OSI Systems Inc (OSIS) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter and fiscal-year 2012 OSI Systems earnings conference call. My name is Fab and I'll be your Operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today Mr. Alan Edrick, Chief Financial Officer. Please proceed.

Thank you. Hello, and greetings from London where we are the exclusive security detection provider for the Olympic Games. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems. I'm here today with Deepak Chopra, our President and CEO; Ajay Mehra, President of our Security Division Rapiscan Systems; and Victor Sze, our General Counsel. Welcome to the OSI Systems fourth-quarter and year-end fiscal 2012 conference call. We'd like to extend a special welcome to anyone who is a first-time participant on our conference calls. Please note that this presentation is being webcast and is expected to remain on our website for approximately two weeks. Earlier today, we issued a press release announcing our fourth-quarter and 2012 fiscal year-end results. Before we discuss our financial and operational highlights, I'd like to read the following statement.

In connection with this conference call, the Company wishes to take advantage of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking statements under the Act. Such forward-looking statements could include general or specific comments by Company officers on this call about future Company performance as well as certain responses by Company officers to questions posed about future operating matters. The Company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from any forward-looking statements made by the Company or its officers. These factors include the risk factors set forth in the Company's last annual report on Form 10-K and other SEC filings.

Any forward-looking statements made on this call speak only as of the date of this call, and the Company undertakes no obligation to revise or to update any forward-looking statements, whether as a result of new information, future results, or otherwise. During today's conference call, we may refer to both GAAP and non-GAAP financial measures of the Company's operating and financial results. For information regarding non-GAAP measures, comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's press release which has been furnished to the SEC as an exhibit to a current report on Form 8-K.

Before turning the call over to Deepak, I will provide a high-level overview of our financial performance. We will touch on several themes that we discussed during past conference calls. Highlights for our fourth quarter of fiscal '12 are as follows. First, we again achieved record quarterly revenues of $235 million, representing a 28% increase over the prior year. Each of our divisions performed admirably and set new sales records. Leading the way was our Security Division, with 50% year-over-year revenue growth, followed by our Healthcare Division, which was up a notable 18%.

Second, our strong EPS momentum continued, as Q4 diluted earnings per share increased 44%, to $0.95 per share, excluding restructuring charges and start-up costs related to the Mexico turnkey security program, which we announced earlier in this fiscal year. This marks the 12th consecutive quarter in which we have generated year-over-year EPS growth in excess of 20%. The net EPS impact of costs associated with the Mexico program in Q4 was approximately $0.15. Third, we ended the year with a record year-end backlog of approximately $1.1 billion, a 249% increase over Q4 last year. Fourth, our cash flow is very strong, as we generated $10 million of free cash flow bringing the fiscal 2012 total free cash flow to a record $52 million. Over the past three years, we have generated $113 million of free cash flow.

In addition, we made nice progress on multiple key initiatives in our Security and our Healthcare divisions. Deepak will elaborate more on these very exciting developments. We are very pleased to report these outstanding fourth-quarter results. We completed a transformative year in very strong fashion and we are very enthusiastic about our future. I will provide additional financial details and we'll discuss our fiscal 2013 guidance, but first let me turn the call over to Deepak.

Thank you, Alan, and, again, welcome to OSI Systems earnings conference call for the fourth-quarter and full-year fiscal 2012. And for your people, I just want to let you know London weather is fantastic -- it's bright sunshine and it's great to be here.

As Alan discussed, our results in the fourth quarter were quite impressive as revenues increased 28% over the prior year prior quarter. Revenues for the year were $793 million, at 21% higher than fiscal 2011. The strong growth in revenues throughout the fiscal year led to operating margin expansion, while we continued our significant investment in R&D to advance our technology leadership and expand our sales and service network in our core markets globally. Based on non-GAAP measures, our fiscal 2012 diluted EPS was $2.51, which increased by 36% over the prior year. We are excited about the future, as we will continue to leverage our performance and focus on market share growth in our core markets and make our presence felt in new markets with innovative solution offerings.

I would like to spend some time to discuss each of our business segments in more detail. Let's start with the Security division, Rapiscan, where revenues increased 33% in fiscal 2012 to approximately $392 million with a year-end backlog of over $900 million, a level almost five times the amount with which we entered fiscal 2012. This dramatic growth in the backlog is no small part, is the result of the multi-year turnkey services contract from Mexico's Tax and Customs Authority that we announced in Q3 and which we will talk about more later. The financial crisis in Europe and continued turmoil in the Middle East will push some of the expected orders into fiscal '13. We are very confident that we haven't lost any and look to capture them in 2013. With a strong backlog going into the year, we are in a position to have a very strong fiscal 2013.

Let's go over a few highlights in Q4 and our areas of focus in fiscal '13 for Security. During the fourth quarter, the RTT, or the Real Time Tomography, whole-baggage screening system passed the European Civil Aviation Conference ECAC Standard 3 threat detection test, the highest standard set by ECAC for the detection of explosive threats in passenger baggage. RTT can effectively screen up to 1800 bags per hour, and this high rate of screening baggage is equivalent to the processing rate of a typical airport standard baggage handling systems. This allows the RTT to be installed what we call inline in airports' existing baggage handling systems with less costly integration.

We are in the process of TSA certification in the US market, which presents the largest opportunity as the TSA begins a cycle to replace the seeking machines that were first installed after 911. Much of the installed base is nearing the end of equipment lifecycle. Given RTT's performance advantages and lower lifecycle cost when compared with other alternatives, we believe we are well positioned to capture significant market share in the CT-based whole-baggage screening globally.

During Q4, we completed a significant portion of the US Army contract for entry control point solutions that we received under the $248 million indefinite delivery indefinite quantity order, which helped contribute to a new record Q4 revenue for Rapiscan. With our broad portfolio of ruggedized inspection solutions and our integration capabilities, we received the majority of orders that have been awarded to date. We expect the cargo-scanning market to be one of our fastest growing segments in the coming years and we continue to gain customers and identify new opportunities domestically and outside of the US, especially in the emerging regions.

During the quarter, we received several orders for our Eagle series mobile and fixed inspection systems from international customers. These systems continue to be favored for their comprehensive detection of threats, rugged operation in harsh environments and, in the case of the trailer-mounted and truck versions, the ability to move the system to a new location allowing the customer to optimize its usage to address the evolving landscape of threats.

In the fourth quarter, we announced before, we received the Queen's Award for Enterprise and Innovation 2012 in the UK for these cargo systems. Traditionally, Rapiscan has focused on providing a broad portfolio of detection systems as we strive to offer customers a one-stop shopping experience. To that end, we are excited about our initial success with new turnkey services offering in Puerto Rico and Mexico and are optimistic about our discussions that are in progress with several new potential customers worldwide. Our third site in Puerto Rico came on line in April and started generating revenue. We believe the final site, which though is a small site, will be turned over to us by the customer for operations sometime this year.

In Mexico, we really hit the ground running. Given the program's importance and magnitude, we are utilizing the top talent within OSI to design, plan, and execute in all facets of the program. We are very happy to report that all phases of the program are on track and we expect to begin realizing revenue later part of this fiscal year.

And, finally, we are talking to you from London, host of the 2012 Olympic Games. We are proud to be the exclusive provider of inspections systems for this event, continuing a long-standing tradition of providing security infrastructure at venues of major sporting events. We enter the fiscal 2013 with a fantastically strong backlog and a strong pipeline, both domestic and international opportunities. Our products and our strategy are well timed with the dynamics of the security marketplace.

Moving on to the Healthcare Division, Spacelabs achieved sales of $73 million, an 18% increase from the prior year with an operating margin of over 15%. For the year, Spacelabs sales grew 10%. In addition to the continued recovery in the US market, several major factors contributed to the stellar performance. One, we revamped our Senior Management and Sales Leadership earlier in the year and we believe that this had a re-energizing impact throughout the sales and product development teams. We focused on strengthening our relationship with healthcare group purchasing organizations, or GPOs. US hospitals are increasingly using GPOs to manage the bidding process for capital equipment purchases.

Recently, we signed two contracts with large GPOs, MedAssets and HPG groups, that have combined impact on over $60 billion of annual spending. These GPO relationships have already paid dividends and are expected to have a continuing strong impact in fiscal '13 and beyond. Our new patient monitoring platform, the XPREZZON, has been very well received as it provides compelling features wrapped in an easy-to-use interface and delivers enhanced data communications with an open-system architecture. As I mentioned, US hospitals have started to accelerate investments in upgrading and expanding this infrastructure.

In addition to XPREZZON, our recently introduced products should have a global impact, but are particularly well suited for the US market, with new offerings such as Arkon Anesthesia Delivery Workstation and Sentinel Cardiology Information Management System. We are very optimistic about capturing market share with Arkon in Anesthesia, which we intend to officially launch in Q2. As Spacelabs delivers the highest contribution margin of our three businesses, with top-line increase we achieved significant operating leverage.

Moving to the Opto division, the fourth quarter Optoelectronics generated revenues of $56 million, a slight increase from the prior year. For the full year 2012, revenues were $211 million, or a 9% increase from fiscal 2011. We continue to gain new customers in the US and globally who seek a proven OEM electronics provider that is flexible in handling product volume as the global network for sourcing and manufacturing and can support them throughout the product lifecycle. Though the sales growth in the quarter -- final quarter was slower than the previous quarters, we are very optimistic about strong sales growth in Opto for the fiscal 2013.

We ended fiscal 2012 with a backlog exceeding $1 billion, a 200% increase over the prior year and yet another Q4 record. Starting fiscal 2013 with a record backlog, recently introduced products in Security and Healthcare, great traction in turnkey services and a healthy opportunity pipeline across all our businesses, we look forward to delivering continued growth in revenues and profits in the coming year. With that, I'm going to hand the call back over to Alan to talk in detail about our financial performance and guidance before opening the call for questions. Thank you.

Thank you, Deepak. Our ongoing focus on growth initiatives and operating improvements throughout the Company has succeeded in delivering significant sales earnings growth. Strong momentum across each of our divisions, coupled with our $1.1 billion backlog, positions us well for further strong top-line growth and margin expansion. I will speak to our fiscal '13 guidance shortly, but first let me review in more detail the financial results for the fourth quarter of fiscal '12.

As mentioned previously, net sales in our fourth quarter were up 28% on an overall basis. Our Security division grew 50% in the fourth quarter and 33% for the fiscal year. This strong Rapiscan revenue growth was seen across many product lines and spearheaded by delivery of the entry control point inspection systems from the US Army contract won in the first quarter of fiscal '12 that Deepak mentioned earlier. Based on customer requests, we accelerated production and successfully delivered nearly the entire contract this past fiscal year.

Our Healthcare division continued the momentum that began earlier in fiscal '12, reporting outstanding 18% top-line growth in Q4. This growth was driven by strong performance in the US. We leveraged our infrastructure to increase operating income by over 50%, demonstrating that our focus on improving operating efficiencies, coupled with high contribution margins, are producing significant results. This brought our Healthcare division's operating margin to over 15%, a new record operating margin. Given numerous product releases, the upcoming launch of Arkon -- our new anesthesia machine -- and penetration into new GPO and IDM relationships, we believe that the future is very bright for our Healthcare division.

And, finally, external sales in our Optoelectronics division increased by 2% in the fourth quarter and 13% on an external basis for all of fiscal '12. The Q4 gross margin for the Company was 34.4%, down by 380 basis points from the 38.2% for the same quarter last year. This anticipated decrease was primarily due to the mix of revenue growth between divisions and the product mix within our Security division. As discussed in the past, while the operating margin is strong in our Security division, the gross margin is generally below that of our Healthcare division. Given the outstanding growth in Security division sales led by our integrated products deliveries, which carry lower margins than our consolidated average margins, this overall impacts our gross margin. We do anticipate our margins will improve as our product mix changes with increased turnkey revenues in Security.

Moving to OpEx, our Q4 SG&A expenses, as a percentage of revenue, decreased 280 basis points to 18.8% as compared to the comparable prior-year period of 21.6%, as we continued to effectively leverage our organizational infrastructure. In absolute dollars, SG&A increased in Q4 by 12%, while our revenue grew by 28%. Our reported Q4 SG&A expenses included approximately $2.7 million of startup costs related to the Mexico program.

We continue to invest significant resources in R&D to enhance both our Security and our Healthcare product offerings. To this end, our R&D spending increased 19% in the fourth quarter to $14.2 million, with such incremental investment primarily focused on our Security business. As a percentage of revenues, R&D expenses were 6% in Q4 this year, as compared to 6.5% in Q4 of last year. We continue to invest resources in technologies to add value to our Security and Healthcare product offerings. We believe these efforts will enable our Company to capture major opportunities in our core markets in the future. We continue to see the results of these efforts in the significant number of new products that are being released.

Our effective tax rate for fiscal '12 is 26.5%, which was lower than the 29.1% rate reported in the first nine months. During Q4, we executed on a tax-planning strategy, which freed up a tax-loss carryforward. Our provision for income taxes is dependent on the mix of income from US and foreign locations, due to tax rate differences among such countries, as well as the impact of permanent taxable differences and valuation allowances. This strong sales growth led to a 28% improvement in our Q4 diluted EPS on a GAAP basis, to $0.78 per share, compared to $0.61 in the comparable prior-year period. Excluding the impact of restructuring charges and startup costs related to the Mexico program, our non-GAAP normalized EPS would have been approximately $0.95 per diluted share, representing a 44% increase over the same quarter last year.

Moving to cash flow, our Q4 free cash flow was again solid despite heavy CapEx as we prepare for our Mexico turnkey program. We generated operating cash flow of $34 million during Q4, while capital expenditures were $24 million, which is significantly higher than historical norms in support of our Mexico program, while depreciation and amortization was $5.3 million. In addition, we continued our stock repurchase program, bringing total fiscal '12 purchases, including net share settlements, to approximately $6 million. We ended fiscal '12 with $89 million of net cash.

In connection with our preparations related to the Mexico agreement, we expect to experience greater than usual variability around free cash flow over the coming quarters due to significant CapEx requirements, milestone payments, et cetera. We remain very well positioned to meet such requirements based on the cash on hand, cash flow from ongoing operations and our credit facility, for which we recently increased to an aggregate borrowing capacity of $425 million.

Finally, turning to the introduction of our fiscal '13 guidance. With a strong outlook for each of our businesses, our revenue guidance for fiscal '13 is $870 million to $890 million, representing an increase from fiscal '12 results of approximately 10% to 12%. We do not generally provide guidance by division or program, but I will say that our guidance includes revenues for the Mexico program. Similarly, we expect the strong bottom-line momentum to continue. We expect diluted EPS to increase at the rate of 20% to 29% over fiscal '12, which represents $2.75 to $2.95 per share on a comparable basis, inclusive of the Mexico program in both years. This guidance does, as always, exclude restructuring and other charges.

During the past few years, we have transformed OSI into a company with strong and sustainable top-line growth, along with an organizational framework that positions the Company for significant EPS growth. We look forward to discussing our continued progress on upcoming calls. Thank you for listening to this conference call, and at this time I'd like to open the call to questions.

Thank you.

(Operator Instructions)

Brian Ruttenbur with CRT Capital.

Thank you, very good quarter, guys. The question I have is around your capacity for additional Mexico, Puerto Rico type business. Can you tell me, do you think that you could win something in the next 90 days? And do you have the capacity to ramp something on the build operate train platform? And if it's not the next 90 days, then when? Let me start off with that question.

This is Ajay, Brian. I think from a capacity standpoint, we have a couple of different facilities, not just here in the UK but also in the US and if we had to react to some orders very fast, we have done that in the past and we have structure to do that going forward. Whether it's in the next 90 days or 180 days or whatever, I think I'll defer on the timing, but I will say we are working a lot of different possibilities.

Brian, just to add on, this is Deepak, the question was asked the last conference call also, we are very confident about capacity, we have excess capacity and we have a very flexible manufacturing and as you know in this space we are the only vertically integrated Company in manufacturing. So we have the resources to galvanize any kind of great opportunity that we get.

Yes. I guess my question was not phrased correctly by me. I'm not concerned about you able to make X amount of equipment, my concern is turning your Company into basically a services company and be able to ramp 500 or 1000-- train 500 or 1000 personnel all at once and ramp a large country. I didn't know what you're doing and putting in place in order to do that. I know that you had a relatively small crew that was in Puerto Rico, you've increased the size of that crew in Mexico, but that's a lot of personnel to manage and ramp. So can you address that? Maybe that's stated more clearly.

Well Brian obviously that's a great problem to have. You said it, if we were able to manage from Puerto Rico to Mexico. We are confident that we have the infrastructure and management and leadership and foresight that if any of those programs come in, we'll be able to manage it. Regarding transforming the Company over, we are broad technology platform Company, our whole strategy and structure is based on that, our [culture] is that and we plan to grow all businesses whether it's sales in Security or services, Healthcare, Opto, we want to handle all the growth.

Okay. And then last question are you prepared to talk about profitability yet from Puerto Rico or from Mexico?

I think maybe Alan you can answer that. We've said it before Mexico-- Puerto Rico, Alan can maybe add more, but Puerto Rico is already profitable, we are very satisfied with our results and it's a little bit too early but we maintain that Mexico will be in the same line as the Mexico and more profitable than our standard sale process. Alan?

Sure, Brian just to add on to what Deepak said, yes the Puerto Rico project has gone exceptionally well for us. As you know we don't give out specifics in terms of profitability on the Puerto Rico project and we don't anticipate doing so on the Mexico project. It will become evident in the numbers over time. But we're very, very pleased the type of returns that we have seen have been consistent with what we internally modeled and we'd be happy to take on more of these projects as we win in going forward.

Okay. Thank you.

Tim Quillin with Stephens Inc.

With-- do you have, Alan, the specific Security backlog or what bookings were in the quarter?

Sure, Tim. Bookings for us in the quarter were a little south of $60 million, so they were solid and expected to accelerate as we move forward. The overall Security backlog was north of $900 million, so it's very, very strong as we move into fiscal 2013.

Okay and I think you had talk maybe about some things in the pipeline moving out a little bit. And so what is the expected contour or shape of bookings over the next couple of quarters, do you expect kind of a typical seasonally strong bookings quarter in the September quarter?

Ajay, do you want to answer?

Yes I mean I think September quarter especially with the US Government has always been strong for us, we expect that trend to continue. It's always hard to predict what quarter by quarter is going to look like because of certain orders getting pushed out. But we feel very good right now overall looking in the next few months on what the pipeline and what the potential it is for fiscal 2013.

Just to add onto it Tim, what I said was, our international pipeline especially in cargo, looks very, very healthy and strong.

Right, right. And how about on the US Government side, I mean I guess first of all, if you could-- if you're able to tell us what percent of the Security revenue US Government customers represent and how-- what the outlook is there given the federal budget tightness?

Yes, I don't have the breakdown. But as far as what's going on with the budget, what's going to happen with the defense side of things, really the programs that we're dealing with are not significantly, if at all, impacted. So we feel very good about going forward. I think what you're going to see if the US budget as we've anticipated is going to go more and more into the services and the acquisitions side of things. But the ones we're working on actively really should not be affected significantly.

Okay. And on the Army integration contract, I guess you're through the majority of that, is that-- are you 60% through, 70% through kind of how much of that project is already behind you?

Yes Tim, this is Alan. We're higher than that, we're nearly complete with it, we would-- it's about under 10% of it to go in fiscal '13.

Under-- less than 10% of it to go in fiscal '13?

That's correct.

Good and then are there other specific pipeline opportunities under that $248 million IDIQ?

There are a lot of different pipeline opportunities that we are looking at. Specifically what they are, I'm not going to go through for competitive reasons, but we think that this program really represents a Rapiscan opportunity to really look at other areas where we can look at integration of products as we move forward.

Tim, just to add on to what Ajay said, in general we're looking at a lot of other programs in the Army side on similar kinds, and we continue to look at it and this has been a very good stepping stone for us to prove our capability to the customer.

Right. And then in terms of the Mexico startup costs went from roughly $0.05 in fiscal third quarter up to $0.15 in the fourth quarter. Maybe you can talk about the factors on that and what you expect in terms of startup costs in first quarter and second quarter of fiscal 2013.

Yes, Tim this is Alan. We really view it as a good sign as those costs escalate, that means we're making tremendous progress in the overall program. And we'll continue to see our costs escalate overall as we bring more people on for the infrastructure, as we train people and make all the other necessary preparations in order to go live with the sites. We would anticipate the continued start up costs as we enter fiscal 2013. And our guidance for the overall fiscal year earnings per share, the $2.75 to $2.95 is inclusive of those start up costs as we believe the program overall is going to be profitable for us this year. So we did not separately exclude the start up costs from our guidance.

And I guess the start up costs or the extent of the start up costs are going to depend on when the timing of when you go live or when you start revenue and should we expect that, or think about that happening in fiscal 3Q?

Yes Tim, well we don't want to go into any real specifics, we did say on our last conference call that we expected significant revenue in the second half of the fiscal year. So we will kind of leave it at that for now.

Okay and then finally on the Healthcare side, growth obviously accelerating in the back half of fiscal 2012, just the press released order flow that you saw in the fourth quarter was a sign that there's some momentum happening there, the Spacelabs clearly taking some market share. But if I look at your guidance, it doesn't necessarily seem to imply that the acceleration continues into fiscal '13, and so what's your Outlook there? Thank you.

Sure, Tim, this is Alan, and of course we provide guidance on an overall basis, not by-- specifically by each division. That being said, we're highly optimistic on a very, very strong year for Spacelabs. You're right our guidance does not project 18% type growth like we reported this past quarter, but the comps become higher and higher. We do anticipate that Spacelabs is going to have another very, very strong year in 2013 and we're looking forward to delivering on that.

Keep in mind, this is Deepak here, that we said in last couple of conference calls that we have the strongest pipeline for new product introduction. They have been well received, Arkon and Anesthesia is going to captioner some. So we believe that 2013 would be as strong as the 2012. Obviously like Alan said, you can't take one quarter and sort of multiply going forward but we definitely look at that 2013 will be a significantly better year than 2012 in Healthcare.

Great. Thank you.

Josephine Millward with The Benchmark Company.

Hi, Deepak, congratulations on a fantastic year.

Thank you very much.

Can you guys give us a sense of what growth rate you're assuming in your guidance for each segment? Because your guidance roughly implies double-digit growth for Security and roughly net single-digit growth for the other segments, is that correct?

Hi, Josephine this is Alan. Yes we don't give guidance for each specific division, we give it on an overall Company wide basis at 10% to 12%. So you're probably in the ballpark.

Okay, that's helpful. And you guys recently received a new certification for liquid explosive detection at the checkpoint. And I understand both the US and European Governments plan to lift the liquid restriction at checkpoints sometime next year. Can you help us think about the timing and size of this market opportunity and talk about the competitive landscape?

Josephine, this is Ajay. If you look at what's been going on one of the most inconvenient things for the traveling public really is to have to take out and not being able-- not to take our their liquids or not being able to carry liquids at all. I think the US Government as well as the EU, they've be working together, the anticipated date that I've heard that they would like to have liquids left so passengers can carry them on is some time in April of 2014. Though it might happen a little sooner than that. So what this represents for us is a certification where in the EU we're able to, if they have our scanners, they're able to leave their liquids and take the liquids on with them and not have to leave them at home.

Obviously we're the only-- one of the only Companies that has this capability and is certified not just by Europe but obviously TSA use it on machines as well. So the opportunity I think is in upgrades in the US as well as new machines as the airports would obviously want the passengers to leave-- to take liquids with them. So time will tell, but it's really every single airport is our target.

That's great, thank you. And just wanted to get an update on Mexico, has there been any changes with the new administration, the new President? And if you can-- based on your program ramping faster than anticipated, do you think there's room for expansion in this program to other areas? Thank you.

This is Deepak here. We see no change, and short of that any future expansion or something, we would just like to right now mix in no comment.

Thank you, Deepak.

(Operator Instructions)

Yair Reiner with Oppenheimer & Co.

First question, can you quantify for us the type of headwind you're looking for next year in terms of not having the Army contract in the same scale and also not having the London Olympics, how much of the headwind is that going to be in terms of revenue?

Well I think firstly the London Olympics is in this fiscal year for us. And the Army contract was a great learning experience for us, it's opened up other avenues. We think that we're going to see growth in the cargo market, we think we're going to see growth through our conventional products and I think we're going to get some other integration contract as we go forward. So I look at it as a positive that we've been able to deliver and show that as a showpiece. And all parts of the business we are seeing potential growth.

Yair this is Alan, just to add on to that our 10% to 12% revenue growth guidance factors that in, factors the fact in that we had some significant revenues that took place related to the Army contract in 2012 that won't necessarily repeat at the same scale potentially in 2013.

Understood. And then Alan, you had I think a total of $4.4 million in start up cost for SAT, $2.7 million were allocated I guess to the segment, where is the other $1.7 million?

Would go into interest expense, so when we look at-- when we report segment, we go down to operating income level. So the rest of an interest expense associated with letters of credit and other performance bonds that are necessary in contracts of this size.

Got it. And then, on Spacelabs you're getting ready to launch marketing Arkon. What are the incremental expenses going to be around that? And then when do you expect to get real feedback from the market that's going to give you confidence incontrovertible about how that-- what the potential is for that product?

Well this is Deepak here. I said in my speech that the launch is officially in Q2. We expect revenue in Q3, Q4. Regarding the launch expenses and stuff, it's insignificant. Size of the market, I think we've had some discussion, we've talked about it, the anesthesia market in the United States is about $450 million to $500 million business. Obviously we are starting from zero. We are very excited about it, the product is very well received, we've had some good feedback. And we plan to for the next couple of years as a percentage growth from where we're starting with, we expect to do quite well.

Great, thank you. And just one final question, any update on the expected timing of certification for RTT in the US?

Ajay?

I'm not going into specifics. But we are actively working with them, we just got the certification in Europe and we're working very closely with TSA.

Great, thank you and congratulations on the quarter.

Thank you.

There are no further questions in the queue. I would now like to turn the call back over to Mr. Deepak Chopra for closing comments.

I would like to thank everyone for joining on the call. Especially I want to thank all of the employees and the customers who are very important to us. This has been a great year and we look forward to speaking with you again from the first quarter call. And I want to emphasize that we are very excited about all the product segments and expect to have a great fiscal 2013. Thank you.

Thank you all for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a wonderful day.