OSI Systems - Q1 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to the OSI Systems' Q1 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. If you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Alan Edrick, Chief Financial Officer. Please go ahead, sir.

Alan Edrick (EVP and CFO)

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, OSI's President and CEO. Welcome to the OSI Systems Fiscal 2024 Q1 conference call. We are pleased that you can join us as we review our financial and operational results. Earlier today, we issued a press release announcing our 2024 fiscal year Q1 financial results. Before we discuss the results, however, I'd 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 in 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 will refer both to GAAP and non-GAAP financial measures when describing the company's results. For further information regarding non-GAAP measures and comparable GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings release. I will begin with a high-level summary of our financial performance for the Q1 of fiscal 2024, and then turn the call over to Deepak for a discussion of our business and operational performance. We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2024.

Our Q1 financial results were generally solid, with the Security division again generating double-digit revenue growth and significant year-over-year operating margin expansion, and the Opto division performing very well, while the Healthcare division experienced a challenging quarter. We are enthusiastic about the overall significant revenue and earnings growth anticipated for the balance of fiscal 2024. Let's start with a high-level summary of our Q1 results. First, we reported Q1 revenues of $279 million, representing a year-over-year increase of 4%, driven by revenue growth of 14% in our Security division and 2% in the Opto division, which were partially offset by a 13% decrease in revenue in the Healthcare division.

Second, we reported Q1 Non-GAAP adjusted earnings per share of $0.91, up 5% from Q1 of the prior fiscal year, as strong operating results overcame the impact of approximately $0.11 per share of additional interest expense associated with higher interest rates in our borrowings. Third, we ended the quarter with a backlog of nearly $1.8 billion. The strong backlog provides outstanding visibility for the full fiscal year. Before diving more deeply into our financial results and discussing the fiscal 2024 outlook, I will turn the call over to Deepak.

Deepak Chopra (President and CEO)

Thank you very much, Alan. Good morning to everyone. I'm pleased to report that our fiscal 2024 Q1 performance aligned with our expectations. We achieved 4% revenue growth with increased margins. With a strong backlog, coupled with a significant recent awards and high visibility into the opportunity pipeline, we expect significant revenue and adjusting, adjusted earnings per share growth through fiscal 2024 and beyond. So let's dive into the performance and highlights of each division during the quarter and begin with the Security division, which saw an increase of 14% in Q1 revenues and operating margin expansion. The division had bookings of $174 million during the quarter, resulting in a book-to-bill ratio of 1.1.

During the quarter, we made considerable progress on the ramp-ups for our recently awarded Port and Border Security initiatives with Mexico's defense agency, SEDENA, and the other international customer. We anticipate that both programs will contribute substantial revenues in this fiscal year. During Q1, we successfully captured several Port and Border Security customer opportunities in the U.S. and internationally. On the international front, we announced an award of $14 million from a Latin America-based customer to provide multiple units of our Eagle P60 high energy drive-through cargo and vehicle inspection system. Also, the VM250 radiation portal monitors and the MINI Zs, handheld backscatter devices, along with our proprietary CertScan integration installation software and training and maintenance service and support.

In addition, we also announced a $10 million contract from an international customs agency to provide dual energy X-ray cargo and vehicle inspection solution, including multi-year maintenance service and support. In the U.S., we announced a $14 million award from an existing U.S. customer to provide civil works and installation support for our cargo and vehicle inspection systems. Wrapping it up in the ports and borders, shortly after the quarter end, we announced an award that we received in Q1 of a 10-year contract to provide a turnkey screening solution to Uruguay's Ministry of Economy and Finance. The Eagle T60 high-energy trailer-mounted vehicle inspection system will be used to perform security screening and remote image analysis utilizing the proprietary CertScan integration platform. We will also provide on-site operator training, ongoing maintenance, service, and support.

I just want to talk a little bit more about our CertScan software, which is our proprietary software solution that helps manage inspection, image data, traffic, and vehicle identification at checkpoints. Along with CertScan's utilization as a critical piece in a turnkey solution, we utilize CertScan frequently on traditional hardware installations as customers increasingly integrate screening systems with existing data and communication centers. Furthermore, when new data managed infrastructure is required for specific program initiatives, we are often involved in supporting the planning and construction of these facilities. The Uruguay program will join our long-standing, successful turnkey projects like Puerto Rico, Albania, et cetera, where we have demonstrated our experience and capabilities in handling large-scale programs for customs and border protection agencies.

We have an extensive presence with the U.S. Customs and Border Protection, CBP, in the United States, where we are actively supporting recent border security efforts through equipment and service orders received to date for about $200 million. The CBP has room under two active indefinite delivery, indefinite quantity that have IDIQs, that have a combined total potential award value of about $870 million. Although the U.S. government is currently operating under a continuing resolution, we are hopeful that additional orders could be issued once the U.S. government's 2024 budget is passed and signed into law. Our checkpoint security products and related services team continues to support its customer base in airports, transportation, government facilities, and other critical infrastructures.

Our latest explosive trace detection system, ETD, the Itemizer 5X, is now approved by the European Union for use at European airports, qualified by TSA, ACSTL for air cargo, and certified by the China Aviation Authority or CAAC, for use at airports. The Itemizer 5X has some of the most advanced software algorithms and optimized detection libraries, making it an ideal tool for identifying explosives, narcotics, and other harmful compounds. We have been diligently collaborating with international airports regarding potential passenger and baggage screening enhancements to align with the latest technology regulatory standards. We remain optimistic about the continued expansion in the aviation CT checkpoint and checked baggage area, together with the Itemizer 5X projects, and have a good, healthy backlog. Overall, the security division had a great start for fiscal 2024, and with a strong backlog, we expect it will do significantly better in the remainder of fiscal 2024.

Moving to the Optoelectronics and Manufacturing Division. Opto delivered impressive results during the Q1 with another all-time quarterly revenue record, achieving $96 million in revenue, including intercompany, and generating strong profitability. In addition to being a vital supplier to our security and healthcare divisions, Opto continues to serve its diverse OEM customer base that provides various solutions in aerospace, defense electronics, test and measurement, medical devices, automotive, and consumer electronics. With our strong global presence, manufacturing covering the U.S., England, India, Indonesia, and Malaysia, combined with a continued trend of customers seeking robust manufacturing alternatives to China manufacturing, we look forward to capturing new opportunities with our existing customer base and with new customers.

Finally, on to the Healthcare division, where Q1 was a tough quarter as sales went down 13% year-over-year due to challenging marketing conditions, especially in the U.S., where hospital profitability has been hampered, which in turn has caused delays in capital expenditures. The silver lining was growth in the European region, backed by recently launched cardiology products and services. The capital constraints at hospitals are actually helping to drive market adoption of a new business model, that we have talked before also, that reduce the need for significant capital outlays. This division continues to develop innovative new business models and solutions, such as leasing and subscription programs. The Rothman Index-based predictive analytics software and SafeNSound patient alarm management software are good examples of tools that can help hospitals increase the efficiency of their existing patient monitoring infrastructure.

We continue to invest significantly in R&D and new products innovations. Although healthcare didn't start well in Q1, we expect its performance to improve during the rest of the year 2024. In summary, with significant backlog in security and Opto, we are confident about our prospects in these divisions. We also expect more robust performance from healthcare as we look forward to the rest of the fiscal 2024. With that, I will turn the call back over to Alan Edrick to talk in more detail about our financial performance before opening the call for questions. Thank you.

Alan Edrick (EVP and CFO)

Well, thank you, Deepak. Now I will review in greater detail the financial results for our fiscal 2024 Q1. Again, our Q1 revenues were up 4% compared with that of the Q1 in the prior fiscal year. Q1 security division revenues were up 14%, largely due to the growth in our cargo and vehicle inspection products and related service revenue. This included modest shipments from the $200 million-plus cargo contract announced in January. Aviation-related revenues increased as well. The book-to-bill ratio in the security division for Q1 was 1.1, leading to a record backlog in this division. Opto sales increased 2% year-over-year, driven primarily by strong intercompany sales to support anticipated security division growth, which was partially offset by reduced third-party revenues as certain Opto customers are rightsizing inventory levels or had programs delayed.

The Healthcare division, as Deepak mentioned, had a challenging Q1, with year-over-year revenues down 13%, driven primarily by reduced patient monitoring product sales. The fiscal 2024 Q1 gross margin of 35.4% was up significantly over the 32.6% gross margin in Q1 last year, despite the reduction in sales in Healthcare, which is the division with the highest gross margin among our three divisions. The gross margin expansion was led by the Security division, which experienced a favorable mix of sales, along with the execution of certain operational improvements. Our gross margin will generally fluctuate from period to period based on revenue, mix and volume, inflation, and impacts of changes in supply chain cost, among other factors. Moving to operating expenses. We continue to work diligently across each of our divisions to improve efficiency and to prudently manage our SG&A cost structure.

Q1 SG&A expenses were $59.8 million, representing a 12% increase over the prior year, driven by less favorable FX and a lower level of bad debt recoveries in Q1 of fiscal 2024 compared to the prior year. We do expect to leverage our SG&A for the full year of fiscal 2024, where such expenses are expected to decline as a percentage of sales on an annual basis. Research and development expenses in Q1 of fiscal 2024 were $15.9 million, up from $14.5 million in the same prior year quarter. We continue to dedicate considerable resources to R&D, particularly in security and healthcare, as we remain focused on innovative product development, which we view as vital to the long-term success of our businesses.

In Q1 of fiscal 2024, we recorded $0.5 million of impairment, restructuring, and other charges, compared to $1.2 million of such charges in the comparable quarter of the prior fiscal year. Moving to interest and taxes. Net interest and other expenses in Q1 increased from $3.4 million in fiscal 2023 to $5.7 million in fiscal 2024, primarily due to increased interest rates in our borrowings. We executed an interest rate swap during Q1 of fiscal 2023 to fix a portion of our floating rate bank debt. On the tax side, the reported effective tax rate under GAAP was 23.4% in Q1 of fiscal 2024, compared to 24.4% in Q1 of fiscal 2023.

In Q1 of this year, we recognized a discrete tax benefit of $0.4 million, compared to $0.1 million in Q1 of the last fiscal year. Excluding the impact of discrete tax items, our normalized effective tax rate in Q1 of fiscal 2024 was 25.8%, compared to a normalized effective tax rate of 25.1% in Q1 of fiscal 2023. I will now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our non-GAAP adjusted operating margin in the Q1 of fiscal 2024 increased to 9.6% from 8.7% in Q1 of fiscal 2023, driven by strength in the security and Opto divisions.

The non-GAAP adjusted operating margin in the Security division expanded to 14.3% in Q1 of this year from 12.8% in Q1 of last year, primarily due to the mix of sales and operational improvements. The operating margin in our Opto division was again solid, increasing to 12.8% in the Q1 of fiscal 2024 from 12.7% in last year's Q1. And with a reduction in sales in the Healthcare division, this segment's adjusted operating margin was negligible. Moving to cash flow. Cash provided by operations was $17 million in Q1 of fiscal 2024, which was comparable to the prior year Q1, despite the significant build of inventory that we mentioned on the last earnings call would occur in preparation for program deliveries under the two large Security division contracts announced in fiscal 2023.

CapEx in the 2024 fiscal Q1 was $5.2 million, while depreciation and amortization in Q1 was $9.6 million. Our balance sheet is solid, with modest net leverage of under 1.4 and significant capacity for investments, acquisitions, and stock buybacks. Aside from $7.5 million of annual required principal repayments under our bank term loan, the bulk of our debt matures in fiscal 2027. Finally, turning to guidance. We are reiterating our fiscal 2024 revenues, and we are increasing our non-GAAP diluted EPS guidance. We continue to expect our fiscal 2024 revenues to increase more than 18% over revenues in fiscal 2023. We expect our fiscal 2024 non-GAAP diluted EPS to grow more than 27% over our non-GAAP diluted EPS in fiscal 2023.

This fiscal 2024 non-GAAP diluted EPS guidance 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 and other non-recurring items. We currently believe this guidance reflects reasonable estimates. The actual impact on the company's financial results of timing changes on expected revenues, disruptions and increased costs in the supply chain and inflation and interest rates is difficult to predict and could vary significantly 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 guidance anticipated above due to other risks and uncertainties discussed in our SEC filings. We continue to remain focused on the growth of our businesses and proactive management of our cost structure.

We believe our efforts will enable OSI to continue providing innovative products and solutions. We would like to take this opportunity to thank the global OSI Systems team for its continued dedication in supporting our customers and partners. At this time, we would like to open the call to questions.

Operator (participant)

Certainly. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. One moment for our first question. Our first question comes from the line of Josh Nichols from B. Riley. Your question, please.

Josh Nichols (Senior Research Analyst)

Yeah, thanks for taking my question, and it's really good to see the company with the new turnkey security award here in Uruguay. Couple questions there. These have been historically high-margin awards for the company. One, how long do you expect for this to ramp up? And any context you could give us in terms of the potential size of the award? Thanks.

Deepak Chopra (President and CEO)

Good morning. This is Deepak here. This is not a very large contract, and it'll take us about 6-8 months to get it going. And basically, it's in the similar kind of sizes as the other contracts that we have. And we're very, very excited about it because one of the things that we are very proud about it, when we get these kind of turnkey contracts in different areas, they become like centerpiece for the rest of the area to look at it. And all these turnkey contracts, basically, we are making it a point to say this helps the trade between Uruguay and, for example, North America or Europe. So we continue to look at it like these kind of, thing, big successes of going forward. Alan, you want to add something to it?

Alan Edrick (EVP and CFO)

Oh, no, I think that was good. And Josh, while we don't talk about margins on specific deals, generally speaking, the margins on our turnkey contracts are nicely north of our overall corporate average.

Josh Nichols (Senior Research Analyst)

Well, thanks for confirming that then. The company's really been building out its security portfolio. You've been granted approval for ETD with the TSA now, too. How should we think about the, the timing and opportunities specifically for ETD over the next, like, 12-18 months and, and how that could ramp up?

Deepak Chopra (President and CEO)

Again, we are very proud about the certification. We think it's a great product, and we do definitely know that in air cargo, there's a big revamp going on for new technology, and we are very well poised for it. In the international sector, we think that the growth will come even faster. We are very excited about it. As we go back and look at the performance of these units compared to the present existing products there, we think that we'll continue to get a lot of success in this.

Josh Nichols (Senior Research Analyst)

Thanks, Deepak and Alan. I'll jump back in the queue.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Jeff Martin from Roth Capital Partners. Your question, please.

Jeff Martin (Co-Director of Research and Senior Research Analyst)

Thanks. Hi, Deepak. Hi, Alan. Wanted to get a sense in terms of the timing on these two large orders that are gonna be ramping up here pretty significantly. You know, how, how much has your visibility on timing improved over the last. well, since the, the Q4 call? And also wanted to ask in terms of supply chain, if you are able to get, you know, components that you need. I know you're ordering significantly more than normal. Just an update there on, on both those timelines and experiences would be helpful.

Alan Edrick (EVP and CFO)

Hey, Jeff, this is Alan. I'll take the first part of that question. You know, our visibility continues to improve as we go month by month on these two large contracts. There are, as you would imagine, on large contracts, often evolving changes, but we're really excited about it. We do anticipate starting to see a real ramp-up in revenues on these contracts beginning now in this quarter, in Q2, which is really gonna generate some significant revenue growth, we believe, you know, over the balance of fiscal 2024. So we expect that there will always be some changes to the timing and the schedule. That's the nature of the beast in this industry, but the visibility continues to improve, and the ramp-up is happening as we speak.

Deepak Chopra (President and CEO)

Just to add on to this, Deepak here. Basically, in the supply chain issue, we are handling it well. I have said in the last conference call, too, we are well positioned compared to other competitors because we have intercompany resources also. Definitely, we cannot ignore the fact that when you ramp up so significantly, so fast, there are definitely challenges in the supply chain. We are addressing it, and as Alan has mentioned, we will start seeing big growth from both these contracts in Q2, almost into Q3 and Q4.

Jeff Martin (Co-Director of Research and Senior Research Analyst)

Great. And then my other question is, with the, you know, with the unrest in the Middle East, does that create potential opportunities for you? Are you seeing increased inquiries from, you know, countries in the surrounding area for stepping up their port and border equipment, inspection capabilities or other areas?

Deepak Chopra (President and CEO)

Well, first, I would like to say that we are very saddened with what's happened there. We continue to pray for everybody's well-being. Haven't seen any changes on this Middle East thing, because obviously this is something new. But on the Ukraine project and stuff, definitely as things mature in that area, common sense is that countries around that area are all gonna need more security equipment, and we continue to look at opportunities. We're working with it. At the same time, funding is very important. And as you know, the U.S. has been in a tough situation with what's happening in Washington. As that opens up, both for the Middle East challenges and in Ukraine, Russia challenges, we are very well positioned for any, like, equipment to be procured.

Jeff Martin (Co-Director of Research and Senior Research Analyst)

Great, thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Larry Solow from CJS Securities. Your question, please.

Larry Solow (Managing Director)

Great, thanks, guys. Just, I guess, a follow-up to the last question, just on how the contracts are ramping. Just specifically, Alan, in terms of the increase in guidance, I know you don't guide to the sectors or the segments, but I guess, is the sort of the increase I feel like, is that coming from security? Is that just increased confidence there, or what specifically drives you to increase your EPS outlook this year?

Alan Edrick (EVP and CFO)

Yeah, great, great question, Larry. And your, your hunch is correct. The growth in the EPS guidance is coming from our security business. You saw in our Q1 that we just reported, we saw some nice operating margin expansion, which led to some stronger earnings. And as we look out through the balance of the year and some of the strength in that business, that is really what's driven us to increase the overall EPS guidance. You know, we expect Opto to continue to perform well in addition to that, but it's security that's leading to the growth in the EPS guidance.

Larry Solow (Managing Director)

Okay. And I don't know if you quantified the book-to-bill for security, but if you have that, that'd be great, but just also just kind of qualitatively, obviously, the world's not getting to be a safer place, but you know, opportunities, you know, in terms of your queue, you know, the opportunities, your funnel of opportunities. I think you like to refer that both within vehicle inspection at borders and outside of that and other areas, you know, how are those trending? And if you had the book-to-bill for quarter, that'd be great.

Alan Edrick (EVP and CFO)

Yeah. So Larry, this is Alan. The Book-to-bill in Security was 1.1.

Larry Solow (Managing Director)

Okay.

Alan Edrick (EVP and CFO)

Positioning us in a record backlog, so our highest backlog of all time for our Security division. The visibility is strong. The funnel of opportunities is real strong and robust, really throughout the world and the nature of our product lines. Maybe, Deepak, you wanna add to that?

Deepak Chopra (President and CEO)

Yeah, I just want to emphasize onto it that the opportunities are growing, both in the order area, air cargo, and also in the aviation sector. That had been on pretty much hold during the COVID time, and as it's coming out-

Larry Solow (Managing Director)

Right.

Deepak Chopra (President and CEO)

The traffic is increasing, and there is a lot of interest to upgrade to new products in technology, both in the Itemizer and the RTT checkpoint and checked baggage area. We continue to look at it, and we are very optimistic about the funnel.

Larry Solow (Managing Director)

Okay. And just lastly, just shifting gears real fast on the healthcare, slower start to the year than I think you had expected. I guess two questions. And again, I don't know if you can share with us your thoughts, but maybe the. I know you had thought this segment would be up on both the revenue and on operating profit basis on a full year basis. Do you still feel like that's attainable? And then second part of that question is, you mentioned sort of a shift to more of a leasing versus you know, upfront sale of the equipment. Is that in its infancy, is that still pretty small today?

Does that kind of coincide at all with your perhaps, I think you're planning on next generation product coming out soon, over the next couple of years? Is that, those two kind of correlate with one another? That'd be great for any color on that. Thanks.

Deepak Chopra (President and CEO)

Well, good question. Good analysis you've done. On the equipment side, definitely, we were disappointed, especially in the U.S., with the equipment sale. As you I'm sure know, the hospitals are going through tough, tough time. There are two other things that what you asked. One is, we've continued to do the R&D investment to develop a new platform of the patient monitoring. At the same time, this new model that is in the infancy, that we have started, the subscription and the software model, the SaaS model, is a little different model. But interestingly, thing is, this is catching on. There's a lot of interest, though it's something in the infancy, new, that we are doing. But just think of it, we've been doing this thing in the security side.

So now to do that in the Healthcare side, we at least know the building blocks. Now, the question is-

Larry Solow (Managing Director)

Right

Deepak Chopra (President and CEO)

How to educate the customers and how to be able to prove to them. I think longer term, we are quite excited about this new model of ongoing revenue, what we call, like, the turnkey model that we have in the security side. Alan, do you want to add something?

Alan Edrick (EVP and CFO)

Sure, and to your questions, Larry, yes, those new models are in their infancy, and we think they're going to be growing nicely over the coming years. And, you know, our expectation, you know, the team's expectation is that the Healthcare division will grow for the full fiscal year in 2024, both on the top line and the bottom line.

Larry Solow (Managing Director)

Great. Excellent. I appreciate the call. Thanks, guys.

Operator (participant)

Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. One moment for our next question. Our next question comes from the line of Christopher Glynn from Oppenheimer. Your question, please.

Christopher Glynn (Managing Director and Senior Analyst)

Thanks. Yeah, a lot's been asked. One follow-up. I think you said you expect on Healthcare some nice improvements starting sequentially, really for the balance of the year relative to the Q1. It sounds like you were caught off guard a little bit in the Q1, you know, after some fourth quarter strength. So wondering how you'd describe the visibility to the expected pickup there.

Deepak Chopra (President and CEO)

Well, no, yes, we are, we are, we are disappointed in the Q1, but keep in mind that over the years, firstly, it's a single-digit growth area, and it's book and ship. It's not backlog driven. Some orders came in in Q4. In Q1, we were expecting some, it didn't happen. It is a little bit disappointing, but the team feels very much focused onto it, that the remainder of the year will get better. The innovation that we are doing, both in the software SaaS model and our continued development of a new product portfolio, that's not going to have what I would call a significant impact in 2024. It's for the longer years.

Focus right now is to be able to capture the accounts that we have and be able to work with the hospitals of alternates to them, of making them more efficient. Alan?

Alan Edrick (EVP and CFO)

Yeah, I think that describes it well.

Christopher Glynn (Managing Director and Senior Analyst)

Okay. It was nice to see positive free cash flow in the Q1. It's often a challenging seasonal quarter, and in particular, you know, this year, just ahead of significant ramps in security. So wondering if you could give some color on what sort of levels, range, metrics around free cash flow we should be looking for this year.

Alan Edrick (EVP and CFO)

Chris, this is Alan. Good question. So while we don't provide free cash flow guidance, we would, we would agree with your statement. You know, in light of growing our rev, growing our inventory by $80 million to support, you know, the large security contract, still generating, you know, $17 million or so of operating cash flow was quite strong in Q1. As we look out, you know, there'll be some continued buildup in inventory for these contracts. We think where the real significant free cash flow could be driven is in fiscal 2025, fiscal 2026, and beyond. I mean, we're, we've historically been a very strong generator of free cash flow. We think that strength will only increase, you know, as we move beyond this fiscal year.

We do expect to generate nice free cash flow this year, but the real strength in the free cash flow will begin in the subsequent fiscal year is our current expectation.

Christopher Glynn (Managing Director and Senior Analyst)

Okay, just one on Opto and manufacturing. Really looking very sturdy. You know, a lot of short cycle volatility out there, you know, from OEMs and distribution impacting a lot of names. Just curious if you could describe a little bit about what's giving, you know, that stability, particularly how externals performed and, you know, if you're seeing a regular cadence of, you know, wallet share additions with your global customers as they try to de-risk supply chains.

Deepak Chopra (President and CEO)

Well, again, a very good question. It's a different marketplace. You know, basically, in some cases it's a very predictable customer base. We worked with the OEMs, and we continue to look at it, but they're also going through, basically inventory increase, go longer term. So that it's, it's a continuing evolving matter. The thing that really makes us very, very good compared to our competitors, one is we have a very broad customer base, from aerospace, defense, to automotive, medical, consumer, name it, we're in all spaces. So as a group, all those areas, some are weak, some are strong. And the second thing that we keep saying it, and I've said it before, and I'll say it again, our global presence of manufacturing is a big advantage.

And lately, you've heard it everywhere, that there's a lot of talk about alternative to China, and we have the ability, both in Asia and in U.S. and in Europe, to manufacture products for our customers. So we look at this business as a very well-thought-out business, predictable business. But like I said, this is a focus of the business, depending on our customer base. Alan?

Alan Edrick (EVP and CFO)

Yeah. I think that says it well.

Christopher Glynn (Managing Director and Senior Analyst)

Agree. Thank you.

Operator (participant)

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

Deepak Chopra (President and CEO)

Well, thank you very much, and we again want to thank all the employees of the company and all the customers and everybody else, including the stockholders, and not to forget the analysts. We are very excited about the rest of the year. Backlog is there to support it, and we are looking at a lot of other opportunities, and we think that the balance of the year, starting in Q2 into Q3, Q4, will be very strong. Thank you very much. Talk to you in January.

Operator (participant)

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