OSI Systems, Inc. (OSIS) Q3 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the OSI Systems Third Quarter Fiscal Year 2021 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your speaker today, Alan Edrick, Chief Financial Officer. Please go ahead.

Hello. Thank you. Good morning 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 2021 third quarter conference call. We are pleased to review with you our financial and operational results and provide our updated outlook for fiscal 2021. Before we discuss our Q3 results, I would like to remind everyone that today's discussion will include forward-looking statements and the company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, with respect to such forward-looking statements. All forward-looking statements made on this call are based on currently available information and the company undertakes no obligation to update any forward-looking statement based on subsequent events or new information or otherwise. During today's call, we refer to both GAAP and non-GAAP financial measures when describing the company's results. For information regarding non-GAAP measures and corresponding GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings release. I will begin with a summary of our financial performance for the third quarter of fiscal 2021, and then turn the call over to Deepak for an overview of our business. I will then finish with more detail regarding our financial performance and a discussion of our updated outlook for fiscal 2021. We are quite pleased with our third quarter performance, especially given the ongoing impact of the COVID-19 pandemic. A major priority at OSI Systems has been and remains the delivery on commitments to our customers and to our partners, while ensuring the continued safety of our employees. Now we will cover some highlights. First, we achieved record non-GAAP fiscal Q3 earnings per share of $1.38, up 15% from Q3 of fiscal 2020. Second, we reported a record Q3 adjusted operating margin of 12.6%, a 170-basis point increase from 10.9% in the same period last year. Each of our three divisions reported operating margin expansion over the prior year Q3. Third, bookings were again solid, our book-to-bill ratio was 1.1% in fiscal Q3 and 1.2% for the first nine months of fiscal 2021, leading to a 23% increase in backlog, since the start of the fiscal year. And finally, cash flow conversion was again strong. Q3 operating cash flow was $42 million and operating cash flow in the first nine months of the fiscal year was a record $131 million. Before diving more deeply into our financials, let me turn the call over to Deepak.

Thank you, Alan. And again, good morning and welcome to the OSI Systems earnings conference call for the third quarter of fiscal 2021. I'm happy with our third quarter results where we achieved, as Alan mentioned, record adjusted EPS and strong cash flow, on slightly lower revenues from the prior year. The significant revenue growth in the Healthcare and Opto divisions was offset by Security division that continues to be impacted by the pandemic. The bookings have been solid in each division, and I'm proud that we have grown our backlog in each of the first three quarters, and ended Q3 with a backlog of $1.1 billion. I will discuss a few of our third quarter highlights at each division and then turn it back over to Alan to provide further detail on our financial performance. Starting with the Security, where although revenues were impacted by the pandemic, we did an admirable job of managing the challenging environment and expanded adjusted operating margins by controlling expenses and improving operating efficiencies. The Q3 book-to-bill for Security was 1.1. The booking levels, combined with ongoing customer introductions suggest that Security is well positioned for a strong Q4 and to end the year in a strong fashion. Going through some of the few highlights of the Security division. All though passenger traffic was lower when compared to our pre-pandemic time, airports in various regions internationally are preparing for a return to more normal levels. In Q3, we capitalized on several opportunities at major airports, to provide our latest technology for inspection solutions for checkpoint and hold baggage. During the quarter, we announced a strategic win of $15 million order from a key international airport to provide our RTT 110 Hold Baggage Screening Systems, along with a range of checkpoint security systems, including the Rapiscan 920CT and Orion baggage scanners, Itemiser 5x Trace Detection units and Metor walk-through metal detectors. Our broad range of solutions helps differentiate us in the marketplace, especially at large airports where there are multiple requirements to upgrade or expand their screening infrastructure. During the quarter, we also announced a $16 million order to maintain and support our installed base at US aviation checkpoints. Air cargo, as we have mentioned before, business continues to be very strong for Rapiscan products. At port and border cargo screening, we have experienced delays in revenue recognition with some customers as our cargo screening projects typically require on-site testing and final customer sign-off, which has been impacted by the travel restrictions. Many of the equipment for cargo has already been manufactured and even shipped to the customer site. There are also certain delivery schedules that have been pushed to the right. Our turnkey programs in Albania and Puerto Rico have been running as expected and our latest turnkey in Guatemala is ramping up and performing well. On the bookings front, the cargo sales teams did a great job of booking several opportunities in our pipeline, both domestic and international, to provide mobile and fixed cargo screening systems. In Q3, we were one of the three vendors awarded an indefinite delivery, indefinite quantity contract called IDIQ, by the US Customs and Border Protection for multi-energy portal X-ray systems including installation and training. Upon receipt of delivery orders under this IDIQ, we expect to provide our state-of-the-art Eagle P60 ZBx drive-through cargo and vehicle inspection systems; the CarView, which utilizes multi-technology screening of passenger vehicles; the CertScan, software integration platform, including some civil works installation and Operator training and support. This IDIQ contract has a potential value of up to $480 million and contains a five-year ordering period for systems and up to 10 years for potential maintenance support. Please note that because the contract is an IDIQ, it is not reflected in our backlog until we get firm delivery orders are received. During the quarter, we announced $5 million order from a US-based customer to service cargo screening and BPI systems. In addition, shortly after the quarter end, we announced orders totaling $22 million for cargo related services, a $16 million contract from an international customer to provide maintenance and support services for several platforms of cargo, vehicle and baggage inspection systems that are currently deployed at certain customer checkpoints. And a $6 million order for operating and servicing cargo systems at a critical infrastructure facility. We are seeing signs of the Security business beginning to emerge from the pandemic related challenges, with numerous recent awards and working on numerous other significant global opportunities that we expect to capitalize on in the next few months. The pipeline for business continues to be very strong, both domestically and international. Moving to the Healthcare division. Revenues were about 18% higher than the prior year's Q3. The division delivered significant operating margin expansion, that in addition to a high contribution margin from revenue growth was helped by operational improvements that should continue in the future. We saw strength across multiple geographic channels, announced a couple of key wins. Of note, we received $6 million order from a US hospital to provide patient monitoring solutions and related accessories. We also announced $4 million order from a US-based medical center for patient monitoring and diagnostic cardiology products. During the quarter, we made significant investments in research and development, as we focused on enhancing our core offerings and developing new products to help caregivers deliver patient care more effectively and efficiently. Overall, the Healthcare division has made great strides in many areas through the first three quarters. Bookings continued to be strong in the Healthcare division. Moving to our Optoelectronics and Manufacturing division. Q3 overall revenues were $19 million, including intercompany, 29% higher than the prior year. Q3 revenues and operating income were the highest of any quarter in Opto's history and Opto ended the quarter with a record backlog. To deliver this type of performance amidst a pandemic is quite an achievement as the team has worked through global logistics challenges and longer electronic component delivery lead times. Opto saw growth across several product groups and we are increasingly seeing customers increase order quantities. We believe that these customers recognize the benefit of the global presence of our sales, customer service and operational infrastructure, which can help limit their supply chain disruptions in this pandemic challenging environment. Specifically, we are seeing strong activity with defense and space communication customers, industrial infrastructure related OEMs, and OEMs that primarily serve the automotive industry, which has been a very good growth for us this quarter. We announced a nice win, an order of approximately $8 million to manufacture electronic sub-assemblies for a leading provider of GPS tracking solutions to the automotive industry. Building on the momentum, we expect Opto to finish the year very strong. The strength continues to show even toward fiscal 2022. I'm grateful for the efforts throughout our organization to serve our customers while maintaining a focus to provide our employees with safe working conditions. Looking further ahead, we will continue to focus on executing our strategy and our mission for a safer and healthier world. With an expanding opportunity pipeline, we expect to finish fiscal Q4 strong and we are building the foundation for a successful growing fiscal 2022. As always, I would like to thank our employees, customers and stockholders for continued support. With that, I'm going to turn the call back over to Alan to talk in more detail about our financial results and updated guidance, before we open the call for questions. Thank you.

Well, thank you, Deepak. Let's review the Q3 financial results in greater detail. Our revenues in Q3 of fiscal 2021 were $284 million compared to $293 million in the prior year Q3. Similar to the first half of fiscal 2021, we reported strong third quarter fiscal sales growth in the Healthcare and Opto divisions, with the reduction in Security division revenues due to the continued effects of the pandemic. Healthcare division revenues in Q3 increased 18% year-over-year, as Deepak mentioned, with strength across multiple geographic channels, particularly in North America. Opto sales continued to be strong, with Q3 third-party sales up 30% year-over-year due primarily to revenue growth in our Asian operations. We saw a reduction in Q3 revenue in the Security division with sales down 19% year-over-year, largely due to the continued impact of the pandemic on our Aviation and Cargo businesses. Security bookings were again solid, with a book-to-bill of 1.1 for Q3 and 1.4 for the first nine months of fiscal 2021 in this fiscal year, which leads to further growth in backlog. With the increased backlog and planned delivery schedules, we anticipate that the Security division will resume year-over-year revenue growth in Q4. The fiscal year 2021 Q3 gross margin was 36.7% versus 37.3% in Q3 of the prior fiscal year. The change was a result of the mix of revenues among the three divisions. The strong revenue growth in the Optoelectronics and Manufacturing division, which historically tends to carry a lower gross margin than the other two divisions, placed with some pressure on the consolidated gross margin, though may positively impact the operating margin. The gross margin was up in our Healthcare division due largely to economies of scale associated with the 18% increase in revenues. And the gross margin in our Security division showed modest year-over-year growth, which was notable given the change in the revenue level driven by a favorable revenue mix and continued focus on operational execution. 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. In response to the pandemic, the company adjusted its cost structure toward the end of fiscal 2020 and has continued to make adjustments in fiscal 2021. These savings together with the impact of reduced travel during the pandemic, among other items, contributed to a 12% decrease in Q3 SG&A expenses on a year-over-year basis. SG&A as a percentage of sales was 20.4% in Q3 of fiscal 2021 compared to 22.4% in the same quarter last year. We work diligently across each of our divisions to improve efficiencies and prudently manage our cost structure. R&D expenses in Q3 were $13.9 million, representing a $1.4 million year-over-year decrease. We continue to dedicate considerable resources in R&D, particularly in Security and Healthcare, as we remain focused on innovative product development, which we view as important to the long-term success of our businesses. Moving to interest and taxes. Net interest and other expense in Q3 of 2021 decreased to $4.2 million from $4.7 million in the same prior year period as a result of reduced borrowings in light of our strong cash flow and lower borrowing cost compared to last fiscal year. On the tax side, we reported a tax provision of 33.7% in Q3 of fiscal 2021 compared to a tax benefit of 3.4% in Q3 of fiscal 2020. Excluding the impact of discrete tax items, our non-GAAP effective tax rate in Q3 of fiscal 2021 was 25.7% compared to 23.7% in Q3 of fiscal 2020. We recognized discrete tax expenses of $2.2 million in Q3 of fiscal 2021 compared to a $5.1 million discrete tax benefit in the comparable prior year period. So let's now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our adjusted operating margin increased from 10.9% in Q3 of fiscal 2020 to 12.6% in Q3 of fiscal 2021. We were pleased with the significant margin expansion in all three divisions, especially in the face of overall top line headwinds. In fact, the 12.6% adjusted operating margin is a third quarter fiscal record for OSI. The Q3 non-GAAP adjusted operating margin in our Security division came in at 17.9%, up significantly from the prior year's third quarter, driven once again by a favorable revenue mix, sound operational execution and cost control actions. Our Healthcare division reported year-over-year expansion of the non-GAAP adjusted operating margin, growing from 11.8% in Q3 of last year to 13.9% in Q3 of fiscal 2021. Due in part to leveraging the fixed cost structure with improved sales and good operational execution. The adjusted operating margin in our Opto division also improved, coming in at 12.5% in Q3 of fiscal 2021, as compared to 12.0% in the comparable prior-year quarter with the strength in revenues. Moving to cash flow. We continued to generate significant cash. As Q3 operating cash flow of $42 million brought the total for the first nine months of fiscal 2021 to a record $131 million. This was achieved as we invested in increased inventory in preparation for anticipated sales growth, while also experiencing elevated DSO, due to the timing of collections. CapEx in the third fiscal quarter of 2021 was $2.6 million, and depreciation and amortization for the quarter was $10.3 million. Our cash flow conversion continues to be quite solid. We paid down our revolver to zero as at the end of the quarter. Our balance sheet is strong with net leverage of approximately 1.0 as defined under our credit facility. Finally, turning to guidance. With the strong backlog, we are increasing our revenue guidance for fiscal 2021 to the range of $1.123 billion to $1.148 billion, from $1.1 billion to $1.145 billion. Given the bottom line strength of Q3 and the outlook for Q4, we are increasing our non-GAAP earnings per diluted share guidance to the range of $5.15 to $5.40 per share from $5 to $5.35 per share. 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. 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 currently reflected in our estimates and guidance. Actual revenues and non-GAAP earnings per diluted share could also vary from the anticipated ranges due to other risks and uncertainties discussed in our SEC filings. In the face of challenging times, we remain steadfastly focused on the growth of our business through investment in product development and potential strategic acquisitions, while also managing our cost structure. We believe our efforts in these areas should enable OSI to continue our leadership in providing innovative products and solutions. Finally, we would like to take this opportunity to thank the global OSI Systems team for its dedication in supporting our customers and contributing to the creation of value for our stakeholders, while maintaining a commitment to safety. And at this time, we would be happy to open the call to questions.

Thank you. [Operator Instructions] Our first question comes from Jeff Martin with Roth Capital Partners. Your line is open.

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

Fine. Thank you.

Good, Jeff. Thank you.

Great. I was just curious if you could give us some perspective, it sounds like your outlook for Security, at least on a sequential basis and year-over-year, expecting growth year-over-year. It sounds like it's strengthening sequentially. I was just curious if there is a lifting of certain COVID restrictions, if you just have visibility to recognition of things that may have been pushed out from Q3? What specifically do you see as improving relative to the last two quarters in Security?

Good question, Jeff. And obviously, the first thing we have to say is, the uncertainties are already there. Especially in our cargo business, we have to make sure and it's required that the site is ready, the equipment is signed off by the customers representatives, we can send people there to get them installed. All that stuff has been challenging. In some cases, as I mentioned in my call, that where we actually ship the equipment and it's at the customer site, but we could not get in time either our people there or the customers people to be able to be there to sign off. So those are the kinds of things that we think and getting a little better feeling that as this pandemic wanes down, it will open up more and the demand is still there. We have not seen any significant kind of any cancellations or terminations of any kind. These are just delays, most of the equipment is at a unique place that the customer wants. And we feel that the pipeline of requirement globally, including US and international continues to be very strong, both domestically and internationally.

And Jeff, this is Alan, just to add on to that. Yes, the visibility for Q4, we believe to be very strong in our Security business, with a very strong backlog scheduled to be delivered or converted into revenue in the quarter. So we feel very strong about where we stand at this position as we wind down the fiscal year.

Okay, great. And then on the Healthcare segment, it's experienced a double-digit growth for four straight quarters. How do you feel about Healthcare heading in the fiscal 2022? Some of it's obviously going to be a headwind to growth from COVID-related purchases of patient monitoring. Could you give us some relative perspective, what kind of headwind you're facing from the uplift of COVID this past 12 months with respect to patient monitors?

Well, number one is, we are still building up the budget for 2022. Q4 still looks very good for us. I remember this business is lot of book and ship. So you can't look three, four quarters ahead, but we are feeling good about it. The preliminary things look like, yes. And with some COVID waning down, there'll be some downwards, not significant. But other products like cardiology will pickup, which has been delayed due to COVID. So all in all, we are quite feeling good about it, also we are heavily investing in R&D, on cloud computing, at home care, connectivity stories which lot of people are now talking about it. At the same time, the cardiology product line, we have new products being introduced. We are building towards a complete revamp of the new platform. So, all that stuff is there, which makes us feel good about it. And safe and sound, which we did a very, what I call it, critical acquisition of a technology has been proven to be very good, which differentiate us, we have been able to differentiate us from our competitors with this new add on feature.

Very helpful. Thanks for your time guys.

Thank you. Our next question comes from Josh Nichols with B. Riley. Your line is open.

Good to see strong orders, right, over the last 90 or 180 days the company has press released out here. I wanted to ask like, not just seems like you have good visibility into 4Q, but looking at next fiscal year, do you think that there is going to be a little bit of more of a return to normalcy in the company, maybe able to achieve this like mid-to-high single-digit top line growth? And kind of what you're seeing for what's already been built in for next year, given the cadence of the order flow and how those are going to be coming in over the next several quarters?

Josh, this is Alan. So, thank you for your comments. While we intend to provide guidance for fiscal 2022 on our next call, as we generally do in August. I guess, suffice it to say that we feel good about going into fiscal 2022 with a little bit more of a return to normalcy in the Security business, the strong backlog that we have, the pipeline of opportunities, the tremendous momentum that our Opto business has shown and the strength of healthcare overall. We feel very good heading into fiscal 2022. So, we're excited to wind down our fourth quarter and finish fiscal 2021 strong. But I think we're even more excited to move into fiscal 2022.

Thanks, Alan. That's great to hear. And then just looking here one pretty large hunting license, right, with the IDIQ here, one of three. Any color that you can provide as far as potential timing of the orders, is that more like a first half or second half potential for next year? I realize, like I said, it's not an order, but just looking if you have any visibility on timing given the size of the opportunity there?

Good question. It's Deepak here. Yes, we are excited about it. Timing wise, it's difficult to predict, and the amount is difficult to predict. But we are told that when these kind of IDIQs get into place, the next step is a pretty fast-moving specific orders because that's how the government works. So we are quite excited about it. Our products are very well received. We have a very good relationship with the customer and we expect that before the government fiscal year which is September, there should be lot of more activity up actual orders on this particular specific thing. And just to add on to it, this is not the only thing that's in the pipeline. We have maintained it. There are other orders and other opportunities with the US government that we are quite actively pursuing.

Thanks for clarifying that. And then last question for me, then I'll let someone else take a turn. Is that, the company is now at two consecutive quarters where you're doing north of 17% EBITDA margin, higher than the company has historically done despite some of the revenue headwinds that you had mentioned. Fair to assume that as you guys return to year-over-year growth that you're going to see at least be able to maintain and possibly expand the type of operating leverage? Or is there a little bit more investment that you're going to be looking to do on the sales and marketing R&D front over the next few quarters?

Yes, Josh, a good question. So our goal is always to expand margins. We look to expand our operating margins and our EBITDA margins. And we balance that at times with specific initiatives, like you just mentioned in terms of R&D investments and sometimes on the commercial side as well. But the overall goal of the company is to show margin expansion, top line growth coupled with margin expansion.

Thanks, guys.

Thank you. Our next question comes from Greg Konrad with Jefferies. Your line is open.

A couple of quick follow-ups to those. I mean, first, you started the year really strong in cash. Is there any way to think about conversion going forward? And as the business comes back, any working capital needs or anything that we should kind of be thinking about when we model cash out?

Sure. Yes, good question, Greg. It's been a strong cash flow year for us. Of course, given what our implied growth rate is for Q4 and the belief of top line growth going forward, of course, there'll be some need for investment in working capital as potentially for receivables and inventory, which is a good issue to have. We also benefit a little bit this year by some higher customer advances, which helps our cash flow as well. But overall, given the increased levels of profits and the continued relentless focus on working capital management, we think we will continue to be a strong cash flow conversion player.

And then, I mean, we talked a little bit about Security and some of the delays in actually booking revenues, but you've had pretty strong book to bills. Has there been any delays in terms of signing deals? You mentioned you had a strong pipeline in Security, as COVID maybe subsides a little bit, are you expecting maybe orders to even step up as there has been some delays or is that more just on the revenue side?

Again, good question. I think you answered yourself. Yes, obviously, with this pandemic, the ability to closure is not that simple. Yes, there has been some delays. But I look at that as a positive sign, that as the pandemic wanes down, we already have a very strong backlog. And, but the demand of the products are already there. So as it opens up, the demand will continue to be strong. And then if you are in the right place and you have the right products and you can deliver in a timely fashion, I think you have a great success story, written on it. So we feel that yes, it's been tough in Q3, as Alan mentioned, Security revenue was down. But that was because of the delay and acceptance and stuff, not to do anything do with the orders. So backlog is so strong, so we believe that Q4 and going into fiscal 2022, Security will continue to see growth.

And then maybe just one last one that's maybe a little bit longer term or kind of looking back. I mean, I think back to AS&E and ETD, over the past three or four years, and kind of expanding the portfolio. And you mentioned that $15 million international airport, and it seems pretty broad from an order perspective. I mean, over the past couple of years is there any way to think about the sell through of kind of the expanded portfolio, both organically and inorganically? And maybe customer take when you kind of go to RFPs or new business, kind of how that's trended as the portfolio maybe has broadened both organically and inorganically?

Well, very broad question. Definitely, the broader the portfolio better chance of capturing especially large customers who have a very broader requirement. And AS&E has been a great success, and the RTT has been great, the 920 CT, the trace everything put together, especially with the integration solution at the same time, and to be able to book software integration with it, that'll give us a lot of strength to differentiate from our competitors. At the same time, as you sort of led to it, we are very, very acquisitive minded. So if we can find the right products to broaden our portfolio, to make it more acceptable to the customer's needs, we'll go do it. We have a very strong balance sheet. We are not shy of doing it.

Thank you.

Thank you. Our next question comes from Christopher Glynn with Oppenheimer. Your line is open.

I think a lot of companies have talked about components and freight headwinds, in particular getting a little bit more treacherous in the June quarter. I didn't hear too much about that. Is that something that is not causing you particular heartburn?

Well, I wouldn't say that that it's not causing, but we are very much focused on it. We have been working on it. It doesn't seem materialities [ph] for Q4, but we are looking at all aspects. And at the same time, that's another reason if the inventory shows little sign of growth, that means that we are trying to get more product under our belt to make sure that when there are shortages and things that we have the product. The other thing is, in our space, compared to our competitors, we are a very vertically integrated company. So we have a little bit more strength compared to our competitors to be able to cater to needs of our customers because we are vertically integrated, we're manufacturing in almost every place that there is. So we can manage it better, whether it's Asia, whether it's Europe, whether it's US, whether it's Latin America. So that gives us much more strength to be able to manage this. But definitely, I would say, I'm not going to say we don't have concerns about it, we do, but we are managing it very well.

Okay. And thank you for that. And on Optoelectronics, I'm curious, just big picture, what's going on there in terms of how much of the momentum and market penetration is positioned to drive as the macro cycle eventually levels off versus really being a demand pull story here from the V inflection?

Again, good question. The good news again is in the Opto business, we have a very broad customer base: aerospace, defense, automotive, healthcare. And as you have seen about it, that there is a huge demand and again, the first question that you asked about the component concerns and stuff, we are on the opposite side. That our customers, OEM customers are focused very much on the strength that they want their product. So that we have the building capacity and capability to supply that, and we think that this will continue into fiscal 2022. And we mentioned it before, Alan has mentioned it, one of the biggest growth for us has been in that is the automotive industry. That's been a very big growth opportunity for us.

Thanks. Just one more if I may. The Security margin, I'm curious how that's positioned for fiscal 2022, if you get say low double-digit top line via your bookings in your pipeline. This year you called out favorable mix and some temporary cost controls. Wondering how those might juxtapose if you're getting solid top line next year. And is there an obvious mix signal there that we need to consider in modeling?

Yes, Chris, this is Alan. Good question, also. So again, our goal is always to improve operating margins. Our operating margins have been very, very sound in the Security business in this year on some revenue headwinds. There'll certainly be some opportunities for economies of scale, as we move forward with planned growth. Simultaneously there'll be some of the kind of temporary reductions that we've seen in, let's call it lower travel and some other type of lower expenses that happened during the pandemic, that would come back. So, a little bit too early to call yet for fiscal 2022, but we feel very good about where our business will be in Security next year.

Great. Thank you, both.

Thank you. [Operator Instructions] Our next question comes from Brian Ruttenbur with Imperial Capital. Your line is open.

Great. Thank you, guys, very much. It's been a while, and I hope you're both doing well.

Thank you. It's great to hear your voice. My God, love it.

Been following you guys for 15 plus years to go into the dark side and banking and back. So a couple of quick questions. First of all on the IDIQ, $400 million cargo order on the IDIQ side with US government. Who else is on that IDIQ? Is that traditional competitors like Leidos and Smith? And then maybe you can talk a little bit about your traditional win rates on something of that size?

Well, I think you are very astute. You already named the other people, so I don't have to add to it. Welcome back. It's great to hear your voice. Regarding the win rate, yes, it's very difficult to, you know us. We are not going to say anything. All I'm going to say that is, that we are very well positioned. We have very good product and especially with what I call combination of high energy, low energy, transmissive, backscatter, all those things put together make us very unique. And we are very well positioned to capture a big portion of this business.

Great. And that's going to be roughly $400 million over five years that it's going to be led out, and it's primarily is it border patrol related? Is that what it is?

It's all at the borders.

Okay.

Mostly of the southern border, but maybe some at northern border too.

Okay. And then the next just a follow-up question in terms of kind of a technology update and Security, there has been a lot of talk on the personnel screening side. And historically, that's been a very small part of what you guys do. But given our recent SPAC from [indiscernible], and yes, that's talking a lot about growth in the personnel screening side. Can you talk a little bit about what you're seeing in terms of competitive pressures, new technologies on a personnel screening, is this just a one-off? Or is there a huge uptick happening in personnel screening? Maybe you can address that.

Well, again, you know the market better than us. Personnel screening has always been part of our portfolio. We've got great product in it. We've done a lot of advances in it. We believe that's a great opportunity long-term. Obviously, I won't comment on [indiscernible] and their expectations and what they've write, what they've written. But as a company, it's part of our critical infrastructure program. And we do have some very good products and have had a very good success, both in what I call aviation area. But also in prisons and in nuclear facilities and even in some high opportunity kind of places where people are concerned with, of security. So, I look at this as a great opportunity. But if you ask me, is this opportunity bigger than all the other opportunities? No. We look at cargo and ports and borders as the biggest opportunity. And in that area, besides equipment, as you know, we are also into the software integration platforms. That has been very well received and we are very excited about that.

Great. Thank you very much.

Thank you. And there are no other questions in the queue. I'd like to turn the call back to management for any closing remarks.

Thank you, everybody. Again, want to thank for all the support and confidence from us, and thanking the team. As Alan and I've said, I'm very humbled about the team's performance globally of OSI Systems companies during this pandemic challenging time. To emphasize it, we are manufacturing company, we've had a couple of cases, we've handled it very well. And we are very proud to say that, as a company, we continue to look after the health and security of our own people, at the same time deliver on our commitments to our customers. And that's the motto and we'll continue doing it. And thank you very much for all your support. Looking forward to ending the year in a strong way and talk to you after that, to talk about the next fiscal year. Thank you very much.

Thank you. This concludes today's conference call.