OSI Systems, Inc. (OSIS) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the OSI Systems First Quarter 2017 Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference, Mr. Alan Edrick, Chief Financial Officer. Sir, you may begin.

Thank you. Good afternoon and thank you for joining us. I am 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 First Quarter Fiscal 2017 Conference Call. We would like to extend a warm welcome to anyone who is a first-time participant on our conference calls. Please note that this presentation is being webcast, and it is expected to remain on our website located at www.osi-systems.com for at least two weeks. Earlier today we issued a press release announcing our first quarter fiscal 2017 financial results. Before we discuss our results, I would like to remind everyone that today’s discussion contains forward-looking statements. I will now read the Company’s cautionary notice regarding 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 statements under the Act. Forward-looking statements relate to the Company’s current expectations, beliefs, projections, and similar expressions and are not guarantees of future performance or outcomes. Forward-looking statements involve uncertainties, risks, assumptions, and contingencies, many of which are outside the Company’s control that may cause actual results or outcomes to differ materially from those described in or implied by any forward-looking statement. Such statements include, without limitation, information provided regarding expected revenues and earnings and statements regarding the expected overall financial and operational performance of the Company and its operating divisions. The Company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from these forward-looking statements. These factors include the risk factors set forth in the Company’s last annual report on Form 10-K and other risks described in documents subsequently filed by the Company with the SEC from time to time. All forward-looking statements made on this call are based on currently available information and speak only as of the date of this call, and the Company undertakes no obligation to update any forward-looking statement that becomes untrue because of new information, subsequent events, or otherwise. During today’s conference call, we may refer to both GAAP and non-GAAP financial measures of the Company’s operating and financial results. 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 first quarter results, which has also 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 business in more detail, I will provide a high-level overview of the first quarter. First, on September 9, 2016, we completed the previously announced acquisition of American Science and Engineering, AS&E, which is a leading global provider of security detection solutions, reports, orders, critical infrastructure, military and law enforcement. AS&E’s operations are now reflected in the results of our Security Division for the period following the close of the acquisition through September 30, 2016. We financed the purchase price with a combination of cash on hand and borrowing under our existing revolving bank line. Immediately following the close of the acquisition, we used $69 million of AS&E’s existing cash on hand to pay down the revolving bank line of credit. The acquisition is already yielding positive results as AS&E contributed $14 million to our Q1 revenues during the three weeks following the closing. Additionally, AS&E has been awarded two significant IDIQ contracts for ZBV and Z portal systems from one of our most important customers, the U.S. Customs and Border Protection. The initial delivery orders received are valued at approximately $45 million and bolstered our security division’s backlog for the quarter. Second, we are pleased to report Q1 revenues of $221 million, a 10% year-over-year increase driven by strength in our security division, which grew 28% over the prior year, or 14% excluding revenues generated by AS&E. This strong growth was partially offset by an 11% year-over-year decline in our Health Care Division. While our Optoelectronics Division, third party sales were relatively consistent with those in the prior year. Third, we reported Q1 GAAP diluted earnings per share of $0.03. On a non-GAAP basis, which excludes impairment, restructuring, and other charges and amortization of acquired intangible assets net of related tax effects, our Q1 earnings per diluted share were $0.44 compared to $0.55 in Q1 at fiscal 2016. The decrease from the prior year was primarily driven by the performance in our Health Care Division. And, fourth, our non-turnkey, Q1 book-to-bill ratio was 1.1, and our backlog as of September 30th was approximately $725 million. Before diving into the numbers and discussing updated fiscal 2017 guidance. Let me turn the call over to Deepak.

Thank you, Alan, and, again, good afternoon. We’re off to a good start in fiscal 2017 as we generated record revenues of $221 million in the quarter. We also made progress on key strategic objectives in each division as we opened a manufacturing operation in Mexico for electronics manufacturing, continued to make improvements in the Health Care group, and completed the acquisition of American Science and Engineering, AS&E, the largest acquisition in the Company’s history expanding the depth and footprint of our Security Division. Going into the details for each division starting with the Security, where we had revenues of approximately $124 million, an increase of 28% including AS&E. A 14% increase excluding the revenues generated by AS&E when compared to Q1 of last year’s. Bookings were $115 million in the quarter, which generated in non-turnkey book-to-bill ratio for the Security group of 1.2. A few of the other highlights in Security – during the quarter we successfully completed our acquisition of AS&E. As Alan mentioned, the acquisition closed on September 9th, and AS&E contributed approximately $14 million of revenue to Q1 during the three weeks that OSI was part of OSI. The AS&E team also made headway on the bookings front as we recently announced two large orders from the U.S. Customs and Border Protection totaling approximately $45 million for AS&E’s proprietary Z Portal and ZBV Backscatter Systems. These orders were from two indefinite delivery and indefinite quantity contracts that have a combined value of up to $140 million. The Z Portal System is the only drive-through cargo and vehicle inspection system that uses multiple detection technologies to provide up to six views of the vehicle under inspection while the ZBV with TX-view is a mobile inspection system that allows for immediate deployment and rapid inspection to reveal explosives, drugs, and other organic threats and contraband as well as enhanced detection of metallic threats. ZBV has a very successful product with an installed base of over 800 units installed worldwide. The AS&E acquisition enhances our product offering by adding a set of cargo inspection products built upon AS&E’s proven Z Backscatter technology for organic contraband detection. Now potential cargo customers can work with us and select even a more optimum configurations along with exploring turnkey solutions that utilize a mix of inspection systems based on high energy, medium energy, and Backscatter technologies. The turnkey services pipeline continues to be strong and has the potential of further expansion with customers from AS&E’s existing installed base and pipeline. Overall, we believe our security customers are well-served as they have more options available to meet their needs. We now offer the broadest technology platform in the industry for cargo products. On the integration front, our team has started towards our objective of achieving at least $18 million of annualized re-taxed cost savings within the next 24 months. We look forward to updating you on these efforts in the coming quarters. In the Baggage and Parcel Inspection arena, we saw encouraging activity as we gained several new orders for multiple units of our RTT Whole Baggage Inspection System and Checkpoint X-ray Systems. During the quarter, we also took advantage of a compelling market opportunity to acquire Herbert Systems, a leading provider of automated checkpoint tray return systems called TRS and related accessories. This acquisition fits very well within our overall strategy of becoming a total solutions provider as it enhances our ability to offer an integrated solution to airports worldwide seeking a more efficient architecture and logistics for higher throughput at checkpoints. Herbert Systems has over 200 system lanes installed at airport checkpoint lanes worldwide including major airports in Asia, UK, and Middle East. On the certification front, we have recently submitted the RTT110 whole baggage system for U.S. certification to TSA/TSL. As we have discussed previously, the TSA is expected to upgrade its checked baggage inspection infrastructure all through U.S. with significant spending in the near future. Going forward, our strong backlog and recent acquisitions position the Security Division well for continued success and growth. Moving on to Health Care Division where sales were down 11% from the first quarter of the prior year, externally the U.S. hospital spending environment has been tepid for the last several quarters, making the top line challenging. Also, the international markets continue to remain volatile. Internally, the revitalized leadership group in this division continues to make progress in improving operations. During the quarter, the team made significant improvements to the patient-monitoring product portfolio. As we have mentioned earlier in calendar 2016, we embarked on a mission to add new features in our patient-monitoring products that were included in previous product versions but were not satisfactory in the recent product launch. We have rolled out upgrades as controlled releases at key accounts, and this activity continues in Q1 as we have mentioned on the previous calls. The Health Care Division also made notable improvements in the quality management systems in its operations. These collective efforts provide reason for optimism for the Health Care Division after what has been a very challenging period. Moving to the Optoelectronic Division, we had external revenues were about 1% lower than the prior year, but the division continued to deliver solid operating margins. Intercompany revenues were lower primarily due to space labs and tighter inventory controls across the board. Opto group recently started an operation in Mexico to serve U.S. customers that perform the logistics and cost benefits of a manufacturing location closer to the North American region as opposed to the Far East. So, overall, we are pleased with the start in Q1. We believe that Health Care Division will make gradual progress throughout the year. And as we integrate AS&E into our Security group, we anticipate new market opportunities and better operational performance from the newly combined businesses. I’d like to take a moment to welcome our new employees from AS&E and thank all of our employees for their efforts during the quarter. I am excited about our future and look forward to the coming quarters. And, with that, I’m going to hand the call back to Alan to talk in details about our financial performance before opening the call for questions. Thank you.

Thank you, Deepak. So let’s review the financial results for the first quarter in some greater detail. As mentioned previously, revenues in Q1 of fiscal 2017 increased 10% year-over-year. Revenues in the Security Division increased 28% driven by strength and sales of RTT, our Real Time Tomography Explosives Detection System, as well as the inclusion of $14 million of revenues generated by AS&E following the closing of the acquisition. As Deepak described, revenues in our Health Care Division were soft, decreasing 11% year-over-year, and third party revenues in our Optoelectronics Division went down 1% while inter-company sales were down significantly driven by the lower revenues in Health Care and continued efforts to improve our overall inventory turns. The Q1 gross margin was 30.8% down from 34% in the prior year due to the decreased sales in our Health Care Division, which generates the highest gross margin of our three divisions. Gross margin was also adversely impacted by increased international sales of RTT, which, as we mentioned in previous calls, is continuing to ramp up. As mentioned on previous calls, the gross margin will fluctuate from period-to-period based primarily on product mix among other factors. So moving to operating expenses – in Q1 of fiscal 2017, SG&A expenses as a percentage of sales decreased to 19.7% compared to 20.2% in Q1 of fiscal 2016. In absolute dollars, SG&A spending was $43.6 million, which was $3.2 million higher than the prior-year period. The increase was mainly driven by the acquisition of AS&E as well as slight increases in spending in our security and Optoelectronics Divisions, although these increases were partially offset by decreased spending in our Health Care Division. As noted on previous calls, we remain committed in all of our divisions to increasing efficiencies and prudently managing our cost structure. R&D expenses as a percentage of sales were also down in Q1 at fiscal 2017 coming in at 5.7% as compared to a comparable prior-year level of 5.9%. In absolute dollars, R&D spending was $12.5 million in Q1, an increase of about $600,000 from the prior year due to the inclusion of expenses from the acquisition of AS&E. We continue to make significant investments in Research and Development in both our Security and our Health Care Divisions to enhance our product portfolios. We remain focused on growth platforms in innovative product development, which we view as vital to the long-term success of our business. The Company’s effective tax rate was 28% in Q1 as compared to 27.5% in Q1 of last year. Our provision for income taxes is dependent on the mix of income from U.S. and foreign jurisdictions due to tax rate differences among countries as well as the impact of permanent taxable differences, tax elections and valuation allowances among other items. Q1 impairment restructuring and other charges were $10 million, which included acquisition-related costs as well as product discontinuation and facility closure cost, severance, impairment charges, and legal costs. Moving to cash flow and the balance sheet – in Q1 of fiscal 2017 we reported operating cash usage of $1.9 million driven in part by the application of advances received in prior periods, acquisition costs, and working capital requirements to support the increase in sales. Capital expenditures were $2.8 million while depreciation and amortization was $15.4 million. Day sales outstanding or DSO was 73 days for this quarter as compared to 75 days in Q1 of fiscal 2016. Inventory turns improved from Q4 of the prior year, though in absolute dollars increased solely as a result of the inclusion of AS&E inventory. Excluding AS&E inventory, overall OSI inventory levels decreased during Q1. Our balance sheet remains strong with a very manageable debt level, post acquisition, providing us with the flexibility necessary to execute our business plan. Finally, turning to the update guidance, we are increasing our fiscal 2017 sales guidance to $955 million to $990 million. The updated revenue guidance includes approximately $90 million attributable to the acquisition of AS&E for the partial period in Q1 as well as the remainder of the fiscal year. In addition, we are increasing our non-GAAP earnings guidance to $2.80 to $3.20 per diluted share excluding the impact of impairment, restructuring, and other charges as well as acquired amortization and the related tax effects. For comparative purposes, acquired amortization net of tax, impacted diluted earnings per share by approximately $0.02 and $0.10 in the prior Q1 and fiscal 2016, respectively. We currently believe this sales and earnings guidance reflects reasonable estimates. Actual sales and earnings, however, could vary from this range because of the risks and uncertainties that affect our business and industries generally, including items that may not be entirely within our control, such as site readiness for product installations, customer acceptance, and the timing of orders in each division. Over the past decade, we have demonstrated a strong track record of producing sales and earnings growth with strong cash flow generation while simultaneously investing in product development and innovation for the future and making strategic acquisitions that serve us well. Our investments have enabled us to continue our leadership role of the turnkey screening solutions market space and have allowed us to introduce innovative products and solutions to the market across our various industries. Thank you for participating in this conference call and at this time we would like to open the call to questions.

Thank you. [Operator Instructions] And our first question comes from the line of Larry Solow from CJS Securities. Your line is now open.

Great, thanks and good afternoon. I was wondering if you guys can just parse out a little bit on the – parse out on the AS&E side. Alan, you said it’s about $14 million revenue in the quarter. Was that actually accretive on an EPS basis in the two weeks? Or was it, sort of, not – more of around [indiscernible]

Larry, this is Alan. Yes, for the three-week results we’re positive for AS&E. So that was accretive to our earnings per share in Q1.

Got it. And then just for the [indiscernible] is the change current in the revenue side. It sounds like, at least, on a consolidated basis it’s all – from the acquisition – is the $0.20 to $0.30, is that mostly from the acquisition? And then I guess within the segments any real change? To my estimates it looks like Security did a little better on the core and then the other two were, sort of, relatively close. I don’t know how that compared to your expectations, but any color would be great.

Sure, Larry. The increase in the earnings guidance is primarily related to the AS&E acquisition. Our poor Security business did very well, also. Given the results of our Health Care business in Q1, though we feel very confident about rebounding the remainder of the year, we took a little conservative approach coming into guidance in relation to that.

Okay. And then just on the Security side, obviously, did those orders you got on the AS&E side, I assume you guys had a pretty reasonable expectation at the time that the deal was closed or, I guess, at least incorporating your guidance that those two orders were coming?

Larry, this is Alan. When we gave our guidance in August, we hadn’t yet closed the acquisition of AS&E and didn’t know the date of closing. So it wasn’t included in our guidance. But, having said that, those two orders, which we’re very proud to have received are really due to ship in in fiscal 2018. So it’s not really a major impact to fiscal 2017.

Got it. And then just on the Health Care side, I know you guys had expected a rebound in 2017. You did cite that. You thought at least the first couple of quarters would be a little slower. Is that trending within your expectations or is it still a little bit slower than you had thought? And what, kind of, gives you confidence that you will get that rebound? Did you still expect – I think you had said on the last call you expected full-year revenue growth in that segment. Is that still the case, or…

This is Deepak here, Larry. We had mentioned on previous conference calls that some of the things that we are trying to go stabilize it was going to extend into Q1, and we are still very confident that for the whole year, there will be growth.

Got it, okay. And then just any update on turnkey? It sounds like you still have a lot of balls in the air. Do you still think you can potentially close the deal within the next 12 months – six to 12 months?

Well, we are optimistic. I said it in my script that the pipeline is quite strong. We continue to work diligently with multiple potential customers, and we hope that before the end of this fiscal year, we’ll close some turnkey projects.

Great. Okay, great. Thank you very much guys.

And our next question comes from the line of Josephine Millward from Benchmark & Co. Your line is now open.

Good afternoon, Deepak, Alan. Congratulations on the great quarter.

Thank you.

Thank you, Josephine.

So, Deepak, AS&E had a lot of delays over the last few years with major new projects as well as work already in their backlog. It looks like you’re projecting around 10% growth based on what they did last year. How do you get comfortable – how good is your visibility?

Josephine, this is Alan, so maybe I’ll take a shot at that. Based on the revenue guidance that we provided, which is partially your basis, we’re not projecting 10% growth. We certainly think AS&E could do that, but until we get a little bit more history behind us as we’ve just recently acquired them, we’ve taken a conservative approach. So our guidance really is having them relatively flat for the year, though we’re quite hopeful that we will see that type of revenue growth.

Great. Can you give us an update on the European checked baggage market, and do you still see this as your number-one driver in light of the AS&E acquisition? Or is cargo a bigger opportunity now?

So, Josephine, this is Deepak here. The answer to your first portion of the question, very excited about it, about the European sector. We did win some more additional business. We don’t announce every one of them. We are still very, very boisterous about it. There is a lot of interest, and the more installed base we get, more customers look at it, more people feel confident in our product. And we’ve also said in my conference call that we have submitted the RTT110 for certification to TSA and timing is a little bit uncertain. It’s in their hands, but we hope that this will go much faster since we’ve already got RTT80 certified before. And the tender activity, or the pipeline activity, is very, very robust in Europe and in the rest of the world so that we have – we are even more confident than before. As we have said before, that the visibility on all the sockets that are potentially coming up is quite good and robust. Regarding your second question –

Sorry, I was going to ask, when do you think you might get TSA certification? On the RTT110?

Josephine, you already know my answer to that. We are saying that, hopefully, it will be faster than the RTT80, but it’s not in our hands, and we can talk about it, but we’ve said it for a long time. Hopefully, we are targeting it for calendar 2017. Regarding your other question that we didn’t complete, that what is the driver for us more RTT or cargo? With AS&E acquisition we think that both of them are very strong drivers and AS&E acquisition also makes us very excited about our turnkey projects where we can offer a most broader product portfolio to our customer.

Great. One last question, can you talk about the size and timing of this upcoming opportunity with the Nuclear Detection Office? And do you see that as a fiscal year 2017 opportunity?

No comment.

Thanks, Deepak.

And our next question comes from the line of Jeff Martin from ROTH Capital Partners. Your line is now open.

Thanks. Good afternoon, guys.

Good afternoon.

Could you touch on what the customer response to the AS&E acquisition is? You mentioned that customers now have a much broader portfolio to choose from and a more complete technology offering set to choose from? Just curious if you’re noticing particular feedback from customers initially?

Jeff, this is Deepak here. Very excited. People like AS&E’s products, they like Rapiscan’s global reach, and now we have the portfolio, which I think is the broadest portfolio in the industry. We can offer high energy, we can offer portals, we can offer middle energy, we can offer Backscatter, mobiles, so that no other competitor can offer such a broad product line, which the customers like very much, and our ability to have a global reach combined with all the products and the large installed base of Rapiscan products and AS&E products. It makes the customers feel better and more encouraged of the longevity and new products in development and integration.

Great. And then could you speak to AS&E’s service component to their business? My understanding is that’s, roughly, half of the business, and it’s a higher margin component, it has some recurring revenue visibility aspect to it. Just wondering if you could touch on that?

I’ll touch on it and then maybe Alan can add on. That’s true, half of their business is service. It’s a very profitable business but so is their other side of the business. We want to capitalize on the synergies between our service platform and their service platform to be more synergistic and more broader and more optimum to service and support our customers in a more broader and efficient way. Alan?

Sure. Jeff, yes, their service revenue is a higher percentage of their overall revenue than our Security Division’s historically has been, which is nice. It brings a larger recurring revenue base at higher margin. So we’re very excited about their service portfolio and combining it with our service teams. We think there’s just great opportunity.

Okay, great. And then I wanted to ask you about the asset impairment that was taken in the quarter. It looks like it ties to the Security Division. Just was wondering if you could provide any detail on that?

Sure, Jeff. It really consisted of two primary things. One were all the acquisition costs related to the AS&E acquisition. We recorded as another charge as part of that. And the second was in combination with this transaction, we had a certain product line within our security business that last year generated about $2.5 million in revenues, but lost about $1 million, and we decided to discontinue or abandon that particular technology. So some assets associated with that were part of those impairment and restructuring charges as well.

Okay. Was a good chunk of that $5.3 million inventory-related?

There was $2 million of inventory-related. That is true.

Okay, okay. That’s helpful. Thank you, guys. Appreciate it.

And our next question comes from the line of Andrew D’Silva from B. Riley. Your line is now open. Andrew D’Silva: Hey, good afternoon and thanks for taking my call. Just a couple quick questions. First off, could you please just refresh my memory a little bit as far as AS&E’s regional concentration over the last 12 months or couple of years? It looks like the company was heavily concentrated in the Middle East, correct? And you expect to diversify, going forward?

This is Deepak here. The concentration of AS&E, which where their primary strength has been is in the U.S. They are very strong in the U.S. sector. Yes, they have concentration in Middle East, but I wouldn’t call it that it’s a very large concentration. They are quite broad-based also, and Rapiscan and AS&E together are basically, next to U.S., I would say that we don’t have any significant concentration anywhere except, obviously, the Rapiscan Mexico portfolio for our turnkey business. Andrew D’Silva: Oh, okay, because when I reviewed some of the AS&E conference calls previously, and so part of their decline and that was related to the Middle East. It was just – that just kind of fell off a cliff, essentially, or was it more of a global impact that related to some of their declining revenues over the last couple of years?

So, specifically, we don’t call it Middle East concentration. The main primary reason for AS&E’s decline was as the war wore down in Afghanistan and Libya, Iraq, and other places, because of that, U.S. Forces withdrawing, that had a significant impact on their reduction in revenue and margin and profitability. Not specifically a Middle East region of what I would call installations. Andrew D’Silva: Oh, okay, I understand. Thank you. And then moving over to the Health Care Division. In your prepared remarks, I think you mentioned that Health Care spending decreased during the quarter. Should we expect that to increase as sales ramp up in the second half of the year to get to that year-over-year growth in the segment? Or is that kind of the new expected run rate right now?

Andrew, this is Alan. It’s sort of a combination. When we look at it on a fixed and a variable cost perspective, going forward, I wouldn’t necessarily expect the fixed cost to increase. But as sales ramp up, the variable costs for commissions and the like would increase. So your question is very valid. Andrew D’Silva: All right, and then as far as the, I guess, temperament or the mood of the Health Care Division sales team, how is it right now? Are they feeling like customers are still vying for their products? Or has there been any damage related to relationships over the mishaps that happened last year?

Well, this is Deepak here. We can confidently say that we have not lost what I would call insignificant business. Our reputation is still there. People like us very much, and it’s a misstep of performance. It doesn’t mean that our customers have lost faith in us. The salespeople are still very highly motivated because fundamentally our solution is a better solution and a better price performance solution than some of our competitors. So I wouldn’t say that we have had what I call a major damage or permanent damage. Yes, bits and pieces happen, but so do Phillips so does GE. Everybody goes through this. We’re not taking it lightly. We are very focused onto it. But the salesforce, in my opinion, as motivated, especially as we work through and solve the issues and the leadership change has been very well received by the sales team generally. Andrew D’Silva: Okay, thank you. This last question related to the new Board position. I’ve just got a couple of people asking me about this. Are you seeing an increasingly stringent regulatory environment? Is that why you added the new Board position? Or any color on that environment would be great.

Well, the thing is that as we go through, we all read in the papers. I wouldn’t call it as like a requirement or something happened to have a stringent thing. We look at the Board, look at what’s lacking or something we can strengthen up with. And we decided that this was a perfect opportunity to add on a Board member who had experience in governance and had a lot of help that they can give and knew the company very well and was local and one made a lot of sense for us to balance the more strength at the Board level. Andrew D’Silva: Okay, great. Hey, thanks for the time and good luck for going forward.

Thank you.

[Operator Instructions] And our next question comes from the line of Brian Ruttenbur from Drexel Hamilton. Your line is now open.

Yes. Thank you very much. A couple of questions. First of all, on plans for capital deployment. If you could tell us what you’re going to do with your cash flow, moving forward? If it’s going to be debt repayment as a focus or buybacks?

Hey, Brian, this is Alan. Good question. From a capital allocation strategy, we always look at it multifold. One, we want to win new turnkeys, which requires some up-front cash, so that’s an important element. We always look at some bolt-on acquisitions. We’re not done yet with – after AS&E. And then we’ll continue to look at other things opportunistically, such as stock buyback as well as revolver paydown to de-lever.

Okay, so there’s no specific percentage plan that you have in place it sounds like. Let me move over to Health Care. You were down 11% year-over-year. When do you expect to see that move from down 11% to just stable on a year-over-year basis. Is that – by the end of the year do you expect to be kind of flattish? What is the projection there?

Brian, this is Deepak here. We believe that even in Q2 onwards, we will start the pendulum to swing back, and we are hoping, and we are quite confident that for the year there will be growth.

Okay. So all the previous issues have been resolved, and it’s not a manufacturing or a production issue anymore? It is just getting the new product out there, is that correct?

Well, one never wants to say "all the issues." But all the significant issues have been resolved. There were software issues, optimization, taking care of some of the requirements that the customers wanted to see. So it’s an ongoing process. We did say in the previous conference calls that it’s going to last through Q1, and we think most of the heavy lifting is behind us. And we continue to be vigilant and continue to be more involved and focused, and the new leadership has taken it very focused into it to cater to a proper way, and I said that in my script that we have launched some of the enhancement and changes but in a controlled environment to a select few customer base. So we can get the input before we launch a broad base.

Okay. And then a couple of other little housekeeping issues. Acquisitions costs for the rest of the year, is there going to be additional restructuring charges throughout the year?

Brian, this is Alan. As we implement the integration strategy as Deepak was alluding to to get synergies that would exceed $18 million over the next couple of years, there will be additional restructuring charges associated with that. Those are the primary ones that we’re seeing at this point in time.

Is it good to think, I mean, in the past it’s kind of a one-to-one. If you get $18 million of cost savings that cost you $18 million, is that the right way to think about things?

From a rule-of-thumb basis, not bad. We’re still working through the details as to what the numbers might be, so it’s a little bit premature, but it’s not a bad guesstimate over the long run.

Okay, and then a couple of little things. Mexico, is it coming up for rebid in the next two years and what’s the status there? And then have you received any maintenance revenue from the RTT, any of your installations yet?

On the first one is that we are in discussions. The customer and us have a very good relationship. Like we said in the last conference call, it’s a little bit too early. So once we get into the March time period, we’ll start looking at a little bit more detail on the renewal. Regarding the answer to your other question about the maintenance of RTT – most of them are still in warranty, and so the answer is no. But our installed base continues to get bigger, and we believe that, long term, this is going to be a predictable recurring revenue with good margin in it for us.

Great. Thank you very much.

And I am not showing any further questions. I would now like to turn the call back to Mr. Chopra for any further remarks.

Thank you very much. We, again, want to thank everybody on it. This is a good start for the year. We welcome our new group, AS&E, to join with this company, and we believe that we provide a great product and offering to our customers. And I’ll talk to you with more detail on our second quarter in January. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a wonderful day.