OSI Systems Inc (OSIS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth-quarter 2014 OSI Systems earnings conference call. My name is Lisa and I'll be your operator for today.

(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, sir.

Thank you. Good morning and thank you for joining us. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems. I'm here today with Deepak Chopra, our President and CEO, and Victor Sze, our General Counsel. Welcome to the OSI Systems fourth-quarter FY14 conference call.

We would 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, located at www.osi-systems.com, for approximately two weeks. Earlier today, we issued a press release announcing our fourth-quarter and full FY14 financial results.

Before we discuss our financial and our 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 during this call that may be deemed to be forward-looking statements under the act. Forward-looking statements relate to the Company's current expectations, beliefs, projections, and similar expressions, and are not guarantees of future performance or outcomes.

Forward-looking statements involve uncertainties, risks, assumptions, and contingencies, many of which are outside of the Company's control that may cause actual results or outcomes to differ materially from those described in or implied by any forward-looking statement. Such statements include, without limitation, information provided regarding expected revenues and earnings in FY15 and statements regarding the expected overall financial and operational performance of the Company and its operating divisions.

The Company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from these forward-looking statements. These factors include the risk factors set forth in the Company's last annual report on Form 10-K and other risks described in documents subsequently filed by the Company with the SEC from time to time. All forward-looking statements made on this call are based on currently available information and speak only as of the date of this call and the Company undertakes no obligation to update any forward-looking statement that becomes untrue because of new information, subsequent events, 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, including the discussion of adjusted EBITDA as a non-GAAP financial measure. For information regarding adjusted EBITDA and certain other non-GAAP measures and comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release regarding our fourth-quarter and fiscal year end results, which has also been furnished to the SEC as an exhibit to our current report on Form 8-K.

Before turning the call over to Deepak to discuss the business in more detail, I will provide a high level overview of our financial performance. We will again touch on several themes that we have discussed during past conference calls. Highlights for our fourth quarter of FY14 are as follows.

First, we reported record fourth-quarter revenues of $260 million, a 14% year-over-year increase. The growth was driven by record sales in our Security division, which grew 45%, and included initial revenues from the foreign military sales contract signed in June. The growth in the Security division was partially offset by a disappointing conclusion to the year in our Healthcare division, which posted a 15% Q4 year-over-year sales decline, which will be discussed later during this call.

Second, we reported for the fourth quarter, record non-GAAP diluted earnings per share, excluding impairment, restructuring, and other charges of $1.19. This marked the 19th quarter out of the last 20 that we achieved double-digit non-GAAP EPS growth. The 17% non-GAAP EPS increase was especially noteworthy given the softness in Healthcare, as well as the impact of an approximate $5 million increase in depreciation, driven primarily by our turnkey operations in Mexico.

In the context of the significant increase in depreciation resulting from the Mexico rollout, we believe it is again useful to look at another non-GAAP measure, adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, stock-based compensation, and impairment, restructuring, and other charges. Our Q4 adjusted EBITDA was $51 million, and for FY14, our adjusted EBITDA was up 30% to approximately $165 million.

Third, Q4 bookings were outstanding, again led by our Security division, resulting in a non-turnkey book-to-bill ratio of nearly 2x. Fourth, we generated $5 million in operating cash flow in the fourth quarter, with slightly negative free cash flow as anticipated.

For FY14, our operating cash flow was $129 million, while our free cash flow was approximately $74 million. Each of these amounts represents new annual records. Finally, we concluded the quarter with a very strong balance sheet.

Before jumping into additional financial details, let me turn the call over to Deepak.

Thank you, Alan. And again, welcome to the OSI Systems Q4 earnings conference call. As Alan discussed, in the fourth quarter and for the full fiscal year, we delivered record revenues and profit. Our Security division was the primary driver of our positive Q4 performance, while for a variety of reasons, Spacelabs and Optoelectronics did not deliver to our expectations.

Overall, revenues for the year were $907 million, 13% higher than FY13. During the year, we maintained our strategic direction in each business unit and invested in facilities, products, processes, and people throughout the Company.

As we approach close to the $1 billion mark in annual revenues, we clearly are benefiting from having a presence in multiple end markets and having the ability to support customers with a manufacturing footprint that allows us significant flexibility in managing their demand and logistical needs. We have exciting opportunities across the Company and look forward to making a further progress in each division during FY15.

Talking in detail about each business, starting with our Security division, Rapiscan, where revenues were $440 million for the full fiscal year, but 18% higher than the prior year, with an operating margin, excluding the effect of restructuring and other charges, of about 15%. The strong profitability resulted from higher volumes and increasingly favorable mix towards higher margin products and turnkey services.

Touching on the highlights of Q4 at Rapiscan, Rapiscan had an excellent bookings quarter of about $184 million non-turnkey bookings. To break that down a bit, we received a $15 million order from a Middle East customer to supply multiple units of the Rapiscan Eagle M60 mobile high-energy X-ray cargo and vehicle inspection systems. We booked another international order to provide several Rapiscan Eagle cargo and vehicle inspection systems for approximately $13 million.

We also were awarded a contract from a major international airport in the Middle East to provide several units of the Rapiscan 620 Dual-View advanced technology, 80-checkpoint X-ray baggage inspection systems. And last but certainly not the least, we received a foreign military sales contract from the US Department of Defense for approximately $102 million to supply multiple units of cargo and vehicle inspection systems and related training, spare parts, service, and logistic support in Iraq. While this contract took a great deal of time and patience to finally book, we are excited about it and commenced initial deliveries in June.

The cargo scanning market remains our fastest-growing segment, with the potential for both hardware sales and turnkey solutions. We have continued to capture new opportunities in cargo with a broad set of customers around the globe, including those highlighted above.

In turnkey services, the Mexico contract continues to contribute to our performance; with a large scale program, the size of Mexico, operating, we stand to benefit from overall increasing awareness in the marketplace and believe we are in a good position to capture additional opportunities in turnkey security solutions in the future.

Last year, we announced a 15-year contract that we received from the government of Albania to provide turnkey cargo and vehicle screening services at various sites throughout the country of Albania. Unfortunately, we recently learned that the customer, the Albanian newly-elected government, has halted further progress on the contract and put into doubt the continuation of the program. The program had been proceeding smoothly and ahead of schedule.

We intend to strongly enforce our contractual rights and hope to reach an amicable outcome. I would also note here that no revenues from Albania are included from this contract in the revenue guidance we are providing for FY15. You can understand that under the circumstances, we cannot comment further at this time.

During the year, we also made good progress in the European region with our European standard ECAC-certified real-time tomography whole baggage screening systems, with our most prominent win coming at Norway's Oslo Airport, where we will be providing multiple units of our CT-based high-speed checked baggage solutions. We are excited about the checked baggage solution opportunities in general in this region.

We also continue to work towards certification of the RTT product for the US aviation market. I'm sure many of you are interested the status of the open matter with the Department of Homeland Security, stemming from the TSA issues. We are in continuing dialogue with the DHS.

We do not wish to speculate regarding how long this might take. We continue to work towards a resolution of this matter. As you can appreciate, we are not in a position to comment further at this time and will not take any questions on this subject.

We enter FY15 with a strong backlog in Security and believe we have a growing pipeline of opportunities. We are well-positioned to provide a versatile security solutions to help protect people, as well as infrastructure, and expect continued demand, particularly in light of the continued unrest in certain regions around the globe.

Moving on to Healthcare division, Spacelabs sales were $61 million for the quarter, or 15% lower than the same comparable quarter in the prior year. The US healthcare market continues to be very challenging with certain hospitals at times delaying capital investment decisions. We are making good progress with our recently launched new products and are in a position to capture new customers.

Our latest anesthesia workstation, Arkon, continues to gain traction in the marketplace. We increased unit shipments during Q4, after ramping up Arkon product line, to enable higher volume product output. We remain optimistic about the prospects for the Arkon product line in FY15.

At Spacelabs, we also continue to leverage our [Datex] sales force and work with group purchase organizations, GPOs, and hospital integrated delivery networks, or IDNs, to capture larger-scale sales opportunities in the US. Hospitals are increasingly utilizing these types of groups to manage the procurement process. So although Q4 was a disappointing quarter for Spacelabs, we remain confident that our new product portfolio, combined with a potential general ramp up in hospital spending, will provide the impetus for a strong FY15.

Moving to Optoelectronics division, in the fourth quarter the Optoelectronics division generated revenues of $70 million, including inter-Company revenues, a slight increase from the same period in the prior year. Year-over-year, profits were down due primarily to product mix. Although Opto's Q4 performance was less favorable than we planned, the division delivered a record $285 million in revenues, including inter-Company revenues, in FY14, an increase of 19% over the prior year.

This growth was based on several factors. The two most prominent are new or expanded programs from existing and new customers and two small tuck-in product line acquisitions. We intend to continue to look for strategic opportunities that either expand the customer base or bring new capabilities to this division.

We expect that as the overall economy continues to expand, the defense and industrial sectors stabilize, Opto division will be in a good position for improved performance in terms of growth and profitability. On the whole, we are excited about our prospects and look forward to continuing to deliver growth in OSI 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 focused efforts have continued to succeed in delivering meaningful revenue and earnings growth. I'll now review in more detail the financial results for the fourth quarter of the fiscal year before discussing our 2015 guidance.

Our revenues in fourth quarter of FY14 increased 14% over Q4 last year. As mentioned previously, this was primarily due to 45% revenue growth in the quarter in our Security division, resulting from strength across multiple sales channels and product lines. The quarter also included approximately $23 million in revenues from the new FMS contract.

Our Opto division's revenues were relatively flat year-over-year, as Deepak described. And the drop-off in Healthcare revenues, noted earlier, dampened an otherwise strong quarter, as the hospital capital spending environment proved to be much more challenging than our team had anticipated.

Our gross margin in the quarter was down 5.3% from the same quarter last year. This was driven by a number of factors, including first, the revenue decrease in our Healthcare division, which carries the highest gross margin of the Company's three divisions; second, the change in product mix within our Opto division, with stronger sales in the contract manufacturing side of the business, which carries lower gross margins than the Optoelectronics side; and third, increased depreciation from our turnkey operations. As I have mentioned on our previous calls, the margin will fluctuate from period to period based on revenue mix, amongst other factors.

Moving to OpEx, we continued to work to manage our cost prudently. Q4 SG&A as a percentage of sales was down by 460 basis points year-over-year to 15.3%. The lower Q4 SG&A benefited from a reversal of a certain portion of performance-based compensation which had been accrued in earlier quarters based on forecasts that anticipated stronger results in both our Healthcare and Opto divisions.

Our goal is to hold the SG&A growth rate below the rate of sales growth, though individual quarters may vary from this. For the year, SG&A as a percentage of sales was 18.4% versus 19.9% in FY13. We remain committed in all of our divisions to increasing efficiencies and managing our cost structure.

We continue to invest significant resources in R&D to enhance our Security and Healthcare product offerings. Our R&D spending of $12 million in Q4 represented the highest level of any quarter in FY14.

We expect our R&D spending to increase in FY15 as we continue to develop innovative technologies to broaden our product offerings and enhance future growth. We are seeing results of these efforts in a number of new products that have been and are being released.

Restructuring and other charges were $3.1 million in the quarter and relate to costs incurred primarily in our Security division, stemming from contract issues with the US government, as well as legal and other costs incurred in our Corporate division. These charges are excluded from both our non-GAAP EPS and our adjusted EBITDA.

Our effective tax rate for Q4 of FY14 was 25.4% as compared to 52.7% from the same quarter of the prior year. The Q4 FY13 tax rate level was driven by a non-cash tax charge of $6.8 million as a result of an election to accelerate the tax depreciation of certain fixed assets related to the Mexico turnkey operations. Excluding the impact of this charge, our effective tax rate in Q4 of FY13 would also have been 25.4%.

This tax election opportunity is no longer available under Mexican tax law, effective for years beginning January 1, 2014. Our provision for income taxes is dependent on the mix of income from US and foreign locations due to tax rate differences among countries, as well as the impact of permanent taxable differences, tax elections, and valuation allowances, among other items.

As we move down the income statement, our Q4 GAAP diluted EPS was $1.07, a new record. The Q4 non-GAAP EPS per diluted share, excluding impairment, restructuring, and other charges, and the impact of tax elections just mentioned, was $1.19, also a new record, compared to $1.02 in the comparable prior-year period. For the full FY14, the non-GAAP EPS was $3.13 a share compared to $2.76 per share in FY13.

I will next turn to a discussion of our operating margin, excluding impairment restructuring and other charges. The Q4 adjusted operating margin was 13%, driven by double-digit operating margins of both our Security and Healthcare divisions and reduced corporate expenses. The operating margin from our Security division was a solid 14.2%, down from the prior year due to the higher depreciation from Mexico operations previously discussed and the revenue mix.

Our Healthcare division has the highest contribution margins in the Company. As such, the Healthcare operating margin is very sensitive to the top line. The 15% revenue decrease in that division resulted in a substantial year-over-year drop in the Healthcare operating margin.

Similar to last quarter, our Optoelectronics division's margins were below prior-year levels, mostly due to the mix of revenues. We mentioned that we expected fourth-quarter Opto operating margins would improve on a sequential basis relative to the third quarter, and in Q4 they did. In fact, they improved by 60 basis points.

We continue to take steps to improve efficiencies in the Opto division, which we expect to primarily be reflected in the second half of FY15. Overall adjusted EBITDA margins for OSI Systems for Q4 increased year-over-year from 19.2% to 19.7%.

Moving to cash flow, we mentioned on the last call that we expected Q4 free cash flow to be neutral to slightly negative, given the investment in working capital to support the anticipated strong Q4. This proved to be accurate, as operating cash flow for Q4 was $5.3 million, while capital expenditures totaled $6.8 million. For the year, we generated $129.2 million in operating cash flow and $74.2 million in free cash flow.

Depreciation and amortization totaled $14.2 million in Q4, an increase of approximately $5 million from the fourth quarter of FY13, primarily due to the ramp up of our Mexico turnkey program. With respect to days sales outstanding, or DSO, we are pleased with 22% year-over-year improvement, as DSO was 65 days at the end of June compared to 83 days last year. Our level of DSO frequently fluctuates significantly from period to period.

Our balance sheet is strong and our leverage ratio remains well below 1. In May, we increased the size of our credit facility to $450 million and also reduced our borrowing cost, extended the maturity date, and improved many other terms in the agreement. Our credit facility continues to provide the Company with flexibility to execute our business plan.

And finally, turning to our FY15 guidance, we anticipate revenues in FY15 to be between $960 million and $985 million. We generally provide overall Company guidance rather than guidance by division or program. That being said, we believe the growth will be driven primarily by our Security division.

Though we are optimistic about sales in our Healthcare division in FY15, given the soft sales experience of the past two years, we would like to see another quarter or two before we project much sales growth for that division in FY15. We do not expect much growth in our Opto division during the first half of FY15 given very challenging comps in the first half.

We currently believe the sales guidance reflects reasonable estimates; however, actual sales could vary from this range because of the risks and uncertainties applicable to our business and industry, including the timing of certain awards and the outcome of certain issues. We expect to achieve year-over-year growth in FY15, non-GAAP diluted earnings per share, excluding the impact of impairment, restructuring, and other charges, and the impact of certain tax elections, of approximately 12% to 20%, bringing us to $3.45 to $3.75 per diluted share.

We currently believe this guidance reflects reasonable estimates. Actual results could vary from the anticipated ranges; however, because of the risks and uncertainties applicable to our business and industry, including again, the timing of certain awards and the outcome of certain issues, including those previously discussed.

During the past few years, we have built a strong foundation for growth. The investments that we made have enabled us to become the leader in turnkey screening solutions and to continue to introduce innovative products and services to the market.

We look forward to sharing our progress on upcoming calls. Thank you for listening to this conference call, and at this time, we would like to open the call to questions.

(Operator Instructions)

Your first question comes from the line of Brian Ruttenbur with CRT Capital. Please proceed.

Yes, thank you very much. Congratulations on a good fiscal year and a good quarter. The questions I have are pretty straightforward.

Something that we're not supposed to ask you about is Albania. Can you tell us if there's a potential for a write-off in terms of Albania?

Brian, this is Alan. Most of the costs we've incurred to date that have been capitalized really relate to equipment and that equipment is fairly standard equipment that can be used for Albania or other customers. The general operating expenses that we've incurred in that program have been expensed as realized.

Okay, so there's not going to be any one-time charge that you envision at this point related to Albania?

As we currently sit here today, we do not anticipate any.

Okay. And in terms of other turnkey wins, this one appears to be going south, but are you working on others and what's the prognosis for additional wins?

Brian, this is Deepak here. We've said it before. We continue to look at these turnkey opportunities. I've said it on many calls before, that any large cargo sales opportunity can be a service turnkey provider or a turnkey provide opportunity can turn at the last minute to a sale.

So needless to say, I did say it in my previous call, that our pipeline and the fastest growing segment for our Security business is in the cargo, both in equipment sales and turnkey services, and it continues to look very robust.

Okay. And then in terms of the TSA open letter, the big question is just going from history, how long can this open letter go in place or can it just go away? What's the next thing that potentially could happen in terms of the DHS and the open letter?

Well as we have said before, we continue to work with DHS. We don't have any other input to give at this time and I can't speculate on any timing either.

Okay. Then the question for Alan would be CapEx in FY15 and cash flow in FY15. You gave revenue and EPS, but it appears that cash flows would be very high depending on what is your CapEx for FY15?

Sure, Brian, excluding potential new turnkey wins, which we are always optimistic about achieving, our general CapEx should be somewhat below $30 million for the Company overall, so that would imply some pretty good potential free cash flow for us. Important to note for FY15 that differs from FY14 are the taxes that we'll pay, given the election to accelerate depreciation in Mexico, which made a lot of sense from a business and a cash flow perspective, it led to very low taxes in 2014, will lead to a little bit higher taxes in 2015, so that's just one of the variables to factor into that equation overall.

Okay, in 2015 though, at least how I do back-of-the-envelope, it appears that cash from ops or something should be approaching $100 million, given your guidance range, around the $100 million mark. Is that correct in FY15?

We do not think that's unreasonable.

Okay, very good. I'll let somebody else jump in there, thank you.

Thanks.

Your next question comes from the line of Tim Quillin with Stephens, Inc. Please proceed.

Hi, good morning.

Good morning.

If I heard you correctly, the amount of the Iraq FMS order that shipped in 4Q is $23 million. Is that correct?

Tim, this is Alan. Yes, that is correct.

Do you have a sense -- is that the way we should think about the pace of deliveries, of the $102 million over the next few quarters? Or how do you expect that to be recognized as revenue?

Sure, Tim, this is Alan again. The pace won't be linear. In fact, while we don't necessarily provide guidance per quarter per program, I would tell you that Q1 for FMS should be something like one-half of that number for Q1, and then we would expect it to accelerate beginning in Q2.

Okay. And would you expect to complete deliveries under that order by the end of your FY15?

We think the majority of revenues will take place by the end of FY15; however, there's an expectation that there will be revenues that go beyond that, as well, for service and other components, as well.

Can you give us a sense of what the service tail is on the initial order and then what is the hope or the expectations for additional orders?

Tim, this is Deepak here. For competitive reasons, I don't want to break it down, but as you know, there is talk about more business there and we are well-placed. Right now our focus is to execute the program and we continue to look favorably to additional business.

Okay. And then on the turnkey side of the business, do you expect the turnkey business in Mexico to have a little bit of a ramp still ahead of it in FY15 or was FY14 a relatively full year?

Tim, this is Alan. FY14 was a strong year. We are still not doing all of the sites, so there is an opportunity if and when additional sites come online that it could be -- there could be some additional revenue opportunities there, but FY14 in and of itself was a very strong year.

Okay. And I know that you can't say much about TSA. I don't know if you said anything in your prepared comments about the FDA notice that you received. Is there anything you can say about that or what the issues were involved in that?

Yes, Tim, this is Deepak here. The FDA's warning letter was for the observations were with regard to our internal processes through a routine audit that every couple of years they come and do. We have a plan to improve those processes to meet or exceed the FDA expectations, and like other companies, we continue to do better and have put in place process improvements and consultancy services to help us meet and exceed the expectations that the FDA has required.

Okay, fair. And then with regards to the restructuring charge, and restructuring and other charges in the quarter, part of that is ongoing costs, and I forget exactly how you phrased it, but around contractual issues with the government. Is that something, until you resolve your issues with the DHS, that level of charge would continue into FY15, or how should we think about that?

Tim, this is Alan. You're right in your assumption that some of those type of charges will continue into FY15. It may not be the same level that we just experienced in the fourth quarter, but it would be prudent to anticipate that you will see some of those costs in 2015 as well.

Okay, and then just lastly, do you have specific backlog numbers for the overall Company and for the Security business? Thank you.

Tim, this is Alan. The backlog number was north of $800 million, rounded down to the $800 million we talked about. The Security number was a little bit north of $700 million, so very strong in each regard.

All right. Thank you.

Your next question comes from the line of Jeff Martin with ROTH Capital Partners. Please proceed.

Hi, Deepak. Hi, Alan.

Hi.

Hey, Jeff.

Alan, could you give us a sense of timing. There are two sizeable cargo orders, the $13 million and $15 million orders, in terms of timing, when that will fall into FY15? Generally speaking, so we can model it with some accuracy?

Sure. Jeff, those two orders you're referring to that we announced in May, very nice orders for our Rapiscan division. Generally, some lead time associated with cargo, so we would expect those to ship most likely in the second half of our FY15.

Okay. And then could you give us an update on how things are going? You alluded to it generally, but some specifics on the Healthcare sales organization that you're working with? Have you added any? Are you seeing progress with certain of them and less so with others? Just some detail there would be helpful?

Jeff, this is Deepak here. We are disappointed, but confidently we can say we did not lose any orders. It's just getting pushed. So we have focused ourselves, as I mentioned in my presentation, to working with the GPO organizations and the IDNs.

We are focusing more on Arkon launch, not just domestically in the US, but internationally. So we are optimistic cautiously and we continue to look at where we can efficiently increase productivity. Overall, we are very much focused on to it and we think that 2015, we are going in with a much more confidence than 2014.

Okay, great. And then if you had to characterize your top three US opportunities in Security, what would those be in specific order?

Well we've always maintained that the two fastest growing segments are cargo, both cargo equipment sales and turnkey, and the other opportunity is in the RTT, in the checked baggage, whole baggage screening opportunity. As you know, that everywhere post 9/11, there's a lot of replacement demand up there, but what's happened over the last couple of years in Europe, everybody has pushed the deadlines.

But sooner or later, they have to got replace. We are well-positioned. Our Oslo win has been a great success for us. We now have a, what I call, a western airport under our belt. So we are looking at these two opportunities, not to mention that the other ones on the trace detection in other places, but these are the two major opportunities, cargo and whole baggage screening.

Okay, great. Thanks very much, guys.

(Operator Instructions)

Your next question comes from the line of Josephine Millward with Benchmark. Please proceed.

Hi, Deepak. Hi, Alan.

Hello.

Hello.

Deepak, I was wondering if you can give us an update on timing of potential certification with TSA on RTT. Do you think we could see that happening in your FY15?

Josephine, I do feel--

I know it's your favorite question (laughter).

The thing is that -- the first thing I want to emphasize is that whatever is happening with TSA and the DHS has no indication of any delay in our ability to get certification at TSA. We can confidently say that.

We are in the test phase. It goes the same way because of blind test. And I would like to make the same statement I made before, that by the end of calendar year maybe, if we are lucky, by the end of fiscal year, we are hoping that we will pass that hurdle.

Great. Can you talk about how a potential US government continuing resolution or shutdown might impact your outlook in the coming year?

Well obviously, we look at it cautiously. Keep in mind that our total focus of our business has been directed at the international arena, although in many places we still depend upon US government funding, like the FMS program. But most of the programs that we are working with are funded, and we look at the global picture.

I meant it when I said that our pipeline has never been as healthy, as strong as we have seen in the last quarter. We said we're going to have a very strong booking and we did that.

We believe that 2015, and it reflects in our guidance, that there's a lot of opportunity all over internationally in Middle East, in Africa, in Asia, in Latin America, so we believe that overall, we will definitely have impact with the US government's sequestration, but we are maybe better positioned than some of our competitors.

Okay, let me switch gear to Healthcare. You mentioned Arkon contributed to your Healthcare in Q4. Can you give us the number? And can you also expand on what gives you confidence in a recovery in 2015, given the macro environment remains, as you know, quite uncertain?

Well number one on Arkon, we've started shipping in Q4. I did mention in my presentation that we have ramped up for volume production. Definitely 2015, we are expecting relatively a bigger growth in the revenue in Healthcare from the anesthesia Arkon product line than what happened last year.

What gives us confidence is that there's been a tremendous push in the healthcare system of EMR, electronic medical record. That is now done and hospitals now are focusing, from what we are hearing, back to capital equipment procurement and our focus, working with the GPO groups and with the IDN groups, make us feel confident that 2015 will be a good year. We also said we did not lose any business and that gives us the confidence that some of that [d-o tech] got pushed from 2014, we will book and ship in 2015.

Thank you and congratulations on a great year.

Thank you very much.

Your next question is a follow-up from the line of Brian Ruttenbur with CRT Capital. Please proceed.

Yes, thank you very much. I just wanted to drill down a little bit more also on the medical weakness. I was wondering if there was a specific line, a specific product that you're seeing weakness on?

Brian, there's no specific product. The region-wise, as you know, we are very much dependent on US still. US was weak and again, it got pushed. T

he important thing is that wherever people could delay buying, they delayed it, and we were expecting some bookings to happen in Q4 that we could ship out. It didn't happen in time. There is no product weakness as such, it's just geographic.

Okay, so the FDA situation didn't contribute at all to this weakness, right?

No, not at all. As a matter of fact, the warning letter, we announced it before even the FDA published the letter, it happened after the quarter was over.

Okay. Thank you very much.

There are no additional questions. At this time, I would now like to turn the presentation back over to Mr. Deepak Chopra for closing remarks.

Thank you. I would like to thank everybody for joining our call. We are very excited about FY15, are going into it with a strong backlog, with good products, and we want to thank all people, especially the employees of the Company, for a job well done and we continue to look forward to an exciting year. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.