OSI Systems - Q4 2023

Transcript

Operator (participant)

Good day, everyone. Thank you for standing by, and welcome to the OSI Systems, Inc. Q4 and fiscal year 2023 Conference Call. It is now my pleasure to turn the call over to the Chief Financial Officer, Alan Edrick.

Alan Edrick (EVP and CFO)

Well, 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, OSI's President and CEO. Welcome to the OSI Systems Fiscal 2023, Q4 and year-end 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 2023 fiscal year, Q4, and full year financial results. Before we discuss these results, however, 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 will refer to both 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 press release. I will begin with a discussion of our financial performance for the Q4 of fiscal 2023, and then turn the call over to Deepak for an overview of our business performance. We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2024.

Our Q4 financial results were excellent, with all three divisions producing double-digit revenue growth and significant growth in our overall operating income. We are pleased about the strong finish to the fiscal year and are even more excited about our prospects for the new fiscal year. I will start with a high-level summary of our Q4 results. First, we reported record Q4 revenues of $412 million, representing a year-over-year increase of 22%, driven by revenue growth of 29% in our Security division, 11% in the Opto division, and 18% in the Healthcare division. Second, we reported record Q4 non-GAAP adjusted earnings per share of $2.66, up 36% from the $1.96 in Q4 of the prior fiscal year.

As strong operating results significantly overcame the negative impact of approximately $0.15 per share of additional interest expense associated with higher interest rates in the Q4 of fiscal 2023 versus fiscal 2022. Third, we ended the year with a record year-end backlog of just over $1.8 billion. The book-to-bill ratio in Q4 was 1.8, led by the extremely strong performance of the Security division. This record backlog provides exceptional visibility as we enter fiscal 2024 and demonstrates the strong momentum across our businesses. 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)

Good morning, everyone, and thank you very much for joining us today as we discuss the OSI Systems' strong performance for the Q4 and fiscal year 2023. In fiscal 2023, all three of our divisions enhanced operations to efficiently capitalize on their respective opportunity pipelines. We saw our revenues grow year-over-year by 22% in the fiscal 2023 Q4 and 8% for the full year 2023, while delivering strong profitability. We ended the fiscal year with a record reported backlog of $1.8 billion, which is 46% higher than our backlog the previous fiscal year-end, providing the company with excellent visibility as we enter the new year. To dive into the highlights now.

Our Security division delivered excellent results in the fiscal 2023 Q4, with revenues increasing 29% year-over-year. We experienced sales growth across our major security product categories, with particularly robust growth in our cargo and vehicle inspection products. Our book-to-bill ratio was 2.4 for the Q4. Most notably in security, in April, we booked one of the largest awards in the history of our industry. This approximately $500 million net of VAT award was received from Mexico's Secretaría de la Defensa Nacional, referred as SEDENA. Under the security program, we are slated to provide a range of inspection systems, including the Eagle High Energy and Low Energy Cargo Inspection Portals, the CarView Vehicle Inspection System, and our proprietary CertScan Multi-Site Integration Platform for inspecting trucks, buses, and cars at Mexico's northern and southern border checkpoints.

We also expect to provide civil works, training, and follow-on service as part of this important security initiative by the Mexican government. We anticipate the contract, contract ramp-up should begin in the second quarter of this fiscal year, 2024. Near the end of the last quarter, we commenced delivery on the other large cargo win of over $200 million from an international customer that we announced in the Q3. We anticipate further revenue in 2024, with ramp-up accelerating in our second fiscal quarter of the year. We expect to provide further updates on timing of the revenues for both of these large programs in future earnings call. Throughout the Q4 of 2023, we completed several domestic and international security projects at ports, borders, and airports, driving substantial revenue growth.

Additionally, increased activity at airports boosted service revenue from the aviation segment of our business. We strive to enhance service revenue growth across all product areas, including aviation. It is particularly gratifying to see this growth in our services activity at multiple airports after the slowdown during the pandemic. During the last quarter, we announced approximately $21 million in awards from international airport customers from our RTT 110 real-time tomography explosive detection systems for checked hold baggage screening. We are pleased with expansion of the footprint of our RTT system, a platform which has been widely adopted with several hundred systems already operating at international airports and global logistics hubs at air cargo carriers. We are very happy to announce that we have reached approximately 500 units of our RTT systems installed worldwide, which is a great achievement.

Recently, we were informed of our selection as the primary security detection provider for the 2024 Paris Olympic Games in France. While revenue for this project is likely to be recognized primarily in fiscal 2025, this is expected to be an excellent opportunity to demonstrate our broad range of security solutions at a major venue and build upon our success as the leading security provider at the FIFA World Cup games in Qatar, held during fiscal 2023. As just an FYI, we did the London Olympics also in the past. This is a good achievement and is a very good project for us. It was a competitive bid, and we scored the best.

Earlier this month, we received notification that the Itemiser 5X trace detection system has been qualified for addition to the TSA Air Cargo Screening Technology List, ACSTL, authorizing its use for air cargo screening in the U.S. This development further strengthens our ACSTL-approved offering portfolio. That includes a diverse range of X-ray inspection platforms suitable for both small and large parcels, advanced trace detection for explosives, and a broad selection of related supplies and accessories. As we have mentioned before in our calls, air cargo has been a very good product, customer base for us and continues to grow. As we look to the future in our Security division, our focus remains on product innovation, operational excellence, and expanding our market presence. With a record-year backlog and a robust opportunity pipeline, we are extremely excited about the division's growth.

Our turnkey services projects in Puerto Rico, Albania, and other parts of the world continue to perform very well. Over to the Optoelectronics group. The Optoelectronics and Manufacturing division achieved a significant milestone with record Q4 revenues crossing $100 million, including intercompany sales, 11% growth over Q4 2022. Furthermore, our Opto sales surged to $387 million for the full fiscal year, a 6% increase over sales in the last fiscal year. Opto continued to engage throughout the fiscal year with potential customers keen on establishing supplier partnerships as an alternate to China. In addition, Opto has benefited from partnering with leading OEMs that are well-positioned in their market segments. Furthermore, Opto's vertically integrated structure has become a strong advantage in the marketplace, as it provides greater flexibility and optionality in supply chain management.

Our expansive operating infrastructure, spanning the U.S., U.K., India, Indonesia, and Malaysia, also offers flexibility in meeting these customer demands. As we transition into fiscal 2024, we anticipate Opto to uphold the consistency in performance we have come to expect. Following a challenging Q3 in fiscal 2023, the Healthcare division posted a strong Q4 performance with an 18% year-over-year revenue increase. Despite continuing volatility in the CapEx spending by hospitals, the Healthcare division team secured significant wins. During the quarter, we announced a noteworthy order of approximately $12 million from a major U.S. hospital for a wide range of patient monitoring, innovative clinical workflow, and connectivity solutions. The Healthcare team also worked diligently to integrate the acquisition of the Rothman Index-based predictive analytics software into our business operations.

In fiscal 2024, we expect to integrate this clinical analytics solution into our SaaS platform, SafeNSound, aiming to enhance clinical insights and workflows for patients of various acuities and ages. In addition, the Healthcare division is focused on developing innovative new business models and solutions, such as leasing and subscription programs, centered around the needs of hospitals operating in today's challenging environment. Looking ahead, we are confident about our company's future, thanks to our strong marketing position and compelling solutions and the dedication of our excellent team. We are extremely excited about our fiscal 2024 and anticipate significant growth on both the top line and bottom line, which Alan will discuss shortly. In closing, I would like to thank all our employees and customers, and business partners.

With that, I'm going to turn the call back to Alan to talk in more details about our financial results and fiscal 2024 guidance before we open the call for questions. Thank you.

Alan Edrick (EVP and CFO)

Well, thank you, Deepak. Now, let's review the financial results for our Q4 in some greater detail. Again, our fiscal Q4 revenues were up 22% compared with that of the Q4 in the prior year. Q4 security division revenues were up 29%, largely due to the growth in our cargo and vehicle inspection products and related service revenue. This included our first shipments from the $200 million-plus cargo contract announced in January, and continued strength in deliveries on the 2 significant U.S. Customs and Border Protection awards received in fiscal 2022. Aviation-related revenues increased as well. Opto sales were up 11% year-over-year, with 8% growth in third-party sales to a diversified customer base, supplemented by strong intercompany sales to support anticipated security division growth.

The healthcare division finished the year on a high note, reporting 18% Q4 sales growth, highlighted by a significant competitive conversion win at a prominent U.S. hospital that Deepak just mentioned, and that we announced in May. The Q4 gross margin of 34.7% was up sequentially over the 34.3% in Q3, though approximately 1.6% below that of prior year Q4. The year-over-year gross margin in the Opto division continued to expand, and the Healthcare division reported a comparable gross margin to that of the prior year's Q4. However, a less favorable mix in Security division sales, coupled with certain supply chain cost increases, resulted in an overall reduced year-over-year Q4 gross margin in security and the company overall.

Our gross margin will, in general, fluctuate from period to period based on revenue, mix, and volume, inflation, and impacts of changes in supply chain costs, among other factors. Moving to operating expenses. We continue to work diligently across each of our divisions to improve efficiency and prudently manage our SG&A cost structure. Our fiscal 2023 Q4 results again reflect these efforts. Q4 SG&A expenses were $67.2 million, or 16.3% of sales, compared to $65.5 million, or 19.6% of sales in the prior year, Q4. As a result, SG&A expenses increased 2% on a 22% increase in sales. Research and development expenses in Q4 of fiscal 2023 were $15.5 million, up from $14.6 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 Q4 of fiscal 2023, we recorded $3.2 million of impairment, restructuring, and other charges, compared to $2.7 million of such charges in Q4 of the prior fiscal year. Moving over to interest and taxes. Net interest and other expense in Q4 increased from $2.4 million in fiscal 2022 to $5.7 million in fiscal 2023, primarily due to rising interest rates and the maturity on September 1, 2022 of our 1.25% convertible notes, which carried a lower rate than our current bank borrowings.

We executed an interest rate swap during Q1 of fiscal 2023 to fix a portion of our floating rate, floating rate bank debt. On the tax side, the reported effective tax rate under GAAP was 17.6% in Q4 of fiscal 2023, compared to 9% in Q4 of fiscal 2022. In Q4 of fiscal 2023, we recognized a discrete tax benefit of $2.2 million, compared to $4.9 million in Q4 of the last fiscal year. Excluding the impact of discrete tax items, our effective tax rate in fiscal 2023 was 21.9%, compared to an effective tax rate of 22.4% in Q4 of fiscal 2022. I will now turn to a discussion of our non-GAAP adjusted operating margin.

Overall, our adjusted operating margin increased from 13.7% in Q4 of fiscal 2022 to 15.6% in the Q4 of fiscal 2023, driven by strength across each of our three divisions. The adjusted operating margin in the Security division remained solid, though declining slightly to 19.3% in Q4 of 2023, from 19.7% in Q4 of 2022, primarily from the mix of sales and supply chain impact mentioned earlier. We were pleased with the adjusted operating margin expansion in our Opto division, which increased to 13.8% in Q4 of fiscal 2023, compared to 12.7% in last year's Q4, due to strong sales and a favorable mix of revenues.

With the strong sales growth in the Healthcare division, this segment's adjusted operating margin expanded to 12.1% from 8.9% in Q4 of the prior year. Moving to cash flow. Cash provided by operations was $22 million in Q4 of fiscal 2023, which was comparable to the prior year's Q4. We anticipate building inventory during upcoming quarters in preparation for program deliveries under the two large Security division contracts announced in fiscal 2023. CapEx in the Q4 of 2023 was $3.1 million, while depreciation and amortization in Q4 was $9.7 million. Our balance sheet is solid, with modest net leverage of under 1.5 and significant capacity for investments, acquisitions, and stock buybacks.

Aside from $7.5 million of annualized, of annual required principal payments under our bank term loan, the bulk of our debt matures in fiscal 2027. Finally, turning to guidance. We are initiating our fiscal 2024 revenues and non-GAAP diluted EPS guidance. We currently expect our fiscal 2024 revenues to increase more than 18% over revenues in fiscal 2023, and our fiscal 2024 adjusted EPS to grow more than 25% over adjusted EPS in fiscal 2023. We typically provide a range for such guidance. However, as we continue to work with certain large customers on the timing of deliveries and our supply chain partners on the timing of component deliveries, we believe the guidance provided is more appropriate at this time. We expect Q1 revenue growth to be at a modest level, with significant revenue growth for the remainder of the year.

The expected adjusted EPS growth factors in increased interest expense, given the change in the rate environment over the past year. This guidance also contemplates a higher effective tax rate due to rate increases in the U.K. and a higher tax rate in Mexico than throughout much of the world. 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'd like to open the call to questions.

Operator (participant)

Thank you. And to our audience, if you haven't done so, to ask a question, simply press star one one on your telephone keypad and wait for your name to be announced. To withdraw the question, simply press star one one again. One moment for our first question, please. It comes from the line of Larry Solo with CJS. Please proceed.

Larry Solow (Managing Director)

Great, thanks. Good morning or good afternoon. I guess just a couple of clarifications. So it just feels like on the revenue growth side, Alan, maybe you could just help me with this. So the CBP contracts are obviously well in earnest and probably this will be their biggest year or maybe last year, and this year is the biggest, too. But international contracts sounds like it's just starting to ramp. Mexico is more like a Q2 start, but probably be bigger next couple of years. I'm just trying to get a little better frame of sort of the, you know, revenue growth outlook over the next two, three years as we kind of put all these large contracts together. You know, if you can help me with that.

Alan Edrick (EVP and CFO)

Sure, Larry, good, good question. And you're right. The Mexico contracts, we expect to really start showing the significant revenue beginning in Q2 in earnest, and going on from there. And the revenue from these large contracts that we announced in fiscal 2023, are multiyear revenue opportunities, so we're excited about that. The high-water mark for our CBP revenues from the IDIQs, the two IDIQs that we got in fiscal 2022, were in fiscal 2023. So we had significant revenues in fiscal 2023. We'll continue to have nice revenues in fiscal 2022 - in fiscal 2024, but at a level probably about half of where we were in fiscal 2023.

So really nice position to be in, and, you know, we're quite excited about, you know, the outlook for fiscal 2024 and beyond.

Larry Solow (Managing Director)

On the CBP contract, now that you've kind of gone through some of that, because I know it was a little bit slower at first, and I believe there's also some remaining IDIQ dollars out there. So what's sort of the outlook for that contract or additional dollars from the CBP or other U.S. organizations or perhaps internationally? You know, that again, specifically, you feel like, you know, you'll have other opportunities as they go out over the next few years.

Deepak Chopra (President and CEO)

A very broad question, Larry. A good question. On the CBP, as we have announced, the total IDIQs on the two IDIQs in 2022, we announced the total number was more close to $800 million. Out of that, we got about a $200 million contract, which we are delivering. As Alan mentioned, big chunk of that got, revenued out in 2023, but it continued in 2024 and 2025. We are well positioned, though there's no guarantee. We are well positioned for, getting more contracts from CBP. We can't say anything about the timing, but invariably, these IDIQs, customers give you that, but there's more potential. And if you do good with the customer, they give you more business.

We are very well positioned into it, and we are very, very close and working very well together with our customer. Regarding the international contracts, we continue to have a very broad funnel. There are all kinds of orders floating around all over the world. We can't talk about timing, and one of the things we've always said to you in that regard, the bookings also come not in a very consistent way. It comes in ups and downs, but we are very much excited about it. And the second thing, it's obvious, as we get more successful in these large contracts, we continue to gain more momentum, and we can very confidently say that we are eminently the largest supplier in the cargo side of the business, at the same time, have the broadest product portfolio and happy customers.

Larry Solow (Managing Director)

Great. If I could just squeeze one more in, just margin. It feels like some inefficiencies, some component shortages, and obviously, you're ramping up very, very fast or extremely rapidly. Do you feel like over time you can get, you know, margin, I would think maybe significant margin improvement on these much, you know, fast revenue-growing contracts? Thanks.

Alan Edrick (EVP and CFO)

Sure, Larry. Yeah, our goal is always to show operating margin expansion, and on some of these contracts, as we ramp up and have the productivity improvements, we absolutely expect that as well. So leverage, you know, certain economies of scale. Certain contracts will inherently carry a little bit higher margins than other contracts, but our goal is for continued operating margin expansion.

Deepak Chopra (President and CEO)

This is Deepak here. I just want to add on to it, the other side of it. Definitely, when you ramp up very fast, supply chain becomes a challenge, and we are continuing to work with that. Good news is that we are very much working together with our vendor base, but that's always going to be a challenge, especially when you ramp up very, very fast.

Larry Solow (Managing Director)

Absolutely. Great. I appreciate all the calls. Thanks, guys.

Operator (participant)

Thank you. One moment for our next question, please. It's from the line of Josh Nichols with B. Riley. Please proceed.

Josh Nichols (VP and Equity Research Analyst)

Yeah, thanks for taking my question, and great to see the very healthy double-digit growth forecast for fiscal 2024. I think just to kind of pinpoint it a little bit or, or how to think about the, the model for 2024, but also beyond this. You have this record $1.8 billion backlog. Any approximation for what guidance implies into how much of that backlog is gonna extend beyond this fiscal year, but more 2025, 2026?

Alan Edrick (EVP and CFO)

Josh, this is Alan. It's a good question. You know, based upon what we're seeing out there right now, of that $1.8 billion, we would expect about roughly $1 billion of that to be deliverable in fiscal 2024. So, you know, quite a bit of it still to be delivered, you know, beyond fiscal 2024. So, good position to be in.

Josh Nichols (VP and Equity Research Analyst)

No, that's great to hear. And then you had pretty nice improvement in cash flow for fiscal 2023, despite some of these investments. I know you mentioned you're gonna have to make some more inventory investments, at least while you're ramping up for the first couple quarters. Is the expectation that, you know, cash flow is gonna be up year-over-year as well, back to kind of like the normal $100+ million-dollar cadence, or a little bit lower, given some of the inventory investments you're going to be making this year?

Alan Edrick (EVP and CFO)

Hey, Josh, it's Alan again. You know, although we don't provide cash flow guidance, directionally, our cash flow is expected to be impacted by the growth in inventory and accounts receivable, as you're mentioning, associated with the large international cargo contracts, you know, the timing from those. And as you're also saying, we do currently believe there'll be some H1 investment in this regard. But suffice it to say that we do expect-

... cash flow to be, you know, very, very robust for this as we begin these deliveries and start collecting from our customers on some of these large orders. Yeah.

Josh Nichols (VP and Equity Research Analyst)

Fair to say, probably up significantly in the back half, right, where the first front half, we're just having a little bit more investment for inventory specifically?

Alan Edrick (EVP and CFO)

I think that's fair to say.

Josh Nichols (VP and Equity Research Analyst)

Yep. And then I just want to hit on, Deepak, you talked about it briefly. How should we think about the company's opportunities to expand service revenue? I know a lot of these large awards are on the products front, but you've had some success with CertScan and other offerings you do. And how should we think about the service revenue growth expectations for fiscal 2024 and the opportunities on that front?

Deepak Chopra (President and CEO)

Well, you know, again, very good question. As you know, most of these products that we supply, their lifetime is up 10, 15 years. So as our install base gets bigger and bigger, it has more and more service revenue, and that has been very well taken care of, and we continue to look at it. In addition to that, we've been very much focused on the CertScan software, and that continues to be a success all over. And also we keep talking about it, the turnkey solutions, so that as you combine all these functions, the bigger the install base, more successes we have globally, the better long-term look- we look at recurring revenue in service and the turnkey models.

Josh Nichols (VP and Equity Research Analyst)

Yep. Thanks. I'll let someone else take a turn.

Operator (participant)

Thank you. One moment, please, for our next question. It comes from the line of Jeff Martin with Roth MKM. Please proceed.

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

Great, thank you. Hi, Deepak. Hi, Alan. How are you doing?

Alan Edrick (EVP and CFO)

Hey, Jeff.

Deepak Chopra (President and CEO)

Thank you.

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

So was wanting to congratulate you on the TSA certification. Was just curious if you could give us a sense of how significant that is for the cargo screening business. I know you've done quite well in that area already, but is this increment... Does this provide significant incremental growth opportunity for you?

Deepak Chopra (President and CEO)

Well, this is Deepak here. Again, a good question. This is quite important for, to us because as you can understand it, for the air cargo business, not only do they need X-ray machines, they also need the trace detection systems. So now that we've got certification into it, we can offer a broader portfolio of products and service to our customer base in air cargo, and that goes very well together. And, on top of that, this product is coming at the right time, that there is a revamp of, of what we call add-on to new product, new technology, new instruments that, that the air cargo people want to buy. And with us getting the certification and already a very broad base with our RTT machines, with our normal BPI, checkpoint machines, this gives us a bigger portfolio.

Not to forget that also, as we get to a broader portfolio in that, we continue to focus on a services model and the CertScan model. This helps very much together for a broader product base.

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

Great, thanks for the detail. And, and then wanted, international cargo and vehicle inspection has been a significant driver for your growth over the past several years. Was just curious, you know, outside of the large contract wins, which give you, you know, strong visibility into fiscal 2024, how do you look at maybe fiscal 2024 and fiscal 2025 in, in international cargo and, and vehicle inspection relative to the past couple of years? Is there still significant room for growth there?

Deepak Chopra (President and CEO)

The answer is yes. Obviously, you know, we continue to look at it, but again, our focus is not only just to sell equipment, but to sell a services model, to sell an integrating solution. So that means that as the business model goes up there, there worldwide, we are depending upon not just sales of equipment like in the past, but an integration model which gives us much more capacity to grow. And each one of them that we do, it has a long-term tail of service, recurring revenue.

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

Great. Then one more, if I could. On the healthcare side, it sounds like you're making some significant, you know, custom- potentially customer value enhancing, changes in, you know, the subscription type model or lease type model. Is that something you've done much in the past, or is that a new model for the healthcare?

Deepak Chopra (President and CEO)

Well, I would say that is a new model. But keep in mind, one of the things that most people don't realize it, we've been doing that kind of a model in our security business so that we have a lot of experience. And now that we are looking at in the healthcare business, we want to expand that. But it's a new business, and it, again, has to be to educate the customer that it's more efficient for the patient's health and it's more economical. So that we think that this model has some real good legs to stand on for growth, but it's going to take some time, and it's going to take some education, and we are working diligently with that, but we have good experience in it.

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

Very helpful. Thank you.

Operator (participant)

Thank you. And as a quick reminder, to ask a question, simply press star one, one.... Our next question comes from Christopher Glynn with Oppenheimer. Please proceed.

Christopher Glynn (Managing Director and Senior Analyst)

Hey, good morning, good afternoon, depending on where you are. Congrats on all the success here. I was curious about the outlook for healthcare revenue specifically. You know, the absolute strength in the Q4 does impact the full year comp, and it sounds like it was, you know, a little bit clustered, and you've kind of talked about more, you know, a good bit beyond fiscal 2024 for the new patient monitoring platforms to ramp up. So just curious how to think about the continuing kind of base run rates of that business in the interim, you know, as we model 2024.

Deepak Chopra (President and CEO)

Well, but keep in, this is Deepak here. Keep in mind that the healthcare business tends to be a single mid, mid-single-digit growth thing. Also, it's a book and ship kind of a model, and it's not backlog dependent, and that's what happened in Q4. As you know from the previous call, from the Q3, we had some contracts that got pushed into Q4. We delivered in Q4, and so that we look at this as a continued single-digit growth model. And you know, there are some challenges, as we all know, in the healthcare industry, the hospitals are having a tough time.

But we again think in that model that with the investment we are making in R&D, with the new platform that we are talking about it, and this new services model, subscription model, leasing model that we are talking about, which is new for our healthcare business, that could have some potential legs to grow the, grow the business.

Christopher Glynn (Managing Director and Senior Analyst)

Okay, great. Thanks for that. And then was just curious, when you talk about these nice, you know, content and reference wins around Olympics or FIFA, what happens to that equipment after these kind of large events?

Deepak Chopra (President and CEO)

Well, it changes from customer to customer. In some cases it's only rental equipment, and at the end of that, the equipment, we are able to sell the equipment. In some cases, they buy the equipment, and then they donate the equipment to various places. So it's very much dependent upon each individual country, each individual customer. Most important thing in this thing is, what I wanted to say was, it's a great achievement and a very good name recognition that for that kind of games, worldwide recognized Olympics game or the FIFA, to have Rapiscan as the provider of that service, it becomes a big positive as it build up the image and the trade name. And that's what the thing, exciting thing about it.

This particular contract again was a competitive international bid, and we are very proud about it that we got selected as a primary supplier of the security.

Christopher Glynn (Managing Director and Senior Analyst)

Yeah, and in terms of venues like that, what was the consumption or utilization of security equipment such as yours, you know, maybe five years ago? You can adjust the reference point, but is this kind of something that's becoming, has become more standard in just the past couple of years?

Deepak Chopra (President and CEO)

I would say it's been like that for a long time. But the answer to your question about how big or something, just think about it, at the FIFA game, every hotel, every venue, every airport, everything in Qatar had Rapiscan products. So, it, it's significant, but like I said, revenue is not the important model in this. We look at this as a build-up, what I call the trade name and our reputation. Alan, you want to add something?

Alan Edrick (EVP and CFO)

Yeah, it's these are really nice, noteworthy wins for us, and while they do provide, you know, nice revenues and, and, and profitability, it's really the, the brand recognition, and what it does for us overall in the, in the marketplace that is, is most beneficial.

Christopher Glynn (Managing Director and Senior Analyst)

Thank you. Appreciate the color.

Operator (participant)

Thank you, sir. I'm not showing any further questions in the queue.

Deepak Chopra (President and CEO)

Well, thank you all once again for attending our conference call. Again, I want to thank our employees, our customers, our investors, our analysts, and everybody. It's been a great year, finish to it, and we are excited about 2024 and beyond. And we look forward to speaking with you on our next call, following the completion of our fiscal 2024 Q1. Thank you again.

Operator (participant)

Thank you all for participating, and you may now disconnect.