OSI Systems Inc (OSIS) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the OSI Systems, Inc. Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I'd now like to turn the call over to Alan Edrick, Chief Financial Officer, to begin the call. Sir, you may begin.

Well, thank you. Good afternoon, and thank you for joining us. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems, and I'm here today with Deepak Chopra, our President and CEO. Welcome to the OSI Systems Fiscal 2018 Third Quarter Conference Call. We would like to extend a warm welcome to anyone who is a first-time participant on our conference calls.

Earlier today, we issued a press release announcing our fiscal '18 third quarter financial results. Before we discuss our results, I would like to remind everyone that today's discussion contains forward-looking statements. 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 under the securities laws. These forward-looking statements are based on management's current expectations and are subject to uncertainties, risks, assumptions and contingencies, many of which are outside the company's control. Such statements include, without limitation, information regarding the expected financial and operational performance of the company and its operating divisions; the company's expected revenues, earnings and growth; and expectations regarding the effects of the new tax legislation. Please be advised that the actual results could differ materially from our forward-looking statements due to numerous factors, including factors described in the company's periodic reports filed 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 subsequent events or new information or otherwise.

During today's conference call, we may refer to both GAAP and non-GAAP financial measures of the company's results. For information regarding non-GAAP measures and comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release regarding our fiscal 2018 third quarter results, 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 to discuss the company's general business and operations, I will provide a high-level financial overview of the third quarter. All my references will be to fiscal Q3 2018 compared to fiscal Q3 2017 unless otherwise specified.

First, we reported Q3 net revenues of $267 million, a new third quarter record for OSI and a 9% year-over-year increase. The growth was driven primarily by our Security division, which reported record Q3 revenues of $170 million, up 18%. We saw strong organic growth in our product sales and related service revenues, which were partially offset by the change in revenues associated with the new Mexico contract. This growth was also aided by approximately $18 million of revenues from our explosive trace detection business, which we acquired in the first quarter fiscal 2018. Our Opto division reported 5% external revenue growth, with strong intercompany sales growth. These Security and Opto division revenue increases were partially offset by decreased revenues in our Healthcare division.

Second, we reported Q3 GAAP diluted earnings per share of $0.13 compared to diluted earnings per share of $0.72 in the prior year due primarily to higher impairment, restructuring and other charges, which we will discuss later. On a non-GAAP basis, Q3 EPS was $0.86 per diluted share, in line with our expectations, compared to the $0.85 per diluted share reported in Q3 of last year. Non-GAAP EPS excluded the impact of impairment, restructuring and other charges; amortization of acquired intangible assets; the gain on the disposition of a business; and noncash interest expense, all net of related tax effects. It also excludes discrete tax items.

Third, operating cash flow for the quarter was $31.1 million, and capital expenditures were $4.4 million. For the first 9 months of fiscal '18, operating cash flow was a noteworthy $115.8 million.

Fourth, we were active during the quarter in our stock repurchase program, acquiring approximately 972,000 shares in the open market at an average price of $61.37 per share.

Finally, our Q3 book-to-bill ratio was 1.4. Our backlog as of March 31, '18 was approximately $938 million, an increase of 27% from the start of the fiscal year.

Before diving more deeply into our recent financial results and discussing our updated fiscal '18 guidance, let me turn the call over to Deepak.

Thank you, Alan, and again, good afternoon, and welcome to the OSI Systems earnings conference call for the third quarter of fiscal 2018. We are pleased with our performance this quarter, led by our Security and Opto divisions, with each delivering strong revenue growth and solid profitability. These divisions' strong performance more than offset Spacelabs' performance and the impact from the lower revenue level under the renewed 2-year Mexico turnkey services contract, which was in line to our expectations.

Company's revenue grew by 9% and ended the quarter with a strong backlog approaching approximately $1 billion. Also, our Board of Directors authorized a new stock buyback program for an additional 1 million shares, and as Alan mentioned, the company bought back approximately $60 million worth of stock in the quarter.

Reviewing the highlights for the quarter for each division, starting with our Security division. Security revenues were $170 million and 18% higher than the prior year. Our Security bookings during the quarter were $270 million, more than twice the level in Q3 of the prior year and include approximately $130 million from the renewed 2-year contract to continue the screening services operation in Mexico. Non-turnkey bookings were also very solid for the quarter.

For checked baggage screening, we continue to achieve market penetration in the European Union with our Rapiscan RTT 110 explosive detection system. To address a similar need for higher threat detection capabilities at the checkpoint, during the quarter, we launched the Rapiscan 920CT checkpoint security scanner. The 920CT is the company's first dual-energy CT scanning technology for checkpoint security screening. To accelerate time to market, the 920 scanner uses Analogic's advanced CT imaging technology and threat detection software. This new platform is currently being evaluated by the ECAC for certification in Europe.

Shortly after the quarter-end, we served as a security systems provider for the Gold Coast 2018 Commonwealth Games, which were held in Queensland, Australia, from April 4 to April 15. Several of our checkpoint products were utilized to help secure numerous entry points at the games, including Rapiscan 600 Series baggage and parcel inspection systems and metal detectors. With our participation in the Gold Coast 2018 Commonwealth Games, we continue our tradition of being a leading systems provider at prominent international sporting events.

As we mentioned in the last quarter call, we started a strategic initiative to enter the market for integrated security services for sports and entertainment facilities and temporary events. Examples are professional sports, stadiums, concerts and other large events. To kick off this initiative, we are now the title sponsor of the PGA Champions TOUR event in Biloxi, Mississippi called the Rapiscan Systems Classic. The first Rapiscan Systems Classic was held in late March and surpassed our expectations. At the Classic, we provided security for the safety of players, attendees and other service providers. We were also able to showcase our total security services portfolio.

In addition to increasing awareness of our security brands at the event, local media and national sports media networks replayed highlights from this event, which should help increase our name recognition nationwide and globally. It was a great opportunity to provide an essential service and promote brand awareness in a new market segment. We look forward to supporting future events.

On the integrated service front, the Mexico, the Puerto Rico and the Albania turnkey screening services contracts are doing well. As an example of the critical value we deliver, we announced during the quarter that we assisted Albania authorities seize 1,350 approximate pounds of cocaine being smuggled into Albania, utilizing our high-energy X-ray scanner. The narcotics were hidden in a false door -- floor of a produce shipment, and the Albanian state police estimated the value of this seizure to be about $200-plus million.

We're also on track to begin operations on a small multiyear integrated turnkey cargo screening program in Asia. These integrated services programs not only serve as an effective defense against the trafficking of contraband, they also increase the accuracy of customs declaration, resulting in improved collections of customs revenues. And they also ensure that the shipper pays the legally required duties.

Moving to the Healthcare division. Spacelabs revenues for the third quarter were about $44 million, 8% lower than in the prior year, excluding the impact from a non-core divestiture. After seeing growth return to both Spacelabs' top line and operating performance in the previous 4 quarters, this is a step back. The order demand during the quarter was tepid across several regions.

We took the opportunity during the quarter to review the Spacelabs organization and assess how well suited it is to meet the division's critical needs going forward. Today, I am proud to announce that we have appointed Mr. Jim Green as President of Spacelabs Healthcare, and he will be succeeding Sujit Kumar as of April 27, 2018. Jim has spent his career with health care and high-technology organizations and also has a significant experience as CEO of Analogic Corporation for nearly a decade. Jim should be well suited to help Spacelabs build a stronger core foundation as he helps to create an environment for innovation that aims to accelerate health care revenue and profitability growth. We thank Sujit, who came in 2 years ago and did a good job of providing leadership during a very important transitional period for this division. He helped build our current Spacelabs management team and greatly improved our operations and product launch processes. We thank Sujit and wish him well in his future endeavors.

Moving to our Optoelectronics and Manufacturing division in Q3. Overall revenues were up 14%, including intercompany, and the adjusted operating margin posted solid double digit at 11.6%. This performance was driven by a favorable product mix, growth in intercompany demand and benefited from a new product line acquisition. During the quarter, we acquired a Canadian-based provider of flex and rigid-flex assemblies to OEMs in health care, telecommunications and test and measurement equipment, among other industries. This acquisition builds upon our flexible circuit design and manufacturing capabilities.

Opto has improved its focus on choosing high-potential opportunities in the numerous industries which it serves. The division has now had a book-to-bill ratio of 1:1 or greater in each of the last 5 quarters. So it is not only choosing wisely but also increasing the overall demand as we are at the highest backlog in Q3 over the past 5 years. Going forward, we will continue to focus on OEMs that value the ability of the supplier that can serve them worldwide from prototype to full production with operations onshore and also in areas closer to their end markets.

In summary, with a strong backlog and visibility and opportunities, we are confident that we should deliver a solid finish to the fiscal year. As always, I would like to thank our employees, customers and stockholders for their continued support.

With that, I'm going to turn back the call back over to Alan to talk in more detail about our financial results before we open the call for questions. Thank you.

Well, thank you, Deepak. Now I will review the financial results for the third fiscal quarter in greater detail.

As mentioned previously, our revenues in Q3 of fiscal '18 increased by 9%. Q3 revenues in the Security division increased by 18% year-over-year, driven by strong performance across much of our product portfolio, especially in our cargo and vehicle inspection product line and our recently acquired trace product line. Q3 revenues also increased in our Opto division, driven by growth in intercompany sales to our other 2 divisions and the impact of a small acquisition in January 2018 that Deepak mentioned, which contributed $4.7 million in Q3 sales. Revenues in the Healthcare division decreased 8% on an organic basis as the strength we saw on U.S. markets in the first half of the fiscal year was not maintained this past quarter.

Our Q3 gross margin came in at 36.5% compared to 35.1% last year. Each of our divisions contributed to the solid gross margin expansion. The greatest impact was attributable to performance in the Security division, which exhibited favorable product and channel mixes, along with economies of scale resulting from higher revenues and operational efficiencies. As mentioned on previous calls, our gross margin will fluctuate from period to period based on product mix, among other factors.

Moving to operating expenses. In Q3 of fiscal '18, SG&A was up $10.4 million, which included costs associated with the acquisitions previously mentioned and investments to support a higher sales level. R&D expenses in Q3 were $15.9 million, up from $14.4 million in the prior year primarily due, again, to acquisitions in the Security division that brought a higher mix of products in the development stage. We remain focused on innovative product development, which we view as vital to the long-term success of our business.

Impairment, restructuring and other charges were $14.1 million in Q3 of '18 as compared to $2.5 million in Q3 of fiscal '17. This included approximately $9.7 million of charges in our Healthcare division due to the abandonment of a technology. The remainder of the charges is comprised of acquisition-related costs, facility closure costs, employee severance costs and other legal and settlement costs.

Moving to taxes. This past quarter, the effective tax rate was 18.1%. Excluding the impact of discrete tax items, our effective tax rate was 28.2% compared to an effective tax rate for Q3 of fiscal '17 of 27%. For the first 9 months of fiscal '18, our income tax provision is $65.4 million as compared to $7.3 million for the comparable prior year period. The current year provision includes approximately $56 million that we discussed in last quarter's call of discrete tax expense, primarily resulting from the enactment of the Tax Cuts and Jobs Act in December of 2017, after which we recognized a charge of approximately $56.2 million, representing our estimate of the tax on accumulated overseas profits and the revaluation of deferred tax assets and liabilities.

Let's now turn to a discussion of our non-GAAP adjusted operating margin, which excludes the items mentioned earlier in the call. The company's non-GAAP adjusted operating margin was 9.7% in Q3 of fiscal '18 compared to 10% in the same prior year period. This change was anticipated in connection with our move to the new Mexico contract, which is at a lower revenue run rate and thus, reduces margins. That being said, the adjusted operating margin was still solid in Security, decreasing only modestly on a year-over-year basis to 14.3% from 14.7%. The adjusted operating margin in the Opto division improved to 11.6% in the third quarter of fiscal '18 from 11.3% last year. The adjusted operating margin in the Healthcare division was down year-over-year to 2.9% from 4.2% last year due primarily to decreased revenues in the division. As we've noted on prior calls, the contribution margin of the Healthcare division is generally the highest among the 3 divisions and, therefore, is quite sensitive to the top line.

Moving to cash flow. In Q3 of fiscal '18, cash flow from operations was $31.1 million. Capital expenditures in the quarter were $4.4 million, while depreciation and amortization was $13.7 million. Day sales outstanding or DSO was 74 days, up by 6 days over the prior year due to the timing of collections. Days inventory for Q3 came in at 163, up by 10 days compared to the 153 days reported in Q3 of fiscal '17 as the Security division preps to deliver the strong backlog.

Our balance sheet remains strong. We ended the quarter with net leverage of approximately 1.8, as defined under our revolving credit facility.

Finally, turning to guidance. We are raising our fiscal 2018 guidance on both revenues and non-GAAP EPS. We anticipate fiscal 2018 sales in the range of $1,065,000,000 to $1,095,000,000, which would represent growth of 11% to 14% compared to the prior fiscal year. We are also increasing our non-GAAP earnings guidance to $3.50 to $3.69 per diluted share for fiscal 2018. This excludes the items noted earlier in the call. We believe this modified sales and earnings guidance reflects reasonable estimates. Actual sales and earnings, however, could vary from the anticipated ranges because of the risks and uncertainties that affect our business and the industries generally, including items beyond our control such as site readiness or product installations, customer acceptance and the timing of orders in each division.

We have continued to demonstrate growth while generating strong cash flows and investing in product development and innovation and making selective strategic acquisitions. Our product and acquisition investments continue to enable OSI to sustain our leadership role in the turnkey screening services market and have allowed us to introduce innovative products and solutions across our various industries.

Thank you for participating in this conference call. And at this time, we will open the call to questions.

(Operator Instructions) Our first question comes from Brian Ruttenbur with Drexel Hamilton.

So a couple quick questions. In terms of book-to-bill, can you give us some kind of bookings number ex Mexico? Because I think Mexico came in there during the period.

Brian, this is Alan. I'll take that. So the bookings -- the Mexico bookings were approximately $130 million. So if we subtract that out, that would give us our overall bookings for the quarter.

So what was your book-to-bill then ex Mexico?

It was much closer to a 1:1 ratio.

Okay, great. And then can you talk about going forward -- you had a very good quarter in terms of Security. Can you talk about what you see going forward in terms of growth with this new lower Mexico contract? Can you sustain this? Because I think that the majority of this quarter was without the old Mexico contract. Is that correct?

Brian, this is Deepak here. Our pipeline looks very robust, especially in the cargo space, and we continue to be very positive on continuing the RTT in the European Union and the trace business that has done well. So we are very optimistic. We feel good about it. And as the -- as what we look at it from the new budgets that are also coming out from Washington, it's very favorable for our kind of products, both domestically and in the international sector.

Okay. And if I can ask one more question on that. In terms of -- you mentioned a new turnkey project in Asia. Can you give us any color, maybe starting time, size? You don't have to give us the exact numbers, but bigger or smaller than a bread box will be great or something along is it Puerto Rico size or is it Albania size, something along those lines.

Good question, Brian, and you can also appreciate our answer is going to be the same way to answer that. It's in Asia. We are very, very excited about a turnkey integrated solution product. It's smaller than Puerto Rico. It's a multiyear contract, and we're going to start doing the civil works and start working on it. It will start showing revenue sometime a year from now.

Okay. And then last question. You've had lots of changes with Healthcare, and you're making another change here. Is there plans on the horizon? Is this the last time you're going to take a swipe at this? Or if this doesn't work, you're going to sell it? And what do you think? Is this a fixable problem? Is this an end market problem? Is this a products problem?

Brian, firstly, I think the way you have to look at it is -- this was a -- Sujit had done a great job. About a month ago, he came over -- he came forward that he wanted to try other things, so it's at his -- he has done a good job. We wanted to make sure that we fill the place, and we are very fortunate. Jim Green is a fantastic person, comes from the industry with a lot of knowledge. Regarding the other subject you're asking about it, is we've had 4 quarters, 3, 4 quarters of good revenue, especially in U.S. I mean, I look at this -- there's nothing wrong about it, basically. It slips from 1 quarter to the other, and there were large programs that we're chasing, and some of them did happen in time. So we are very -- we're feeling good about it. The change has nothing to do with any drastic thing wrong with it. Regarding your second question, we still believe that we are focused. The healthcare is very important. Alan has mentioned many times, when the revenue is there, it's got the best margins. So we think that with Jim Green's addition and the focus on technology and what other add-ons we can look at it, we want a complete focus on it to grow all the businesses.

And our next question comes from Greg Konrad with Jefferies.

Just on Optoelectronics, I mean, with the product line acquisition in the quarter, I mean, would you view that segment as maybe a platform to expand further? And maybe if you have any type of color. You mentioned the business has been strong in terms of different end markets.

Greg, this is Deepak here. Our focus has always been we want to differentiate ourselves from just being a generic contract manufacturing PC board electronic assembly. We have bought a couple technology platforms. Flex is a very good platform we bought. This other company also adds onto it. We want to continue to look at niche areas, selective customers, both in health care, in aerospace and in defense kind of businesses, where we bring something to the party. And that's the fundamental strength we look at it. And we basically continue to look at opportunities, both in the U.S. and also internationally, where we can be next to our customers and be a provider to a customer as a vendor, as a partner, not just as a generic board manufacturer. So we look at it, and as Alan has mentioned a couple of quarters before, at one time, we have been very selective. And revenue is important, but we also want to make sure that we have good-margin products, and we have been able to sit through it, and we're very proud to say that, that business has done very well.

That's helpful. And then just to follow up on the integrated security services business, I mean, is that a big opportunity? Or any thoughts on how big a market that is? Or is that more about brand awareness for the product lines?

Well, we said it before for many, many calls. We think it's a very big market, and it's combined together with our standard sales processes. So we have tried to explain to all of you, it can be a sale of a cargo product, it could be an integration of something add-on, training, image analysis, or it could be a complete turnkey. So we look at that. And global awareness is getting more and more, and we have said it before that our 3 major projects that we have, have been very successful. We have taken a lot of customers international to look at some of these sites we have, and people are very happy about it. So we are very confident about it, and this is a very big growth opportunity, and it has -- one of the big things in the cargo business has been -- it's a lumpy business. These kind of models give it a longevity. It's a multiyear contract, and your customer is committed for a long-term investment with you.

And our next question comes from Larry Solow with CJS Securities.

Just a few follow-ups. On the Healthcare side, it sounds like Jim wasn't necessarily brought in to correct the problem, but opportunistically, maybe he can improve things. But specifically on the quarter itself, anything in particular? I realize one quarter, like you said, Deepak, doesn't make a trend, but you have been doing pretty nicely and growing it and then sort of step back $7 million, $8 million on an absolute basis. You mentioned sluggishness in many regions. Is this something -- is it more a macro thing? Is it -- you said there were a couple of large orders you went for and didn't get? Are there still others out there? Do you expect, without being specific, to sort of rebound in the next quarter or so, or any thoughts there?

Well, you basically sort of answered your own question. One quarter doesn't do anything. Jim was brought in not for anything, that there is anything wrong. Sujit did his 2 years, and he decided to move on to try other things. Jim comes from an environment which is very different than Sujit's. We are looking forward to more innovation. We're looking at more broader base, look at it. And we think that long term, we are completely committed to this. Yes, Q3 -- it happens. I mean, 3 quarters in a row, we've grown, so -- and some of these things didn't pan out. Regarding your other thing, yes, we've been saying it, that the outside U.S. has been a challenging business, but we see some room to improve. We think that things are stabilizing, and we continue to focus on it. U.S. has been very good to us, and 1 or 2 orders got pushed out. So I look at that as if -- that we need to continue to focus ourselves, and Jim will help us.

Okay. So it sounds like -- so you view it as a short-term bump, a speed bump in the road or whatever it may be, without actually saying -- quantifying the growth going forward, but you expect yourselves to grow.

Yes.

Fair enough. And then just on the Security side, just to confirm, the Mexico, the renewal actually would have been effective January 1. That was probably retro-ed, so you actually had a full quarter at that lower rate. Is that right?

Larry, this is Alan. We had nearly a full quarter. The initial contract went through mid-January, so we had close to 2.5 months on the new contract.

Got it. And then also, I think -- I don't know if you quantified it in the last quarterly call, but there was also a little bit of pull forward that went into Q2 from this quarter, right? So you -- outside of Mexico, right, just in the general Security side, if I'm not mistaken. Is that right?

You're saying some of -- what would have been in Q3 went into Q2?

Right. Exactly, and I think your Q2 -- part of the upside in the last quarter was attributed to some sort of pull -- that you had pulled some forward into Q2 from this quarter. Is that...

We tend to sometimes see that based upon customer requirements. And yes, despite that, you're absolutely right, what you're leading towards. The Q3 revenues were still strong despite that.

Yes, with like 6% organic growth. And then just on the trace business, obviously, it's done better. It sort of ramped up since you purchased it. And of course, there have been some new tighter restrictions that happened essentially right at the same time you guys acquired it. Does that sort of put the annual revenue at a little bit of a higher level? Or was this sort of a onetime short-term lift?

Well, in the end, this quarter, trace did very well. We are very satisfied. We continue to see a lot of opportunity, and we have ramped up R&D in it. We look at it that it's a great product line. It is a high-margin product line. And we want to focus on it to continue to grow.

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

I was curious if you could go into a little bit about Security from a broader perspective in terms of its growth. I mean, you've outlined a bullish demand outlook. Do you feel that, fiscal '19, you're going to be able to grow Security? And what type of growth rate is a reasonable assumption as we look to update our '19 numbers?

Jeff, as you know -- it's Deepak here. We are not prepared to talk about 2019 yet. We are focused, but we see -- generally speaking, all our product lines look for growth. The pipeline is very strong, and we continue to look at it. And obviously, Alan has been very careful to talk to you guys that the Mexico program is lower, but we are very bullish about the Security business.

Okay. And then can you give us an update on the portfolio sales approach now that you've got a more robust product line than ever before? Are you seeing benefits from that? Is that a big initiative? Is that something that is still kind of percolating?

Jeff, in the Security side, we are very proud to say that we have the broadest portfolio. And definitely, the 2 acquisitions, the AS&E acquisition and the trace has made us a very broad product portfolio. Automatically, we can cater to more demands of the customer. Plus we have a lot of experience now, more than 6-plus years of doing turnkey services. And as your product portfolio increases, we can give a better service to our customers. RTT continues to be looking at the checked baggage initiative that we've been talking about it. Trace is a new add-on to it. So all in all, we are very, very confident that we have a strong, broad product portfolio. And our solutions and our ability to satisfy the customers, both domestically and internationally, is better than anybody else, I think.

Okay. And then you've got a new product going through ECAC certification. I was just curious if you could highlight timing and impact you see from that market if you have any visibility into that.

Well, keep in mind that checkpoint CT, there's a lot of talk. A lot of people are talking about it. I've said it in my call, for quick to market, we went in together with Analogic's technology, and it's been tested for certification. I think it's not going to be an overnight. Everybody would say differently. We believe it's a very (inaudible), what's happening today. Some of the high-throughput lanes, at a certain point, when it's tested well and the (inaudible) gets tested, the airport will happen, but it's not going to replace broad-based checkpoint all over. So we, again, feel very good about it, that now we have another broad product line so that we can offer our standard checkpoint machines and our ability now to have a checkpoint CT, so we can offer a whole solution, including the tray return systems.

Okay. And then can you give us some perspective from a competitive standpoint, if you're early to the market on this, if you're entering it where there's incumbents that are putting in for additional certifications as well or kind of where you are in line with the submission?

Well, on the checkpoint CT, there is absolutely no market right today of anybody who can be called incumbent. Everybody is doing some testing. Everybody's being looked at, at some various pilot places, so are we. So we continue to work with them. And this is not something that -- like somebody is already qualified, and frankly, even the specifications and the operations is not well defined yet.

Okay, that's helpful. And how much is remaining on your current repurchase authorization?

Jeff, this is Alan. We have 900,000 shares remaining under the current authorization.

And our next question comes from Austin Drake with B. Riley FBR.

So the sports stadiums and event security that you had mentioned, which products will we see at those? And just any other color that you can add to that opportunity.

Yes, this is Deepak here. Most of these events, basically, is what I call basic security that you'll see a guard with a wand. We think that with all the incidents that are happening all over the world, we think that it's going to go to a higher level. So it's our metal gates. It's our X-ray machines. It could -- it can also be some of the other add-on products that we have, the MINI Z to check in the trunk of a car. It could be the trace products that we have. So all those products. And we were very, very happy that we've used this event at Biloxi to show the people who are there -- there were hundreds of people, from the security guard to all these sporting events people. We showed our whole product portfolio. So we are looking at it, forward-looking, to upgrade the requirement and the needs for security at these events where there are a lot of people.

Got it. That's helpful. And then the abandonment of a tech in the Healthcare division you mentioned, will that affect the segment sales much going forward?

Austin, this is Alan here. No, it will not have a material impact. The sales from that technology were quite limited in the first 9 months of this fiscal year.

(Operator Instructions) Our next question comes from Brian Ruttenbur with Drexel Hamilton.

Just a couple quick follow-ups. Plans for repatriation of cash. I believe you have $194 million in cash, and is there any plans to repatriate that? Are you going to keep that all offshore? Most of it, I believe, is offshore.

Yes, Brian, this is Alan. Good question. We initiated certain repatriation already in the March quarter, so we had -- we've done about $32 million last quarter in a couple of the different countries that we operate in. We'll be further evaluating that for some of the larger ones in this fourth quarter and beyond. So big picture basis, yes, our goal is to repatriate a significant amount of those funds, so we are planning for that at this point in time.

Okay. And then another housekeeping. In terms of tax rate in the fourth quarter, what should we be modeling? And then as we go forward, a tax rate on a yearly basis would be helpful.

Yes. So our effective tax rate for fiscal 2018, we forecast it to be in the neighborhood of about 28%, plus or minus. So I think that would be pretty good for you to be modeling for fiscal '18, and we can offer some more insights for fiscal '19 and beyond on our next call.

Okay. And then last question, I don't believe it's been touched on, is the FCPA. I assume there's no update. Is that correct?

That's true. The investigations are progressing. We are cooperating fully. What I can tell you is that OSI is very proud to do business with honesty and transparency and that we have very strong compliance programs to address the legal requirements we operate under. That is how we have earned the trust of leading security, defense and health care agencies around the world and here in the U.S. More than that, it's an active thing going. We are working it out, and there's not much more to add to it.

And I'm showing no further questions in the queue at this time.

Ladies and gentlemen, thank you, once again, for attending our conference call. We look forward to speaking with you all in August, when we will discuss our fourth quarter and full year performance. Thank you.

Ladies and gentlemen, this does conclude your program, and you may all disconnect. Everyone, have a great day.