated with the security division revenue growth. CapEx in the 2024 fiscal fourth quarter was 8.5 million while depreciation and amortization expense in Q4 was 11.7 million.

Our reported effective tax rate under GAAP was 18, 3% in Q4 of fiscal 'twenty four compared to 17, 6% in Q4 of fiscal 'twenty three.

Speaker Change #112: Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24 was 21, 2% compared to a normalized effective tax rate of 21, 9% in Q4 of fiscal 'twenty three.

For the full year, fiscal 24 non-GAAP adjusted EPS was a record $8.13, a 31% increase over the prior fiscal year.

Third, bookings were again solid, and we ended the quarter with a backlog of approximately $1.7 billion. Our healthy backlog and robust pipeline of opportunities provide good visibility as we enter fiscal year 2025.

Speaker Change #112: For the year, the normalized effective tax rate in fiscal 'twenty, four was 23, 4% compared to 22, 8% in the prior fiscal year.

Before diving more deeply into our financial results and discussing the fiscal 2025 outlook, I will turn the call over to Deepak.

Thank you, Alan.

Speaker Change #112: I will now turn to a discussion of our non-GAAP adjusted operating margin.

Good morning, everyone.

Speaker Change #112: Overall, our adjusted operating margin in the fourth quarter of fiscal 'twenty. Four was 14, 8% compared to 15, 6% in Q3 fiscal 'twenty four driven by the top line reductions in health care.

Thank you for joining us today as we discuss OSI Systems' strong performance for the 2024 fourth quarter and the full fiscal year.

As Alan mentioned, I'm proud to say our revenues grew year-over-year by 17% in Q4 and 20% for the full fiscal year, resulting in record revenues for both of these periods. We ended the fiscal year with a significant backlog of approximately $1.7 billion, which, combined with the strength of our very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Speaker Change #112: The less favorable mix of sales in the security Division.

Diving into the highlights, the Security Division again delivered fantastic results with year-over-year, revenues increasing 27% in Q4 and 37% for the full fiscal year. This growth was spread across many of our offerings in geographic regions, but was particularly, notable in Latin America, Middle East, and Asia-Pacific regions.

Speaker Change #112: The adjusted operating margin in the Security Division was 18, 5% in Q4 of fiscal 'twenty four.

During Q4, we continued to successfully execute on our major program with Mexico's Department, of National Defense, known as SEDANA, which is expected to generate more than $500 million in total revenue over the length of the contract. For SEDANA, we provide a range of inspection systems, including the EGLE High Energy and, Low Energy Cargo Inspection Portals, the CarView Vehicle Inspection System, and the CertScan Multi-Site Integration Platform for inspecting trucks, buses, and cars at Mexico's northern, and southern border checkpoints.

We also continue to successfully deliver on another major cargo program, the $200 million, contract with an international customer.

Speaker Change #112: Which was roughly in line with that of Q3, but down from 19, 3% in Q4 of fiscal 'twenty three.

We are performing well with these programs, and they are expected to be nice contributors, again in fiscal 2025.

The additional program we won from SEDANA, valued at over $100 million, is well underway, also with revenues expected to commence in mid-fiscal 2025.

Speaker Change #112: Given the less favorable mix revenue mix in the division.

Our turnkey projects in Albania, Puerto Rico, Guatemala, and a European airport continue, to perform seamlessly, providing strong recurring revenues and serving as great reference points on further opportunities.

Our latest cargo turnkey project in Uruguay is expected to commence operations before, the end of the calendar year. These successful projects, each with their unique security requirements, demonstrate, our ability to deliver highly customized solutions to meet our customers' needs.

Many of our turnkey and hardware projects also utilize CertScan, our multi-site integration, platform that is increasingly adopted by port and border customs agencies worldwide. CertScan sets us apart from competitors, enhancing the value of our offerings beside our broad, product portfolio.

Speaker Change #112: The adjusted operating margin in our Opto Division increased 13, 9% in the fourth quarter of fiscal 'twenty four from 13, 8% in last year's Q4.

We were active throughout fiscal 2024 with aviation customers also.

As passenger traffic continued to increase, we expect this general trend to continue.

Speaker Change #112: The healthcare Division reported its strongest quarter of adjusted operating margin for the fiscal year.

As our aviation-related bookings were particularly strong... In the second half of fiscal 2024, to that end, during Q4, we announced orders totaling, approximately $52 million from two international airports to furnish a comprehensive array of security solutions, including the RTT 110 for hold baggage screening and the Orion 920CT for checkpoint security, with extensive service and support commitments and recurring revenue.

For ports and border security applications in Q4, we announced two awards from international, customers totaling about $20 million for the Eagle M60 mobile cargo and vehicle inspection systems, including follow-on maintenance and support. These M60 platforms enable efficient and flexible relocation of security checkpoints to optimize, security for borders and critical infrastructure.

Speaker Change #112: Though a decreased to nine 3% in Q4 of fiscal 'twenty four compared to 12, 1% in the prior year on lower year over year revenues.

We also announced an award from an international border security customer of approximately, $11 million for radiation monitoring solutions and related services and support.

This has been a breakthrough year for the security division. In addition to robust revenue and profit growth, our continued success in securing, major projects in ports, borders, and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs effectively and efficiently. This approach ensures that we deliver solutions that offer the best value, further solidifying, our position as a leader in the industry.

Speaker Change #112: Moving to cash flow.

Speaker Change #112: In Q4 of fiscal 'twenty, four we invested significant amounts in working capital and supported the company's growth.

Speaker Change #112: Cash used in operations in the quarter was $29 million, primarily due to increases in accounts receivable associated with the security Division revenue growth.

Speaker Change #112: Capex in the 2020 for fiscal fourth quarter was $8 5 million, while depreciation and amortization expense in Q4 was $11 7 million.

Speaker Change #112: Our balance sheet is solid with modest net leverage of one six.

Aside from seven $5 million of annual required principal payments under our bank term loan the bulk of our bank debt matures in fiscal 'twenty seven.

Speaker Change #112: As mentioned earlier.

Speaker Change #112: Subsequent to fiscal year end, we issued $350 million of convertible notes with a coupon of two 5% due in fiscal 2030, and an initial conversion price of approximately $192.

Speaker Change #112: The proceeds were used to pay down our revolver and repurchased approximately 550000 shares of common stock as well as covered transaction cost.

Speaker Change #112: This transaction provides enhanced liquidity to capitalize on future strategic initiatives, while simultaneously being immediately accretive given a significant reduction in interest cost and a reduction in the share count.

With a strong backlog and strong pipeline, we are enthusiastic about the division's long-term, growth prospects in fiscal 2025 and beyond.

Speaker Change #112: In combination with the interest rate swap entered into approximately two years ago.

Moving on to the Opto group, the Opto Electronics Manufacturing Division achieved a significant, milestone with record Q4 revenues, including intercompany sales of $102 million.

Speaker Change #112: Well over three quarters of our existing debt is now fixed versus floating.

Throughout fiscal 2024, including the fourth quarter, we continue to work with our customers, to adjust to their demand forecast, and we believe we have made progress in right-sizing to this demand, putting this activity behind us in the coming months.

Finally, turning to guidance.

We are introducing our fiscal 'twenty five sales and non-GAAP adjusted.

We announced a couple of nice wins during the quarter. We announced a $7 million repeat order from a leading healthcare OEM customer for portable, device assemblies. We also received another $7 million order to provide electronic subassemblies to an, advanced engineering solutions OEM.

Speaker Change #112: Diluted EPS guidance.

Speaker Change #112: For fiscal year 'twenty five.

Speaker Change #112: We anticipate revenues in the range of $1 six 2 billion to $1 65 billion.

In fiscal 2025, we believe that our recent expansion into Mexico, the Tecate operation, will benefit us for near-shorting customer activity, along with our favorable position globally in South Asia-Pac region and in the UK, as large OEMs are seeking to establish or expand their supply chain to de-risk their exposure to China-centric supply chains.

Alan Edrick: Our balance sheet is solid with modest net leverage of 1.6. Aside from $7.5 million of annual required principal payments under our bank term loan, the bulk of our bank debt mature as in fiscal 27. As mentioned earlier, subsequent fiscal year end we issued $350 million of convertible notes with a coupon of 2.25% due in fiscal 2030 and an initial conversion price of approximately $192. The proceeds were used to pay down our bank revolver and repurchase approximately 550,000 shares of common stock as well as cover transaction costs.

Speaker Change #112: And non-GAAP adjusted earnings per diluted share in the range of $8 80.

Speaker Change #112: The $9 15.

Speaker Change #112: This fiscal 'twenty five non-GAAP diluted EPS guidance 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 and other nonrecurring items.

Speaker Change #112: We currently believe this guidance reflects reasonable estimates.

Speaker Change #112: The actual impact on the Companys financial results of timing changes on the expected conversion of backlog to revenues.

Speaker Change #112: Disruptions in the supply chain and inflation and interest rates is difficult to predict and could vary significantly from the anticipated impacts currently reflected in our guidance.

Based on the ability of our Opto division to effectively adjust to market trends and, changes in customer demand, we believe Opto will continue to achieve profitable growth.

Now let's turn our attention to the healthcare division, where Q4 revenues were the strongest, for the fiscal year 2024, though down year over year on a tough comparison.

Speaker Change #112: Actual revenues and non-GAAP earnings per diluted share could also vary from the guidance indicated above.

Hospital 2024 brought significant challenges for patient monitoring in the U.S., primarily, as hospitals continue to defer capital purchases.

Speaker Change #112: Due to other risks and uncertainties discussed in our SEC filings.

Despite these hurdles, during the quarter, we secured a $6 million award from a U.S.-based, hospital to provide patient monitoring solutions and related accessories, including Exhibit, Central Stations, Expression, Patient Monitors, and Q-Patient Monitors.

Speaker Change #112: We continue to remain focused on the growth of our businesses. We believe our efforts will enable OSI to continue providing innovative products and solutions.

Additionally, our Rothman Index predictive and analytic solution is seeing increased, success.

Speaker Change #113: At this time, we would like to open the call to questions.

Speaker Change #114: Thank you.

Speaker Change #115: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced.

Our clinical services offerings also continue to be well-received by our clients. We are committed to advancing our next-generation patient monitoring solutions and enhancing, the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

We adjusted the healthcare division cost structure in the quarter also, the benefits of which, are expected to primarily start realizing in fiscal 2025.

Speaker Change #116: Your question. Please press star one again please.

Speaker Change #117: Please stand by while we compile the Q&A roster.

To sum it up, we are confident about our company's future and excited to build on our stellar, fiscal 2024 performance.

Speaker Change #118: Our first question comes from the line of Josh Nichols with B Riley Your line is open.

We are extremely excited and confident about fiscal 2025 and beyond.

Josh Nichols: Yes, Thanks for taking my question I guess first off.

Deepak.

Deepak: Congratulations on the retirement, although I know you're going to be staying on board.

I will close this portion of the discussion by thanking all our employees, customers, and stakeholders who have played a part in OSI's system success.

Josh Nichols: Thanks.

Speaker Change #119: Clearly the company has been having.

Speaker Change #120: A great a great run and then it looks like set for another year and fiscal year.

With that, I will turn the call back over to Alan to discuss the financial results and, fiscal 2025 guidance in more detail before we open the call to questions.

Speaker Change #121: 25% as well too.

Speaker Change #122: If I wanted to dive into a question or I guess, good to see that the growth for this coming year north of 6% coming in better than what we had thought I'm just kind of curious given that we're already kind of close to two months through the first quarter I know.

Thank you very much.

Well, thank you, Deepak.

Speaker Change #123: The September quarter is a little bit seasonally slower just because theres not much activity in Europe could you just provide a little bit of color.

So let's review in greater detail the financial results for our fiscal 2024 fourth quarter. Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the, prior fiscal year. This was primarily driven by our largest division, security. The 27% year-over-year increase in Q4 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. Q4 revenues included continued shipments from the $200 million plus cargo contract announced, in January 23 and from the $500 million plus cargo contract announced in March 23.

Speaker Change #124: Color about how you expect the cadence of that growth rate to kind of play out as we go through the first quarter and kind of build from there.

Third-party opto sales bounced back nicely as sales increased 6% year-over-year.

Speaker Change #124: Josh This is Alan I'll take that question so really good question.

Josh Nichols: Yes, typically we see that Q1 is our slowest quarter of the year given the given the summer in some of the holidays in various countries that youre discussing suggesting.

Alan Edrick: This transaction provides enhanced liquidity to capitalize on future strategic initiatives while simultaneously being immediately accretive given a significant reduction in interest cost and a reduction in the share count. In combination with the interest rate swap entered into approximately two years ago, well over three quarters of our existing debt is now fixed versus floating.

Josh Nichols: That being said given our strong backlog, we do anticipate.

Josh Nichols: Robust growth even in Q1, certainly down sequentially from where we were but on a year over year basis, we would anticipate.

We continue to see certain opto customers adjusting inventory levels and or ordering, patterns which we anticipate through the balance of calendar 24.

Although the healthcare division's Q4 sales were the strongest of the fiscal year, as, revenues were 15% lower than Q4 the prior year due to a particularly challenging comparison period along with the challenging hospital spending environment.

Josh Nichols: Our strong Q1 on.

Josh Nichols: On a year over year basis.

Josh Nichols: And then our revenues kind of building.

Josh Nichols: Into Q2 and into Q3.

Alan Edrick: Finally, turning to guidance.

Josh Nichols: Great.

Alan Edrick: We are introducing our fiscal 25 sales and non-gap adjusted deluded EPS guidance. For fiscal year 25, we anticipate revenues in the range of $1.62 billion to $1.65 billion in non-gap adjusted earnings per deluded share in the range of $8.80 to $9.15. This fiscal 25 non-gap deluded EPS guidance excludes potential impairment restructuring and other charges, amortization of acquired intangible assets, and non-cash interest expense in their associated tax effects, as well as discrete tax and other non-recurring items.

Speaker Change #125: Just wanted to make sure I got the cadence right now.

Speaker Change #126: I wanted to just kind of touch on gross margin and free cash flow clearly the company has been investing a lot in things like inventory.

Speaker Change #125: Inventory this past year.

Speaker Change #126: And I'm wondering like what the expectations are.

Speaker Change #127: Our gross margins and how that will impact free cash flow for fiscal year 'twenty five as you can see behind some of these large like more products heavy deliveries and services revenue starts to become a bigger component of the mix or do you think with the backlog as long as it is today that the gross margins are likely to remain where they are.

Alan Edrick: 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 and interest rates is difficult to predict, and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non-gap earnings per deluded share could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings.

The fiscal 24 Q4 gross margin of 32.1% was down from the 34.7% gross margin in Q4 of, last fiscal year. This was largely due to the mix of revenues, as Q4 growth was driven by a significant increase, in security product revenues, which typically carry a less favorable margin than security service revenues, as well as a less favorable mix of security service revenues in the quarter.

The year-over-year decrease in revenues in the healthcare division, which inherently, carries the highest gross margin of all three divisions, also contributed to lower gross margin.

Speaker Change #128: Given the order cadence that we've seen that's been <unk>.

Assistant Lehigh: Assistant Lehigh.

Alan: Yes, Josh this is Alan again again again really good question Neil on the gross margins. They will fluctuate from period to period based upon a number of factors some of which I had described earlier in the comments.

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.

Alan: That being said on an annual basis.

We see an opportunity to expand the gross margins.

We continue to work diligently across each of our divisions to improve efficiency and, to manage our SG&A cost structure. Q4 SG&A expenses were $71.7 million, or 14.9% of sales, compared to $67.1 million, or 16.3% of sales in Q4 of the prior year. The year-over-year dollar increase in costs was driven by higher compensation costs, including, incentive compensation linked to our significant sales growth, increased professional fees, and unfavorable foreign exchange rates, among other items.

Alan: Particularly as service becomes a bigger component, which inherently carries a higher margin than our products generally speaking so I think there's some opportunity for those.

Alan: Gross margin expansion this year as we move into into future years from a cash flow perspective. This was a year of.

Alan Edrick: We continue to remain focused on the growth of our businesses.

Alan Edrick: We believe our efforts will enable OSI to continue providing innovative products and solutions.

Alan: Significant investment in working capital we concluded the year with a big investment in receivables.

Research and development expenses in Q4 fiscal 24 were $15.9 million, compared to $15.5 million, in the same prior year quarter. We continue to dedicate considerable resources to R&D, and we anticipate further increases, in such investment in fiscal 25, particularly in our security division, as we remain focused on innovative product development, which we view as vital to the long-term success of our businesses.

We recorded $3.9 million of restructuring and other charges in Q4 of fiscal 24, compared, to $3.2 million in the same quarter of the prior year.

Alan Edrick: At this time, we would like to open the call to questions.

Moving to interest and taxes. Net interest and other expenses in Q4 increased to $8.2 million in fiscal year 24, from $5.7, million in fiscal year 23, primarily due to increased interest rates on a higher level of borrowings.

Alan: As we have such strong sales growth so that being said, we do expect that effectively flip so the higher DSO in higher days inventory that we have associated with the growth. When we grew 20% or so last year with kind of the guidance that we're providing this year for sales growth as we do see and.

Subsequent to fiscal year end, we completed a convertible notes financing, which is expected, to reduce our future interest expense, which I'll talk more about shortly.

Our reported effective tax rate under GAAP was 18.3% in Q4 of fiscal 24, compared to, 17.6% in Q4 of fiscal 23. Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24, was 21.2%, compared to a normalized effective tax rate of 21.9% in Q4 of fiscal 23.

Operator: Thank you.

Operator: Ladies and gentlemen, as a reminder to ask the question, please first start 1-1 on your telephone and then wait to hear your name announced.

For the year, the normalized effective tax rate in fiscal 24 was 23.4%, compared to 22.8% in the prior fiscal year.

I will now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our adjusted operating margin in the fourth quarter of fiscal 24 was 14.8%, compared to 15.6% in Q3 of fiscal 24, driven by the top line reductions in health care and the less favorable mix of sales in the security division. The adjusted operating margin in the Security Division was 18.5% in Q4 of Fiscal 24, which, was roughly in line with that of Q3, but down from 19.3% in Q4 of Fiscal 23, given the less favorable revenue mix in the Division.

The adjusted operating margin in our Opto Division increased to 13.9% in the fourth, quarter of Fiscal 24, from 13.8% in last year's Q4.

Operator: To withdraw your question, please first start 1-1 again.

The Healthcare Division reported its strongest quarter of adjusted operating margin for the, fiscal year, though it decreased to 9.3% in Q4 of Fiscal 24, compared to 12.1% in the prior year on lower year-over-year revenues.

Operator: Please stand by while we compile the Q&A roster.

Alan: Opportunity to generate very meaningful free cash flow in fiscal 'twenty, five and beyond so it's an exciting exciting period for us.

Moving to cash flow. In Q4 of Fiscal 24, we invested significant amounts in working capital and supported the, company's growth. Cash used in operations in the quarter was $29 million, primarily due to increases in, accounts receivable associated with the Security Division revenue growth. Cap-X in the 2024 Fiscal fourth quarter was $8.5 million, while depreciation and amortization, expense in Q4 was $11.7 million.

Josh Nichols: Our first question comes from the line of Josh Nichols with B.

Josh Nichols: Rowley.

Okay. Thanks, and then last question for me I know Theres been a lot of skepticism over the last year year and a half about like how sustainable are these award wins the company has been securing and when you look at the backlog today. Despite the record quarter that you guys had still near record levels at $1 7 billion.

Josh Nichols: Yolana Sultin.

Josh Nichols: Yeah, thanks for taking my question.

Josh Nichols: I guess first of all, Deepop, congratulations on the retirement, although I know you're going to be staying on the board to oversee things.

Speaker Change #130: I think people are starting to come around to the fact that.

This is a durable growth story and with that you'll start seeing the share price continues to grind higher overtime. When you look out to this next fiscal year I'm just kind of curious like how much do you think of that current backlog is likely to be recognized and also equally as importantly, what do you think.

Josh Nichols: Clearly, the company's been having a great run and it looks like set for another year in fiscal year 25 as well, too.

Josh Nichols: If I want to dive into a question, I guess good to see that the growth for this coming year north of 6%, coming in better than what we had thought.

Our balance sheet is solid, with modest net leverage of $1.6. Aside from $7.5 million of annual required principal payments under our bank term loan, the bulk of our bank debt matures in Fiscal 27. As mentioned earlier, subsequent to Fiscal Year End, we issued $350 million of convertible, notes with a coupon of 2.25%, due in Fiscal 2030, and an initial conversion price of approximately, $192. The proceeds were used to pay down our bank revolver and repurchase approximately 550,000, shares of 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 a significant reduction in interest cost and a reduction in the share count. In combination with the interest rate swap entered into approximately two years ago, well over three-quarters of our existing debt is now fixed versus floating.

Josh Nichols: I'm just kind of curious, given that we're already close to two months through the first quarter.

Finally, turning to guidance.

We are introducing our Fiscal 25 sales and non-GAAP-adjusted diluted EPS guidance. For Fiscal Year 25, we anticipate revenues in the range of $1.62 billion to $1.65 billion, and non-GAAP-adjusted earnings per diluted share in the range of $8.80 to $9.15. This Fiscal 25 non-GAAP diluted EPS guidance excludes potential impairment restructuring, and other charges, amortization of acquired intangible assets, and non-cash interest expense 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 and interest rates is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non-GAAP earnings per diluted share could also vary from the guidance indicated above, due to other risks and uncertainties discussed in our SEC filings.

Speaker Change #131: Potential large opportunity wins that you still have in the pipeline today. So that you are kind of be able to to replenish that backlog as you have recently with other large opportunities that come to market.

We continue to remain focused on the growth of our businesses.

We believe our efforts will enable OSI to continue providing innovative products and solutions.

At this time, we would like to open the call to questions.

Thank you.

Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone and then wait to hear your name announced.

Speaker Change #131: Good question. This is deepak here.

To withdraw your question, please press star 1-1 again.

Please stand by while we compile the Q&A roster.

Josh Nichols: I know the September quarter is a little bit seasonally slower just because there's not much activity in Europe.

Speaker Change #132: We can't break it down how much of your current backlog get shipped out.

Our first question comes from the line of Josh Nichols with B-Rally.

Your line is open.

Speaker Change #132: Alan has mentioned to you many times that it varies from quarter to quarter, depending upon the readiness of the customer to supply chain and staff regarding the opportunities like I said in my <unk>.

Yeah, thanks for taking my question.

Josh Nichols: Could you just provide a little bit of color about how you expect the cadence of that growth rate to kind of play out as we go through the first quarter and kind of build in there?

Speaker Change #133: Message, we are very confident about it our pipeline is very strong and we've been saying for some time as we get larger and larger and get bigger customers.

Alan Edrick: Josh, this is Alan.

Speaker Change #134: <unk> got a good reputation.

Speaker Change #135: We distinguish ourselves from our competitors.

Alan Edrick: I'll take that question.

Alan Edrick: So really good question.

Alan Edrick: Yes, typically we see that Q1 is our slowest quarter of the year given given the summer and some of the holidays and various countries that you're discussing and suggesting.

Speaker Change #135: And the customers all over the globe are looking at it and the reference checks out.

Speaker Change #135: Confident that this pipeline is very strong and there are significant large opportunities that are there internationally.

Speaker Change #135: At the same time the aviation sector is coming back that's another positive for us air cargo and keep in mind that.

Speaker Change #135: U S business, especially CBP.

Speaker Change #135: It was not a big contributor in 2024 and as it comes into 2025 and beyond we are quite confident that we'll be a big participant in the business. So all in all we feel very good about it and.

Speaker Change #135: It's been a very very positive.

Speaker Change #135: Moving to the next year 2025, and beyond that we're sitting on a strong backlog great reputation.

Speaker Change #135: And maybe I want to add it onto it maybe not trying to show up but we cross the $1 billion Mark in our security Division and can proudly say that we are now maybe number one size wise in our space and security worldwide.

I guess, first of all, Deepak, congratulations on the retirement, although I know you're going to be staying on the board to oversee things.

Clearly, the company has been having a great run, and it looks like set for another year, right, in fiscal year 25 as well, too.

Speaker Change #136: I appreciate the color. Thanks.

Speaker Change #137: Thank you.

Speaker Change #138: Please standby for our next question.

If I want to dive into a questionnaire, I guess it's good to see that the growth for this coming year is north of 6%, right, coming in better than what we had thought.

Speaker Change #139: Our next question comes from the line of Jeff Martin with Roth Capital Partners. Your line is open.

I'm just kind of curious, given that we're already kind of close to two months through the first quarter, I know the September quarter is a little bit seasonally slower just because there's not much activity in Europe.

Jeff Martin: Thanks, Good morning, Deepak and Alan Congratulations on a fantastic fiscal 'twenty four.

Could you just provide a little bit of color about how you expect the cadence of that growth rate to kind of play out as we go through the first quarter and kind of build from there?

Alan Edrick: That being said, given our strong backlog, we do anticipate robust growth even in Q1, you know, certainly down sequentially from where we were, when on a year over your basis, we would anticipate a strong Q1 on a year over your basis.

Josh, this is Alan.

Jeff Martin: Deepak kind of segue off your answer to the last question there with <unk>.

Alan Edrick: And then our revenues kind of building into Q2 and into Q3.

I'll take that question.

CBP just curious what you're hearing out there in terms of potential timing of follow on orders I think everybody feels.

So, really good question.

Feels pretty confident that you're well positioned to win a good portion of.

Yes, typically we see that Q1 is our slowest quarter of the year, given the summer and some of the holidays in various countries that you're discussing and suggesting.

Speaker Change #140: Potential follow on order there.

Josh Nichols: Great, just thanks.

Speaker Change #140: Well.

That being said, given our strong backlog, we do anticipate robust growth even in Q1, certainly down sequentially from where we were, but on a year-over-year basis, we would anticipate a strong Q1 on a year-over-year basis, and then our revenues kind of building into Q2 and into Q3.

Speaker Change #140: Basically.

Josh Nichols: Just want to make sure I got the cadence right now.

Josh Nichols: I want to just kind of touch on gross margin and pre-cash flow.

Speaker Change #141: Comment on specifically, but we are very well positioned as you've said.

Speaker Change #141: CBP.

Great.

We are very happy with our performance.

Josh Nichols: Clearly, the company has been investing a lot in things like inventory this past year.

Speaker Change #141: There are some <unk> that is presently still have some room left onto it that has more been talked about the budgets are being looked at it and we think that is strong.

Just thanks.

Josh Nichols: And I'm wondering like what the expectations are for gross margins and how that will impact pre-cash flow for fiscal year.

Just want to make sure I got the cadence right now.

Speaker Change #141: Stability.

Speaker Change #141: Growth in CBP business and.

I want to just kind of touch on gross margin and free cash flow. Clearly, the company has been investing a lot in things like inventory this past year, and I'm wondering what the expectations are for gross margins and how that will impact free cash flow for fiscal year.

Speaker Change #141: And we should get a good share of it.

Josh Nichols: 25, as you get behind some of these large, like more product heavy deliveries and services revenue starts to become a very component of the mix.

Speaker Change #141: More than that I can't comment on.

Speaker Change #141: Yes, that's fair.

Speaker Change #141: Fair.

Dana: With respect to this the Dana in that $200 million International.

Dana: Order I was just curious if you could give some perspective on.

Speaker Change #143: What percent complete those those two contracts are.

Alan: Jeff This is Alan.

Alan: While we don't go into specifics on individual programs I would offer that we're further along on the $200 million International order given that we received that order a few months prior to the previous order so significant shipments on that occurred in fiscal 'twenty, four which as you might remember we started <unk>.

Josh Nichols: Or do you think with the backlog as larger as today that gross margins are likely to remain where they are given the order of cadence that we're seeing?

Josh Nichols: That's been persistently high.

Alan Edrick: Yeah, Josh, this is Alan again, again, really good question.

Alan Edrick: You know, in the gross margins, they will fluctuate from period to period based upon a number of factors, some of which I had described earlier in the comments.

Shipping that actually in Q4 of fiscal 'twenty three.

We did make significant shipments on the <unk> $500 million plus order as well, but a lot more a lot more shipments to come on that on that project.

Alan: And of course, we also got yes, and as a reminder.

Alan: Reminder, we also got the follow on order with Dana for another $100 million order.

Alan: That.

Alan: We're gearing up here in fiscal 'twenty five.

Yes. Thanks for the reminder, on that and then and then Deepak you mentioned.

Deepak: Maybe it was Alan I mentioned that significant R&D spending in security was just curious if you have any planned submissions for approvals on on products and maybe what end markets those might be geared towards.

Alan: Well.

Speaker Change #144: A good question in a way, but there are two separate things we continue to look at certification.

Speaker Change #145: Various of our products and technology, but in the R&D spend.

Speaker Change #146: One of the success stories that we have and we're very proud about it we have the broadest product portfolio compared to any of our competitors.

Speaker Change #146: So we've continued to innovate and spend investment to continue to broaden it to put more AI into it to be more efficient into it and to work with our customers for their custom needs.

Speaker Change #146: Especially during the search scan.

Speaker Change #146: Integration into the product line customized to our customers' needs and that's the kind of innovation, we are doing but we want to continue to remain ahead of the market compared to our competitors with our product breadth and that way. We can continue to grow that's very important and thats in our DNA.

Twenty-five, as you get behind some of these large, like, more product-heavy deliveries and services, revenue starts to become a bigger component of the mix, or do you think with the backlog as large as it is today that gross margins are likely to remain where they are, given the order of cadence that we've seen that's been persistently high?

Yeah, Josh, this is Alan again.

Again, really good question.

You know, on the gross margins, they will fluctuate from period to period based upon a number of factors, some of which I had described earlier in the comments. You know, sort of that being said, on an annual basis, you know, I think we see an opportunity to expand the gross margins, particularly as service becomes a bigger component, which inherently carries a higher margin than our products, generally speaking. So I think there's some opportunity for gross margin expansion this year and as we move into future years.

From a cash flow perspective, this was a year of... Significant investment in working capital, we concluded the year with a big investment in receivables as we had such strong sales growth.

Speaker Change #147: Thank you.

Speaker Change #147: Thank you.

Speaker Change #148: Please standby for our next question.

So that being said, we do expect that to effectively flip.

Speaker Change #147: Okay.

Alan Edrick: You know, sort of that being said on an annual basis, you know, I think we see an opportunity to expand the gross margins, particularly as service becomes a bigger component, which inherently carries a higher margin than our products generally speaking.

Speaker Change #149: Our next.

So the higher DSO and higher days inventory, that we have associated with the growth when we grew 20% or so last year with kind of the guidance that we're providing this year for still solid growth, is we do see an opportunity to generate very meaningful free cashflow in fiscal 25 and beyond.

Speaker Change #150: Comes from the line of Larry Solow with CJS Securities. Your line is open.

Alan Edrick: So I think there's some opportunity for gross margin expansion this year, and as we move into future years, from a cash flow perspective, this was a year of significant investment in working capital, we concluded the year with a big investment in receivables as we had such strong sales growth.

So it's an exciting period for us.

Larry Solow: Great. Thank you.

Larry Solow: Good afternoon. Good morning, I guess first question.

Alan Edrick: So that being said, we do expect that to effectively flip.

Thanks, and then last question for me, I know there's been a lot of skepticism over the last year, year and a half about like how sustainable all these award which the company has been securing.

I know you guys don't provide specific segment guidance, but just curious any color sort of in that 5% to 7% growth. It sounds like all your segments.

And when you look at the backlog today, right, despite the record quarter that you guys had still near record levels of 1.7 billion, I think people are starting to come around, to the fact that this is a durable growth story.

And with that, you start seeing the share price, continue to grind higher over time.

Alan Edrick: So the higher DSO and higher days inventory that we have associated with the growth when we grew 20% or so last year, with kind of the guidance that we're providing this year for still stall growth, is we do see an opportunity to generate very meaningful free cash flow in fiscal 25 and beyond.

When you look out for this next fiscal year, I'm just kind of curious, like how much do you think of that current backlog is likely to be recognized?

Speaker Change #151: Your comps are probably improving maybe all will grow year over year.

Speaker Change #152: Obviously security grew 30 last year. So we expect that to slow down. The ZIP is is it fair to just use like that mid single digit as a starting point for all the segments.

And also equally as importantly, what do you think is the potential large opportunity wins that you still have in the pipeline today so that you're kind of be able to replenish that backlog as you have recently with other large opportunities that come to market?

Alan Edrick: So it's an exciting, exciting period for us.

Good question, this is Deepak here.

Obviously, we can't break it down, how much of the current backlog gets shipped out.

Also, Alan has mentioned to you many times, that it varies from quarter to quarter depending on the readiness of the customer, the supply chain and stuff.

Josh Nichols: Thanks.

Speaker Change #153: The security, maybe grow a little bit slower than that looks like bookings or kind of did it.

Regarding the opportunities, like I said in my message, we are very confident about it.

Our pipeline is very strong.

Speaker Change #153: We had a great last couple of years and they are kept up with that but in order to grow faster do we need.

And we've been saying for some time, as we get larger and larger and get bigger customers and get a good reputation, we distinguish ourselves from our competitors and their customers all over the globe are looking at it.

Speaker Change #154: Acceleration in bookings or is that service component kind of kind of kickoff kick in and drive that sort of mid single digit growth I guess over the first question.

And the reference checks out.

We are very confident that there is pipeline is very strong.

Speaker Change #154: Larry This is Alan so good question and you are correct. We generally don't provide guidance by division, but that being said to give you some.

And there are significant large opportunities, that are there internationally.

Larry Solow: Directionally, we would anticipate the strongest growth to occur in our security Division.

At the same time, the aviation sector is coming back.

That's another positive for us, air cargo.

And keep in mind that US business, especially CBP was not a big contributor in 2024.

Speaker Change #155: We're getting an acetate good year, probably followed by <unk> as I mentioned in the comments more weighted to the second half from the first assets as more right sizing of inventories occurring but we would expect.

And as it comes into 2025 and beyond, we are quite confident that we'll be a big participant in the business.

So all in all, we feel very good about it.

Speaker Change #155: Solid growth in opto for the fiscal year.

Speaker Change #155: And then healthcare.

Speaker Change #156: Maybe just some some small modest growth.

Gotcha and just in terms of the service piece I know you mentioned mix down year over year.

Speaker Change #157: It looks like service revenue was basically flat.

Speaker Change #158: Year over year and grew a lot I know Q4 of last year.

Speaker Change #159: What's sort of the outlook.

Speaker Change #159: I guess does the service component.

Speaker Change #159: Kick in.

And it's been a very, very positive move, into the next year 2025 and beyond that we're sitting on a strong backlog, great reputation. And maybe I want to add it onto it, maybe not trying to show off, but we crossed the billion dollar mark in our security division and can proudly say that we are now maybe number one size-wise in our space in security worldwide.

Speaker Change #161: The next few quarters as your installed base, obviously has grown significantly in the last year I assume that some kind of warranty period or a period, where you don't actually get more service revenue is there anymore color you can give us on that and remind us sort of the difference in gross margin between product and service.

Appreciate the cover.

Thanks.

Thank you.

Please stand by for our next question.

Our next question comes from the line of Jeff Martin with Roth Capital Partners.

Speaker Change #161: General directional.

Your line is open.

Speaker Change #161: Sure Larry This is Alan so you've sort of hit the nail on the head as we've gotten larger and larger installed base of our security products and as they roll off of warranty.

Thanks.

Good morning, Deepak and Alan.

Larry Solow: The service revenues begin to kick in so we would anticipate some nice growth in our service revenues throughout the throughout fiscal 'twenty five.

Congratulations on a, fantastic fiscal 24.

As you correctly point out as well the margin profile.

Larry Solow: Of service revenues is generally superior to that of product revenues on a on a kind of a consolidated basis and there is a meaningful meaningful difference between the two so all of that can can lead to some enhanced margins for us not just this year, but as we move into future years as well so.

Deepak, kind of segueing off your answer to the last question there with the US CBP, just curious what you're hearing out there in terms of potential timing of follow-on orders.

I think everybody feels pretty confident that you're well positioned to win a good portion of potential follow-on order there.

Well, basically, can't comment on specifically, but we are very well positioned, as you said.

CBP, we are very happy with our performance.

Larry Solow: We look at the service revenues, which are good recurring revenues as is vital for us.

There are some IDIQs that are presently still have some room left on to it.

Speaker Change #162: Gotcha and just a question just to follow up on the CBP question I know you can't cancel timing or whatnot, but I guess there I know there is another.

There is more being talked about.

Larry Solow: Sure.

Speaker Change #163: It's still a piece of the IV IQ outstanding.

So hopefully that.

The budgets are being looked at it, and we, think there is strong possibility of growth in CBP business, and we should get a good share of it.

Speaker Change #164: Probably the next year or so whenever but I guess my question here is are there other U S agencies. It looks like a lot of your growth has been international.

More than that, I can't comment.

Speaker Change #164: The other U S agent teams with solid GDP, where we are there.

Yep, that's fair.

Speaker Change #164: Sort of in that funnel of opportunities for you guys.

Good question.

With respect to the Sedana and that $200 million international order, I was just curious if you could give some perspective on what percent complete those two contracts are.

Speaker Change #165: And the answer is yes, yes, and yes, one is on the <unk> side as we are sitting here they are getting their budgets approved into it and thats from it looks like it's a pretty strong significant budgets for CVP going into the next year on top of that the other question. Yes, there are other agencies.

Josh Nichols: And then last question for me, I know there's been a lot of skepticism over last year, year and a half about like how sustainable all these award wins this is the company's been securing.

Jeff, this is Alan.

Josh Nichols: And when you look at the backlog today, right, despite the record quarter that you guys had still near record levels of 1.7 billion, I think people are starting to come around to the fact that that this is a durable growth story.

While we don't go into specifics on individual programs, I would offer that we are further along on the $200 million international order, given that we received that order a few, months prior to the previous order. Significant shipments on that occurred in fiscal 24, which, as you might remember, we started shipping that actually in Q4 of fiscal 23.

Josh Nichols: And with that, you start seeing the share price continue to grind higher over time.

Speaker Change #166: Customer for us.

That continues to do look at it.

Speaker Change #166: There's air cargo in a way that is also.

Speaker Change #166: The.

Speaker Change #166: Department of defense.

Speaker Change #166: And.

Speaker Change #166: All of these especially one of the things that we all talk about it too a little bit.

Speaker Change #166: Awkward to say that as the world goes through this unrest.

Speaker Change #166: And middle East odd in Ukraine and staff.

Josh Nichols: When you look out to this next fiscal year, I'm just kind of curious like how much do you think of that current backlog is likely to be recognized and also equally as importantly, what do you think is the potential large opportunity wins that you still have in the pipeline today so that you're kind of be able to replenish that backlog as you have recently with other large opportunities that come to market.

Estimated area as it settles down requires more security around that area and that continues to grow for US Department of state is a big customer of us. So we look at other agencies. Besides CVP.

Josh Nichols: Good question.

Deepak Chopra: This is deeper here.

Deepak Chopra: Obviously, we can't break it down how much of the current backlog gets shipped out.

Speaker Change #166: Right now Theres a lot of interest.

Speaker Change #166: I guess just last question.

Deepak Chopra: Elsa Allen has mentioned to you many times that it varies from quarter to quarter, depending on the readiness of the customer to supply chain and stuff.

We did make significant shipments on the Sedana $500 million plus order as well, but a lot more shipments to come on that project.

Speaker Change #166: Deepak I expect and hope Youll remain active for expect you will.

And, of course, we also got the follow-on order with Sedana for another $100 million order that we're gearing up here in fiscal 25.

Speaker Change #166: Chairman.

Speaker Change #167: When we found the replacement for Ya I imagine that search is probably a slow process, probably not that easy to find someone like yourself, but any timeline in terms of a timeline on that.

Yep, thanks for the reminder on that.

Deepak Chopra: Regarding the opportunities, like I said in my message, we are very confident about it.

Deepak Chopra: Our pipeline is very strong.

Speaker Change #168: Like before year end, you think youll have someone in place or what are your thoughts there. Thanks.

And then Deepak, you mentioned that significant R&D spending, in security.

I was just curious if you have any planned submissions for approvals on products and maybe what end markets those might be geared towards.

Speaker Change #168: Well that's the plan.

Speaker Change #170: Our announcement before.

Well, I'm a good question in a way, but they are two little separate things.

Speaker Change #171: By January one.

Speaker Change #171: We should have the new person on board and as you mentioned I will still be there.

Speaker Change #171: As executive Chairman.

Speaker Change #171: That's our plan right now and we are quite quite deeply involved in it right now the selection.

We, continue to look at certification of various of our products and technology, but in the R&D spend, one of the success stories that we have, and we are very proud about it, we have the broadest product portfolio compared to any of our competitors, so that we continue to innovate and spend investment to continue to broaden it, to put more AI into it, to be more efficient into it, and to work with our customers for their custom needs, especially doing the third scan integration into the product line, customized to our customers' needs.

Speaker Change #172: Okay, great. Thanks, and thanks for all the color.

And that's the kind of innovation we are doing, but we want to continue to remain ahead of, the market compared to our competitors with a product breadth, and that way we can continue to grow.

Speaker Change #173: Thank you.

Speaker Change #174: As for ladies and gentlemen that start one one to ask the question.

Deepak Chopra: And we've been saying for some time as we get larger and larger customers, and get a good reputation.

Speaker Change #175: I'm showing no further questions in the queue.

That's very important, and that's in our DNA.

Thank you.

Will you stand by for our next question?

Coordinator Ladies and gentlemen, this concludes today's conference call.

Our next question comes from the line of Larry Solow with CJS Securities.

Thank you for your participation.

Your line is open.

Speaker Change #176: Well. Thank you very much once again for attending our conference call I again want to thank.

Great.

Deepak Chopra: We distinguish ourselves from our competitors and the customers all over the globe are looking at it and the reference checks out.

Thank you.

Good afternoon.

Good morning.

I guess first question, I know you guys don't provide specific segment guidance, but just, curious, any color sort of in that 5% to 7% growth, it sounds like all your segments, your company are probably improving, maybe all will grow year over year.

The security grew mid-30s last year, so we expect that to slow down.

Speaker Change #176: Our employees customers and stakeholders.

Is it fair to just use like that mid-single-digit as a starting point for all the segments?

The security may be growing a little bit slower than that.

Looks like bookings are kind of, you had a great last couple of years and they kept up, with that, but in order to grow faster, do we need acceleration of bookings or is that service component going to kind of kick up, kick in and drive that sort of mid-single-digit growth?

Speaker Change #176: And looking forward to the October call after the first quarter.

I guess that would be the first question.

Thank you.

Larry, this is Alan.

So good question and you're correct, we generally don't provide guidance by division, but that, being said, to give you some direction, we would anticipate the strongest growth to occur in our security division.

We're again anticipating a good year, probably followed by Opto, as I mentioned in the comments, more weighted to the second half than the first half as more right-sizing of inventory is occurring, but we'd expect, you know, solid growth in Opto for the fiscal year.

Speaker Change #176: Thank you very much and thanks for your support.

And then healthcare, you know, maybe just some small modest growth.

Gotcha.

And just in terms of the, on the service piece, I know you mentioned mixed down year over, year.

Speaker Change #176: Sure.

It looks like service revenue was basically flat, you know, year over year and it grew, a lot, I know, compared to last year.

Speaker Change #177: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

What's sort of the outlook?

Does the, I guess, does the service component, you know, sort of kick in the next few quarters, as your installed base obviously has grown significantly in the last year?

I assume there's some kind of warranty period or period where you don't actually get more, service revenue.

Is there any more call you can give us on that and remind us sort of the difference, in gross margin between product and service in a, you know, general direction?

Sure, Larry, this is Alan.

So you've sort of hit the nail on the head.

As we've gotten a larger and larger installed base of our security products and as they, roll off a warranty, the service revenues begin to kick in. So we would anticipate some nice growth in our service revenues, you know, throughout, fiscal 25. And as you correctly point out as well, you know, the margin profile of service revenues, is generally superior to that of product revenues on a kind of a consolidated basis.

And there's a meaningful difference between the two.

So all of that, you know, can lead to some enhanced margins for us, not just this year, but as we move into future years as well.

So we look at these service revenues, which are good recurring revenues as vital for us.

Gotcha.

And just a question, Deepak, just a follow-up on the CBP question.

I know you, can't, you know, answer timing and whatnot, but I guess there, I know there's another, I guess, there's still a piece of the IDIQ outstanding, so hopefully that, you know, will happen in the next year or so, whenever.

But I guess my question here is, are there other, U.S. agencies?

It looks like a lot of your growth has been international.

Are there other U.S, agencies besides CBP, where, you know, where they're sort of in that funnel of opportunities for you guys?

Deepak Chopra Good question.

And the answer is yes, yes, and yes.

One is, on the CBP side, as we are sitting here, they're getting their budgets approved into it, and that's, from what it looks like, it's a pretty strong, significant budget for CBP going into the next year.

On top of that, the other question, yes, there are other agencies.

DOD is a big customer for us.

That continues to do look at it.

There's Air Cargo, in a way.

There's also the Department of Defense.

And all these, especially one of the things that we all talk about it, which is a little bit awkward to say, that as the world goes through this unrest in Middle East or in Ukraine and stuff, ultimately, all that area, as it settles down, requires more security around that area.

And that continues to grow for us.

Department of State is a big customer of us.

So, we look at other agencies besides CBP.

And right now, there's a lot of interest.

David Wilson Gotcha.

I guess, just last question, Deepak, I expect and hope you'll remain active, I fully expect you will, as the chairman, when we find a replacement for you.

I imagine that search is probably a slow process, probably not that easy to find someone like yourself.

But any timeline, any sense of a timeline on that?

Is it like a four-year end, you think you'll have someone in place, or what are your thoughts there?

Thanks.

Deepak Gupta Well, that's the plan.

I mean, per our announcement before, that by January 1, we should have the new person on board.

And as you mentioned, I'll still be there as executive chairman.

But that's our plan right now.

And we are quite, quite deeply involved in it right now, of the selection.

David Wilson Gotcha.

Deepak Chopra: We are very confident that there is pipeline is very strong and there are significant large opportunities that are there internationally.

Great.

Thanks.

Thanks for all the call.

Coordinator Thank you.

Deepak Chopra: At the same time, the aviation sector is coming back.

As for the ladies and gentlemen, that's star 11 to ask the question.

I'm showing no further questions in the queue.

Deepak Gupta Well, thank you very much, once again, for attending our conference call.

I again, once for all, want to thank our employees, customers, our employees, customers, and stakeholders.

And looking forward to the October call after the first quarter.

Thank you very much, and thanks for your support.

Cheers.

Deepak Chopra: That's another positive for us, air cargo.

Deepak Chopra: And keep in mind that the US business, especially CBP, was not a big contributor in 2024.

Deepak Chopra: And as it comes into 2025 and beyond, we are quite confident that we'll be a big participant in the business.

Deepak Chopra: So all in all, we feel very good about it. And it's been a very, very positive move into the next year 2025 and beyond that we're sitting on a strong backlog, great reputation.

Deepak Chopra: And maybe I want to add it onto it, maybe not trying to show up, but we cross the billion dollar mark in our security division and can proudly say that we are now maybe number one size wise in our space in security worldwide.

Josh Nichols: Appreciate the color.

Josh Nichols: Thanks.

Operator: Thank you.

Operator: Please stand by for our next question.

Jeff Martin: Our next question comes from the line of Jeff Martin with Roth Capital Partners.

Jeff Martin: The line is open.

Jeff Martin: Thanks.

Jeff Martin: Good morning, Deepak and Owen.

Jeff Martin: Congratulations on a fantastic fiscal 24.

Jeff Martin: Deepak, kind of segueing off your answer to the last question there with the US CBP.

Jeff Martin: Just curious what you're hearing out there in terms of potential timing of follow-on orders.

Deepak Chopra: I think everybody feels pretty confident that you're well positioned to win a good portion of potential follow-on over there.

Deepak Chopra: Well, basically can't comment on specifically, but we are very well positioned, as you said, CBP are very happy with our performance.

Deepak Chopra: There are some IDI kills that are presently still have some room left onto it.

Deepak Chopra: There is more being talked about.

Deepak Chopra: The budgets are being looked at it and we think there is strong possibility of growth in CBP business. And we should get a good share of it.

Deepak Chopra: More than that, I can't comment on.

Jeff Martin: Yep, that's fair.

Alan Edrick: With respect to the Sedena and the $200 million international order, let's just curious if you could give some perspective on what percent complete those two contracts are.

Alan Edrick: Jeff, this is Alan.

Alan Edrick: While we don't go into specifics on individual programs, I would offer that we are further along on the $200 million international order given that we received that order a few months prior to the previous order.

Alan Edrick: So significant shipments on that occurred in fiscal 24, which as you might remember, we started shipping that actually in Q4 at fiscal 23.

Alan Edrick: We did make significant shipments on the Sedena $500 million dollar plus order as well, but a lot more shipments to come on that project.

Alan Edrick: And of course we also got, yeah, and as a reminder, we also got the the follow on order with Sedaina for another hundred million dollar order that that we're gearing up here in fiscal 25.

Jeff Martin: Yep, thanks for the reminder on that and then and then Deepak, you mentioned, you know, a significant here or maybe as Alan mentioned, that significant R&D spending and security was just curious if you have any planned submissions for approvals on products and maybe what end markets those might be geared towards.

Deepak Chopra: Well, you know, I'm a good question in a way, but they're two little separate things.

Deepak Chopra: We continue to look at certification and of periods of our products and technology, but in the R&D spend, one of the success stories that we have and we are very proud about it, we have the broadest product portfolio compared to any of our competitors so that we continue to innovate and spend investment to continue to broaden it, to put more AI into it, to be more efficient into it and to work with our customers for their custom needs, especially doing the third scan integration into the product line, customized to our customers needs.

Deepak Chopra: And that's the kind of innovation we are doing, but we want to continue to remain ahead of the market compared to our competitors with a product prep and that way we can continue to grow.

Deepak Chopra: That's very important and that's in our DNA.

Deepak Chopra: Thank you.

Operator: Please stand by for our next question.

Larry Solow: Our next question comes from the line of Larry Solow with CJS Security.

Larry Solow: Thank you.

Larry Solow: Good afternoon.

Larry Solow: Good morning.

Larry Solow: I guess the first first question and then you guys don't provide specific segment guidance, but just curious, any color sort of in that 5% to 7% growth, it sounds like all your segments, your company are probably improving, maybe all will grow year-over-year.

Larry Solow: Obviously security grew in the 30s last year, so we expect that to slow down.

Larry Solow: Is it fair to just use like that mid-single digit as a starting point for all the segments?

Larry Solow: The security made the grow a little bit smaller than that.

Larry Solow: What's like bookings are kind of that you had a great, you know, last couple of years and they kept up with that, but in order to grow faster, do we need, you know, acceleration and bookings or is that service going to pull in it going to kind of kick up, kick in and draw that sort of mid-single digit grow?

Alan Edrick: I guess I'll do the first question.

Alan Edrick: Larry, this is Alan, so good question and you're correct, you know, we generally don't provide guidance by division, but that being said to give you some, you know, direction, we would anticipate the strongest growth to occur in our security division.

Alan Edrick: We're again anticipating a good year, you know, probably followed by Opto, as I mentioned in the comments, more weighted to the second half and the first half as some more right-sizing inventories occurring, but we'd expect, you know, solid growth in Opto for the fiscal year, and then health care, you know, maybe just some small modest growth.

Alan Edrick: Gotcha.

Larry Solow: And just in terms of the on the service piece, how you mentioned mixed down year over year.

Larry Solow: It looks like service revenue was basically flat, you know, year over year and I grew a lot.

Larry Solow: I know it can for last year.

Larry Solow: What sort of outlook does the service component sort of kick in all the next few quarters as you're installed based obviously has grown significantly in the last year.

Larry Solow: I assume there's some kind of warranty period or period where you don't actually get more service revenue.

Larry Solow: Is there any more call you can give us on that and remind us sort of the difference in gross margin between product and service.

Larry Solow: And general direction.

Alan Edrick: Sure, there this is Alan.

Alan Edrick: So you've sort of hit the nail in the head as we've gotten a larger and larger installed base of our security products and as they roll off of warranty. The service revenues begin to kick in.

Alan Edrick: So we would anticipate some nice growth in our service revenues, you know, throughout throughout fiscal 25. And as you correctly point out as well, you know, the margin profile of service revenues is generally superior to that of product revenues on a on a kind of a consolidated basis.

Alan Edrick: And there's a meaningful meaningful difference between the two.

Alan Edrick: So all of that, you know, can can lead to some enhanced margins for us not just this year, but as we move into future years as well.

Alan Edrick: So we look at these service revenues, which are good recurring revenues as vital force.

Larry Solow: Gotcha.

Larry Solow: And just a question.

Larry Solow: Just be back to follow up on the CBP question.

Larry Solow: You can't, you know, answer timing or whatnot.

Larry Solow: But I guess there.

Larry Solow: I know there's another up against the still piece of the idea Q outstanding.

Larry Solow: So hopefully that, you know, will happen next year or so or whatever.

Larry Solow: But I guess my question here is.

Larry Solow: Are there other US agencies works like a lot of your growth has been international?

Larry Solow: Are there other US agencies beside TVT where, you know, we're there, sort of in that final of opportunity.

Larry Solow: You guys.

Larry Solow: Good question.

Deepak Chopra: And the answer is yes, yes.

Deepak Chopra: And yes, one is on the CBB side, as we are sitting here, they're getting their budgets approved into it.

Deepak Chopra: And this from it looks like it's a pretty strong significant budgets for CBP going into the next year.

Deepak Chopra: On top of that, the other question.

Deepak Chopra: Yes, there are other agencies, DOD is a big customer for us.

Deepak Chopra: That continues to do look at it.

Deepak Chopra: There's air cargo in a way, there's also the department of depends.

Deepak Chopra: And all these, especially one of the things that we all talk about it, which is a little bit awkward to say that as the world goes through this unrest in Middle East or the Ukraine and stuff.

Deepak Chopra: Ultimately, all that area as it settles down requires more security around that area.

Deepak Chopra: And that continues to grow for us.

Deepak Chopra: The Department of State is a big customer of us.

Deepak Chopra: So we look at other agencies besides CBB.

Deepak Chopra: And right now there's a lot of interest.

Larry Solow: Okay, I guess just last question.

Larry Solow: And Deepak, I expect it.

Larry Solow: I hope you'll remain active.

Larry Solow: I'll expect you all as a chairman when we find a replacement for you.

Larry Solow: I imagine that that search is probably a slow process, probably not that easy to define someone like yourself.

Larry Solow: But you know, any timeline, any sense of the timeline on that.

Larry Solow: Is it like a four year end?

Larry Solow: You think you'll have someone in place or what are your thoughts?

Larry Solow: Thanks.

Deepak Chopra: Well, that's the plan.

Deepak Chopra: I mean, put out announcement before that by January 1, we should have the new person on board.

Deepak Chopra: And as you mentioned, I'll still be there.

Deepak Chopra: As as executive German, but that's our plan right now.

Deepak Chopra: And we are quite, quite deeply involved in it right now of the selection.

Larry Solow: That's a great thanks.

Larry Solow: Thanks for all the color.

Operator: Thank you.

Operator: As for the ladies and gentlemen that start one one to ask the question.

Operator: I'm showing no further questions and the Q.

Operator: Well, thank you very much once again for attending our conference call.

Deepak Chopra: I again once for all one of the thank our employees, customers and stakeholders.

Deepak Chopra: And looking forward to the October call after the first quarter.

Operator: Thank you very much and thanks for your support.

Operator: Cheers.

Operator: Ladies and gentlemen, this concludes today's conference call.

Operator: Thank you for your participation.

Operator: You may now disconnect.

Operator: Thank you very much.

Operator: Christopher Glynn, Jeffrey Martin Christopher Glynn, Jeffrey Martin, Josh Nichols, Alan Edrick, Lawrence Solow, Deepak Chopra, Dave Chen Christopher Glynn, Jeffrey Martin, Josh Nichols, Alan Edrick, Lawrence Solow, Deepak Chopra Hello, and thank you for standing by.

Welcome to OSI Systems Inc fourth quarter and fifth year 2024 conference call.

At this time, all participants are on a listen only mode.

After the speakers presentation, there will be a question and answer session.

To ask the question during this session, you will need to press start one on your telephone.

You would then hear automated message advising your hand is raised.

To withdraw your question, please press start one one again.

I will now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI.

Third, you may begin.

Well, thank you.

Good morning and thank you for joining us.

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 24 fourth quarter and year end conference call.

We are pleased that you can join us as we review both our financial and our operational results.

Earlier today, we issued a press release announcing our fiscal 24th quarter and full-year 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 Security's 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 upon subsequent events or new information or otherwise.

During today's call, we will refer to both GAP and non-GAP financial measures when describing the company's results.

For further information, regarding non-GAP measures and comparable GAP measures of the company's results, and a quantitative reconciliation of those figures, please refer to today's earnings press release.

I will begin with a high-level summary of our financial performance for the fourth quarter of fiscal 24th, and then turn the call over to Deepak for a discussion of our business and operational highlights.

We will start with fiscal year 2025. Following record revenues and non-GAP EPS in each of Q2 and Q3, we again saw record financial results in the fourth quarter, led by the Security Division, resulting in outstanding revenue growth and a significant increase in year-over-year operating income.

We are encouraged by the momentum in our business.

Let's start with a record. Revenue's increased 17% year-over-year to a Q4 record of $481 million. Driven by the performance in our Security Division, where Q4 revenues were up 27% year-over-year. For the full year, fiscal 24 revenues were a record 1.54 billion, a 20% increase over fiscal 23.

Second, the significant revenue growth led to record Q4 non-GAP adjusted earnings per share of $2.84.

For the full year, fiscal 24 non-GAP adjusted EPS was a record $8.13, a 31% increase over the prior fiscal year.

Third, bookings were again solid, and we ended the quarter with a backlog of approximately 1.7 billion. Our healthy backlog in robust pipeline of opportunities provide good visibility as we enter fiscal year 2025.

Before diving more deeply into our financial results and discussing the fiscal 25 outlook, I will turn the call over to Debock.

Thank you, Alan.

Good morning, everyone.

Thank you for joining us today as we discuss OSI system's strong performance for the 2024 fourth quarter and the full fiscal year.

As Alan mentioned, I'm proud to say our revenues grew year-over-year by 17% in Q4 and 20% for the full fiscal year resulting in record revenues for both of these periods. We ended the fiscal year with a significant backlog of approximately 1.7 billion, which combined with the strength of our very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond.

Diving into the highlights, the security division again delivered fantastic results with year over year revenues increasing 27% in Q4 and 37% for the full fiscal year. This growth was spread across many of our offerings and geographic regions but was particularly notable in Latin America, Middle East and Asia-Pac regions.

During Q4, we continued to successfully execute on our major program with Mexico's Department of National Defense known as Sedanah, which is expected to generate more than $500 million in total revenue over the length of the contract. For Sedanah, we provide a range of inspection systems including the Eagle High Energy and low energy cargo inspection portals, the car view vehicle inspection system, and the search scan multi-site integration platform for inspecting trucks, buses and cars at Mexico's northern and southern border checkpoints.

We also continued to successfully deliver on another major cargo program, the $200 million contract with an international customer.

We are performing well with these programs and they are expected to be nice contributors again in fiscal 2025.

The additional program we won from Sedanah valued at over $100 million is well underway also with revenues expected to commence in mid fiscal 2025.

Our turnkey projects in Albania, Yororiko, Guatemala, and a European airport continue to perform seamlessly providing strong recurring revenues and serving as great reference points on further opportunities.

Our latest cargo turnkey project in Uruguay is expected to commence operations before the end of the calendar year. These successful projects, each with their unique security requirements, demonstrate our ability to deliver highly customized solutions to meet our customers' needs.

Many of our turnkey and hardware projects also utilize search scan our multi-site integration platform that is increasingly adopted by port and border customs agencies worldwide.

Search scan sets us apart from competitors and answering the value for offerings beside a broad product portfolio.

We were active throughout fiscal 2024 with aviation customers also as passenger traffic continued to increase. We expect this general trend to continue. As our aviation-related bookings were particularly strong in the second half of fiscal 2024. To that end, during Q4, we announced orders totaling approximately 52 million from two international airports to furnish a comprehensive array of security solutions, including the RTT110 for whole baggage screening and the Orion 920 CT for checkpoint security, with extensive service and support commitments and recurring revenue.

For ports and border security applications in Q4, we announced two awards from international customers totaling about 20 million dollars for the Eagle M60 mobile cargo and vehicle inspection systems, including follow-on maintenance and support. These M60 platforms enable efficient and flexible relocation of security checkpoints to optimize security for borders and critical infrastructure.

We also announced an award from an international border security customer of approximately 11 million dollars for radiation monitoring solutions and related services and support.

This has been a breakthrough year for the security division. In addition to robust revenue and profit growth, our continued success in securing major projects in ports, borders, and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs effectively and efficiently.

This approach ensures that we deliver solutions that offer the best value for the solidifying our position as a leader in the industry.

With a strong backlog and strong pipeline, we are enthusiastic about the division's long-term growth prospects in fiscal 2025 and beyond.

Moving on to the upto group, the upto electronics manufacturing division achieved a significant milestone with record Q4 revenues, including inter-company sales of 102 million.

Throughout fiscal 2024, including the fourth quarter, we continue to work with the customers to adjust to their demand forecast and we believe we have made progress in right sizing to this demand, putting this activity behind us in the coming months.

We announced a couple of nice wins during the quarter. We announced a $7 million repeat order from a leading healthcare OEM customer for portable device assemblies. We also received another $7 million order to provide electronic subassemblies to an advanced engineering solutions OEM.

In fiscal 2025, we believe that our recent expansion into Mexico, the Tecate operation will benefit us for near-shoring customer activity, along with our favorable position globally in South Asia-Pac region and in UK as large OEMs are seeking to establish or expand their supply chain to de-risk their exposure to China-centric supply chain.

Based on the ability of an opt-out division to effectively adjust to market trends and changes in customer demand, we believe opt-out will continue to achieve profitable growth.

For patient monitoring in the US, primarily as hospitals continue to differ capital purchases. Despite these hurdles, during the quarter, we secured a six-minute order award from a US-based hospital to provide patient monitoring solutions and related accessories, including exhibit, central stations, expression, patient monitors, and acute patient monitors.

Additionally, our Rothman Index predicted an analytic solution is seeing increased success.

Our clinical services offerings also continue to be well received by our clients. We are committed to advancing our next generation patient monitoring solutions and enhancing the innovative features of our products to help doctors and clinicians deliver improved healthcare treatment.

We adjusted the healthcare division cost structure in the quarter also, the benefits of which are expected to primarily start realising in fiscal 2025.

To sum it up, we are confident about our company's future and excited to build on our stellar fiscal 2021 performance.

We are extremely excited and confident about fiscal 2025 and beyond.

I will close this portion of the discussion by thanking all our employees, customers, and stakeholders who have played a part in OSS system success.

With that, I will turn the call back over to Alan to discuss the financial results and fiscal 2025 guidance in more detail before we open the call to questions.

Thank you very much.

Thank you Deepak.

So let's review in greater detail the financial results for our fiscal 24-4 quarter. Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the prior fiscal year. This was primarily driven by our largest division, security. The 27% Eurovere year increase in Q4 security division revenues, what's led by strong growth in our cargo and vehicle inspection product sales, as well as solid growth in our aviation and checkpoint product sales. Q4 revenues included continued shipments from the $200 million plus cargo contract announced in January 23 and from the $500 million plus cargo contract announced in March 23.

Third-party opt-of-sales bounced back nicely as sales increased 6% year-over-year.

We continue to see certain opt-of-customers adjusting inventory levels and or ordering patterns which we anticipate through the balance of calendar 24.

Although the healthcare divisions Q4 sales were the strongest of the fiscal year as Deepak mentioned, revenues were 15% lower than Q4 the prior year, due to a particularly challenging comparison period along with the challenging hospital spending environment.

The fiscal 24 Q4 gross margin of 32.1 percent was down from the 34.7 percent gross margin in Q4 last fiscal year. This was largely due to the mix of revenues, as Q4 growth was driven by a significant increase in security product revenues, which typically carry a less favorable margin than security service revenues, as well as a less favorable mix of security service revenues in the quarter.

The year-over-year decrease in revenues in the healthcare division, which inherently carries the highest gross margin of all three divisions, also contributed to lower gross margin.

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.

We'll be not operating expenses.

We continue to work diligently across each of our divisions to improve efficiency and to manage our SGA cost structure. Q4 SGA expenses were 71.7 million, or 14.9 percent of sales, compared to 67.1 million, or 16.3 percent of sales in Q4 of the prior year. The year-over-year dollar increase in costs was driven by higher compensation costs, including incentive compensation linked to our significant sales growth, increased professional fees, and unfavorable foreign exchange rates among other items.

Research and development expenses in Q4 of fiscal 24 were 15.9 million, compared to 15.5 million in the same prior year quarter. We continue to dedicate considerable resources to R&D, and we anticipate further increases in such investment in fiscal 25, particularly in our security division, as we remain focused on innovative product development, which we view as vital to the long-term success of our businesses.

We recorded 3.9 million of restructuring and other charges in Q4 of fiscal 24, compared to 3.2 million in the same quarter of the prior year.

Moving to interest and taxes. Net interest and other expenses in Q4 increased to 8.2 million in fiscal year 24, from 5.7 million in fiscal year 23, primarily due to increased interest rates on a higher level of borrowings.

Subsequent to fiscal year end, we completed a convertible notes financing, which is expected to reduce our future interest expense, which I'll talk more about shortly.

Our reported effective tax rate under gap was 18.3% in Q4 of fiscal 24, compared to 17.6% in Q4 of fiscal 23.

Excluding the impact of discrete items, our normalized effective tax rate in Q4 of 24 was 21.2%, compared to a normalized effective tax rate of 21.9% in Q4 of fiscal 23. For the year, the normalized effective tax rate in fiscal 24 was 23.4%, compared to 22.8% in the prior fiscal year.

I will now turn to a discussion of our costs with 14.8%, compared to 15.6% in Q3 of fiscal 24, driven by the top line reductions in healthcare, and a less favorable mix of sales and the security division. The adjusted operating margin in the security division was 18.5% in Q4 fiscal 24, which was roughly in line with that of Q3, but down from 19.3% in Q4 fiscal 23, given the less favorable revenue mix in the division.

The adjusted operating margin in our opt-of division increased to 13.9% in the fourth quarter of fiscal 24, from 13.8% in last year's Q4.

The healthcare division reported its strongest quarter of adjusted operating margin for the fiscal year, though it decreased to 9.3% in Q4 fiscal 24 compared to 12.1% in the prior year on lower year-over-year revenues.

Given the cash flow, in Q4 fiscal 24, we invested significant amounts in working capital and supported the company's growth. Cash used in operations in the quarter was 29 million, primarily due to increases in accounts receivable associated with the security division revenue growth. CapEx, in the 2024 fiscal fourth quarter, was 8.5 million, while depreciation and memorization expense in Q4 was 11.7 million.

Our balance sheet is solid, with modest net leverage of 1.6. Aside from $7.5 million of annual required principal payments under our bank term loan, the bulk of our bank debt mature as in fiscal 27. As mentioned earlier, subsequent fiscal year end, we issued $350 million of convertible notes with a coupon of 2.25% due in fiscal 2030 and an initial conversion price of approximately $192.

The proceeds were used to pay down our bank revolver and repurchase approximately 550,000 shares of 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 a significant reduction in interest cost and a reduction in the share count.

In combination with the interest rate swap entered into approximately two years ago, well over three quarters of our existing debt is now fixed versus floating.

Finally, turning to guidance.

We are introducing our fiscal 25 sales and non-gap adjusted due to EPS guidance. For fiscal year 25, we anticipate revenues in the range of 1.62 billion to 1.65 billion in non-gap adjusted earnings per due to share in the range of $8.80 to $9.15. This fiscal 25 non-gap due to EPS guidance excludes potential impairment restructuring and other charges, amortization of acquired intangible assets, and non-cash interest expense in 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 in interest rates is difficult to predict, and could vary significantly from the anticipated impact currently reflected in our guidance.

Actual revenues and non-gap earnings per diluted share 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.

We believe our efforts will enable OSI to continue providing innovative products and solutions.

At this time, we would like to open the call to questions.

Thank you.

Ladies and gentlemen, at the reminder to ask the question, please first start 1-1 on your telephone and then wait to hear your name announced.

To withdraw your question, please first start 1-1 again.

Please stand by while we compile the Q&A roster.

Okay.

Our first question comes from the line of Josh Nichols would be Rowley.

The line is open.

Yeah, thanks for taking my question.

I guess first of all, Deepak, congratulations on the retirement, although I know you're going to be staying on board to oversee things.

Clearly, the company's been having a great run and it looks like set for another year, right, in fiscal year, 25 as well, too.

If I want to dive into a question, I guess good to see that the growth for this coming year, North of 6%, right, coming in better than what we had thought.

I'm just kind of curious, given that we're already kind of close to two months through the first quarter.

I know the September quarter is a little bit seasonally slower just because there's not much activity in Europe.

Could you just provide a little bit of color about how you expect the cadence of that growth rate to kind of play out as we go through first quarter and kind of build them there?

Josh, this is Alan.

I'll take that question.

So really good question.

Yes, typically we see that Q1 is our slowest quarter of the year given the summer and some of the holidays in various countries that you're discussing and suggesting.

That being said, given our strong backlog, we do anticipate robust growth, even in Q1, you know, certainly downspincially from where we were, but on a year over your basis, we would anticipate a strong Q1 on a year over your basis.

And then our revenues kind of building into Q2 and into Q3.

Great.

Just thanks.

Just want to make sure I got the cadence right now.

I want to just kind of touch on gross margin and cash flow.

Clearly the company has been investing a lot in things like inventory this past year.

And I'm wondering like what the expectations are for gross margins and how that will impact pre cash flow for fiscal year 25 as you get behind some of these large like more product heavy deliveries and services revenue starts to become a very component of the mixer.

Do you think with the backlog as much as today that gross margins are likely to remain where they are giving the order of cadence that we've seen that's been persistently high?

Yeah, Josh, this is all again, again, really good question.

You know, in the gross margins, they will fluctuate from period to period based upon a number of factors, some of which I had just earlier in the comments.

You know, sort of that being said on an annual basis, you know, I think we see an opportunity to expand the gross margins, particularly as service becomes a bigger component, which inherently carries a higher margin than our products generally speaking. So I think there's some opportunity for gross margin expansion this year.

And as we move into into future years from a cash flow perspective, this was a year of. Significant investment in working capital. We concluded the year with a big investment in receivables as we as a strong sales growth.

So that being said, we do expect that effectively flip.

So the higher DSO and higher days inventory that we have associated with the growth when we grew 20% or so last year with kind of the guidance that we're providing this year for still stall growth is we do see an opportunity to generate very meaningful free cashflow in fiscal 25 and and beyond.

So it's an exciting exciting period for us.

Thanks.

And then last question for me, I know there's been a lot of skepticism over last year, year and a half about how sustainable all these award winners of the company has been disappearing.

And when you look at the backlog today, right, despite the record quarter that you guys had still near record levels of 1.7 billion.

I think people are starting to come around to the fact that that there is a durable growth story and with that, you start seeing the share price continue to grind higher over time.

When you look out for this next fiscal year, I'm just kind of curious like how much do you think of that current backlog is likely to be recognized and also equally as importantly, what do you think is the potential large opportunity wins that you still have in the pipeline today so that you're kind of be able to replenish that backlog as you have recently with other large opportunities that come to market.

Good question.

This is deeper here.

Obviously, we can't break it down.

How much of the current backlog that shipped out, Elsa Allen has mentioned to you many times that it varies from quarter to quarter, depending on the readiness of the customer to supply chain and stuff.

Regarding the opportunities, like I said in my message, we are very confident about it.

Our pipeline is very strong and we've been saying for some time as we get larger and larger and get bigger customers and get a good reputation, we distinguish ourselves from our competitors and the customers all over the globe are looking at it and the reference checks out. We are very confident that there is pipeline is very strong and there are significant large opportunities that are there internationally.

At the same time, the aviation sector is coming back.

That's another positive for us, air cargo.

Keep in mind that US business, especially CBP, was not a big contributor in 2024 and as it comes into 2025 and beyond, we are quite confident that we'll be a big participant in the business.

Worldwide.

Appreciate the color, thanks.

Thank you.

Please stand by for our next question.

Our next question comes from the line of Jeff Martin with Roth Capital Partners.

Your line is open.

Thanks.

Good morning, Deepak and Owen.

Congratulations on a fantastic fiscal 24.

Deepak, kind of segueing off your answer to the last question there with the US CBP.

Just curious what you're hearing out there in terms of potential times.

The timing of follow-on orders, I think everybody feels pretty confident that you're well positioned to win a good portion of potential follow-on over there.

Well, basically, can't comment on specifically, but we are very well positioned, as you said, CBP are very happy with our performance.

There are some IDI kills that are presently still have some room left onto it.

There is more being talked about, the budgets are being looked at it and we think there is strong possibility of growth in CBP business and we should get a good share of it.

More than that, I can't comment on.

Yep, that's fair.

With respect to the Sedan, that $200 million international order, what's just curious if you could give some perspective on what percent complete those two contracts are?

Jeff, this is Alan.

While we don't go into specifics on individual programs, I would offer that we are further along on the $200 million international order given that we received that order a few months prior to the previous order. So significant shipments on that occurred in fiscal 24, which as you might remember, we started shipping that actually in Q4 fiscal 23.

We did make significant shipments on the Sedan of $500 million plus order as well, but a lot more shipments to come on that project. And of course, we also got the follow on order with Sedan for another $100 million order that we are gearing up here in fiscal 25.

And maybe what in markets, those might be geared towards.

Well, you know, I'm a good question in a way, but they are two little separate things.

We continue to look at certification and of various of our products and technology, but in the R&D spend one of the success stories that we have and we are very proud about it.

We have the broadest product portfolio compared to any of our competitors, so that we continue to innovate and spend investment to continue to broaden it to put more AI into it, to be more efficient into it and to work with our customers for their custom needs, especially doing the third scan integration into the product line customized to our customers, and that's the kind of innovation we are doing but we want to continue to remain ahead of the market compared to our competitors with a product threat and that way we can continue to grow.

That's very important and that's in our DNA.

CJS Securities, Yilan is open.

Great, thank you.

Good afternoon.

Good morning.

I guess the first question, and then you guys don't provide specific segment guidance but just curious, any color sort of in that 5 to 7% growth.

It sounds like all your segments, your company are probably improving, maybe all will grow year-over-year.

Obviously security grew, but there are these last year so we expect that to slow down.

Is it fair to just use like that mid single digit as a starting point for all the segments?

The security made the grow a little bit smaller than that.

What's like bookings are kind of, you had a great, you know, last couple of years and they kept up with that but in order to grow faster do we need, you know, acceleration of bookings or is that service component going to kind of kick up, kick in and draw that sort of mid single digit growth.

I guess I would do the first question.

Larry, this is Alan, so good question and you're correct.

You know, we generally don't provide guidance by division but that being said to give you some direction, we would anticipate the strongest growth to occur.

We're in our security division.

We're again, anticipating a good year, you know, probably followed by Opto.

As I mentioned in the comments, more weighted to the second half in the first half as more right sizing and inventory is occurring, but we'd expect, you know, solid growth and Opto for the fiscal year and then health care, you know, maybe just some small modest growth.

Gotcha.

And just in terms of the on the service piece, I know you mentioned mixed down year over year.

It looks like service revenue was basically flat, you know, year over year and I grew a lot.

I know can for last year.

What's sort of the outlook that does I guess the service component, you know, sort of kick in the next few quarters of year and still base obviously has grown significantly in the last year.

I assume that some kind of warranty period or period where you don't actually get more service revenue.

Is there any more call you can give us on that and remind us sort of the difference in growth margin between product and service in a general direction?

Sure, Larry, this is Alan.

So you sort of hit the nail on the head as we've gotten a larger and larger installed base of our security products and as they roll off of warranty.

The service revenues begin to kick in so we would anticipate some nice growth in our service revenues, you know, throughout throughout fiscal 25. And as you correctly point out as well, you know, the margin profile of service revenues is generally superior to that of product revenues on a on a kind of a consolidated basis and there's a meaningful, meaningful difference between the two. So all of that can lead to some enhanced margins for us not just this year, but as we move into future years as well.

So we look at the service revenues which are good recurring revenues as vital for us.

Gotcha.

And just a question, just be back to follow up on the CBP question.

You can't, you know, answer timing and whatnot.

But I guess there, I know there's another out, I guess, just still piece of the idea of Q outstanding.

So hopefully that, you know, we'll happen next year or so or whatever.

But I guess my question here is, are there other US agencies?

It works like a lot of your growth has been international.

Are there other US agencies beside TVP where, you know, we're there, sort of in that final of opportunity to see that.

Good question.

And the answer is yes, yes, and yes, one is on the CBP side, as we are sitting here, they're getting their budgets approved into it.

And this from it looks like it's a pretty strong significant budgets for CBP going into the next year.

On top of that, the other question, yes, there are other agencies, DODs, the big customer for us, that continues to do look at it.

There's air cargo in a way.

There's also the Department of Defense and all these, especially one of the things that we all talk about it, which is a little bit awkward to say that as the world goes through this unrest in Middle East or the Ukraine and stuff, ultimately all the area as it settles down requires more security around that area.

And that continues to grow for us.

Department of State is a big customer of us.

So we look at other agencies besides CBP.

And right now, there's a lot of interest.

Gotcha.

I guess just last question.

Indeed, I expect it.

I hope you'll remain active.

I'll expect you all as the chairman when we find a replacement for you.

I imagine that that search is probably a slow process, probably not that easy to find someone like yourself, but you know, any timeline, sense of the timeline on that.

Is it like a four year end?

You think you'll have someone in place or what are your thoughts there?

Thanks.

Well, that's the plan.

I mean, put out an announcement before that by January 1, we should have the new person on board.

And as you mentioned, I'll still be there as executive chairman, but that's a plan right now.

And we are quite, quite deeply involved in it right now.

That's a great thanks.

Thanks for all the color.

Thank you.

As for the ladies and gentlemen that start one one to ask the question.

I'm showing no further questions and the queue.

Well, thank you very much once again for attending a conference call.

I again once for all one of the thank our employees, customers and stakeholders and looking forward to the October call after the first quarter.

Thank you very much and thanks for your support.

Cheers.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.