OSIS - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the OSI Systems second quarter 2018 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

As a reminder, this call is being recorded. to host like Mr. today's now would introduce for your conference, I Edrick, Financial Alan Officer. Chief

begin. may You

Alan Edrick

XXXX Thank quarter And CFO today, call. Good Chopra, OSI Edrick, release And you. Systems afternoon. press here we our Executive fiscal I'm joining I'm an our X-K. financial fiscal Welcome announcing Vice issued Alan President us. second and results a President to with quarter and Earlier and today of year CEO. systems. thank OSI second Deepak you the for conference XXXX

undertakes obligation events because becomes the and and be Reform Before statement materially from remind to forward-looking described we including and to are statements this available date respect to speak of information with otherwise. filed time control. this subject information contingencies, expected our contains In deemed update call as operating or divisions; company and like factors, the legislation. Private differ discuss company's untrue our may time. expected the actual forward-looking are These Act the SEC and that and are and wishes based financial results, regarding statements Litigation no provisions All numerous uncertainties, tax its outside any company or the the based statements on under with information advantage to on call take factors I forward-looking revenues, subsequent forward-looking many risks, of growth; from everyone of the to would the to to this performance of Harbor XXXX of laws. conference that new periodic regarding currently connection statements could are without the current company the operational Safe discussion with limitation, assumptions results only that statements the be of new earnings made and call, that include, due expectations which to today's securities forward-looking effects expectations of of statements. the Please Securities in forward-looking advised of reports Such management's on company's be

conference results. operating today's call, measures may to financial company's and of financial both GAAP the During and we refer non-GAAP

For information a and Form furnished SEC been refer figures, quantitative GAAP today's measures of has the regarding quarter to and report which comparable press non-GAAP on an regarding measures XXXX as a current please reconciliation release exhibit our second to results, to X-K. those

second high-level Before specified. Deepak business otherwise the of overview call the fiscal turning All QX fiscal my QX operations, references be will financial to discuss to fiscal general provide will unless and compared the XXXX quarter. a over I to XXXX to

by record First, the up detection XX%. we year-over-year $XXX by reported and checkpoint QX acquired security products fiscal reported primarily OSI QX we related cargo and in services, which trace We explosive business, of aided saw strong organic was from record and second our growth increase XX% our new revenues first was in XXXX. for This driven of million, which quarter million, which our a division, of revenues net $XXX revenues quarter increase. a

were Our X%. up revenues Healthcare division by

the of a revenues of our reported solid division And prior-year impact the Excluding up X% were QX non-core XX%. business, Healthcare Opto divestiture growth.

non-GAAP tax to prior-year. reform. legislation, basis, million net tax $X.XX intangible per net discuss primarily tax which QX interest in reported of also The GAAP the of On $X.XX the in diluted approximately per a tax will Non-GAAP of we of share was more up diluted later discrete other I expense, Second, during assets non-cash effects. the amortization per the was charges, of reform the expense loss and impact excludes loss impact QX share excluded all share, bit EPS related $X.XX impairment $XX compared EPS to acquired diluted XX%. a restructuring of related and of call. due to It detail earnings largely

of impact the the effective rate our expense, tax Excluding tax discrete was XX%.

were Third, was flow $X million. expenditures operating million for $XX cash and capital the quarter

first XXXX, X.X. million. the flow half operating cash book-to-bill ratio non-turnkey our QX $XX was of For fiscal was Fourth,

Our of start December was the million, approximately total backlog year. fiscal as XX% an of from XX, increase $XXX the XXXX of

diving guidance, Deepak. and turn numbers more over Before XXXX me call to deeply fiscal into discussing the let the

Deepak Chopra

today's Thank you, everyone us joining you to thank call. on Alan. And

to of has contributed an of sales, and fiscal Each mentioned, cash Healthcare and performance. earnings adjusted quarter's growth – – strong Alan XXXX, As achieved had quarter excellent Security, Optoelectronics having flow. our half we this first and divisions three

a discussing an and a launched attack misleading would in I earlier on are disclosed we detail, reports continuing matter the today. Before false Their are stock. short based our assumptions. several seller address divisions that December, like on to and In

Separately, the the trading employee. the into looking DOJ Following the stock SEC they by with are matters and publication DOJ a report, investigation, executives, to were company employees. by we report. that to seller's and subject their In has taken in contained action the short directors looking of notified SEC the in the initial of and senior OSI are into relation respect

efforts the on appreciate, with in The $XXX legal the very from out beginning our XX% seriously QX business, very prior-year. take in those Reviewing the July were As anticorruption $XX Security we any a division, acquired of and pride strong in revenues million, recently you XXXX. million acquisition are Security. comment increase has these explosive performance detection division matters each the deal for come pending from and compliance a of revenues gates since includes further. trace company This which the our areas. takes can and and in our and QX securities in compliance cannot we great policies trading highlights

We have made Security integrating substantial into strides sales line the trace product overall infrastructure. in and operation our

bookings related and HBS book hold improved a RTT performing first a with baggage approximately X.X QX In our inspection baggage bookings which book and for nicely Security growth our well, sizable The million, for is million, business Security screening half services. global across sales to system a in strong robust core our of the was ratio. cargo and to opportunity $XXX non-turnkey product to distributed market, represent continues were a bill were Our bookings representing platforms platform various growth. non-turnkey reflects X.X and ratio margins. bill and $XXX aviation

During This systems units carry-on security testament the and equipment, service after a be a to Union multiple in follow-on an quarter, Airports Shortly European Metor included baggage in is continue to we customer product The were RTT quarter-end, detection of to systems pleased portfolio. Latin agreement Charles RTT approximately area meet from for to growth America, to gear our Airport metal Gaulle strategic hold multiple also systems, the additional and us. a order up in to receive baggage RTT which airport for checkpoint France. breadth screening order for the XXX This including the in Panama, multiple inspection the gates. order ECAC installed follow-on at series provide of screening explosive $XX million of million includes our International $XX support. announced we de first deadlines.

detection notified front, detection Homeland highest named chemical Awards Security and certification XDX the Also, efforts we solution recently detection and category that the explosive were and to best were for RTT solution Itemiser platinum RTT best XDX XXXX the certification support continue Itemiser the On system. XXX the trace winners, for award GSN for we TSS respectively. at US activity the

Shortly program sales the on new we quarter Moving new utilizing contract the of a to revenues during two-year expected what inspection The for continue and integrated in call. after a security, guidance and agreement the cargo our expected we are conference services providing wide-ranging announced in systems. our screening portion. to end, reflected last vehicle with in XXXX what Mexico fiscal consistent services was

after the expertise when and decisions to very we integrated fact alternatives back an major our is dedication, reviewing has continue the international Overall, there. running see been on and for smoothly systems. potential scanning Albania program showcase effectively customers. base service almost become scanning professionalism The Hurricane inspection program Maria, a online was Puerto and making of cargo that Our for reflects that prospective Rico has customer immediately a expenditure people

equipment We These typically and with potential the manifests, numbers. globally with matched successful or scanning three the very ourselves images resulting for have highly Under local proven all attraction a gaining firsthand as additional either and the cargo vehicle sites benefits. programs images cargo see operate customer, customer. performance license and are and our our design program, build we inspection such partner, the of store as services custom are each projects proud declaration integrated the for analyze the manage, and identifying and customers data

network. financial are multi-year using The other government most as customers software quite cargo the by By in a by programs enforcement have a normally thereby uptime thereby the smuggled generated cars, data of than the the our at only very increasing has manage and benefiting performed they guaranteed by importantly, programs items, buying against and weapons, cigarettes. profile for CertScan law with provided business our public, refresh. upfront while as achieve and well do for customs, the proven currency leverage programs by offerings. as extremely interface shippers, duties. customer. of technology, and adding product collection of with customs long-term customer's and such high services the improve increase safety we the tool liquor proprietary service flexibility The us reliability a investment high-bandwidth, that gain as the commitment have AS&E's drugs, frequently a We the the high programs networks the transparency volumes accuracy required rather we data that paying and the well of effective smuggling also to Not lot service be security the and, wider These technology checkpoints, lawfully of benefiting our

frequency service we time resulting to base strong. the checkpoints ETD The appear international Pacific announced larger mobile combined ZBV from a orders, fixed provide international sale, of products. AS&E' prospects MXX multiple installed bands another cargo we to Rapiscan to equipment included very for yet are our with contract agreement customer. to monitoring recently and renewals, solution security to Rapiscan, customer, at be multi-year added the a see critical AS&E, of sold Along Security to beginning and continue greater for of long-term During portal Rim-based the customer quarter, wins which high-energy cargo another GXX a

in In strengthened position well-suited acquisitions capabilities. addition our to focusing that segments our new that on marketplace, we're market to are our the have

strong events. beginning events. have market integrated services sporting For very security track a to initiative security for sports record to technologies supplying now the example, in But enter for are strategic we major we a

be will have and golf tour are Senior for called QX, Champions Rapiscan now happy formally and Tour, in be with Tour Biloxi, title in Mississippi, event During into which the will March. of the announce held PGA agreement the to now the an I'm entered we sponsor the Classic Systems called

providing We screening players will our of be the service the and the safety model. integrated security the utilizing for attendees,

plan to at We total service portfolio. this event, our showcase, also

and negotiating FIFA as the are XXXX Cup, PGA line at Tour an acquisition at doing has the opportunity this recurring build and the reputation with events Gold experience sporting at such Games, We frequent, during allows the initiative security venues. for In global on performed building us beyond, more venues well to onset. Champions additional the product new services at Olympics, World the summary, Coast a ETD

Mexico new to in product the market strong. bookings to we numerous well our offering where Our with the services. agreement aligned are for division Security In expect finish existing grow. seeing year and prospects, first opportunities continues marketplace we're we are this excellent and RTT to the very With presence strong we half the execute screening happy cargo,

we our believe is of well-positioned fiscal opportunities these XXXX, seen to of we pipeline opportunities. and strong and into capture Looking are many we've

division on were particularly very organic basis. higher did solid The on which to XX% Moving US million Healthcare reported revenues quarter, a region or an $XX.X well.

of announced a US-based on Healthcare and solutions and product year-over-year related provide large to foundation delivered team hard consecutive monitoring capitalize stronger growth. fourth base a patient we to the center. accessories quarter, medical organic Midwestern has major order the working has quarter refreshed operational The to During and been

believe that expansion progress aid the we ahead, of global spending capital the continue creating more should Healthcare opportunities. hospital as and Looking will to economy

than profitability. higher sensor Moving our sensor saw which certain typically X% prior-year. in the as strength over our revenues applications, Optoelectronic higher increased quarter We to mix military for improves to division, its the for business demand the

global infrastructure We continue to utilizing growth, external to and to this division deliver while profitable flexible meet smart, demand. up our look to internal

growth performance mentioned a As previous delivered adjusted that high both supplier sum in we resulted is where earnings security division a was QX this calls, had healthcare and it in up, divisions. growth. business to also topline each To critical strong

and converted team Security sales Our on initiatives. critical operational

profitability. has with customers Opto thank the over quarter division's we continued each shareholders really call I'm about improve and would turn pleased consistent topline financial team ability over our support. to for like With to and talk before to are our going calendar last growth successive and Alan to I Healthcare Thank year their that, Our performance the to questions. the deliver employees, you. detail the opening for in call to

Alan Edrick

you, Thank Deepak.

the financial in greater review for second results let's the fiscal quarter detail. Now,

Overall, growth and on business. XX.X%. and divisions up Security increased. revenues a As growth Security our favorable mentioned Revenues division organic acquisition. well Healthcare were Healthcare previously, revenues Opto resulting increased XXXX the division revenues by basis, performance of detection an to fiscal as in across economies was strong the revenues led were of to gross diagnostic the as XX%. trace explosive in the margin intercompany mixes product international the in of driven X%. as large divisions patient of attributable in portfolio significantly X% XX% well scale grew cardiology strong as had the increased Opto by channel to it our expansion sales by higher QX our our as segment increased efficiencies. by Security US sales the support and division and much by sales impact contributed to product QX greatest in in XX% QX from operational and monitoring Each division External of The as the

amongst previous our on calls, period will gross factors. product margin period fluctuate mix, to based from on other mentioned As

and Moving to acquisitions of the fiscal XXXX, support to in was in SG&A growth operating of expenses, $X.X division of primarily division. the the million, QX due up Security in

also the company We additional saw corporate overhead grew. as

the were be prudently R&D in the million, increasing $XX.X investment acquisitions our up efficiencies all increased expenses XXXX. $XX.X enhance divisions our We of structure. and remain we QX due development, restructuring to other continue to view focused QX success our $X.X charges million our portfolio. QX which $X.X and Security million focused of to fiscal long-term of in compared to division cost on managing primarily from were We million in vital product to innovative on in product and business. Impairment, and as also

of and our in Cuts of approximately we current the and revaluation as taxes, Jobs recognized of the result of one-time represented of which to deferred Act Moving in a December estimate XXXX, a the fiscal enactment charge accumulated tax Tax of million tax overseas QX XXXX, liabilities. the assets $XX on profits and

on of a year-end, our Given rate will XX lower in company's federal act's of tax year. corporate not will the Based tax XX% benefit next June realize XXXX. the until fiscal analysis it we XX% the full for act, tax result tax fiscal of the expect US initial fiscal statutory rate the we of approximately

the in among materially the legislative tax from in the changes may impact XX%. charge certain amounts the to, was Excluding tax items, other act, calendar may any and of by be due in questions for of address to related any finalizing taxes recording taken year. response standards to to tax accounting arising this end or adjustments XXXX and resulting act. the and other anticipate the We that act interpretation due things, approximately any of estimated tax tax final act, also the rate discrete income interpretations The action our differ changes

equity among income foreign of tax for tax jurisdictions income items. upon differences, impact provision and differences among from countries permanent taxes mix exercises, taxable well valuation rate Our and of other the based as and vesting is as and allowances, the selections, US

adjusted earlier the discussion in excludes which a now the turn let's non-GAAP mentioned of turn operating call. items margin, So, the to

operating QX be and the period. would XX.X% in an in with improved markedly non-GAAP compared profitability, at increase the in fiscal sales adjusted company's expected margin coming As same in of XXXX, prior-year X.X% to

margin XX.X% operating With contribution of sensitive division improved reported offsetting QX The is product last X.X%, improvements, the Security, and division the operating improving the significantly divisions adjusted prior-year coming margin the in Security and down highest expansion, of coupled The fiscal in the operating the to three in of to in the has division, margin XX.X% XX.X% XX.X% margin with at division QX in the in mix. period. strong solid in prior strong a Healthcare QX's margin year. on and was leveraging again revenue is and XXXX to the X.X% Partially the growth compared top slightly geographic the gross the sales favorable line. Healthcare to was amongst margin operating a basis, year-over-year Opto in the higher as from fiscal of

XX to flow outstanding, $XX.X million down prior-year was $XX compared Moving period. days the cash sales in same in the at at by XX was million. XXXX. the $XX.X depreciation operations basically while QX was to $XX.X million, the down fiscal and to in of Days fiscal were came XX for days, the in reported quarter XXX days QX, DSO, and XXX, days last million in end QX expenditures Days or cash line of in inventory amortization with flow, reported from Capital from XXXX. QX XX of days compared

Our remains balance strong. sheet

to guidance. Finally, turning

billion revenues We the sales, to non-GAAP in XX% put are which to us fiscal $X.XXX billion. would our We and XXXX XX% guidance both anticipate growth EPS. range raising on of in $X.XXX

from This discrete diluted of amortization this and generally, and that addition, including vary expense, We assets our the site and costs anticipate and restructuring each we customer acquired believe sales currently growth our non-GAAP other for impairment to business range product installations, beyond $X.XX intangible legal share earnings uncertainties earnings, charges effects guidance acceptance as timing In the sales such and items affect $X.XX. in and readiness to reflects net and the industries items. Actual and control in related orders of tax interest tax certain non-cash earnings excludes because per including of reasonable division. risks could and however, of estimates. all

record our strategic in continued sales investing product track and We and and innovation making development selective solid of earnings acquisitions. flows while strong generating cash growth, and

Our investments the call to us time, would solutions leadership in have enabled introduce like conference have market this Thank turnkey at to and our products innovative our you the services screening us continue across industries. allowed participating open various the and to for this into in market And to questions. call. we role

Operator

Instructions]. [Operator

Our with Drexel first Brian Ruttenbur question Hamilton. from comes

now Your open. line is

Brian Ruttenbur

quarter, the way. very thank much. good Very by Yes, you

right jump flow. cash understanding So, into

cash had was nature that one-time You cash Was flow. an of there Was pull revenue? in extremely there strong understand in it forwards way average above period? flow going because forward quarter. this anything trying I'm to just happened

Alan Edrick

Yeah. questions. things. Cash Brian, us resulted you. really Thank flow for good outstanding two Alan. from quarter This probably the was primary and is in

that the also Just profitability working we that customer strong of and the aided. general some management received better company, capital advances

also a some that not that QX, was came strong You're quarter strong significant from amount, to there of right revenues and that bit little helps forward also cash a contribute some a flows. but

Brian Ruttenbur

Okay.

flows to quarter right? of because should quarter and just in that see from we the seasonality So, drop bit healthcare period, a little cash also of March the

Alan Edrick

correct. That's

Brian Ruttenbur

the right? – We in that security first to should drop Because of of a is the December model is revenue period contract Okay. in kicks Mexico. it in kicks March this new then, it just this in. quarter terms the period, to from because have And trying quarter revenue,

Alan Edrick

annual And our you're change but, Mexico Yes. contract be some that that was that you speaking, basis, a Brian, QX than there's bit we, right. provide seasonality. new on generally the period QX And then, factored mentioned, question. correct. a stronger good would And generally as guidance see an into guidance. from We to the due course, is of

is our than speaking, quarter quarter. fourth third generally our So, stronger

Brian Ruttenbur

number appears if you wins mentioned, if in update on you're because it in up I I period. that RTT and Europe there it And could had wasn't of going going on then, roughly talk give on, good couple but win could rate and bring airports and – this your of what's a an us what's

Deepak Chopra

we what robust. we the about is talk it already here. is except very Deepak this announced. Brian, have Obviously, Yes, specifically, don't pipeline

said we deadline of coming couple on last for times, calls the a many, As requirement of many closer. is ECAC's

So, airports it. look the a of lot Europe at in continue to

what to very airports. for that America call I win we Panama of is in comment us last I competitive couple the presence the happened meet revamping can't for considered confident it would percentage of and are Our our but one I reasons in win a of helps in a take maybe quite biggest you quarters. has the because intake starts be their successfully airports as that large strategic as new all, that already All Latin what is, standards, saying in in have

Brian Ruttenbur

America Latin with mentioned you the RTT. And

share then $X a So, to Europe. or America in you and and above roughly seem on with something Is billion in And the making South deadline least that America your them it's winning going opportunity Latin XXXX some. respond share be at is to your Europe?

Deepak Chopra

Well, airports two-sided question. in Obviously, worldwide. is pipeline the pushing And are Europe all yes, there the towards total it.

and East opportunity requirement not as upgrade Some as want the only have of America can airports, X, best want to the at get lifetime with XX a make get Asia, of kind Middle years, they doesn't exceptions. ask that who sure those our is product anybody America, want growth so that's all they going to these of that there are Latin XX, best product. the for But the products ones their potential are looking such. because we Latin to just to out areas smaller we

Brian Ruttenbur

haven't you've then that's back there forever, that? off question, in followed And gone recall your that issue, had been searched have like, I've it issue in past any – the any on all FCPA Has the documents. anything Okay. seems had of memory. I ever guys but last and just – addressing history going I you the you don't

Deepak Chopra

with of open proud and policy, ethics the And seller short FCPA our them, working policy, triggered this very by are we dialogue. training. our And we with are No. cooperating

Brian Ruttenbur

you thank Okay, much. very

Operator

Securities. comes Solow Next from CJS question with Larry

line now Your open. is

Lawrence Solow

ethics just the of you Deepak, already is that sensitive briefly seconds factual review to history comment realize Can looked? a Can real Great. XX If in issue. wasn't just I that the investigation contract? court Europe, take not so maybe the by already I'm that? was somewhat Albania on Thanks. Good you mistaken, afternoon. a reviewed

Deepak Chopra

government competitive we true, that's We a fair went through what square. And said. an changes It bid. we you've was and won basically, in tender. and Larry, open two

We have a Vienna. renewed went changed, some satisfied in government the very prevailed. an And And customer. When what new had They in hesitation. going the We government we we coming well. negotiated basically, into stopped contract contract. arbitration and been the a I call it's

I not and answer that the it is well. has a And it's it's you getting what and a to we before, have only been it through gone showcase about has that, at government, So, are lot internationally very proud attention the lot customers of but – working looked a been changes. very where of said it two It's it.

proud very are Albanian to government. the We be with part

Lawrence Solow

– I guess, accounting like may, two like, that? parts. with I of it. described, any there's Can you seller which just give short believe but it's sounds what is you're way you any bribery rebuttal – to sounds that, the of for also is if sort And there issues that from to it some hard there the just

Alan Edrick

is we're can accounting Larry, short as firm audits our point Alan. the auditing you go point course, don't with tell seller by What of is financials. report. the we with this comfortable We, is into the who

Lawrence Solow

Okay.

one Doesn't quarter. a Brian forward does just the it's it of pull as – are segment in situation. a sensitive above piece. business I sustainable? still guys I Security. look the margin years? just where are appreciate was levels know segments, should two guide view corporate subject, bit to you in were, XXXX. little segment great for like that significant over margins on that that and amount. But and been hurt its the how said, back RTT was I the insight. of somewhat the bit know – know on. the even a out sound we Are – a And Security Has quarters don't back average? like operating move about we the a you these had But Is in they hurting – I Security XX%, next this seem your that recovered? there's or piece sort year-to-date Obviously, of above for XXXX little maybe it's average margins in Let's but as to

Alan Edrick

Larry, Good this questions. is Alan.

right. You're

our on an very basis adjusted first year. in really forward. fiscal being we've talking and improved products margins we've ramp been have margins for the improve trace RTT provide that mix margins in the strong of with the instance, the We margins guidance That an over half in operating beneficial business, of for seen with up Security in the operating as the been Our said, don't acquisition, past about the few on going increasing years, product.

things All of those will have favorable impacts.

– things that too. factor contract plays of for XXXX Of course, – about that in provided strong And a those talking what we we increased. we believe a while to the fiscal into role reduced been that for the guidance Mexico associated with revenues recently we've be all

Lawrence Solow

it. Got

year. in you much year, how is half of the that months was coming Was to Can last of least down now statutory for that the – the guidance? XX% EPS rate question versus Just rate the your did I back six on and us you for year of the the at full was know from I effective benefiting is XX% it what sort – give the say expected for there the increased what the guidance. guess

Alan Edrick

Sure, Larry.

taxes. was So, to relative our unchanged guidance

our good take a profits overseas. portion you place know, As of

on rate get of – benefit US further XX%, XX%. it to XXXX fiscal the tax in half half year before is the There's of from approximately that for to tax XX%. we're was on year effective perspective we're our about XX% our is company, year benefit the estimating and based based based a full calendar fiscal reform. an being even on is coincidentally reduction the is not XX%, opportunity a is and But So, year which with for where that which consistent also is as it we

Lawrence Solow

it. Got

a maybe little it. line? There's and So, is better purely operating below nothing driving the revenues higher profit

Alan Edrick

That's correct.

Lawrence Solow

much. it. Excellent. Great. Thank I you very appreciate it. Got

Operator

with comes from Kahyaoglu next Our Jefferies. question Sheila

line Your open. now is

Greg Konrad

on Good evening. actually Greg It's for Sheila.

Just of for year lower free up wanted on that, Is flow the cash flow. there cash guide and volumes any Mexico? to follow given for should free we type think about how

Alan Edrick

so question. this the profits cash cash the we not free very Greg, flow. but strong on. volatility pleased in Alan. perspective, Good from provide first is of a far Free cash guidance with metric with flow year. our free We half is that our see a flow quarter-to-quarter comes We're good

a sometimes course, usage there is with for working growth, Of capital.

at happy So, a with where on we're basis. we're year-to-date

Greg Konrad

one Thanks. US the some that there government competitors weakness on And mentioned then, side. of had your was

of CR. just of to that? seeing that any Have you Some related been the

Deepak Chopra

asking see any is about intake. We're optimistic our Deepak This product you're on we line, general No. US very weakness. here. Unless specific don't

Greg Konrad

just they're Thanks. forward? mentioned look we we the going in that And for lumpiness margins definitely you in margins, think at had should some about heavily Healthcare the last, then When the did think on the quarter, highest How time. some you dependent I volume. quite the

Alan Edrick

well monitoring have saw but mentioned, which generally I also, us. it question. This might very The as sales, strong were contribution margins international gross US sales, carries margins for higher the as we Healthcare, a carries QX strong an margin increase a as strong on in us for Alan. Good strong is as think line, was patient I also which cardiology top

quarter's very profits operating with that but in that see business. time, the to pleased from So, we'll time fluctuate we're

Greg Konrad

Thank you.

Operator

comes question from FBR. Drake with Riley Austin B. next Our

Your open. now is line

Austin Drake

afternoon, Good guys. Yeah.

did inquiry quickly. for you real investigation? receive When the the Just FCPA

Deepak Chopra

have subsequent, said we more not I would it. rather talk than it about we that but think

Austin Drake

you And next, larger across to about you the company of XX the could opportunities different over characterize capitalize talk operating lines? some the could environment Okay. like, the business the maybe you X think And on then, could current months?

Deepak Chopra

Alan, to portion, first the Maybe it? take you want

Alan Edrick

The environment? general operating

Deepak Chopra

Yeah.

Alan Edrick

Yeah. The we're a of seeing general environment, in funnel Security the opportunities business. strong

organic X%, Our X%, Opto in done business, and team we've our the over nice – and seen we've last real seen we've XX% job quarters, seen four XX% Healthcare growth. has – a

our I environments the that outlook operate. general So, think in bright we is

Deepak Chopra

to I your question of my part in add our to very statement. broad. on just opportunities second said is, are opening And the

the product this grow the what ETD are CertScan to software selling product we to in about and aerospace we growth in turnkey detection, being that are which in the and with we said security. continue for call to Alan the is opportunities a these. an the scanning, there's military in And line prospects And this your has in at now with opportunity of TRS in in I've broadest Washington, in us acquisition And trace have product turnkey have the great say proprietary in events, integrated all have portfolio funding growth we did cargo, healthcare. sporting very our solution about return security line. HBS, proud prospect optimistic biggest that a we services, a in in look also growth mentioned upon good with in in that the systems), in which that for broad mentioned opportunity. Optoelectronics, one big services, And have industry. July. medical, very, think our what that point big so we that (tray in we initiative, very talked a think have component defense in we we we the in a the And all cargo, has We the new RTR, embarking we our And are we

Austin Drake

Okay, and year fiscal of got about D&A CapEx remainder think And for how it. we XXXX? the great. That's should

Alan Edrick

that depreciated would the Mexico This became there a fully is January. portion of D&A will Alan. expect XXXX was in fiscal remainder decrease over the month our with as We of that significant of contract

today QX we we expect any CapEx of was both QX a over half and D&A significant currently course, From CapEx. second where a new not second see positive level. anticipating from the programs, So, which, QX is in unless of oh, There the part the year, us. very fiscal at I CapEx your win it for – was perspective, would are to turnkey of decline

Austin Drake

Got it.

is then, on just there the for the of Okay. that me, is And quarter in just or SG&A more simply lastly support company? growth the any from to the detail increase give

Alan Edrick

including it the the we is Yeah, for growth really of acquisitions support did. that company the

Austin Drake

you. Thank

Operator

Martin comes And question our with next Capital from Jeff ROTH Partners.

is Your now line open.

Jeff Martin

Good guys. Thanks. afternoon,

Alan Edrick

Jeff. Hi,

Deepak Chopra

Jeff. Hi,

Jeff Martin

half year? the of business you additional mandate flight the or I half medicinal that benefit just the the first its could run some second international Ha shed course to screening light, see trace in you by benefited in was the if in. put curious some that detection from

Deepak Chopra

speculate. an things. Well, again, difficult can very to incident or event An change

we pursuing stronger conference opportunities. of half whole hope the more in a some channel, business a our I much we was that But our standard we buying same have in structure, sales. that we And that last strategic sales think have to say and first line more did the and product we with integrated into respect call, pull we into to time, lot a reach, the broader baked Alan security are countries second the at half was XXX a broader than we the reason trace. have the are have our That's business better numbers.

Jeff Martin

the even that Healthcare, second patient half that in first second for there Okay. monitoring And to in XXXX is the or benefit? large contract was mainly or quarter then, benefit of a half

Alan Edrick

in Jeff, Yeah, it will was this subsequent the second that. quarter Alan. is shipped partially shipped understanding is partially to be my and

Jeff Martin

in And the pure portion of what's I tax-related cash terms the then, charge, cash. not it's assume Okay. related all of that?

Alan Edrick

Jeff. little cash. correct, is Very You're it of

today. based it. you actually And NOL have payable that But is would and eight expectations cash as resulting cash quite credits know, on the for also minimal outlay over certain We any tax charge also may carryforwards our on expected is years. us offset that

Jeff Martin

I all great. That's Okay, had. Thanks.

Operator

the I'm further call this I'd back showing to closing remarks. At over turn like questions. time, no for

Deepak Chopra

and with Thank second much. speaking and next again, everyone. you very half Ladies forward you Thank call. everybody. in day, at gentlemen, you. the call. you look Good thanks participating earnings Thank the our conference to once We for

Operator

gentlemen, your and thank program. conference. in does the today's for conclude Ladies This participation you

Everyone, You a may now day. great disconnect. have

OSI Systems (OSIS) 1 Feb 182018 Q2 Earnings call transcript