OSI Systems Inc (OSIS) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the OSI Systems, Incorporated, Second Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one, followed by the four, on your telephone. As a reminder, this conference is being recorded Wednesday, January 28th, 2004.

I would now like to turn the conference over to Mr. Victor Sze, general counsel for OSI Systems, Incorporated. Please go ahead, sir.

Thank you very much, and good afternoon. On the call today are OSI Systems Chairman and CEO, Deepak Chopra, the President of the OSI Security Group, Ajay Mehra, and OSI's CEO, Anuj Wadhawan. During our presentation this afternoon, we will make forward-looking statements concerning upcoming events, our expectations regarding the company's financial performance. Each time we do, we will try to identify these statements with words such as ``expect, believe, anticipate,'' or other words that indicate potential events. These forward-looking statements are subject to risks and uncertainties that may cause actual events to differ materially from those in the forward-looking statements. Please consider these risk factors contained in today's press release and stated during this conference call, as well as the risk factors described in our latest form 10K, filed with the SEC.

For a limited time, we will make a webcast replay of this presentation available on the investor relations section of our website. Our website address is www.osi-systems.com. Please know that the date of today's conference call is January 28th, 2004. Any forward-looking statements we make today are based on assumptions that we believe to be reasonable as of today. We undertake no obligation to update these statements as a result of future events.

Finally, this conference call is the property of OSI Systems, and any recording, reproduction, or rebroadcast of this conference call without the express written consent of OSI Systems is prohibited.

I'll turn the call over now to our CEO, Deepak Chopra.

Thank you very much, Victor, and I welcome everybody to OSI Systems Second Quarter 2004 Conference Call.

Revenue for the quarter was $51.1m and earnings per share, on a fully diluted basis, was 20 cents. Mr. Anuj Wadhawan, the CFO, will go more into the details on the financial numbers.

This past quarter has been a very busy quarter for the management. Our security business both for the conventional parcel and the large cargo continues to grow. Our big challenge in that sector from last year, as we have mentioned before, has been to fill the hole created by a one-time, $20m, approximately, from InVision Technologies business, which was in our last year's numbers. We are very encouraged to report the fact that we continue to fill this void from both sectors of our business, that is, conventional and cargo. Mr. Wadhawan will give you some more details on that.

From Q2, 2003, quarter, without InVision's revenue included in that, compared to this Q2, 2004, quarter, the security business as a whole grew 25%. On the acquisition front, we have strengthened our position in the large cargo, growth with the acquisition of ARACOR. ARACOR has an approximately $14m DPA with the U.S. Customs. Their Eagle unit was primarily designed to be a mobile, relocatable unit for the container scanning at ports. It was designed under the guidance and tutelage of U.S. Customs. It has the right design for maneuverability, versus penetration, for container scanning in a crowded port. We believe with the Eagle's acceptance with the U.S. Customs, and OSI's detection group global presence in marketing and distribution, that we would be well-positioned to show and tell the Eagle unit globally. In addition to that, the breadth and diversity of our large cargo product line continues to broaden and we can confidently say that OSI's detection system growth product offering, especially in large cargo, is the broadest product line in the world, compared to any of our other competitors.

In addition to that, the acquisition of ARACOR increases our awareness with the U.S. government. Ancore, our other wholly-owned subsidiary for [DFN&A] material specific group continues to make progress towards the El Paso installation. Our present target is to have the unit completed sometime in the latter half of 2004.

Although the funding from the Department of Homeland Security for large cargo has been slow in coming, the activity, especially internationally, continues to be robust, and we have made significant progress towards that. As you know, the TSA has started addressing the cargo inspection issues, both for container and air cargo. For the air cargo issue, TSA had asked for systems to detect explosives for break bulk air cargo inspection on January 16th, 2004. This initiative was for commercially available automated systems only, for break bulk air cargo. We are very pleased to announce that our XRD 1000 Phantom unit has been selected to participate in the laboratory evaluation process. This in no way guarantees that the XRD 1000 will pass the evaluation criteria, but we are happy to be considered in the government's test protocol, together with other EDS suppliers.

Our R&D in security continues at high levels, as we have mentioned in our previous conference calls, that we, quarter to quarter, have continued to increase our R&D spending, both for conventional parcel, large cargo, and automated baggage inspection, both for carry on and checked baggage.

ARACOR, our newly acquired company, has a lot of experience besides the Eagle product, in large scale industrial computerized tomographic. This technology, together with our previously announced development work in electronic computerized tomography, will accelerate our development towards end products. We are targeting towards the end of 2004 and beginning of 2005 for product evaluation on this electronic CT technology. Our target is to come out with a compact, small footprint, 1,000 to 1500 bags per hour CT scanners, with significantly better [rights] to performance than the presently existing EDS CT products. I want to emphasize that 100% of the development and R&D monies for this electronic CT development is coming from internal funding, with no help from any government grants or anything.

In the conventional parcel scanning product line, we continue to make progress, both in product performance and customer support initiatives. Internationally, business opportunities continue to look healthy and although the TRX funding from TSA for domestic airports have slowed down, overall, the business is doing quite well and we continue to see growth. We are in discussions and talking to the TSA regarding upgrading the installed base for higher throughput and enhanced performance.

Operationally, the security group of companies continue to make progress for consolidation and improving efficiency and productivity. The product line is being organized into functional groups. That is, the conventional parcel, X-ray scanning, and metal gates is in one group, and the cargo group consists of rapid scans-cargo, Ancore's materials-specific group, and ARACOR's Eagle and industrial CT. All this will become the OSI Cargo Group. Our challenge going forward is to integrate these various products and companies and leverage our efficiency.

Opto Group -- the Opto revenues continue to be weak to flat, as it is tied up to the economy. We definitely see some signs of improvement, but we continue to be cautionary. We continue to consolidate the group to improve productivity in this quarter. We closed in this quarter two small acquisitions, OSI Electronics in October, and OSI Laser Scan in November. Both these acquisitions were of strategic nature. OSI Electronics for increasing our manufacturing capacity, to support our internal needs, both for the security group as well as the medical group. And secondly, to be able to offer a broader manufacturing platform to our existing customers, and capture more business from them, as they look at outsourcing their box manufacturing needs.

Laser Scan, on the other hand, has unique and patented laser range finder technology that have multiple and broad applications. Their Auto Sense product is a state-of-the-art laser-based vehicle classification system which can optically classify a vehicle into different classes, so proper toll can be charged. The Auto Sense module is sold to system integrators like Raytheon, Trans Core, Florida Department of Transport, et cetera. They have over 6,000 units installed worldwide, with major installations on toll roads in Florida, Maine, New Hampshire, Canada, Italy, et cetera. We believe that the marketplace for their products will expand, and with OSI's global reach, we plan to increase their business. Their products also have applications in the Department of Homeland Security initiative at border crossings and entrances for truck entrances at ports for truck identification, together with our security inspection systems.

The medical group -- one, I want to emphasize that I'm going to be very brief on describing the medical group. I would like to talk more, but with the pending acquisition, management's position is to be cautionary and conservative. As you know, we have always been a player in the medical monitoring instrumentation business. Dolphin Medical manufactures and sells non-invasive pulse oxometry (ph) monitors and probes for [SB O2], whereas Astiameter, our other wholly owned subsidiary, manufactures and sells bone density meters for bone mass loss scanning.

We have recently announced that we have signed a definitive agreement with General Electric for the purchase of Spacelabs. Spacelabs has an installed base of 100,000 units worldwide, with 60,000 in USA, 30,000 in Europe, and 10,000 in Asia. The deal is pending government regulatory approvals, and there is no guarantee when and if the deal will close. Spacelabs' trailing 12 months unaudited revenues were over $150m. If and when the deal closes, it will provide the combined company with the critical mass, a direct sales force, and significant manufacturing synergies in an area in which OSI has significant engineering and product expertise. Combined, the collective strength of our medical and manufacturing group companies should make us a vigorous, aggressive international competitor.

On the Dolphin Medical Oximetry front, we are seeing quite a lot of interest for Melcor-compatible Dolphin Oximeter probes. As you know, we have mentioned earlier that the key patents of Melcor, which is part of Tyco, expired in October/November, 2003. Our Melcor-compatible probes are sold under the name ``New Cat.'' We have started seeing double-digit growth in this product line and anticipate that 2005 calendar year will see this growth even accelerate further. But we want to clarify our position, that the total revenue from this product line is still a small portion of OSI's overall business.

With that, I will hand it to Mr. Anuj Wadhawan, to talk about the financial numbers and then we'll open it up for questions.

Thanks, Deepak. Financial highlights -- the company's revenues for the second quarter of fiscal 2004 were $51.1m, compared to $43.7m for the second quarter of fiscal 2003, an increase of 17%. Revenues from the security and inspection side of our business for this quarter were $29m, or 57% of total revenues. Revenues from opto-electronic and medical side of our business were $22.1m, or 43% of total revenues. The net income for the quarter was $3m, compared to $3.8m for the second quarter of fiscal 2003. Diluted earnings per share were 20 cents, compared to 25 cents for the last year's second quarter. Revenues for the six months were $89.7m, compared to $80.8m for the prior year's period, an increase of 11%. Revenues from security and inspection side of our business for the six months were $52.7m, or 59% of total revenues. Revenues from opto-electronic and medical side of our business were $37m, or 41% of total revenues. The net income for the six months was $4.3m, compared to $7m for the prior year's six months. Diluted earnings per share were 29 cents, compared to 49 cents for the last year's six months. As mentioned earlier, six months of fiscal 2004 include a pre-tax restructuring charge of $1.1m and $247,000 for the writedown of an equity investment. These charges resulted in a six-cent reduction our diluted EPS for the six months of fiscal 2004.

To give you the breakdown, on the security side of our business, revenues grew 5%, to $29m this quarter, from $27.7m from last year's second quarter. Revenues for six months grew 2%, to $52.7m from $51.8m from last year's six months. Revenues for the second quarter and six months of last year included shipments of $4.5m and $10.9m, respectively, of InVision, compared to zero for the second quarter, and $347,000 for the six months of fiscal 2004. The decrease in InVision revenues was offset by increased sales in conventional and cargo business, both in the U.S. and international markets. Excluding shipments to InVision, security revenues grew 25% and 28% in the quarter and six months, respectively, compared to last year's second quarter and six months.

On the opto and medical side of our business, the revenues grew 38%, to $22.1m this quarter, from $16m for the last year's second quarter. Revenues for the six months grew 28%, to $37m compared to $29m for the last year's six months. The increase in opto and medical imaging side of our business was primarily due to acquisitions of OSI Electronics, OSI Defense, and OSI Laser Scan. These acquisitions, revenues for the second quarter of fiscal 2004 was $7.9m.

Gross margin for the quarter was 28.6%, compared to 33.2% for the second quarter of last year, and 32.5% for the first quarter of fiscal 2004. The change in gross margin was primarily due to inclusion of [West Side] electronics shipment, which, as we mentioned before, has lower gross margin. Excluding revenues and gross margins of recent acquisitions, gross margin on base business would have been approximately 31.5%. Subject to product mix, we expect gross margin for the next six months to be around 29%.

R&D -- R&D for the quarter was $2.4m, or 4.6% of revenues, compared to $2.2m, or 5.1% of revenues for the second quarter of last year. R&D for the six months was $4.4m, or 4.9% of revenues, compared to $3.8m, or 4.7% of revenues. The increase in R&D was largely due to increased spending on security side of our business. We expect our R&D spending to increase as we have increased R&D spending on security products and also expect R&D to go up, as we include ARACOR's R&D. We expect our R&D for the next six months to be around 5.5% of revenues.

SG&A -- SG&A for the quarter was $8.2m, or 16% of revenues, compared to $6.8m, or 18.4% of revenues for the previous year's second quarter, and $7.5m, or 19.5%, for the first quarter of fiscal 2004. The increase in SG&A compared to second quarter of last year was primarily due to increased headcount in sales and marketing, and increased administration expenses and inclusion of SG&A expenses of our acquisitions of Ancore, OSI Defense, OSI Electronics, and OSI Laser Scan. The increase in SG&A compared to first quarter of fiscal 2004 was primarily due to acquisitions and was offset in part by lower legal costs. Our SG&A will go up from second quarter of fiscal 2004 as we expect higher legal costs and as we include ARACOR's SG&A. With the uncertainties of legal costs and integration of various acquisitions, we cannot provide guidance for SG&A. But definitely, our SG&A will be up from second quarter of fiscal 2004.

Our tax rate for the quarter was 28.7%, compared to 25.5% for the second quarter of last year. Our tax rate is dependent on the mix of income from the U.S. and foreign locations, due to tax differences between countries. Our balance sheet remains very strong. We have approximately $90m in cash and marketable securities. We have used approximately $17m in cash for the acquisition of ARACOR in January, 2004. Also, we have renegotiated with our bank to increase line of credit in the U.S. to $50m from $26m. We believe that the existing cash and lines of credit will be sufficient to meet our cash requirement for the foreseeable future, including Spacelabs acquisition, if it happens.

Receivables -- our DSOs are down to approximately 76 days from 85 days last year. Inventory is up, as we are ramping up for higher projected shipments. Backlog -- our backlog at the end of December, 2003, was approximately $70m, including cargo backlog of approximately $16m. In addition, with the acquisition of ARACOR in January, 2004, our backlog stands north of $80m, which translates into cargo backlog of $26m. A large majority of cargo backlog is shippable in the next 12 months. Our guidance from the last conference call has been revenues for the year to be at $190m to $195m. We are revising our guidance for the year for revenues to be approximately $200m, and revenue guidance for the remaining six months of fiscal 2004 to be approximately $110m.

With that, I will open it up to questions.

[Operator Instructions] Our first question comes from Tim Quillen from Stephens. Please go ahead, sir.

Good afternoon. I've got a couple of questions. One is, I understand that SG&A is going to go up here over the next couple of quarters, but I'm wondering when you expect the benefit of the restructuring charge that you took in the first quarter to start impacting your expenses?

Tim, we had mentioned in the last conference call that that should start having an impact by our fourth quarter, which is the-- which is- for Q4, and the first quarter of 2005. That means that the August, September, October quarter. Everything might not kick in, but that's where we are projecting and that's what we said before.

Right. That's understandable. And do you have a sense of what kind of financial impact that might translate into, what kind of costs savings? Are you far enough into it to know what that might be?

No. It's difficult to quantize it, because there are so many moving targets, and you can appreciate that while we are doing that, we just bought another two companies, so that, you know, this is a very challenging time for us and we're trying to address it. I think it's going to be an ongoing thing, but it's difficult to put a hard and fast number on it. It's a positive number.

Right. By the way, it's challenging for analysts to keep up with you as well.

Was that your second question?

I just-- I want to make sure that I understand the backlog numbers of the $80m, or north of $80m, where we are today. Did you say that you expect that to ship within the next six months?

No. I said-- it is not-- the total backlog is north of $80m, part of which, with the acquisition, cargo backlog is north of $26m for cargo, and large portion of that is shippable in the next 12 months.

Next 12 months? Very good. I understand. And then lastly, I know you can't talk too much about the Spacelabs acquisition now, but you kind of hedged a little bit in the press release and then I think there was a little bit of a hedge, you know, during your presentation. In other words, you know, this may not close. So I'm wondering, you know, what is your confidence level that you can get this deal done? That's question number one. And question number two is, what would the-- you know, your estimated timing be for the closing of that transaction?

Well, I'm going to let Victor, the corporate counsel, answer that.

Yeah, you know, I think that we do want to caution everybody that we haven't closed it yet. We have a definitive agreement signed, and we're awaiting approval by the regulatory authorities, as you all know. But you know, we're generally very excited by the definitive agreement and we're looking forward to it.

Just to add to it, Tim, in this kind of circumstances, you know, before you even ask the question, you already know the answer -- we can't give you a definitive time element. All we can tell you with that that we will that it will close. All we can say is that the difference between this and the L3 deal, this is-- we have a definitive agreement signed between General Electric and us, and we are hoping, and I'm sure that everybody is hoping, that in any of these cases, the sooner it gets done, the better for all parties, but at this stage, it's in the hands of the regulatory bodies.

Yeah, and I understand not to press too much on that, but can you just give us a sense of what kind of regulatory hurdles you're facing, and you know, how many hoops do you need to jump through to get to the conclusion?

Yeah, let me jump in on that. It's Victor Sze again. As you know, this is part of a divestiture agreed between GE and regulatory bodies, and so in that context, we do need to go back to the regulatory bodies to get their signoff on this. I would note that we you know don't have any horizontal overlap with the Spacelabs business, and as I said before, we're real excited to go forward.

Our next question comes from the line of Brian Ruttenburg (ph) from Morgan Keegan. Please go ahead, sir.

OK, thank you. You mentioned one of your products is being tested in evaluation-- evaluation stage, on the air cargo. Can you mention the name of that product again, and then talk about what the competition is out there, and how you're going to compete against that competition -- is it going to be on price, throughput, and maybe you can name some of the competition by name, that's also involved in that test?

Well, I can tell you the name of our product is XRD 1000. That might not mean anything to you guys, but we've been talking for the last couple of conference calls the [inaudible] called Bantam (ph), which is our version of a EDD system, that we got a grant originally from the FAA. The grant finished a couple of quarters ago, and we've been developing that product and product line products.

The second thing on it is, we have no idea what are the other products, or who are the other guys in it, but the way the solicitation was written, it was for commercially available EDS systems out there, which there are two certified people out there, so I'm sure that those products are being looked at. Beyond that, what our strategy is, I think it's a little bit too premature, because we are only in the laboratory testing phase, we're invited by TSA, which we look at as a great privilege, that we've been asked for, how that sort of shakes out in the end, how it stands up to testing, what is the testing protocol, et cetera, would-- it's not known to us. But we've always maintained in our conference calls that our conceptual design, our target, is to be that the product Bantam (ph) was designed to be offered at significantly lower price compared to the present, existing EDS-certified devices.

OK, then next question, I hope that you can answer at least some of this, because it's about Spacelabs. Revenue, kind of going forward, for Spacelabs, are you getting that full $150m with the acquisition, and that's-- you're acquired all that entity, or--

You're asking two questions, so I'm going to try to answer it in a very precise way. The business that had trailing 12-month revenue of approximately $150m is the total business in its totality that we are buying under the definitive agreement. What I can't say is whether we're buying $150m in revenue, or whatever going forward the revenue of that business is going to be, but we can tell you it is a totality business we are buying.

OK. And can you talk about the profitability of that business as it stands right now?

Well, number one, it is a carve-out from an existing business of [Datik Salida Instrumentarian]. It's very difficult to talk about it. Secondly, it's not audited. We are going through, during the last couple of years audited-- the audits on it, and we have to do that to require to file that anyway, but right now, we don't have any idea, because it's not audited.

OK. So you don't have any kind of color you can give us on gross margins or operating margins of that entity?

It would not be fair for us to give you any flavor of it because one, we don't own the business. Second, we are under confidentiality. Third, we can't tell you anything about it, but I think if you look at the general historical comparable margins in that product line, I would encourage you to look at similar kind of companies and you can get a pretty good idea of what the margins are. I can guide you to look at a couple of companies, if you want, in this product line, but I think you should be able to find it pretty good, with data existing out there.

Great. Thank you very much.

Our next question comes from the line of Steve Gish from Roth Capital Partners. Please go ahead, sir.

Deepak, can you talk about, with the acquisition of ARACOR, you mentioned the Eagle mobile system product. Can you differentiate between that product and your other product suite?

Ajay, you want to take that?

Yeah, sure. I mean, first of all, you know, it's a unique product in the sense that it's the only product that's relocatable. It's six MEV [ph]. Our other products require a building; this one doesn't require a building, so obviously it's a lot easier, putting it in force. Plus, the big plus is, that it's been bought by U.S. Customs, so it gives us instant credibility going in, with U.S. Customs and obviously with ports and other agencies overseas that look to U.S. Customs for the lead.

Just to add on to what Ajay said, Steve, it was designed under the guidance and tutelage of U.S. Customs. It was designed specifically to work in a port, so it has a maneuverability, which is very good. It's self-contained. It can make scans on both sides, going forward and backwards. We do not have, or did not have, any product in our portfolio that fulfilled that bill, and as Ajay said, together, with the stamp of approval from being bought by U.S. Customs, it just fulfills our product line and broadens our product line, which, you know, one of the things we can boast about it is that we are the only company who has a complete product line of different technologies that we could cater to a customer's needs and price. So we sort of offer a very good, tailor-made product, and the solution to our customer, and this added on product just fits very well into it.

And when you're talking about industrial CT, does that mean markets in the automotive sector, aerospace and defense, and is the company generating revenue from that market currently?

The answer to both those questions, yes, and yes, though I would say that primarily, their revenue is the Eagle kind of products. They have some contracts, both service and support, in those sectors that you mentioned. Our interest, from ARACOR and that sector is, obviously, to grow that business, but primarily it brings one more dimension of technology to us, which is CT-based, and as you know, we've said before that we are quite excited about it. We're actually spending money into our electronic CT, and now Ajay's challenge is to look at some consolidation and challenge to combine the technical resources that exist in ARACOR, together with what exists in our portfolio, to work towards the product completion on our own CT.

OK. Secondly, I've seen a number of competitors, or a few, that have recently announced some orders in Asia and China. This would include both on a conventional side and also on the baggage side as well, is what do you see in that marketplace right now? Is the competitive environment increasing, is pricing a major issue? Maybe Ajay, if you could just comment on that?

I think first of all, on the baggage side, if you're looking at checked baggage, you know, that's a market that we are in the process of entering. We have not-- you know, we've got a couple of new products that we are looking to introduce. So that's something that we're looking at, several months down the road.

As far as a conventional side, you know, we are competing. I don't think competition is any more than it was six months ago. We think that we're in a very good position in Asia as well as in other parts of the world, and we feel very comfortable going forward with our competitive-- with our competitive strategy.

Anuj, with respect to the restructuring charges you incurred earlier? It was my understanding that you might incur another half a million to $1m over the next couple of quarters. Is that still your opinion?

That's correct.

OK. All right.

Steve, just to add to it is that the reason that we haven't done it yet, because our hands have been full with some of the other things, and you can understand now, with all the stuff that was going on. And we basically are looking at it and you know, it's going to happen. It hasn't changed our view to the world, but it just might not happen-- it's not on the plan right now, as of today.

OK. And could you just provide us an update on the L3 lawsuit? Last quarter, L3 had filed a motion to dismiss. Then, Anuj, if you could comment on the cash flow from operations? Thanks.

Yeah, it's Victor. I'll jump in on that. As a general rule, as you know, we are not going to comment on the substance of pending litigation, but procedure-wise, you pointed out that there was a pending motion to dismiss. The good news is we do have a decision from the judge on that. It was granted, in part, and denied, in part, so the lawsuit does continue.

And what was the expense this quarter?

This quarter, the expense was-- less than $100,000.

But as Victor mentioned, that since-- going forward, we are now in a valid lawsuit, we are going to increase the legal fees, but it's very unpredictable, and our commitment to the street has been, every quarter, we will discuss it and disclose it, what it costs us.

Our next question comes from the line of [Mitchell Saks] from [Grand Slam]. Please go ahead, sir.

Hey, guys. You know, just sort of following up on the L3 lawsuit. You had mentioned earlier that you were expecting higher legal costs. Is that regarding, then, the L3 lawsuit, or is that also with you going before the EC to get the Spacelabs deal?

It's primarily for the L3 lawsuit.

Yeah, I think it's driven primarily by the L3 lawsuit, but again, you know, it's litigation. It's unpredictable.

Yeah, but the answer to your question is obviously yes; there are expenses, as we speak, that continue on the Spacelabs front.

Right.

But primarily, it's the L3.

Right. In regards to the L3, when I read through the court decision, I guess you're able to go forth, then, on the fact that they defrauded you in terms of not selling you that division, correct?

Would you repeat that question again, please?

Yeah, in terms of the lawsuit, what I saw, in terms of the judgment, it looked like you were able to move forward, then, on the fraud claims with regards to L3? That, they allowed, correct?

That's a correct reading.

That's a correct reading, but we would rather appreciate that if it's in the public domain, that you guys could look at it. Our position is we really-- we are in an active lawsuit, we would rather not talk about it.

Is there an expected court date, then, for the suit?

No, but there is a discovery cut off date, which is approaching quite soon.

OK.

We have another question from the line of Tim Quillen from Stephens. Please go ahead, sir.

Yeah, I just had a couple follow-ups. One is, what-- how much revenue from large cargo systems did you have during the December quarter?

In the December quarter, from cargo, we have approximately $6m.

$6m. And how much-- about $2m from Ancore, or how much of that was Ancore?

As I said in the last conference call, we have integrated the large-- the cargo portion for Ancore, with our cargo group. But on the El Paso we have, in the quarter, revenue of approximately $2m.

Got it.

Just to clarify what Anuj said, you know, the products are designed and developed and assembled, engineered, manufactured, in the Gamma product line, the Vets [ph] product line, between Ancore and Rapiscan, so there is no more boundaries, so that what Anuj said is what I hope you wanted to hear. We can't separate between Ancore and Rapiscan, but we can separate by answering your question of the El Paso product.

Yeah, that was perfect. Thank you. On the what I kind of refer to as the core security business, which is metal detectors and carry-on and package, x-ray screeners, with the TRX business kind of slowing down in U.S. airports right now, should we expect the core business to go down a little bit in the next two quarters from the, you know, fairly high levels as we've seen it over the past two quarters?

Ajay, you want to handle that?

I think if you look at the overall business, you know, TRX has been going down pretty steadily over the last few quarters. Obviously we're looking at other opportunities to see if there are any kind of upgrades, et cetera, in U.S. airports. There are other areas we're looking at, but as far as the TRX program, it is towards the end, at this point.

Just to add on to that, Ajay, in the quarter, we shipped approximately $2m on the DLX program.

So to give you an idea, the rest of the business, in that conventional parcel area, continues to be strong.

Right. OK, that's very helpful. And lastly, what-- can you give me a sense what the trailing revenue for Dolphin Medical -- in other words, the trailing 12 months, or maybe just the quarterly revenue from Dolphin Medical, and what you're seeing-- I know it's a small component right now, you know, revenue from the [polsex symetry] sensors, and, you know, how-- you know, what are the real signs that that business is building? You know, what are the real signs of demand that you're seeing there?

That's a pretty mouthful question. Firstly, Dolphin has multiple sectors in their business.

Right.

They've got what they call the branded product, they got the OEM product to support for other people, and now we're also consolidating a little bit of the [Astio] product, at least in the total medical group. So it's very difficult to break it down. What I said initially in my presentation, that the branded product, which is the New Cat product, which was sort of suffocating, as of the Melcore hold on the marketplace those patterns [inaudible] which came loose in October, November, have started seeing quite a lot of growth, especially what we call ``Melcore compatible.'' And it is double digit but it's a very small portion of our business, and I don't even have the- don't have the exact numbers in it, because it's all kind of put together. But that portion of the business, which we have been saying, is the growth opportunity, on a significant nature, that's going to carry on. But it starts from a very small number.

[Operator Instructions] We do have another question from the line of Steve Gish from Roth Capital Partners. Please go ahead.

Deepak, when you were talking about the El Paso site, did you mean, or thought, that the site could be completed by the end of calendar 2004 or fiscal 2004?

Definitely not by our fiscal 2004, June. We are right now targeting it into the latter part of 2004, so I would say that you should look at it in the towards the October/November time period. That's the kind of timing that we have right now. Very difficult to pin it down much further.

And it seems like that's been pushed out a few times. What's the root behind that?

The real issue there, Steve, is it depends on the [civil works] and the building. That's what was causing some of the delay, so depending on when those other things get done, that's when we'll get it completed.

OK.

And just to add on to Ajay, there is no delay from our side.

That's right.

So you're continuing to recognize revenue on that contract?

Yes.

OK.

[Operator Instructions] Mr. Chopra, there are no further questions at this time. I'll turn the call back to you. Please continue with your presentation or closing remarks.

Thank you very much. I want to summarize by saying this quarter has been quite interesting. We have grown our business, as I mentioned before in my remarks, in the security business, we continue to go towards a strategy of broadening our product portfolio. We continue to grow our segments. The InVision shortfall, which was a big challenge for us, we think we are on the right track, both from our conventional business and from the cargo business. I think the ARACOR addition does wonderful things for us, long-term, and you know, as Anuj mentioned, our backlog is approximately $80m. Most of it, shippable in the next 12 months. Out of that, more than $26m-plus as now can be branded as large cargo, so we are approaching towards an area which was a concern to the street. I think our strategy beyond that, to continue to look at broadening the technology platform and the product platform, medical has always been in our sights, we are very excited about the Spacelabs acquisition. I think the last five years, we have been carefully investing in our brand recognition of Dolphin, New Cat products. We've been carefully investing in our technology. It is now coming to what we expected, and as we have said before, that 2004 is going to be a place where the start for the real action of that product line comes in 2005. Our balance sheet is strong. We look at all opportunities. We have added a couple of more acquisitions in our Opto product line to broaden our reach. I think the OSI Electronics acquisition, as I mentioned, was strategically bought for internal capacity and obviously the manufacturing synergies that are going to be to us, if and when the Space Lab deals gets done, it's a natural for us to look at that, to bring most of the manufacturing that they outsource right now inside, just like what we have done in the security area. It balances the company. We are in no shape or form giving signals that we are sort of de-focusing security. Security continues to be important to us, but we have decentralized our management, Ajay is running the security group. Spacelabs comes with a very strong medical team. Opto is in well-established hands, and we continue to look at broadening our product portfolio and continue to build long-term asset for the stockholders. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line at this time.