OSI Systems, Inc. (OSIS) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the OSI Systems, Inc. Fourth Quarter and Fiscal Year 2020 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] Please be advised that today's conference maybe recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Alan Edrick, Chief Financial Officer. Please go ahead sir.

Thank you. Good afternoon and thank you for joining us. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems. And I'm here today with Deepak Chopra, our President and CEO. Welcome to the OSI Systems' fiscal 2020 fourth quarter and year-end conference call. We are glad that you can join us. We hope you and your families are safe and healthy as the global community continues to battle the COVID-19 pandemic. Earlier today, we issued a press release announcing our fourth quarter and fiscal year 2020 financial results. Before we discuss the 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 all such 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'll refer to both GAAP and non-GAAP financial measures when describing the company's results. For information regarding non-GAAP measures and GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings release. With that being said, I will begin with a summary of our financial performance and then Deepak will take over the discussion. I will then return to finish with more detail regarding our financial results and to discuss our outlook for fiscal 2021. First, we are quite pleased by the efforts of our global team that has risen to the occasion to meet the needs of our customers and our partners while emphasizing safety among our team members during this challenging time. These efforts resulted in our non-GAAP Q4 earnings per share coming in at the upper end of the guidance we provided in April despite the adverse impact on revenues of the pandemic. Second, we continue to drive operating margin expansion as our Q4 year-over-year adjusted operating margin increased from 11.1% to 12.3%. Third, our cash flow was substantial both during Q4 and for the full year. We have consistently demonstrated strong cash flow conversion and delivered a solid $129 million of operating cash flow in fiscal 2020. Our balance sheet is strong. It is our goal to be active in capitalizing on acquisition and other strategic opportunities, while simultaneously investing for the future. In addition, as part of our capital allocation strategy, our Board authorized an increase of 2 million shares to our stock buyback program. And finally, our Q4 book-to-bill ratio was a solid 1.0 during these challenging times, and we continue to see a robust pipeline of opportunities that Deepak will touch on. As the COVID-19 situation continues to evolve, we are monitoring the business environment. We are committed to delivering the products and services needed for our customers and to maintaining a safe and healthy workplace for our employees. Before diving more deeply into our financial results and discussing our fiscal 2021 guidance, let me turn the call over to Deepak.

Thank you, Alan. And again, welcome to the OSI Systems' earnings conference call. Each of our businesses work through a variety of challenges stemming from the COVID-19 pandemic, yet each team contributed to a solid Q4 and fiscal 2020 as we grew earnings, improved margins, and achieved impressive cash flow for the year. As we navigate through these unprecedented times, we continued to focus on meeting our customer demands, while simultaneously promoting the safety and the health of our employees. As Alan just mentioned, our Board just expanded our share repurchase program. This reaffirms the Board's confidence in our future and provides the company significant flexibility in capital allocation to maximize shareholder value. Discussing each division in more depth, starting with Security, where Q4 fiscal 2020 revenues were $164 million. After being on a record revenue pace through the first nine months of fiscal 2020, we finished the year with Security revenues of $742 million, down slightly from the prior year. We anticipate the revenue slowdown experienced in Q4 this year to continue at least through Q1 of fiscal 2021. We have made operational improvements that are expected to help deliver continued strong profitability in the Security division in fiscal 2021 that could position the business for accelerated growth long-term and in fiscal 2022 and onwards. As we mentioned on the call last quarter, we expected the Security division to experience some headwinds due to COVID with the downturn in airport traffic, challenges associated with site and factory acceptance tests as a result of travel restrictions and partial shutdowns with certain customers. We are working with our airport customers as some facilities have actually started accelerating installations, taking advantage of reduced activity while others have pushed out certain initiatives. Even as airports face a tough environment, we have achieved several wins in this market. As an example, we have been recently notified of an award from an international airport for significant quantities of our RTT, Real Time Tomography, baggage scanners. This is a great validation of our state-of-the-art RTT CT baggage scanners, and this award is not in our backlog as yet. We continue to see accelerated activity in the air cargo customers that we even mentioned last conference call that are shifting their resources to handle the higher demand for ecommerce-based products and services. There has been continued activity, albeit at a slower pace on some of the larger initiatives within the US and international customers. Some of the larger opportunities are getting pushed to the right due to the pandemic. However, the opportunity pipeline continues to remain very strong and we are very well positioned to capitalize. Our cargo business tends to see longer sales cycles. We continue to see our customers invested in building or upgrading existing security infrastructure even during this time. During the quarter, we announced the receipt of orders totaling approximately $60 million from a US government customer to provide several platforms of our cargo inspection systems and solutions, including our new rail scanner platform-related upgrades, integration, and maintenance services. We continue to perform well on our turnkey programs in Albania and Puerto Rico. As we have mentioned on our prior call, we are in discussions with the Mexican government to resume operations as the previous contract expired on June 6. Since the contract's expiration, we are not permitted to operate in the government customs’ sites by law, but we have maintained our infrastructure and employees in Mexico as we work towards a new potential contract. Given the nature of the discussions, as you can understand, we cannot comment any further on this matter and there is no guarantee of a new contract. However, we remain optimistic. The global pandemic has also contributed to the delayed start of our new turnkey programs in Sri Lanka and Guatemala, but we believe that we'll commence operations at both of these locations in the next few months. Our versatile technology platforms have allowed us to enter into other ancillary markets. As an example, we have been working with Australia's Department of Agriculture, Water and the Environment on innovative inspection techniques. We recently announced an order for approximately $5 million to provide the RTT 110 CT scanner and support the development and delivery of software algorithms for the automated detection of bio-security risk items. This is a very innovative and exciting project, and this can lead to revenue growth globally for biosecurity in the coming years. As we look ahead, the pipeline continues to be very healthy for the Security division. We have reduced our security cost structure that positions us well not only for a solid fiscal 2021 in Security but beyond. Moving to Healthcare. We are very pleased with the performance of Spacelabs, which delivered Q4 revenues of $57 million, 15% higher than the prior year and saw increased demand for patient monitoring solution from hospitals. As our Healthcare division traditionally has high contribution margins, the division's operating profit in the quarter jumped to 17.4% as a result of the sales growth. In addition to handling the customer demands arising from COVID, the team has done a great job of managing its overall cost structure, while still enhancing resources in key areas such as marketing, R&D and sales. Shortly after the quarter-end, we acquired SafeNSound, an innovative cloud platform solution which assists healthcare providers in achieving their aim of better outcomes, improve patient experience, higher staff satisfaction and lower costs. This was a technology acquisition and now the SafeNSound team will continue to develop innovative solutions that further enhance the value of our patient monitoring systems and enable us to enter into new markets such as remote patient monitoring. Moving on to Optoelectronics. In the fourth quarter, Optoelectronics and Manufacturing division's total revenues were down 10% to $67 million, which was anticipated due primarily to this pandemic. Our sensor product acquisition, primarily serving the defense and space satellite markets, that we completed earlier in the year performed well during the quarter. On the bookings front, the Opto team did a great job and ended the year with a record backlog for the division. In fiscal 2021, we will continue to serve our global customer base as we have the flexibility to manufacture in North America, Europe and Asia, and we'll also look at acquisitions that expand our capabilities and market presence. Overall, I'm very proud of our team and what we have accomplished in Q4 and the fiscal year overall. As we look ahead, our focus will be on executing our strategy, staying agile to handle the challenges from COVID and leveraging our strong balance sheet for future projects and strategic acquisitions. We look forward to a successful fiscal 2021. 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.

Thank you, Deepak. Now, I will review the financial results for the fourth quarter in greater detail. Our revenues in Q4 of fiscal 2020 were $277 million as compared to $308 million in the prior-year Q4. While we saw strength in our Healthcare division revenues, which increased 15% year-over-year due to increased demand in patient monitoring products, as expected, we saw reductions in revenues in each of the Security and Opto divisions. Security sales were down 16% year-over-year, largely resulting from the impact of the pandemic on the fulfillment of orders in the backlog as well as the timing of new orders. Opto sales were down 10% from the same quarter in the prior fiscal year due to the macro uncertainties, temporary global supply chain disruptions and the partial shutdown of certain operating facilities due to COVID. Our Q4 gross margin of 36.7% was comparable to the prior-year fourth quarter. Our reduced revenues were offset by a favorable revenue mix, including stronger Healthcare sales, which generally carry higher gross margins than those in the other two divisions, along with proactive management in each division to improve operational efficiencies, with heightened focus on cost. As mentioned on previous calls, our gross margin will fluctuate from period to period based on revenue mix and volume, among other factors. Moving to operating expenses. The company moved early and throughout Q4 to adjust our cost structure. SG&A expenses were down 9% on a year-over-year basis and 8% on a sequential basis. Though we are always attentive to managing our cost, we applied increased levels of scrutiny during the last quarter, which have continued into fiscal 2021. We worked diligently across each of our divisions to improve efficiencies and prudently manage our cost structure. R&D expenses in Q4 were $12.8 million, down from the relatively large R&D amount in Q4 of the prior year. We continue to dedicate considerable resources to R&D, particularly in Security and Healthcare. We remain focused on innovative product development, which we view as vital to the long-term success of the business. In Q4 of fiscal 2020, we recorded a $5 million impairment restructuring and other charge. This charge was primarily related to reductions in our workforce, facilities consolidation and the impairment of an intangible asset in our Security division. Moving to interest and taxes. Net interest and other expense in Q4 of fiscal 2020 decreased to $4.5 million from $5.1 million in the same prior-year period as a result of reduced average levels of borrowings under our revolving credit facility and lower average interest rates. On the tax side, excluding the impact of discrete tax items, our effective tax rate in Q4 of 2020 was 29.6% compared to 30.4% in Q4 fiscal 2019. We recognized discrete tax benefits of $0.6 million in Q4 of fiscal 2020 as compared to $0.9 million in the comparable prior-year period. As a result, we reported a tax provision under GAAP of 26.4% in Q4 of fiscal 2020, the same rate as recorded in fiscal 2019. For the fiscal year ended June 30th, 2020, our normalized effective tax rate, excluding discrete items, was 27.3% compared to 28.9% in fiscal 2019. So, now let's turn to a discussion of our non-GAAP adjusted operating margin as defined in our press release. Overall, our adjusted operating margin increased from 11.1% in Q4 of fiscal 2019 to 12.3% in Q4 of fiscal 2020, driven by both the Security and the Healthcare divisions. We were pleased with this margin expansion in the face of overall top line headwinds. The adjusted operating margin in our Security division improved to 15.5% compared to 13.5% in the prior-year fourth quarter, driven by sound operational execution and cost controls. Given increased revenues, our Healthcare division realized significant operating margin expansion from 13.1% in Q4 last year to 17.4% in Q4 of fiscal 2020, representing the highest quarterly adjusted operating margin for this division in five years. These improvements were partially offset by a reduction in the adjusted operating margin in our Opto division to 10.8% compared to 11.9% in Q4 last year. It should be noted that, although Opto saw a decrease in Q4, the full-year adjusted operating margin in that division was a record 12.3%. Moving to cash flow. Fiscal 2020 continued the momentum of generating strong cash flow and Q4 was no exception, with focus on improved profits and working capital management. During Q4, we generated $24 million in operating cash flow. For the year, operating cash flow was $129 million. While we saw improvement in inventory turns as days inventory was 125 in Q4 of fiscal 2020 compared to 127 in the fourth quarter of the prior year, we saw an increase in our days sales outstanding to 89 days in Q4 fiscal 2020 as compared to 70 days in the prior period as a higher proportion of our sales occurred in the second half of the quarter, given more pandemic operational challenges in the first half of the quarter, thus leading to payments occurring subsequent to our fiscal year-end. CapEx in the fourth fiscal quarter was $4.3 million, while depreciation and amortization expense in the quarter was $12 million. Our cash flow conversion was strong. The fiscal 2020 conversion of operating cash flow less CapEx to net income was 145%. As mentioned earlier, in April, our Board authorized a new 1 million share buyback program, which was increased to 3 million shares this month in total. We did not make any stock repurchases during the last quarter, so the full share figure is available under the program. Also, as mentioned earlier, our balance sheet is strong with modest net leverage and no debt maturities until fiscal 2023. And finally, turning to guidance. For fiscal 2021, the company anticipates revenue in the range of $1.09 billion to $1.14 billion and non-GAAP earnings per diluted share in the range of $4.50 to $5.05. We expect to see revenue headwinds in the first half of fiscal 2021 stemming from the pandemic and build positive momentum as the year proceeds. The non-GAAP diluted EPS range excludes potential impairment, restructuring and other charges, amortization of acquired intangible assets and non-cash interest expense and their associated tax effects as well as discrete tax items. We currently believe this revenue and non-GAAP earnings guidance reflect reasonable estimates and we have reflected the anticipated impact of the COVID-19 pandemic in our guidance. However, given uncertainties as to the duration and scope of the COVID-19 pandemic, as well as other variables, the extent to which COVID-19 may impact the company's financial results is difficult to predict and could vary materially from the anticipated impact reflected in our estimates and guidance. Actual revenues and non-GAAP earnings could vary from the anticipated ranges due to other risks and uncertainties discussed in our SEC filings as well. In the face of these unusual times, we continue to remain focused on the growth of our business through investment in product development and strategic acquisitions, while also managing our cost structure. We believe these efforts will enable OSI to continue our leadership in providing innovative products and solutions. Finally, and importantly, we would like to take this opportunity to recognize and to thank the entire OSI Systems team around the world for its commitment to safety, dedication and supporting our customers and agility in the face of uncertainty, all of which helps to create value for our stakeholders. And at this time, we would be happy to open the call to questions.

[Operator Instructions]. Our first question comes from Jeff Martin with ROTH Capital Partners.

Just want to commend you for your execution in a very challenging environment. Impressive to see what you guys have accomplished. So I wanted to start with that. And then, I wanted to get a sense of some of the – it sounds like you've got some new market opportunities, biosecurity being one, remote patient monitoring being another, could you give us a sense of how quickly you expect those two markets to become material to OSI?

Jeff, this is Deepak here. The biosecurity, we've been working in Australia with the government for the last couple of years, and actually we have multiple RTT systems in various Australian airports who are actually operating there to check for these kind of things coming into the country, whether it's food products, whether it's animal things or anything else that could destroy the environment in Australia. New Zealand has caught onto it. There are other countries looking at it, and we believe that with the development and the integration together with the Australian government, agriculture department, this all over the globe can have an impact. So, we continue to manage what it is, and we think that this is a real revenue maker. And not only that, but as a sale, it could also be a turnkey service that we could apply at ports and other places as an add-on to our install base already. Regarding your question about the patient monitoring, as you know, every day you hear about telehealth, telehealth, telehealth. You've seen some of the activity that's happening, so that remote monitoring is becoming the norm. People don't want to go to the hospitals, people would rather go to an urgent care center or remain at home and get an introduction. And even in a hospital, if the doctor and the nurse does not have to come in contact with the patient and can stand outside and get the data, that's fantastic. And this technology that we bought allows us to look at it. We are going to integrate it in, and we think that as the new platforms are launched in the next 12 months, 18 months, this will have a big impact on what we call as the new norm in monitoring patients. Alan, do you want to add in?

No, that was good.

And then, sticking with the Healthcare segment, the strength in Q4, obviously, I don't think you want folks to extrapolate that as kind of the run rate level going forward. Was curious if you could help us discern between how much of that 15% growth was improvements in general operations and sales effectiveness in the period versus kind of a one-time uplift from the need of additional patient monitoring from hospitals due to COVID-related demand?

Jeff, this is Alan. A good question. And our Spacelabs team really did an outstanding job responding to the needs of our customer base. And it was really a combination of both. Our sales teams have been very effective in going out and getting new business. Our operational teams have been very effective at streamlining the operations and improving the efficiencies to drive higher levels of margins as well. In addition, we did see a COVID bump in patient monitoring, particularly in the international markets. So, it's hard to quantify the impacts from both because it kind of goes both ways, but it was definitely a combination of a great job by the team, aided a little bit by some tailwinds with COVID.

Jeff, just to add on to Alan, the strength is going to – as we've said it, it is going to continue into Q1 also.

And then, my last question is with respect to the supply chain. Were the disruptions that you mentioned in your script really isolated to the Optoelectronics segment? And then, second part of that question is, have those disruptions dissipated or are they still inhibiting your ability to fulfill orders?

So, Jeff, this is Alan. So, some of the supply chain disruptions we saw were across the three different divisions, some felt a little bit more acutely than others. The team did a good job overcoming those disruptions. And while, from time to time, there still might be certain delays, for the most part, we're past most of any significant type of supply chain issues.

Jeff, just to add on to Alan. There's always pros and cons. Yes, supply chain was a little bit challenging, but we have an advantage. As we have mentioned to you before, we are a vertically integrated company, one of the only ones in our space both for the Healthcare and Security. Especially in the case of Healthcare, as the demand surged, they wanted product and supply chain became a big issue. But we are vertically integrated, and we were able to turn on our factories both in US and in Malaysia and Singapore to be able to cater to that. We are not dependent on China material. It's insignificant, and we've been able to handle well and that came a long way to prove what we've been saying in this environment – vertical integration is a big strength.

Thank you. Our next question comes from Larry Solow with CJS Securities.

Congrats on obviously a challenging environment and a pretty okay quarter there for you guys. Just, I guess, a couple questions on the quarter and then on the outlook. Just on Security, Deepak, you mentioned operational improvements during the quarter, and obviously, you guys reacted, it sounds like rather early, executed well. Are some of these things sort of – it seems like some could be sustainable. Can you sort of parse out what might have been temporary versus sustainable cost cuts? I think you lost about $25 million sequentially in revenue in Security, but you actually kept operating income basically flat or slightly down maybe. So, could you maybe help us out a little bit with that?

I will, but I'm going to also add it on to my Chief Financial Officer to tell you a little bit more. From a broader picture, yes, we reacted fast. Some of the things we did, we looked at the forward-looking forecast, we looked at how we can increase the efficiency, how we can move products into various divisions. Again, we have a big advantage of various multiple divisions. So, some of them are permanent in nature. Yes, we looked at some cost reductions that will come back, travel reduced, but it will come back. We changed the way we do service. That has helped us. So, it's given us a lot of lessons to learn like every other company of how remotely you can do better, trade shows and things like that, definitely improves your ability to deliver product more efficiently. Alan?

Larry, good question. We were very pleased with the reaction by our management team, which included a relentless focus on operational efficiencies and costs, given the unknowns associated with the pandemic. And like many companies, we did benefit from reduced travel and some other areas, as Deepak mentioned. We do think these cost savings will continue through the first half and over time. And we have done a number of cost reductions, which are sort of systematic and will be sustainable over time. So, temporary ones are things like travel and all, but we've done a number of what we would more classify as permanent cost reductions too, which position the company to be even stronger in fiscal 2021, 2022 and beyond. So, we really like the reaction by the team.

And then, how about just on the visibility, your outlook. Obviously it sounds like, Deepak, you listed a lot of certain positives and doesn't sound like long-term demand should be impacted in terms of COVID. But as you look out – and you certainly suggested a slower Q1 – how is your visibility in terms of talking with customers? Sounds like you're fairly confident you will get a rebound in the back half of this fiscal year and into 2022 and beyond. How is your visibility? And I guess, I don't know if you can speak to Mexico, but are you incorporating the return of Mexico during this fiscal year into your guidance?

Good question, Larry. This is Deepak here. I'd like to answer your question in the different divisions obviously. In Security, yes, there is a little bit of push to the right and also the delivery cycle is longer. As you know, airport traffic is down, ports need infrastructure, international customers have to sign-off factory acceptance tests, site acceptance tests, civil works have to be made. All that becomes more challenging during these times. Good news is that it's not a product or a project that the customer is going to walk away from. Most important is that all the customers, even more so, if they need to do that – for example, air cargo, it's a great growth opportunity for us. All the airlines and all of the various freight forwarders, they are expanding their air cargo facilities and trying to make them more automated with our equipment. That's a big positive. But some of the things like the ports or the airport expansion, that gets slowed down. Sign-offs are going to happen. But I just also mentioned to you that some airports, on the other hand, have taken this position, internationally especially, yeah, let's use this time wisely to expand and modernize our facility. And we announced today – said that we got a notification of a big award for significant amount of RTTs for a major international airport. So, these are positives and they are – definitely can't predict how long this is going to last. The things have changed. On the other side, on the Healthcare side, there is a demand, but the market is going to change. How fast the elective surgeries come back will have an impact of how fast the hospitals start buying, but people want to be ready for the next wave. If this is going to happen, they want to do home monitoring, which becomes more suitable to our kind of products. Regarding the Opto side, I think Alan has mentioned to you, they had a significant – very good bookings. We are in, what I call, essential services whether it's aerospace, defense, satellite program, medical. So, all those services, our products, our customers want our product. In some cases, we had to even ask for US Embassy's help to expedite our factories to open for important products to come in, so that some of them are continuing to grow, I think. Alan, do you want to add into it? But I think that long term, we are very boisterous and very confident and the pipeline has not changed.

Larry, with respect to the last part of your question about guidance in Mexico, as you know, we don't break out details on divisions of programs in our guidance we provided at the overall OSI level. But we have provided a wider range for our guidance this year to account for the delays associated with this program. That's probably the best we can tell you.

No, that was sort of a lead in to my next question, what was sort of the low end and the high end of the guidance range. Good for that. And Deepak, you touched on the Opto, sort of Q4 not really a surprise being down, but I think pleasantly surprised to hear about sort of the backlog being at record levels, and it sounds like the book-to-bill was well over 1 in the quarter. And my question was, which you partially answered, but where you're seeing the strength from? And is it – some of it is actually benefitting from COVID or there are pieces of that business I would have thought that might have been impacted from COVID?

Good question, again. It's very broad. One of the strengths we have in the Opto business, it's a very broad industry we cater to – aerospace, defense, traffic, medical, security, environment, name it, oil and gas or catering, ask anything, it's the products are made for all these industries and it's a global requirement. So, we are very excited about it. I think Alan has mentioned it. Out of all the three divisions, it's a very predictable strong growth, and they are predicting a strong fiscal 2021 in the Opto business.

Our next question comes from Sheila Kahyaoglu with Jefferies.

I guess, continuing along with the last line of questioning on the backlog, specifically. And Deepak, I appreciate your comments on some of the pipeline duration in terms of how long it takes to convert to orders, but backlog is down overall two years and overall for the company and you said Opto had a great record backlog year this year. So, what does that kind of imply for Security outlook as we look into 2021? If you could just maybe elaborate on that a little bit more.

Hi, Sheila. It's Alan. I'll take the first part of that and maybe Deepak will add some additional color. As you know, the Mexico program we had – when you talk about two years, we received our last contract about two years ago. And as we fulfill the revenues on that contract, the backlog only goes one direction associated with that. There were planned bookings that moved to the right throughout the year and this, of course, is now reflected in our fiscal 2021 guidance. We are really optimistic for strong bookings in fiscal 2021 in the Security business, which if realized would lead to a much higher book-to-bill ratio than you've seen this past year in the business.

And then, just on the Mexico contract, curious like who is operating it right now because you said you cannot operate the contract under the guidelines?

Sheila, this is Deepak here. Answer to that is, nobody is operating it. We were operating it till June 6th. And on June 6th by law, we cannot be in that place because there is no active contract. Nobody else knows how to use them. So, the systems are sitting idle. We've been asked to do some inspections of the condition of the systems, which we feel hopeful is a good sign. But right now, their productivity is down because nobody can operate the systems.

And then, my last question is, in terms of profitability, I think your guidance suggests margins are up quite heftily year-over-year, maybe 70 bps. I don't know, Alan, if this is for you. Kind of how do we think about how sustainable that 17% margin is within Healthcare and what is the biggest driver of that margin improvement, which I would guess is Healthcare?

This is Alan, Sheila. So, to take your questions on Healthcare, the Healthcare margin is highly correlated to the top line. So, when we had a strong top line in revenues, it resulted in very strong operating margins. And as Deepak said, the Healthcare business has the highest contribution margin of our three divisions. So, good revenues result in very strong operating margins. So, at that type of revenue run rate, yes, we believe that those type of operating margins are very much sustainable. Of course, not every quarter is going to be at those levels. We see some seasonality in the business and otherwise. So, embedded in our guidance for next year is certainly not a 17% operating margin for the Healthcare business. But we are very pleased with the fourth quarter performance. In terms of OSI overall, yeah, you're absolutely right. We are expecting operating margin expansion. We think that's going to come from all three of our businesses. And all three businesses will drive operating margin expansion, which will then drive it on a consolidated level as well. We're very pleased with our expectation of that.

Sorry, Alan. I just wanted to say – all three businesses will expand margins next year then? I just want to double-check I didn't mishear you.

That is our plan.

[Operator Instructions]. Our next question comes from Aman Gulani with B. Riley. You may proceed with your question.

Hey, guys. Thanks for taking my question. Nice to see the growth in margin expansion in Healthcare. I wanted to ask how much visibility do you have into Spacelabs beyond the first quarter. With COVID hospitalization seeming to level off a little bit, what are you seeing from a demand perspective for patient monitoring and the cadence for the full year fiscal 2021? Because I know the demand is global. So, do you expect this to be a relatively strong segment for the full year?

Well, it's a good question. As you know, Spacelabs business tends to be book and ship and monitoring is very important. It is a global business. And I think in the last conference call, we did say it. And again, up till now, our demand for monitoring has been relatively better in Latin America and EMEA as compared to US. But as US starts stabilizing, their demand will continue to their normal level. So, overall, we think that this is going to be a good healthy demand. We are also very encouraged that, as the elective surgeries come back, cardiology, which is another very high margin product for us, will continue to also show growth. And supplies and accessories, which follow the pattern of more install base, more supplies and accessories will continue to show growth. So, overall, globally, we think that we will get our share and we will continue to show growth. At the same time, Alan has mentioned, we are investing significantly in R&D in Spacelabs for what we call new monitoring platform, remote monitoring. This acquisition will help us very much differentiate us from other places, which, again, will make us a better alternate to other people to be a vendor. Alan?

No. That was good. Thank you.

And then, excluding your turnkey, what was your book-to-bill?

Excluding our turnkey?

Yeah. The non-turnkey book-to-bill.

I guess it would have been slightly north of 1. We are 1.0. So, we'd have been slightly north of 1.

And last question for me. I think somebody asked this on the last call, but I figured I'd give it a shot. Are you actively looking to add new technologies or capabilities into your Security division to sort of prepare for the new post-COVID travel world?

This is Deepak here. Absolutely. We are already focused on acquisition. Again, we want to emphasize, we do acquisitions strategically. And over the last couple of months, in the Security area, to broaden our technology platform in radiation nuclear detectors, we already had a group called TSA Systems in Colorado, and we did another acquisition in Tennessee to broaden that product line. And that's a technologically innovation acquisition, which in turn we think with our border security and aviation and Department of Energy will make us a broader attractive player because we have a better platform and add-on to other features. So, the answer to your question is definitely. And as Alan has mentioned, our balance sheet helps us. So, we constantly look at it not only just in Security. We just did one in Healthcare. We did a couple of them in Opto. So, we are very much pro to it. And if you have some suggestion, let us know.

Thank you. And speakers, I'm not showing any further questions at this time.

Well, thank you very much, everybody. And thanks for your support. It's been a memorable year to say the least. I want to note that in fiscal 2021, we are going to have challenges like other multinationals. However, our products are critical as we create solutions to deliver patient care, keep passengers safe and provide border security. We believe in our mission and we'll strive to meet our long-term objectives. I want to thank everyone for joining our call, and we look forward to speaking with you again on our next quarterly call. And again, what Alan said, I want to thank each and every employee of OSI Systems to be a great team player during these challenging times. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.