OSI Systems Inc

NASDAQ:OSIS

Earnings Call Transcript 2021-Q4

[Operator]

Thank you for standing by. And welcome to the OSI Systems Fourth Quarter and Fiscal Year-End Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded.

And I would like to introduce your host for today’s program, Alan Edrick, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

[Alan Edrick]

Well, thank you. Good morning and thank you for joining us today. 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 2021 fourth quarter and year-end conference call. We are pleased to review with you our financial and our operational results and to provide our outlook for fiscal 2022. Earlier today, we issued a press release announcing our fourth quarter and fiscal year 2021 financial results.

Before we discuss our results, I would like to remind everyone that today's discussion will include forward-looking statements and the company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, with respect to such forward-looking statements. All forward-looking statements made on this call are based on currently available information and the company undertakes no obligation to update any forward-looking statement based on subsequent events or new information or otherwise.

During today's call, we refer to both GAAP and non-GAAP financial measures when describing the company's results. For information regarding non-GAAP measures and the most directly comparable GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings release.

I will begin with a summary of our financial performance for the fourth quarter of fiscal 2021, and then turn the call over to Deepak for an overview of our business performance. I will then return to finish with more detail regarding our financial results and to discuss our outlook for fiscal 2022.

We are proud of our strong fourth quarter, where we achieved new records across multiple metrics. In managing this continuing COVID environment, a major priority at OSI Systems has been and will remain the delivery on commitments to our customers and to our partners while ensuring the continued safety of our employees.

Now we will cover some highlights. First, we reported a record $332 million in fourth quarter revenues, representing 20% growth over the prior year as the Security and Opto divisions posted impressive results. Second, we reported record GAAP and record non-GAAP fiscal Q4 earnings per share Q4 and non-GAAP adjusted diluted earnings per share was a $1.54, up 26% from our Q4 non-GAAP adjusted diluted DPS in fiscal 2020. For the full year, we delivered non-GAAP EPS of $5.32, a 16% increase over non-GAAP EPS in the prior year.

Third, we generated $8 million in operating cash flow during fiscal Q4, bringing cash flow for the full 2021 fiscal year to a new record total of $139 million. Fourth, bookings were once again solid in the quarter. Our book-to-bill ratio was 1.0 in Q4, and 1.2 for the full 2021 fiscal year. We entered fiscal 2022 with a backlog of nearly $1.1 billion, which is a 25% increase over our backlog at the beginning of fiscal 2021 and a fiscal year end record for us.

And finally, our balance sheet is solid with net leverage of approximately 1.0. Before diving more deeply into our financials, let me turn the call over to Deepak.

[Deepak Chopra, President and Chief Executive Officer]

Thank you, Alan. And again, welcome to the OSI Systems earnings call, conference call. Throughout the fiscal 2021, our company was committed to serving our customers, while creating a safe workplace for our employees in the ongoing COVID environment. As Alan mentioned, our team delivered a strong Q4 performance of 20% revenue growth over the prior year, solid bookings and a record year-end backlog.

Discussing each division in more depth, starting with some of the highlights relating to the Security division, were Q4 fiscal 2021 revenues increased 23% year-over-year to $202 million. And we ended fiscal 2021 with a backlog 21% higher than the division's backlog at the end of the fourth quarter of fiscal 2020 comparable period. The Security division’s Q4 growth was prevalent through much of the division’s products. Global bookings increased 14% from Q4 2020 with orders from both U.S. and international customers. During the quarter, we were successful in expanding our presence with the Department of Defense agencies and made progress with ongoing international projects, even as COVID spikes continued in certain regions that affect travel and logistics.

Our turnkey services programs, which actively support local authorities in managing drug interdiction, customs enforcement and controls of goods and tariffs continue to perform well in Puerto Rico, Albania and Guatemala. These programs utilize CertScan, our proprietary software platform that is cyber secure and manage inspection image data, and degrades with other IT systems at checkpoints and facilities, and facilitates the automation of inspection activity. The CertScan software integration platform is often used in our cargo inspection equipment deployment and are continuing to see traction with large customers that are utilizing this software platform for use in their security infrastructure for inspection equipment from multiple vendors. In other words, CertScan can be implemented as a standalone integration product by the security customers.

Worldwide, passenger airport activity continues to return slowly to pre-COVID levels. And our team is working with our aviation customers regarding their plans to upgrade security infrastructure. Our RTT 110 CT Hold Baggage Screening system is deployed at numerous international airports as well as at commercial air cargo facilities. Shortly before quarter end, we received an order, which we announced this week for multiple units of the RTT 110 to be installed at a major international airport in Asia.

As we have said in the past, the RTT 110 is also being utilized very effectively by various air cargo customers, such as FedEx, DHL, UPS, et cetera, for efficient screening of packages. We announced selected wins in this segment during the last fiscal year and expect global logistics providers to continue investing in upgrades to handle volume growth from e-commerce and the reopening of the worldwide economy.

Our growing installed base of inspection equipment also creates ample recurring revenue opportunities. As we can provide our customers with continued maintenance and support to the equipment’s life cycle, we reported growth in this recurring revenue both in Q4 and for the full fiscal year.

Of note, during the quarter, we announced a multi-year contract valued at $16 million from an international customer to provide maintenance, repair, upgrades and support services for several platforms of cargo, vehicle and baggage inspection systems that are currently deployed at checkpoints. We also announced another contract valued at approximately $6 million under which we are responsible for operating and continuing service of various Rapiscan Systems and ASME cargo, vehicle parcel systems and Trace Detection systems at a critical infrastructure facility.

Looking ahead, in addition to significant backlog, the security division enters fiscal 2022 with a healthy pipeline of diverse opportunities both in U.S. and international. Our proven inspection platforms utilizing cutting edge technology and our flexible approach to servicing the marketplace puts us in a very strong position to capture new business. The U.S. infrastructure bill currently in legislation has large expenditures identified in areas that could help us generally, especially at airport and port upgrades and generally with our industrial OEM customers. We will assess the impact from the final version of the bill and expect to have a positive impact for our business in the long run.

Moving on to Optoelectronics. In Q4, the Optoelectronics and Manufacturing division generated total revenues including intercompany of $92 million, representing a 37% increase over revenues in Q4 of a comparable period last year, while expanding the Q4 adjusted operating margin. The division reached $350 million in revenues including intercompany for the year a 23% higher than the prior year.

As we are vertically integrated, the purchasing activity at Opto is an excellent gauge for supply chain dynamics affecting the overall company. In a few cases, we have definitely seen longer lead times and higher sourcing costs, but the team is working through these challenges. Our Opto team did a wonderful job managing pandemic related challenges, while maintaining a safe working environment and meeting commitments to our customers in several different countries. Our fiscal 2022 given an Opto’s yearend backlog, the highest quarter and backlog ever for our Opto division. We believe that this division is well-positioned for another strong year.

Moving to Healthcare. In the fourth fiscal quarter, the Healthcare division reported revenues of $52 million or about 10% below the fourth fiscal quarter of the prior year. This result derives to some degree from the very strong prior year fourth quarter that was driven by heavy COVID related demand near the onset of the pandemic.

During the last quarter, we announced an order value that approximately $4 million for the U.S. hospital to provide patient monitoring telemetry and related accessories. We also renewed an important group purchasing contract to provide patient monitoring systems to Premier, Inc., one of the largest GPOs in the United States.

During the fourth fiscal quarter and throughout fiscal 2021, we made substantial investments in R&D to enhance our core offerings and develop new products in both patient monitoring and diagnostic cardiology. We also launched during the quarter, the LifeScreen Pro event screening system, which provides rapid analysis, allowing an initial triage to find suspected or intermittent arrhythmia events. This product is expected to contribute to growth in cardiology in fiscal 2022 and beyond.

Overall, I’m pleased with our performance in Q4 and fiscal 2021, and also very grateful for the perseverance that our team has demonstrated in handling COVID related challenges and opportunities. Our ability to manufacture complete systems and sub-assemblies in North America, Europe and Asia is paying off for us as it provides optionality in how we support our global customers and handle supply constraints as they may arise.

Going forward, our focus will be on serving our core markets, increasing our recurring revenues, capitalizing on strategic acquisitions and opportunities and making notable advances in our technology and product portfolio, while continuing to take care of our employees and their physical wellbeing and general wellbeing. I really look forward to fiscal 2022.

With that, I’m going to turn the call back over to Alan to talk in more detail about our financial performance and guidance before opening the call for questions. Thank you.

[Alan Edrick]

Thank you, Deepak. I will now review the Q4 financial results in greater detail. As mentioned earlier, fiscal Q4 revenues were up 20% over the prior year, driven by strong growth in each of the Security and Opto divisions. Security revenues were $201.9 million, an increase of 23% year-over-year, driven by strength across multiple geographic channels and across much of our product portfolio, including our cargo and vehicle inspection products, checkpoints and RTT explosive detection systems.

Opto sales, including intercompany sales continued the momentum seen in the first nine months of fiscal 2021, growing 37% year-over-year. In fact, our year-over-year sales growth in fiscal Q1, Q2, Q3 and Q4 for Opto was 9%, 20%, 29% and 37% respectively. The strength was largely driven by our Asian operations. Opto’s book-to-bill showed similar strength with the Q4 book-to-bill at 1.4%.

The sales strength in these two divisions was partially offset by 10% reduction in revenues in the healthcare division in comparison to the fiscal 2020 fourth quarter, which featured strong international sales at the outset of the pandemic. For the year, healthcare sales were up 15%. The gross margin was 35.5% slightly down from the 36.7% in Q4 of the prior fiscal year due primarily to the mix of revenues among the three divisions. While the gross margin in our Security division expanded as we’ve benefited from economies of scale on the strong sales growth coupled with good operational execution, the significant revenue growth in the Optoelectronics and Manufacturing division, which historically tends to carry a lower gross margin than the other two divisions places some pressure on the consolidated gross margin.

The Healthcare division generally carries the highest gross margin of the three divisions. And while the Q4 margin was solid and increased year-over-year in Healthcare, there was no boost to consolidate a gross margin given the relative proportion of healthcare division sales to the sales of the other two divisions. Our gross margin will fluctuate from period-to-period based on revenue mix and volume among other factors.

Moving to operating expenses. We worked diligently across each of our divisions to improve efficiencies and to prudently manage our cost structure. Q4 SG&A expenses were $68 million or 20.5% of sales compared to 21.8% of sales in the prior year, such expenses increased 13% year-over-year in support of the 20% increase in sales and as a result of comparatively increased travel expenses during the quarter compared to the same quarter last year.

Research and development expenses in Q4 were $13.9 million representing a $1.1 million year-over-year increase. As a percentage of sales, R&D was 4.2% in Q4 2021 compared to 4.6% in Q4 of last year. We continue to dedicate considerable resources to R&D particularly in Security and Healthcare, as we remain focused on innovative product development, which we view as important to the long-term success of our business. In fiscal 2022, we anticipate increased R&D investment most notably in Security. Restructuring other charges in Q4 fiscal 2021 were $2.2 million inclusive of lease termination and legal charges down from approximately $5 million in Q4 of the prior year.

Moving to interest and taxes. Our net interest and other expense in Q4 of 2021, decreased to $4.1 million from $4.5 million in the same prior year period, as a result of reduced borrowings in light of our continued strong cash flow.

On the tax side, the effective tax rate was 12.9% in Q4 of fiscal 2021, compared to 26.4% in Q4 of fiscal 2020. However, excluding the impact of discrete tax items, our non-GAAP effective tax rate in Q4 of fiscal 2021 was 26.3% compared to 29.6% in Q4 of fiscal 2020. We recognized a discreet tax benefit of $4 million in Q4 of fiscal 2021 compared to $0.6 million discrete tax benefit in the comparable prior year period. For the full year excluding discrete tax items, our fiscal 2021 effective tax rate was 26.6% compared to 27.3% in the prior year.

Let’s now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our non-GAAP adjusted operating margin in Q4 of fiscal 2021 was comparable to that in the prior year. The Q4 adjusted operating margin in our Security division was 18% up significantly from the prior year’s fourth quarter of 15.5% driven by a favorable revenue mix and sound operational execution.

The adjusted operating margin in our Opto division, improved 20 basis points coming in at 11% in Q4 of fiscal 2021 as compared to 10.8% in the comparable prior year quarter, due to the strong revenue growth where we leveraged our fixed costs to absorb certain component and logistics cost increases. The adjusted operating margin in these two divisions were offset by a reduction in adjusted operating margin in our Healthcare division, due to the change in sales and increased operating expenses, including an increase year-over-year in Q4 investment in research and development.

Let's move to cash flow. We generated significant cash flow in fiscal 2021, largely in the first nine months. In Q4 investment in working capital was more substantial given the 20% revenue increase and revenue growth projections for fiscal 2022, as a result, Q4 operating cash flow was $8 million leading to a record $139 million in fiscal 2021. Net CapEx in the fourth quarter of 2021 was $4.6 million and depreciation and amortization for the quarter was $12.4 million. Our cash flow conversion continues to be solid. We have no borrowings outstanding on our credit facility providing ample headroom for strategic opportunities.

Under our stock buyback program, we repurchased approximately 129,000 shares in Q4 as of June 30, 2021. We had approximately 2.5 million shares available to purchase under the current authorization. Our balance sheet is strong with net leverage of approximately 1.0 as defined under our credit facility at the end of Q4. And finally, let's turn to guidance.

For fiscal year 2022, the company anticipates revenues in the range of $1.19 billion to $1.225 billion and non-GAAP earnings per diluted share, or the range of $5.72 to $6. While we generally provide guidance for the total company on a directional basis, the revenue guidance assume solid security and Opto year-over-year revenue growth with a modest reduction in Healthcare division revenues due to a difficult comp. The non-GAAP diluted EPS range, excludes potential impairment, restructuring and other charges, amortization of acquired intangible assets and non-cash interest expense in their associated tax effects, as well as discrete tax items.

We currently believe this revenue and non-GAAP earnings guidance reflect a reasonable estimates. However, given continued uncertainties as to the duration and scope of the COVID-19 pandemic, as well as other variables, the extent to which these and other items may impact the company's financial results is difficult to predict. And could vary materially from the anticipated impact currently reflected in our estimates and guidance, actual revenues and non-GAAP earnings per diluted share could also vary from the anticipated ranges due to other risks and uncertainties discussed in our SEC filings.

In the face of challenging times, we remain keenly focused on the growth of our businesses through investment in product development and potential strategic acquisitions and continued management of our cost structure. As Deepak mentioned, we have strong recurring revenues and we are focused on growing our recurring revenues as we move forward. We believe our efforts in these areas should enable OSI to continue our leadership and providing innovative products and solutions.

Finally, we would like to take this opportunity to thank the global OSI Systems team for its dedication and supporting our customers in contribution to the creation of value for all stakeholders, while maintaining a commitment to safety.

At this time, we would like to open the call to questions.

[Operator]

Certainly. [Operator Instructions] Our first question comes from the line of Larry Solow from CJS Securities. Your question, please.

[Larry Solow, CJS Securities]

Great. Good afternoon or good morning, guys. Thanks for taking the questions. And I appreciate a little bit of direction on the segments because I think after strong year in healthcare really shows your underlying strength and the fundamentals with continued growth. Just on the Security segment specifically, and without maybe getting specifically into numbers, but obviously, we're going to get some good growth, some catch up your bookings have been phenomenal last two quarters. So do you think we can get back to sort of fiscal 2019 and fiscal 2020 levels on the revenue side or in that ballpark even without Mexico? Is that a fair assumption?

[Deepak Chopra, President and Chief Executive Officer]

Well, good question, especially what we do, what you said, the last word. Yes. Without Mexico comparable, we think that there'll be growth. Again, want to emphasize every time what Alan has said and you can appreciate it that what happened to us in Q1, Q2, Q3 and Q4 in this year. We are still basically being very, very cautious about the impact of the pandemic and things change from week to week, travel for acceptance, shipping and everything else. Taking that into account, we have a strong backlog, great opportunity pipeline, and we think that we continue to see strong growth.

[Larry Solow, CJS Securities]

Okay. And sticking with the Security segment and perhaps the question for Alan, just on the margin, obviously 18% in the quarter, I think, close to 17% for the full year and an adjusted operating basis, I think the last five years, if we look, you basically have been between 14% and 15%, you mentioned mix and sound operational execution, mixed obviously can move around a little bit. But how do you view again, these trends – or are these higher numbers? Maybe not exactly, maybe not 18%, but could we see some incremental improvement, sustainable or at least part of this?

[Alan Edrick]

Yes. Great question, Larry. And our goal is always in all of our businesses, but particularly in Security to show top line growth, coupled with operating margin expansion. And from a quarter-to-quarter perspective, that'll change a bit on the mix of geographic revenues and product revenues and the overall level of revenues where we can benefit from some economies of scale. The Q4 at 18% was a terrific quarter. But that being said, with the focus on continued growth in the business, high quality revenues, managing the cost structure and focused a little bit more on some of the higher margin recurring revenues. We do believe as we move forward, there is opportunity to not only sustain, but to expand those margins on an annual basis.

[Deepak Chopra, President and Chief Executive Officer]

This is Deepak here, just to add on to what Alan said. It's very important product, product mix is important. And as we said before that we are very much focused on the recurring revenues portion. We continue to look at that and secondly is more and more, the software is becoming an important portion of our business and the CertScan platform and other software tools that we are doing as they get implemented and get accepted that should relatively have better margin.

[Larry Solow, CJS Securities]

Okay. And Deepak, you mentioned sort of this pipeline of diverse opportunities on top of the strong backlog already in Security. And I know back in April, you guys were part of this 400 – I think 75.80 million IDIQ from the customs and border protection. If I'm not mistaken, there's why understanding there's still several additional pending awards coming out of the CBP, right. Which hopefully you guys will be participating in. Is that correct?

[Deepak Chopra, President and Chief Executive Officer]

That's true. Very good question. And you're very much up to-date on it. Definitely even that IDIQ now that becoming a good key to the government year-end, there is going to be [indiscernible] lot more activity. We are well positioned for it. And there are other opportunities in DoD and other places that we are very well positioned, including the rest of the world.

[Larry Solow, CJS Securities]

Okay. If I just may take one more on the free cash flow, Alan, obviously really strong again this year, I think close to $7 a share, just a bit on there. As you look out to 2022, does the return to growth and security might that create a little bit more use of working capital so maybe we might slow down a little bit on the free cash flow side or any thoughts on that?

[Alan Edrick]

Yes, I think it's an astute observation, Larry, with the growth that we're anticipating at fiscal 2022, that we would anticipate an increased level of working capital to support that on the receivable side, as well as on inventory side and from a sort of prudent risk management, where we're keeping a little bit higher inventory levels given some of the challenges and the global supply chain in a world that many companies are facing. So overall that would have some impact on the overall cash flow. So we agree with you.

[Larry Solow, CJS Securities]

Okay, great. Thanks a lot. I appreciate the call guys. Congrats again.

[Alan Edrick]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Brian Ruttenbur from Imperial Capital. Your question, please.

[Brian Ruttenbur, Imperial Capital]

Great. Great quarter and year. A couple of questions. First of all, on Afghanistan. Can you talk a little bit about, I believe you did have some personnel on the ground maybe that was related to some of the DoD work you were doing. Can you talk about the status of them, your revenues going forward from the DoD, and how that's going to – the pullouts going to impact you guys?

[Deepak Chopra, President and Chief Executive Officer]

Good question, Brian. Again, welcome. I'll answer the first portion and then Alan can pick up the rest. Good news is all our people and our subcontractors are safely out of the country. That was our main focus on it for the last couple of days. And as of yesterday, they are all safe and sound and had been airlifted to safer places.

[Alan Edrick]

And Brian, to the second part of your question. So Afghanistan has become a decreasing portion of our revenues over the years as withdrawals had been taking place. In the previous year fiscal 2021, our revenues were a bit north of $10 million. As we looked at fiscal 2022, we're really not anticipating any significant revenues, maybe a couple of million that we saw in the first 1.5 months or so, but embedded in our guidance is no revenues beyond that for Afghanistan in fiscal 2022.

[Brian Ruttenbur, Imperial Capital]

Okay. Thank you very much. Next question is on CertScan and turnkey, the recurring revenue. Can you talk about where you are in terms of revenue levels from CertScan and turnkey in 2021? Or give us some kind of range for 2022, fiscal 2022, what you anticipate from those two programs?

[Alan Edrick]

Yes. Brian, this is Alan. I'll take the question. So a good question and we're looking at it as a tremendous opportunity for us as we go forward. While we don't generally provide specific revenues on individual products, what I could say is as we look at our fiscal 2021 revenues kind of excluding our Opto core manufacturing business, our recurring revenue was about 37% for security and healthcare, which we're quite happy with. That's a nice percentage. It's an increasing percentage over the prior year. And as we moved to fiscal 2022 and beyond, our goal is to continue to increase that recurring revenue as a percentage of the company and clearly items like CertScan, as Deepak mentioned, not only are great sources of recurring revenue, but recurring revenue at potentially substantially higher margins. So very excited about that. So very good question.

[Brian Ruttenbur, Imperial Capital]

Okay. So let me – if I could just break that down. I apologize, Deepak. You were going to say something. Go on.

[Deepak Chopra, President and Chief Executive Officer]

Well, maybe I'm anticipating the next question from you, but just to add onto it, you said about CertScan. We are very much focused on to it. We've learnt a lot from our turnkey businesses that a software, which can expedite and make it more efficient of not only just image analysis, but to be able to look at the license readers, to look at the manifest in it, to compare the data into it and have some other artificial intelligence built into it, all that stuff has been good in the experience for us, which has been put into, implemented into our CertScan. And it's been very well received not only by the U.S. customers, but also some international customers to make efficient tracking of the various groups. So we believe that long-term, we continue to invest in that, including the training and step. So all that platform, we think will be a growth opportunity. Not only just for what we call our products, which obviously be integrated together, but it could be agnostic in a way that it can be used with other people’s products.

[Brian Ruttenbur, Imperial Capital]

Great. So to follow-up on understanding the recurring revenue, just real quick, you said that 37% of Healthcare and Security is recurring in nature, as I recall roughly 15% is maintenance related. Is that the ballpark for those two product lines?

[Alan Edrick]

Yes, probably a little bit higher than that. But yes, but directionally there, but the maintenance might be a little bit higher than that.

[Brian Ruttenbur, Imperial Capital]

Okay. Very good. And then let me just turn it over one other question on labor. And there was a fourth quarter increase in SG&A that we didn’t see last year, I assume that’s because of bonuses or is that you bringing on more people at the SG&A level.

[Alan Edrick]

Yes. It’s a combination of the few things, Brian. Yes, with a strong year, there was probably a little bit more in terms of the total compensation for incentive-based comp. We did add on some additional people in order to support the growth that we’re anticipating in fiscal 2022. We saw a bit of an uptick in our travel expenses as in Q4 of last year. There was essentially no travel when the pandemic had first started. And just in accordance with sort of the algorithm or formulas that we have for our reserve for bad debts, we had some little bit higher allowances for bad debts with the higher sales.

[Brian Ruttenbur, Imperial Capital]

Okay. Very good. And then just to follow-up on that one other question on labor. Are you seeing any with what it looks like to be an inflationary environment? Are you seeing a issues with having to pay people more to keep them? There’s also been a lot of facts in the industry with a lot of money flowing in. Are you seeing a issue maintaining your top performers?

[Alan Edrick]

Yes. So Brian, we’re not seeing anything from material basis. From time to time, there’s a individual situations. And you’re right, there are some labor shortages throughout the world and that’s a competitive labor market. But we’re not seeing any material impact to OSI at this point.

[Brian Ruttenbur, Imperial Capital]

Great. Thank you very much.

[Operator]

Thank you. Our next question comes from the line of Sheila Kahyaoglu from Jefferies. Your question, please.

[Unidentified Analyst]

Hi, this is actually Ellen on for Sheila. I just first wanted to look at Security a little more. So revenues close to pre-COVID levels. So how do you think about share gains in the market given dislocation and your growth rate versus peers?

[Deepak Chopra, President and Chief Executive Officer]

Would you repeat that question? I didn’t hear it very well.

[Unidentified Analyst]

Sorry. So in Security, how do you think about share gains in the market, given dislocations in your growth rate relative to peers such as Leidos SD&A?

[Deepak Chopra, President and Chief Executive Officer]

Hey, do you want to add. I still didn’t – sorry.

[Alan Edrick]

So, yes, Ellen, I’ll take it. This is Alan. Thank you. Good question. I think your question was related to do we believe we’re growing our market share relative to our competitors and we think we are, our product portfolio is extremely diverse. And while all of our competitors are strong, our team has done an outstanding job. And with the sales growth that we’re showing, we believe it does demonstrate that in various product areas. We continue to have share gains in various geographies and product segments.

[Deepak Chopra, President and Chief Executive Officer]

Okay. So I can maybe put some color onto it. Sorry about it. There was a little bit echo I couldn’t understand the question. Definitely, we can say it very proudly that especially in the cargo space, we consider ourselves a market leader. And with our diverse product portfolio compared to any of our other competitors that gives us a leg up when we go back and present it to our customers and data solution.

And with the software platform, the recurring revenue service platform and the technology breadth that we have we believe that we are well-positioned both domestically in the U.S. government business and also international, especially in that space. And then on the other side, we have also said that, especially in the air cargo and the cargo space, RTT 110, our CT scanner technology has had very good results and has been very well received. And we are giving a lot of momentum in that area also compared to our competitors.

[Unidentified Analyst]

Great. Thanks. And just on the guidance, how do you think about profitability in fiscal 2022? And what are the moving pieces given revenue guidance roughly in line with consensus versus EPS a little higher?

[Alan Edrick]

Yes. So through the operational efficiencies and the product mix that we’ve seen, we think that allows us to generate a projected higher earnings per share than maybe where the revenues – where the consensus revenues were. So we’re excited about that. The things that will always play into the grand picture will be what our level of revenues, what does that mix of revenues between our three divisions and what is the mix of revenues really within the product lines of those divisions. But we feel quite comfortable at this point with the guidance that we’ve provided on the earnings per share range.

[Unidentified Analyst]

Great. And last just on the health margins, the detrimental, like, it was closer to 70% in the quarter versus 50% to 60% historically. So what are the moving pieces there? And how does that – how do we think about 2022 there?

[Alan Edrick]

Yes. Really, the biggest difference in Q4 for us was we invested much more significantly in R&D. So we had a higher R&D expense compared to the prior year, a little bit more on the SG&A. But it was mostly on the R&D as we’re investing in the new product platforms that Deepak was alluding to both on the patient monitoring as well as on our cardiology products. So we think that was maybe perhaps a little bit of an anomaly in the quarter for that, but we’re going to continue to invest some substantial resources in R&D throughout fiscal 2022 for the healthcare business.

[Unidentified Analyst]

Great. Thanks. That’s it for me.

[Operator]

Thank you. Our next question comes from the line of Jeff Martin with Roth Capital Partners. Your question, please.

[Jeff Martin, Roth Capital Partners]

Thanks. Good morning, Deepak and Alan. How are you?

[Alan Edrick]

Doing great. Thanks, Jeff.

[Jeff Martin, Roth Capital Partners]

I was hoping you could give us some relative perspective. I know security in the first nine months of the fiscal year had challenges with acceptance from large agencies in terms of equipment acceptance and being able to recognize revenue though. Just curious how that progressed throughout the quarter and what your expectation is near term for acceptance.

[Deepak Chopra, President and Chief Executive Officer]

Good question, Jeff. I want to, again, emphasize when the terminology, the word about customer acceptance. I want to emphasize, it’s nothing to do with Rapiscan products. The question is did they get the product acceptance there by the shippers? But the installation was the customer available to sign off on the installation and the inspection test or the customer got COVID and could not come or can we get our people there to get the inspection done or are they in quarantine on their way to the site?

So that’s the general comment. Yes, that challenging thing is still there from time to time, week to week, country to country, region to region, which we look at it, we are very much focused onto it. The team has done a great job and be managing to the best of our ability about that. That risk is always there. And as Alan has mentioned, we are building that risk into it, but there’s no guarantee and that’s what happened when pushed to the right. But that also gives us the ability that since we have such a strong backlog, as the gates open up, the customers are desperate to get their products and we have the products. So we look at it that 2022, there’ll be better than 2021, but the risk is always there, they’re like – this COVID Delta or Lambda or whatever you call it, it changes from month to month, week to week.

[Jeff Martin, Roth Capital Partners]

Great. That’s helpful. In terms of government budgets, we’re coming up on the end of the fiscal year. For the federal government, are you expecting a similar budget flash relative to last year? And how do you feel about budgets heading into fiscal 2022 on the federal level?

[Deepak Chopra, President and Chief Executive Officer]

Well, we are very confident about it. We are getting good signals that between late August and September, the mid-year end. There’ll be lot more activity. We are well positioned with the various government agencies and with the new infrastructure bill, which is still in preliminary of what they’re talking about. We feel that the infrastructure build is help us long-term. And we believe that the more investment that is made in the infrastructure updating of the – of this and the economy opening up it will be a big help for us, but we believe very strongly that our products, especially at borders and port crossings, and air cargo and stuff, we are very well positioned as the government year comes to an end.

[Jeff Martin, Roth Capital Partners]

Great. And then one more question, if I could, on the Optoelectronics segment, very rapid growth, obviously you’re well positioned. Just curious if you could help us understand, how much of the growth was driven by increased activity versus new customer logos?

[Deepak Chopra, President and Chief Executive Officer]

I think both, very good question. New customers, Alan has mentioned in the previous calls also, we have done it too. The growth has been fantastic, mostly coming from our Asia operations, specifically in the automotive sector. And as you can see all over the demand for automotive is tremendous, and we are very well positioned. We are linked on to lots of, lots of good brand names of the products we’re making. Aerospace and defense is the other area that’s growing. Healthcare is also growing. So all in all, we are well-positioned. The challenge is going to be again, back to the pandemic where you read every day that there’s material shortages, there’s freight problems, materials coming in that we are looking at it, there’s some cost pricing increases, but at the same time, we’ve also been able to increase the prices in some places to our customers. And they are very appreciative of it.

So all in all, we believe that this would continue the growth, maybe not at the level we are talking about, but still going to be continued to have a strong quarter at a strong year, as Alan has mentioned. The margin would be dependent upon the mix in a way, and but there’s always uncertainty it’s going to happen. Alan, you want to add something?

[Alan Edrick]

Yes, very strong year for opto. But we enter fiscal 2022, with a very strong backlog earlier as mentioned we had a record backlog it’s up more than 40% from where we ended last year on the opto side. So, we’re excited about the opportunities for continued growth in opto throughout the course of fiscal 2022.

[Deepak Chopra, President and Chief Executive Officer]

Jeff, the other thing that I would mention is, and I’ve said that in my call, compared to our competitors, we have very well position because of our vertical integration, and our global footprint and manufacturing whereas in Asia, in UK and in U.S., so that we can cater to the needs better than our competitors for our customers. And at the same time, we have a very broad product portfolio and the industries, which are all over the place, as I mentioned, aerospace, defense, electronics, everything. So, we believe that as distinct fiscal 2022 comes in, we feel good about the opto business.

[Jeff Martin, Roth Capital Partners]

Great. Thanks for your time. And I would just point out, you almost had another record on the rest of the quarter with Security, just narrowly missing the record quarterly revenue.

[Alan Edrick]

Thank you, Jeff.

[Deepak Chopra, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line Aman Gulani from B. Riley Securities. Your question, please.

[Aman Gulani, B. Riley Securities]

Hey, Deepak and Alan. Thanks for taking my question and congrats on another solid quarter. I’d ask maybe if you could – maybe provide more color on your new cardiology diagnostic solutions, how significant of a revenue contributor do you think some of your cardiology products will be for healthcare in the current fiscal year.

[Deepak Chopra, President and Chief Executive Officer]

Good question. We have very much focused on growth in the cardiology business at relatively it’s a smaller portion than the patient monitoring, but we believe that the growth is going to be stronger and the margin that much better the cardiology. And at the same time, since everybody's talking about telehealth and home care and connectivity story, we are working on a lot of new products of are safe and sound was a great technology acquisition we did, and be a continue to make some new products into the cardiology side and feel that the relative percentage between monitoring and cardiology, cardiology will continue to grow. Alan?

[Alan Edrick]

Yes. And just to add onto that, we're very excited about cardiology for fiscal 2022 and not just with the new products, but we really enhanced the sales channel in United States throughout fiscal 2021. So we think that should pay a nice dividends in fiscal 2022 and beyond so very exciting area for us.

[Aman Gulani, B. Riley Securities]

That's very helpful. And I know last quarter; you mentioned that you expected your turnkey program in Guatemala to ramp to full scale by the fourth quarter, did that happen is that turnkey program – as full-scale at this juncture?

[Deepak Chopra, President and Chief Executive Officer]

Yes, it is. We’re very, very happy with, what the – and it's doing it at our expectations.

[Aman Gulani, B. Riley Securities]

Excellent. Okay. Then last question for me, I'll jump back in the queue. I know you called out Opto some particular strength in the auto, any additional color you can provide on that what's driving the auto strength there. I know that supply chain headwinds, are you able to sort of be like a replacement components given the supply chain headwinds that the auto industry is seeing currently?

[Deepak Chopra, President and Chief Executive Officer]

Again good question, the new products, obviously but at the same time, we've got a good traction into the electric vehicle platform. And that's been a big positive and they continue to develop products for the automotive industry and that like I mentioned before this household brands, both domestic brands and European brands have been very, very, very good for it. And the demand continues to be in there. And we have manufacturing for automotive, both in Asia and Mexico.

[Aman Gulani, B. Riley Securities]

Thank you. Congratulations again, I'll pass it on the call.

[Deepak Chopra, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

[Deepak Chopra, President and Chief Executive Officer]

Again, I want to thank everyone for joining our call. I'm wondering and emphasize. We are very, very happy and pleased with our year end. We’re looking forward to a positive growth, both in revenue and earnings in fiscal 2022 with the caution of the uncertainty of the pandemic. Our primary goal is to – cater to the needs of our customers, at the same time, look at it of the safety of our employees and the families and we are very much focused onto it at that. Thank you very much, looking forward to talking to you after the first quarter.

[Operator]

Thank you. And thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.