OSI Systems, Inc. (OSIS) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2012 OSI Systems Earnings Conference Call. My name is Fab, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Alan Edrick, Chief Financial Officer. Please proceed.

Thank you. Hello,, and greetings from London, where we are the exclusive security detection provider for the Olympic Games. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems. I'm here today with Deepak Chopra, our President and CEO; Ajay Amira, President of our Security division, Rapiscan Systems; and Victor Sze, our General Counsel. Welcome to the OSI Systems Fourth Quarter and Year End Fiscal Year 2012 Conference Call. We'd like to extend a special welcome to anyone who is a first-time participant on our conference calls. Please note that this presentation is being webcast and is expected to remain on our website for approximately 2 weeks. Earlier today, we issued a press release announcing our fourth quarter and 2012 fiscal year-end results. Before we discuss our financial and operational highlights, I'd like to read the following statement. In connection with this conference call, the company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking statements under the Act. Such forward-looking statements could include general or specific comments by company officers on this call about future company performance, as well as certain responses by company officers to questions posed about future operating matters. The company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from any forward-looking statements made by the company or its officers. These factors include the risk factors set forth in the company's last annual report on Form 10-K and other SEC filings. Any forward-looking statements made on this call speak only as of the date of this call, and the company undertakes no obligation to revise or to update any forward-looking statements, whether as a result of new information, future results or otherwise. During today's conference call, we may refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For information regarding non-GAAP measures, comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release, which has been furnished to the SEC as an exhibit to our current report on Form 8-K. Before turning the call over to Deepak, I will provide a high-level overview of our financial performance. We will touch on several themes that we discussed during past conference calls. Highlights for our fourth quarter of fiscal '12 are as follows: First, we again achieved record quarterly revenues of $235 million, representing a 28% increase over the prior year. Each of our divisions performed admirably and set new sales records. Leading the way was our Security division, with 50% year-over-year revenue growth, followed by our Healthcare division, which was up a notable 18%. Second, our strong EPS momentum continued, as Q4 diluted earnings per share increased 44% to $0.95 per share, excluding restructuring charges and start-up costs related to the Mexico turnkey security program, which we announced earlier in this fiscal year. This marks the 12th consecutive quarter in which we have generated year-over-year EPS growth in excess of 20%. The net EPS impact of costs associated with the Mexico program in Q4 was approximately $0.15. Third, we ended the year with a record year-end backlog of approximately $1.1 billion, a 249% increase over Q4 last year. Fourth, our cash flow is very strong as we generated $10 million of free cash flow, bringing the fiscal 2012 total free cash flow to a record $52 million. Over the past 3 years, we have generated $113 million of free cash flow. In addition, we made nice progress on multiple key initiatives in our Security and our Healthcare divisions. Deepak will elaborate more on these very exciting developments. We are pleased to report these outstanding fourth quarter results. We completed a transformative year in very strong fashion, and we are very enthusiastic about our future. I will provide additional financial details and will discuss our fiscal 2013 guidance. But first, let me turn the call over to Deepak.

Thank you, Alan. And again, welcome to OSI Systems' earning conference call from the fourth quarter and full year fiscal 2012. And for you people, I just want to let you know London weather is fantastic. It's bright sunshine and it's great to be here. As Alan discussed, our results in the fourth quarter were quite impressive as revenues increased 28% over prior year, prior quarter. Revenues for the year were $793 million, a -- 21% higher than fiscal 2011. The strong growth in revenues throughout the fiscal year led to operating margin expansion while we continued our significant investment in R&D to advance our technology leadership and expand our sales and service network in our core markets globally. Based on non-GAAP measures, our fiscal 2012 diluted EPS was $2.51, which increased by 36% over the prior year. We're excited about the future as we would continue to leverage our performance and focus on market share growth in our core markets and make our presence felt in new markets with innovative solution offerings. I would like to spend some time to discuss each of our business segments in more detail. Let's start with our Security division, Rapiscan, where revenues increased 33% in fiscal 2012 to approximately $392 million with a year-end backlog of over $900 million, a level almost 5x the amount with which we entered fiscal 2012. This dramatic growth in the backlog is no small part as a result of the multi-year turnkey services contract from Mexico's tax and customs authority that we announced in Q3 and which we will talk about more later. The financial crisis in Europe and continued turmoil in the Middle East both pushed some of the expected orders until fiscal '13. We are very confident that we haven't lost any and look to capture them in 2013. With a strong backlog going into the year, we are in a position to have a very strong fiscal 2013. Let's go over a few highlights in Q4 in our areas of focus in fiscal '13 for Security. During the fourth quarter, the RTT, or the Real Time Tomography hold baggage screening system passed the European Civil Aviation Conference, ECAC, Standard 3 threat detection test, the highest standard set by ECAC for the detection of explosive threats in passenger baggage. RTT can effectively screen up to 1,800 bags per hour, and this high rate of screening baggage is equivalent to the processing rate of a typical airport standard baggage handling systems. This allows the RTT to be installed what we call in-line in airports' existing baggage handling systems with less costly integration. We're in the process of TSA certification in the U.S. market, which presents the largest opportunity as the TSA begins a cycle to replace the CT machines that were installed after 9/11. Much of the installed base is nearing the end of equipment life cycle. Given RTT's performance advantages and lower life cycle cost when compared with other alternatives, we believe we are well-positioned to capture significant market share in the CT-based hold baggage screening globally. During Q4, we completed a significant portion of the U.S. Army contract for Entry Control Point solutions that we received under the $248 million Indefinite Delivery, Indefinite Quantity order, which helped contribute to a new record Q4 revenue for Rapiscan. With our broad portfolio of ruggedized inspection solutions and our integration capabilities, we received the majority of orders that have been awarded to date. We expect the cargo scanning market to be one of our fastest-growing segments in the coming years, and we continue to gain customers and identify new opportunities domestically and outside of the U.S., especially in the emerging regions. During the quarter, we received several orders for our Eagle series mobile and fixed inspections systems from international customers. These systems continue to be favored for their comprehensive detection of threats, rugged operation in harsh environments and, in the case of the trailer-mounted and truck versions, the ability to move the system to a new location, allowing the customer to optimize its usage to address the evolving landscape of threats. In the fourth quarter, we announced that we received the Queen's Award for Enterprise in Innovation 2012 in U.K. for these cargo systems. Traditionally, Rapiscan has focused on providing a broad portfolio of detection systems as we strive to offer customers a one-stop shopping experience. To that end, we're excited about our initial success with new turnkey services offering in Puerto Rico and Mexico and are optimistic about our discussions that are in progress with several new potential customers worldwide. Our third site in Puerto Rico came online in April and started generating revenue. We believe the final site, which there was a small site, will be turned over to us by the customer for operations sometime this year. In Mexico, we really hit the ground running. Given the program's importance and magnitude, we are utilizing the top talent within OSI to design, plan and execute in all facets of the program. We are very happy to report that all phases of the program are on track, and we expect to begin realizing revenue later part of this fiscal year. And finally, we are talking to you from London, host of the 2012 Olympic Games. We are proud to be the exclusive provider of inspection systems for this event, continuing a long-standing tradition of providing security infrastructure at venues of major sporting events. We enter the fiscal 2013 with a fantastically strong backlog and a strong pipeline, both domestic and international opportunities. Our products and our strategy are well timed with the dynamics of the Security marketplace. Moving on to the Healthcare division, Spacelabs achieved sales of $73 million, an 18% increase from the prior year, with an operating margin of over 15%. For the year, Spacelabs' sales grew 10%. In addition to the continued recovery in the U.S. market, several major factors contributed to the stellar performance. One, we revamped our senior management and sales leadership earlier in the year, and we believe that this had a reenergizing impact throughout the sales and product development teams. We focused on strengthening our relationship with health care group purchasing organizations or GPOs. U.S. hospitals are increasingly using GPOs to manage the bidding process for capital equipment purchases. Recently, we signed 2 contracts with large GPOs, MedAssets and HPG group, that have combined impact on over $60 billion of annual spending. These GPO relationships have already paid dividends and are expected to have a continuing strong impact in fiscal '13 and beyond. Our new patient monitoring platform, the XPREZZON, has been very well received as it provides compelling features wrapped in an easy-to-use interface and delivers enhanced data communications with an open system architecture. As I mentioned, U.S. hospitals have started to accelerate investments in upgrading and expanding this infrastructure. In addition to XPREZZON, our recently introduced products should have a global impact that are particularly well suited for the U.S. market with new offerings such as Arkon anesthesia delivery workstation and Sentinel Cardiology Information Management System. We are very optimistic about capturing market share with Arkon in anesthesia, which we intend to officially launch in Q2. As Spacelabs delivers the highest contribution margin of our 3 businesses with top line increase, we achieve significant operating leverage. Moving to the Opto division. The fourth quarter, Optoelectronics generated revenues of $56 million, a slight increase from the prior year. For the full year 2012, revenues were $211 million or a 9% increase from fiscal 2011. We continue to gain new customers in the U.S. and globally who seek a proven OEM electronics provider that is flexible in handling product volume, has the global network for sourcing and manufacturing and can support them throughout the product life cycle. Though the sales growth in the quarter -- final quarter was slower than the previous quarters, we are very optimistic about strong sales growth in Opto for the fiscal 2013. We ended fiscal 2012 with a backlog exceeding $1 billion, a 200% increase over the prior year and yet another Q4 record. Starting fiscal 2013, with a record backlog, recently introduced products in Security and Healthcare, great traction in turnkey services and a healthy opportunity pipeline across all our businesses, we look forward to delivering continued growth in revenues and profits in the coming year. With that, I'm going to hand the call back over to Alan to talk in detail about our financial performance and guidance before opening the call for questions. Thank you.

Thank you, Deepak. Our ongoing focus on growth initiatives and operating improvements throughout the company has succeeded in delivering significant sales earnings growth. Strong momentum across each of our divisions, coupled with our $1.1 billion backlog, positions us well for further strong top line growth and margin expansion. I will speak to our fiscal '13 guidance shortly. But first, let me review in more detail the financial results for the fourth quarter of fiscal '12. As mentioned previously, net sales in our fourth quarter were up 28% on an overall basis. Our Security division grew 50% in the fourth quarter and 33% for the fiscal year. This strong Rapiscan revenue growth was seen across many product lines and spearheaded by delivery of the Entry Control Point inspection systems from the U.S. Army contract,, won in the first quarter of fiscal '12 that Deepak mentioned earlier. Based on customer requests, we accelerated production and successfully delivered nearly the entire contract this past fiscal year. Our Healthcare division continued the momentum that began earlier in fiscal '12, reporting outstanding 18% top line growth in Q4. This growth was driven by strong performance in the U.S. We leveraged our infrastructure to increase operating income by over 50%, demonstrating that our focus on improving operating efficiencies, coupled with high contribution margins, are producing significant results. This brought our Healthcare division's operating margin to over 15%, a new record operating margin. Given numerous product releases, the upcoming launch of Arkon, our new anesthesia machine, and penetration into new GPO and IdM relationships, we believe that the future is very bright for our Healthcare division. And finally, external sales in our Optoelectronics division increased by 2% in the fourth quarter on an -- and 13% on an external basis for all of fiscal '12. The Q4 gross margin for the company was 34.4%, down by 380 basis points from the 38.2% for the same quarter last year. This anticipated decrease was primarily due to the mix of revenue growth between divisions and the product mix within our Security division. As discussed in the past, while operating margin is strong in our Security division, the gross margin is generally below that of our Healthcare division. Given the outstanding growth in Security division sales, led by our integrated products deliveries, which carry lower margins than our consolidated average margins, this overall impacts our gross margin. We do anticipate our margins will improve as our product mix changes with increased turnkey revenues in Security. Moving to OpEx. Our Q4 SG&A expenses as a percentage of revenue decreased 280 basis points to 18.8% as compared to the comparable prior-year period of 21.6% as we continued to effectively leverage our organizational infrastructure. In absolute dollars, SG&A increased in Q4 by 12% while our revenue grew by 28%. Our reported Q4 SG&A expenses included approximately $2.7 million of start-up costs related to the Mexico program. We continue to invest significant resources in R&D to enhance both our Security and our Healthcare product offerings. To this end, our R&D spending increased 19% in the fourth quarter to $14.2 million with such incremental investment primarily focused on our Security business. As a percentage of revenues, R&D expenses were 6% in Q4 this year as compared to 6.5% in Q4 last year. We continue to invest resources in technologies to add value to our Security and Healthcare product offerings. We believe these efforts will enable our company to capture major opportunities in our core markets in the future. We continue to see the results of these efforts in a significant number of new products that are being released. Our effective tax rate for fiscal '12 is 26.5%, which was lower than the 29.1% rate reported in the first 9 months. During Q4, we executed on a tax planning strategy, which freed up a tax loss carryforward. Our provision for income taxes is dependent on the mix of income from U.S. and foreign locations due to tax rate differences among such countries, as well as the impact of permanent taxable differences and valuation allowances. This strong sales growth led to a 28% improvement in our Q4 diluted EPS on a GAAP basis to $0.78 per share compared to $0.61 in the comparable prior year period. Excluding the impact of restructuring charges and start-up costs related to the Mexico program, our non-GAAP normalized EPS would have been approximately $0.95 per diluted share, representing a 44% increase over the same quarter last year. Moving to cash flow. Our Q4 free cash flow was again solid despite heavy CapEx as we prepare for our Mexico turnkey program. We generated operating cash flow of $34 million during Q4, while capital expenditures were $24 million, which is significantly higher than historical norms in support of our Mexico program, while depreciation and amortization was $5.3 million. In addition, we continued our stock repurchase program, bringing total fiscal '12 purchases, including net share settlements, to approximately 6 million. We ended fiscal '12 with $89 million of net cash. In connection with our preparations related to the Mexico agreement, we expect to experience greater-than-usual variability around free cash flow over the coming quarters due to significant CapEx requirements, milestone payments, et cetera. We remain very well positioned to meet such requirements based on the cash on hand, cash flow from ongoing operations and our credit facility, for which we recently increased to an aggregate borrowing capacity of $425 million. Finally, turning to the introduction of our fiscal '13 guidance. With a strong outlook for each of our businesses, our revenue guidance for fiscal '13 is $870 million to $890 million, representing an increase from fiscal '12 results of approximately 10% to 12%. We do not generally provide guidance by division or program, but I will say that our guidance includes revenues for the Mexico program. Similarly, we expect the strong bottom line momentum to continue. We expect diluted EPS to increase at the rate of 20% to 29% over fiscal '12, which represents $2.75 to $2.95 per share on a comparable basis, inclusive of the Mexico program in both years. This guidance does, as always, exclude restructuring and other charges. During the past few years, we have transformed OSI into a company with strong and sustainable top line growth, along with an organizational framework that positions the company for significant EPS growth. We look forward to discussing our continued progress on upcoming calls. Thank you for listening to this conference call. And at this time, I'd like to open the call to questions.

[Operator Instructions] And your first question will come from the line of Brian Ruttenbur with CRT Capital.

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

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

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

Yes. I guess my question was not phrased correctly by me. I'm not concerned about you able to make x amount of equipment. My concern is turning your company into basically a services company and be able to ramp 500 or 1,000 -- train 500 or 1,000 personnel all at once and ramp in a large country. I didn't know what you're doing and putting in place in order to do that. I know that you had a relatively small crew that was in Puerto Rico. You've increased the size of that crew in Mexico, but that's a lot of personnel to manage and ramp. So can you address that? Maybe that's stated more clearly.

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

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

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

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

Your next question will come from the line of Tim Quillin with Stephens Incorporated.

Do you have, Alan, the specific Security backlog or what bookings were in the quarter?

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

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

Ajay, you want to answer that?

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

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

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

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

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

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

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

That's correct.

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

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

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

Right. And then in terms of the Mexico start-up costs, went from roughly $0.05 in the -- in fiscal third quarter up to $0.15 in the fourth quarter. Maybe you can talk about the factors on that and what you expect in terms of start-up costs in first quarter and second quarter of fiscal '13?

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

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

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

Okay. And then finally, on the Healthcare side. Growth obviously accelerating in the back half of fiscal '12. Just the press released order flow that you saw in the fourth quarter was a sign that there was some momentum happening there. The -- Spacelabs clearly taking some market share. But if I look at your guidance, it doesn't necessarily seem to imply that, that acceleration continues into fiscal '13. And so what's your outlook there?

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

Keep in mind, it's Deepak here, that we said in the last couple of conference calls that we have the strongest pipeline on new product introduction. We had been well received. Arkon and Anastasia is going to capture some. So we believe that 2013 will be as strong as the 2012, obviously, like Alan said. You can't take one quarter and sort of multiply going forward, but we definitely look at that 2013 will be a significantly better year than 2012 in Healthcare.

Your next question will come from the line of Josephine Millward with The Benchmark Company.

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

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

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

Josephine, this is Ajay. If you look at what's been going on, one of the most inconvenient things for the traveling public really is to have to take out and not being able to take out their liquids or not being able to carry liquids at all. I think the U.S. Government as well as the EU, they've been working together. The anticipated date that I've heard that they would like to have liquids lift so passengers can carry them on is sometime in April 2014, though it might happen a little sooner than that. So what this represents for us is a certification where in the EU, we're able to, say, have our scanners, they're able to leave their liquids and take their liquids on with them and not having to leave them at home. Obviously, we're the only -- one of the only companies that has this capability and is certified not just by Europe, but, obviously, TSA uses our machines as well. So the opportunity, I think, is in upgrades in the U.S. as well as new machines as the airports will obviously want the passengers to leave -- to take liquids with them. So time will tell, but it's really every single airport is our target.

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

Well, this is Deepak here now. We see no change. And short of that -- any future expansion or something, we would just like to right now make -- say no comment.

[Operator Instructions] Your next question will come from the line of Yair Reiner with Oppenheimer & Company.

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

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

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

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

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

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

Well, this is Deepak here. I've said in my speech that the launch is officially in Q2. We expect revenue in Q3, Q4. Regarding the launch expenses and stuff, it's insignificant. Outside of the market, I think we've had some discussion. We've talked about it. The anesthesia market in the United States is about a $450 million to $500 million business. Obviously, we are starting from 0. We are very excited about it. The product is very well received. We've had some good feedback, and we plan to -- for the next couple of years, as a percentage growth from where we're starting with, we expect to do quite well.

And just one final question. Any update on the expected timing of the certification for RTT in the U.S.?

Ajay?

I'm not going to go through specifics, but we are actively working with them. We just got the certification in Europe, and we're working very closely with TSA.

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

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

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