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OSI Systems, inc (OSIS) Q4 2021 Earnings Call Transcript

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OSIS earnings call for the period ending June 30, 2021.

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OSI Systems, inc (OSIS -0.34%)
Q4 2021 Earnings Call
Aug 18, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by and welcome to the OSI Systems Fourth Quarter and Fiscal Year End Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder today's program is being recorded. And now I'd like to introduce your host for today's program. Alan Edrick, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

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Alan Edrick -- Executive Vice President and Chief Financial Officer

Well, thank you. Good morning and thank you for joining us today. 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 '21 fourth quarter and year end conference call. We are pleased to review with you our financial and our operational results and to provide our outlook for fiscal '22. Earlier today, we issued a press release announcing our fourth quarter and fiscal year '21 financial results.

Before we discuss our 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 the most directly 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 summary of our financial performance for the fourth quarter of fiscal '21 and then turn the call over to Deepak for an overview of our business performance. I will then return to finish with more detail regarding our financial results and to discuss our outlook for fiscal '22. We are proud of our strong fourth quarter where we achieved new records across multiple metrics. In managing this continuing COVID environment, a major priority at OSI Systems has been and will remain 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 reported a record $332 million in fourth quarter revenues, representing 20% growth over the prior year, as the Security and Opto divisions posted impressive results. Second, we reported record GAAP and record non-GAAP fiscal Q4 earnings per share. Q4 Non-GAAP adjusted diluted earnings per share was $1.54, up 26% from our Q4 non-GAAP adjusted diluted EPS in fiscal '20. For the full year, we delivered non-GAAP EPS of $5.32, a 16% increase over non-GAAP EPS in the prior year.

Third, we generated $8 million in operating cash flow during fiscal Q4, bringing cash flow for the full 2021 fiscal year to a new record total of $139 million. Fourth, bookings were once again solid in the quarter. Our book-to-bill ratio was 1.0 in Q4 and 1.2 for the full 2021 fiscal year. We entered fiscal '22 with a backlog of nearly $1.1 billion, which is a 25% increase over our backlog at the beginning of fiscal '21 and a fiscal year end record for us. And finally, our balance sheet is solid with net leverage of approximately 1.0.

Before diving more deeply into our financials, let me turn the call over to Deepak.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Thank you, Alan. And again, welcome to the OSI Systems earnings conference call. Throughout the fiscal 2001, our company was committed to serving our customers, while creating a safe workplace for our employees in the ongoing COVID environment. As Alan mentioned, our team delivered a strong Q4 performance with a 20% revenue growth over the prior year, solid bookings and a record year-end backlog.

Discussing each division and more of that, starting with some of the highlights relating to the Security division where Q4 fiscal '21 revenues increased 23% year-over-year to $202 million and we ended fiscal '21 with a backlog 21% higher than the division's backlog at the end of the fourth quarter of fiscal '20 comparable period. The Security division's Q4 growth was prevalent through much of the division's products. Global bookings increased 14% from Q4 2020 with orders from both U.S. and international customers.

During the quarter, we were successful in expanding our presence with the Department of Defense agencies and made progress with ongoing international projects even as COVID spikes continue in certain regions that affect travel and logistics. Our turnkey services programs, which actively support local authorities in managing drug introduction, customs enforcement and controls of goods and tariffs continue to perform well in Puerto Rico, Albania and Guatemala. These programs utilize CertScan, our proprietary software platform that is cyber secure, can manage inspection image data, integrates with other IT systems at checkpoints and facilities, and facilitates the automation of inspection activity. The CertScan software integration platform is often used in our cargo inspection equipment deployments and are continuing to see traction with large customers that are utilizing the software platform for use in their security infrastructure for inspection equipment from multiple vendors. In other words, CertScan can be implemented as a stand-alone integration product by the security customers.

Worldwide passenger airport activity continues to return slowly to pre-COVID levels and our team is working with our aviation customers regarding their plans to upgrade security infrastructure. Our RTT 110 CT Hold Baggage Screening System is deployed at numerous international airports, as well as at commercial air cargo facilities. Shortly before quarter end, we received an order, which we announced this week for multiple units of the RTT 110 to be installed at a major international airport in Asia. As we have said in the past, the RTT 110 is also being utilized very effectively by various air cargo customers such as FedEx, DHL, UPS etc., for efficient screening of packages. We announced selected wins in this segment during the last fiscal year and expect global logistic providers to continue investing in upgrades to handle volume growth from e-commerce and the reopening of the worldwide economy.

Our growing installed base of inspection equipment also creates ample recurring revenue opportunities as we can provide our customers with continued maintenance and support through the equipment's lifecycle. We reported growth in this recurring revenue both in Q4 and for the full fiscal year. Of note, during the quarter, we announced a multi-year contract valued at $16 million from an international customer to provide maintenance, repair, upgrades and support services for several platforms of cargo, vehicle and baggage inspection systems that are currently deployed at checkpoints. We also announced another contract valued at approximately $6 million under which we are responsible for operating and continuing service of various Rapiscan systems and AS&E cargo, vehicle, parcel systems and trace detection systems at a critical infrastructure facility.

Looking ahead, in addition to significant backlog, the Security division enters fiscal '22 with a healthy pipeline of diverse opportunities both in U.S. and international. Our proven inspection platforms utilizing cutting edge technology and our flexible approach to servicing the marketplace puts us in a very strong position to capture new business. The U.S. infrastructure bill currently in legislation has large expenditures identified in areas that could help us generally, especially at airport and port upgrades and generally with our industrial OEM customers. We will assess the impact from the final version of the bill and expect to have a positive impact for our business in the long run.

Moving onto Optoelectronics. In Q4, the Optoelectronics and Manufacturing division generated total revenues including intercompany of $92 million, representing a 37% increase over revenues in Q4 of the comparable period last year, while expanding the Q4 adjusted operating margin. The division reached $350 million in revenues including intercompany for the year, a 23% higher than the prior year. As we are vertically integrated, the purchasing activity at Opto is an excellent gauge for supply chain dynamics affecting the overall company. In a few cases, we have definitely seen longer lead times and higher sourcing costs, but the team is working through these challenges. Our Opto team did a wonderful job managing pandemic related challenges while maintaining a safe working environment and meeting commitments to our customers in several different countries. For fiscal '22 given Opto's year-end backlog, the highest quarter-end backlog ever for our Opto division, we believe that this division is well positioned for another strong year.

Moving to Healthcare. In the fourth fiscal quarter, the Healthcare division reported revenues of $52 million or about 10% below the fourth fiscal quarter of the prior year. This result derived to some degree from the very strong prior year fourth quarter that was driven by heavy COVID related demand near the onset of the pandemic. During the last quarter, we announced an order valued at approximately $4 million from the U.S. hospital to provide patient monitoring telemetry and related accessories. We also renewed an important group purchasing contract to provide patient monitoring systems to Premier Inc., one of the largest GPOs in the United States.

During the fourth fiscal quarter and toward fiscal '21, we made substantial investments in R&D to enhance our core offerings and develop new products in both patient monitoring and diagnostics cardiology. We also launched during the quarter, the Lifescreen Pro event screening system, which provides rapid analysis allowing an initial triads to find suspected or intermittent arrhythmia events. This product is expected to contribute to growth in cardiology and fiscal '22 and beyond.

Overall, I'm pleased with our performance in Q4 and fiscal '21 and also very grateful for the perseverance that our team has demonstrated in handling COVID related challenges and opportunities. Our ability to manufacture complete systems and sub-assemblies in North America, Europe and Asia is paying off for us, as it provides optionality in how we support our global customers and handle supply constraints as they may arise. Going forward, our focus will be on serving our core markets, increasing our recurring revenues, capitalizing on strategic acquisitions and opportunities, and making notable advances in our technology and product portfolio, while continuing to take care of our employees and their physical well-being and general well-being. I really look forward to fiscal '22.

With that I'm going to turn the call back over to Alan to talk in more detail about our financial performance and guidance before opening the call for questions. Thank you.

Alan Edrick -- Executive Vice President and Chief Financial Officer

Thank you, Deepak, I will now review the Q4 financial results in greater detail. As mentioned earlier, fiscal Q4 revenues were up 20% over the prior year, driven by strong growth in each of the Security and Opto divisions. Security revenues were $201.9 million, an increase of 23% year-over-year, driven by strength across multiple geographic channels and across much of our product portfolio, including our cargo and vehicle inspection products, checkpoints and RTT explosive detection systems.

Opto sales including intercompany sales continued the momentum seen in the first nine months of fiscal '21, growing 37% year-over-year. In fact, our year-over-year sales growth in fiscal Q1, Q2, Q3 and Q4 for Opto was 9% percent, 20%, 29% and 37% respectively. The strength was largely driven by our Asian operations. Opto's book to bill showed similar strength with the Q4 book to bill of 1.4. The sales strength in these two divisions was partially offset by a 10% reduction in revenues in the Healthcare division in comparison to the fiscal '20 fourth quarter, which featured strong international sales at the outset of the pandemic. For the year, healthcare sales were up 15%.

The gross margin was 35.5%, slightly down from the 36.7% in Q4 of the prior fiscal year, due primarily to the mix of revenues among the three divisions. While the gross margin in our Security division expanded as we benefited from economies of scale on the strong sales growth coupled with good operational execution, the significant revenue growth in the Optoelectronics and Manufacturing division, which historically tends to carry a lower gross margin than the other two divisions placing some pressure on the consolidated gross margin.

The Healthcare division generally carries the highest gross margin of the three divisions and while the Q4 margin was solid and increased year-over-year in Healthcare, there was no boost to consolidated gross margin given the relative proportion of healthcare division sales to the sales of the other two divisions. Our gross margin will fluctuate from period to period based on revenue mix and volume among other factors.

Moving to operating expenses. We worked diligently across each of our divisions to improve efficiencies and to prudently manage our cost structure. Q4 SG&A expenses were $68 million or 20.5% of sales, compared to 21.8% of sales in the prior year. Such expenses increased 13% year-over-year in support of the 20% increase in sales and as a result of comparatively increased travel expenses during the quarter compared to the same quarter last year. Research and development expenses in Q4 were $13.9 million, representing a $1.1 million year-over-year increase. As a percentage of sales, R&D was 4.2% in Q4 of '21 compared to 4.6% in Q4 of last year.

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 important to the long-term success of our business. In fiscal '22, we anticipate increased R&D investment, most notably in Security. Restructuring and other charges in Q4 of fiscal '21 were $2.2 million inclusive of lease termination and legal charges, down from approximately $5 million in Q4 of the prior year.

Moving to interest and taxes. Our net interest and other expense in Q4 of '21 decreased to $4.1 million from $4.5 million in the same prior year period, as a result of reduced borrowings in light of our continued strong cash flow. On the tax side, the effective tax rate was 12.9% in Q4 of fiscal '21 compared to 26.4% in Q4 of fiscal '20. However, excluding the impact of discrete tax items, our non-GAAP effective tax rate in Q4 fiscal '21 was 26.3% compared to 29.6% in Q4 of fiscal '20. We recognized a discrete tax benefit of $4 million in Q4 of fiscal '21 compared to $0.6 million discrete tax benefit in the comparable prior year period. For the full year, excluding discrete tax items, our fiscal '21 effective tax rate was 26.6% compared to 27.3% in the prior year.

Let's now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our non-GAAP adjusted operating margin in Q4 of fiscal '21 was comparable to that in the prior year. The Q4 adjusted operating margin in our Security division was 18%, up significantly from the prior year's fourth quarter of 15.5%, driven by a favorable revenue mix and sound operational execution. The adjusted operating margin in our Opto division improved 20 basis points, coming in at 11% in Q4 of fiscal '21 as compared to 10.8% in the comparable prior year quarter due to the strong revenue growth, where we leveraged our fixed costs to absorb certain component and logistics cost increases. The adjusted operating margin in these two divisions were offset by a reduction in adjusted operating margin in our Healthcare division due to the change in sales and increased operating expenses, including an increased year-over-year Q4 investment in research and development.

Let's move to cash flow. We generated significant cash flow in fiscal '21, largely in the first nine months. In Q4, investment in working capital was more substantial given the 20% revenue increase and revenue growth projections for fiscal '22. As a result, Q4 operating cash flow was $8 million leading to a record $139 million in fiscal '21. Net CapEx in the fourth quarter of '21 was $4.6 million and depreciation and amortization for the quarter was $12.4 million.

Our cash flow conversion continues to be solid. We have no borrowings outstanding on our credit facility, providing ample headroom for strategic opportunities. Under our stock buyback program, we repurchased approximately 129,000 shares in Q4. As of June 30, 2021, we had approximately 2.5 million shares available to purchase under the current authorization. Our balance sheet is strong with net leverage of approximately 1.0 as defined under our credit facility at the end of Q4.

And finally, lets turn to guidance. For fiscal year '22, the company anticipates revenues in the range of $1.19 billion to $1.225 billion and non-GAAP earnings per diluted share in the range of $5.72 to $6. While we generally provide guidance for the total company, on a directional basis, the revenue guidance assumes solid Security and Opto year-over-year revenue growth with a modest reduction in Healthcare division revenues due to a difficult comp. 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 continued uncertainties as to the duration and scope of the COVID-19 pandemic, as well as other variables, the extent to which these and other items may impact the company's financial results is difficult to predict and could vary materially from the anticipated impacts 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 keenly focused on the growth of our businesses through investment in product development and potential strategic acquisitions and continued management of our cost structure. As Deepak mentioned, we have strong recurring revenues and we are focused on growing our recurring revenues as we move forward. 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 and supporting our customers and contribution to the creation of value for all stakeholders, while maintaining a commitment to safety. At this time, we would like to open the call to questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Larry Solow from CJS Securities. Your question please.

Lawrence Solow -- CJS Securities -- Analyst

Great. Good afternoon, good morning, guys. Thanks for taking the questions. I appreciate the -- little bit of direction on the segments because I think after a strong year in Healthcare, really shows your -- the underlying strength in your fundamentals with continued growth. Just on the security segment, specifically and without maybe getting specifically into numbers, but, obviously, we're going to get some good growth, some catch-up, your bookings have been phenomenal last two quarters. So, do you think you can get back to sort of fiscal '19 and fiscal '20 levels on the revenue side or in that ballpark, even without Mexico? Is that a fair assumption?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Well, good question, especially what we do, what you said the last word. Yeah without Mexico, comparable, we think that there will be growth. Again, I want to emphasize every time what Alan has said and you can appreciate it that what happened to us in Q1, Q2, Q3 and Q4 in this year, we are still basically being very, very cautious about the impact of the pandemic and things changed from week to week for travel, for acceptance, shipping and everything else. Taking that into account, we have a strong backlog, great opportunity pipeline and we think that we continue to see strong growth.

Lawrence Solow -- CJS Securities -- Analyst

Okay and sticking with the Security segment and perhaps a question for Alan, just on the margin, obviously 18% in the quarter, I think close to 17% for the full year on an adjusted operating basis, I think the last five years, if we look, you basically have been between 14% and 15%. You mentioned mix and sound operational execution. Mix obviously can move around a little bit, but how do you view again these trends? Are these higher numbers, maybe not exactly, maybe not 18%, but could we see some incremental improvement? Is this sustainable or at least part of this?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, great question, Larry. And our goal is always in all of our businesses, but particularly in Security to show topline growth coupled with operating margin expansion and from a quarter-to-quarter perspective that will change a bit on the mix of geographic revenues and product revenues and the overall level of revenues, where we can benefit from some economies of scale. The Q4 at 18% was what was a terrific quarter. But that being said, with the focus on continued growth in the business, high-quality revenues, managing the cost structure and focus a little bit more on some of the higher-margin recurring revenues, we do believe as we move forward, there is opportunity to not only sustain, but to expand those margins on an annual basis.

Lawrence Solow -- CJS Securities -- Analyst

Okay.

Deepak Chopra -- Chairman, Chief Executive Officer and President

This is Deepak here. Just to add on to what Alan said, it's very important -- product mix is important. And as we have said it before that we are very much focused on the recurring revenues portion. We continue to look at that and secondly, more and more the software is becoming an important portion of our business and the CertScan platform and other software tools that we are doing as they get implemented and get accepted that should relatively have better margin.

Lawrence Solow -- CJS Securities -- Analyst

Okay. And Deepak, you mentioned sort of this pipeline of diverse opportunities on top of the strong backlog already in Security. I mean, I know back in April, you guys were part of this $475 million, $480 million IDIQ from the Customs and Border Protection. I mean, if I'm not mistaken, just want to understand there's still several additional pending awards coming out of the CBP, right, which hopefully you guys are all participating and is that correct?

Deepak Chopra -- Chairman, Chief Executive Officer and President

That's true. Very good question and you are very much up to date on it. Definitely given that IDIQ, now that would be committed to the government at year-end, we're going to be, we think there's only lot more activity. We are well positioned for it and there are other opportunities in DoD and other places that we are very well positioned, including the rest of the world.

Lawrence Solow -- CJS Securities -- Analyst

Okay. If I just may sneak one more on the free cash flow. Alan, obviously really strong again this year, I think close to $7 a share, just a bit under. As you look out to '22 does the return to growth in Security, might that create a little bit more use of working capital. So, maybe we might slow down a little bit on the free cash flow side or any thoughts on that.

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, I think it's an astute observation, Larry. With the growth that we're anticipating in fiscal '22 that we would anticipate an increased level of working capital to support that on the receivable side, as well as on the inventory side and from sort of prudent risk management, we keep in a little bit higher inventory levels, given some of the challenges and the global supply chain in the world that many companies are facing. So overall, that would have some impact on the overall cash flow. So, we agree with you.

Lawrence Solow -- CJS Securities -- Analyst

Okay. Great, thanks a lot. I appreciate the color, guys. Congrats again.

Alan Edrick -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Brian Ruttenbur from Imperial Capital. Your question please.

Brian Ruttenbur -- Imperial Capital -- Analyst

Great quarter and year. A couple of questions, first of all on Afghanistan. Can you talk a little bit about, I believe, you did have some personnel on the ground. Maybe that was related to some of the DoD work you're doing. Can you talk about the status of them, your revenues going forward from the DoD, and how that's going to -- the pull out is going to impact you guys?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Good question, Brian. Again, welcome. I'll answer the first portion and then Alan can pick up the rest. Good news is all our people and our subcontractors are safely out of the country. That was our main focus on it for the last couple of days and as of yesterday, they are all safe and sound and have been air lifted to safer places.

Alan Edrick -- Executive Vice President and Chief Financial Officer

And Brian to the second part of your question. So, Afghanistan has become a decreasing portion of our revenues over the years as withdrawals have been taking place. In the previous year, fiscal '21, our revenues were a bit north of $10 million. As we looked at fiscal '22, we're really not anticipating any significant revenues, maybe a couple of million that we saw in the first month and a half or so, but embedded in our guidance is no revenues beyond that for Afghanistan for fiscal '22.

Brian Ruttenbur -- Imperial Capital -- Analyst

Okay, thank you very much. Next question is on CertScan and turnkey, the recurring revenue. Can you talk about where you are in terms of revenue levels from CertScan and turnkey in '21 or give us some kind of range for '22, fiscal 22, what you anticipate from those two programs?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, Brian, this is Alan. I'll take the question. So a good question and we're looking at as a tremendous opportunity for us as we go forward. While we don't generally provide specific revenues on individual products, what I could say is as we look at our fiscal '21 revenues kind of excluding our Opto or Manufacturing business, our recurring revenue was about 37% for Security and Healthcare, which we're quite happy with. That's a nice percentage, it's an increasing percentage over the prior year. And as we move to fiscal '22 and beyond, our goal is to continue to increase that recurring revenue as a percentage of the company and clearly items like CertScan as Deepak mentioned not only are great sources of recurring revenue, but recurring revenue at potentially substantially higher margins. So very excited about that. So very good question.

Brian Ruttenbur -- Imperial Capital -- Analyst

Okay. So, let me, if I just break that down. Oh, I apologize, Deepak, you were going to say something, go on.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Well, maybe I'm anticipating the next question from you, but just to add on to it. You have said about CertScan, we are very much focused on to it. We've learned a lot from our turnkey businesses, that is software which can expedite and make it more efficient, of not only just image analysis, but to be able to look at the license readers, to look at the manifest in it, to put and compare the data into it, you're going to have some other artificial intelligence built into it, all that stuff has been good experience for us, which has been put into -- implemented into our CertScan and it's been very well received not only by the U.S. customers, but also some international customers to make efficient tracking of the various goods. So, we believe that long-term, we continue to invest in that, including the training and stuff, so all that platform we think will be a growth opportunity, not only just for what we call our products, which obviously be integrated together, but it could be agnostic in a way that it can be used with other people products.

Brian Ruttenbur -- Imperial Capital -- Analyst

Great. So, to follow up on understanding the recurring revenue just real quick, you said that 37% Healthcare and Security is recurring in nature, as I recall, roughly 15% is maintenance related. Is that the ballpark for those two product lines?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, probably a little bit higher than that, but yes, but directionally there, but the maintenance might be a little bit higher than that.

Brian Ruttenbur -- Imperial Capital -- Analyst

Okay, very good. And then let me just turn it over, one other question on labor and there was a fourth quarter increase in SG&A that we didn't see last year, I assume that's because of bonuses or is that you're bringing on more people at the SG&A level?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Yes. Combination of the few things, Brian. Yes, with the strong year, there was probably a little bit more in terms of the total compensation for incentive based comp. We did add on some additional people in order to support the growth that we're anticipating in fiscal '22. We saw a bit of an uptick in our travel expenses as in Q4 of last year, there was essentially no travel when the pandemic had first started and just in accordance with sort of the algorithm, our formulas that we have for our reserve for bad debts, we had some -- a little bit higher allowances for bad debts, with the higher sales.

Brian Ruttenbur -- Imperial Capital -- Analyst

Okay, very good. And then just a follow-up on that, one other question on labor. Are you seeing any -- with what looks like to be an inflationary environment, are you seeing any issues with -- having to pay people more to keep them? There's also been a lot of facts in the industry with a lot of money flowing in. Are you seeing any issue maintaining your top performers?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes. So, Brian, we're not seeing anything from material basis. From time to time, there is individual situations and you're right, there are some labor shortages throughout the world and that's a competitive labor market, but we're not seeing any material impact on this side at this point.

Brian Ruttenbur -- Imperial Capital -- Analyst

Great, thank you very much.

Operator

Thank you. Our next question comes from the line of Sheila Kahyaoglu from Jefferies. Your question please.

Ellen -- Jeffries -- Analyst

Hi. This is actually Ellen [Phonetic] on for Sheila. I just first wanted to look at, are you a little more -- revenues close to pre-COVID levels. So, how do you think about share gains in the market given the dislocation in your growth rate versus peers?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Would you repeat that question? I didn't hear it very well.

Ellen -- Jeffries -- Analyst

Sorry. So, in Security, how do you think about share gains in the market given dislocations in your growth rate relative to peers such as Leidos SD&A?

Deepak Chopra -- Chairman, Chief Executive Officer and President

If you want to add. I still didn't get it, sorry.

Alan Edrick -- Executive Vice President and Chief Financial Officer

So, yes, Ellen. I'll take it. This is Alan. Thank you. Good question. I think your question was related to do we believe we're growing our market share relative to our competitors and we think we are. Our product portfolio is extremely diverse and while all of our competitors are strong, our team has done an outstanding job and with the sales growth that we're showing, we believe it does demonstrate that in various product areas, we continue to have share gains in various geographies and product segments.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Okay. So, I can maybe put some color on it. Sorry about it. There was little bit echo, I couldn't understand the question. Definitely, we can say it very proudly that especially in the cargo space, we consider ourselves market leader and with our diverse product portfolio compared to any of our other competitors that gives us a leg up when we go back and present it to our customers their solution and with the software platform, the recurring revenue service platform and the technology breadth that we have, we believe that we are well positioned, both domestically in the U.S. government business and also international, especially in that space. And then on the other side, we have also said that, especially in the air cargo and the cargo space RTT 110, our CT scanner technology has had very good results and has been very well received and we're gaining a lot of momentum in that area also compared to our competitors.

Ellen -- Jeffries -- Analyst

Great, thanks. And just on the guidance, how do you think about profitability in fiscal '22 and what are the moving pieces given revenue guidance, roughly in line with the consensus versus EPS a little higher?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes. So, through the operational efficiencies and the product mix that we've seen, we think that allows us to generate a projected higher earnings per share than maybe where the revenues -- where the consensus revenues were. So, we're excited about that. The things that will always play into the grand picture will be, what our level of revenues, what is that mix of revenues between our three divisions and what is the mix of revenues really within the product lines of those divisions. But we feel quite comfortable at this point with the guidance that we've provided on the earnings per share range.

Ellen -- Jeffries -- Analyst

Great. And last, just on the health margins, the decrementals that gets us closer to 70% in the quarter versus 50% to 60% historically. So, what are the moving pieces there and how does that -- how do we think about '22 there?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, really, the biggest difference in Q4 for us was we invested much more significantly in R&D. So, we had a higher R&D expense compared to the prior year, a little bit more on the SG&A, but is mostly on the R&D, as we're investing in the new product platforms that Deepak was alluding to both on the patient monitoring as well as on our cardiology products. So, we think that was -- maybe perhaps a little bit of an anomaly in the quarter for that, but we're going to continue to invest some substantial resources in R&D throughout fiscal '22 for the Healthcare business.

Ellen -- Jeffries -- Analyst

Great, thanks, that's it from me.

Operator

Thank you. Our next question comes from the line of Jeff Martin from Roth Capital Partners. Your question please.

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

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

Deepak Chopra -- Chairman, Chief Executive Officer and President

Doing great. Thanks. Jeff.

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

I was hoping you could give us some relative perspective, I know Security, in the first nine months of the fiscal year, had challenges with acceptance from large agencies in terms of equipment acceptance and being able to recognize revenue there. Just curious how that progressed throughout the quarter and what your expectation is near term for acceptance?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Good question. Yes. Now, I want to again emphasize when the terminology the worried about customer acceptance, I want to emphasize. It's nothing to do with the Rapiscan products. As the question is did we get the product acceptance there by the shippers for the installation, was the customer available to sign off on the installation and the inspection test or the customer got COVID and could not come or can we get our people there to get the inspection done or are they in quarantine on their way to the site. So, it's -- so that's the general comment. Yes, that challenging thing is still there. From time to time, week to week, country to country, region to region, which we look at it, we are very much focused on to it. The team has done a great job and we manage it to the best of our ability. About that risk is always there and as Alan has mentioned, we are building that risk into it, but there is no guarantee and that's what happened when pushed to the right, but that also gives us the ability that since we have such a strong backlog, as the gates open up, the customers are desperate to get their products and we have the products. So, we looked at it that 2022, we'll be better than 2021, but the risk is always there and like this COVID delta or lambda or whatever you call it, it changes from month to month, week to week.

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

Great. That's helpful. In terms of government budgets, we're coming up on the end of the fiscal year through the federal government. Are you expecting similar budget flush relative to last year? And how do you feel about budgets heading into fiscal '22 on the federal level?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Well, we are very confident about it. We are getting good signals that between late August and September, the government year end, there'll be a lot more activity. We are well positioned with the various government agencies and with the new infrastructure build, which is still in preliminary of what they're talking about, we feel that the infrastructure build will help us long term. And we believe that the more investment that is made in the infrastructure upgrading of the, of this and the economy opening up, it'll be a big help for us. But we believe very strongly that our products, especially at borders and boat crossings and air cargo and stuff, we are very well positioned as the [Indecipherable] year comes to an end.

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

Great and then one more question if I could. The Optoelectronics segment, very rapid growth, obviously, you're well positioned. Just curious if you could help us understand how much of the growth was driven by increased activity versus new customer levels?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Same in both, very good question. New customers, Alan has mentioned in the previous calls also, we have done it till the growth has been fantastic, mostly coming from our Asia operations, specifically in the automotive sector. And as you can see all over, the demand for automotive is tremendous and we are very well positioned. We are linked onto lots of, lots of good brand names of the products we are making. Aerospace and defense is the other area that's growing. Healthcare is also growing. So all in all, we are well positioned. The challenge is going to be again back to the pandemic where you read every day that there's material shortages, there's freight problems, materials coming in that we are looking at it. There are some cost price increases, but at the same time, we've also been able to increase the prices in some places to our customers and they are very appreciative of it. So all in all, we believe that this will continue the growth, maybe not at that level we are talking about, but still going to be -- continue to have a strong quarter and as strong year as Alan has mentioned. The margin will be depended upon the mix in a way and -- but there is always uncertainty, it's going to happen. Alan, you want to add something.

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, very strong year for Opto. So, we enter fiscal '22 with a very strong backlog. Earlier as mentioned, we had a record backlog, it's up more than 40% from where we ended last year on the Opto side. So, we're excited about the opportunities for continued growth in Opto throughout the course of fiscal '22.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Just the other thing that I would mention is and I've said that in my call, compared to our competitors, we are very well positioned because of our vertical integration and our global footprint in manufacturing in Asia, In U.K. and in U.S., so that we can cater to the needs better than our competitors for our customers and at the same time we have a very broad product portfolio and the industries which are all over the place, as I mentioned aerospace, defense, electronics everything. So, we believe that as distinct fiscal '22 comes in, we feel good about the Opto business.

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

Great. Thanks for your time and I would just point out, you almost had another record on the list in the quarter with Security just narrowly missing the record of quarterly revenue.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Thank you, Jeff.

Alan Edrick -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Aman Gulani from B Riley Securities. Your question please.

Aman Gulani -- B Riley Securities -- Analyst

Hey, Deepak and Alan. Thanks for taking my question and congrats on another solid quarter. I wanted to ask maybe if you could -- maybe provide more color on your new cardiology diagnostic solutions? How significant of a revenue contributor do you think some of your cardiology products will be for Healthcare in the current fiscal year?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Good question. We are very much focused on growth in the cardiology business. Relatively, it's a smaller portion than the patient monitoring, but we believe that the growth is going to be stronger and the margins are much better in the cardiology and at the same time since everybody is talking about telehealth and home care and connectivity story, we are working on our new products. SafeNSound was a great technology acquisition we did and we are continuing to make some new products into the cardiology side and feel that the relative percentage between monitoring and cardiology, cardiology will continue to grow. Alan?

Alan Edrick -- Executive Vice President and Chief Financial Officer

Yes, And just to add on to that, we're very excited about cardiology for fiscal '22 and not just with the new products, but we really enhanced the sales channel in the United States throughout fiscal '21. So, we think that should pay nice dividends in fiscal '22 and beyond. So, very exciting area for us.

Aman Gulani -- B Riley Securities -- Analyst

Thanks. It's very helpful. And I know last quarter you mentioned that you expected your turnkey program in Guatemala to ramp to full scale by the fourth quarter. Did that happen? Is that turnkey program at full scale at this juncture?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Yes, it is. We are very, very happy with what the -- and it's doing at our expectations.

Aman Gulani -- B Riley Securities -- Analyst

Excellent. Okay. And then the last question for me and I'll jump back in the queue. I know you called out Opto, seeing some particular strength in the auto, any additional color you can provide on that. What's driving the auto strength there? I know, supply chain headwinds, are you able to sort of be like a replacement components given the supply chain headwinds that the auto industry is seeing currently?

Deepak Chopra -- Chairman, Chief Executive Officer and President

Again good question. The new products, obviously, but at the same time, we've got a good traction into the electric vehicle platform and that's been a big positive. And we continue to develop products for the automotive industry and like I mentioned before, these auto brands, both our domestic brands and European brands have been very, very, very good for it and the demand continues to be in there and we have manufacturing for automotive both in Asia and Mexico.

Aman Gulani -- B Riley Securities -- Analyst

Thank you. Congratulations again. I'll pass it on.

Deepak Chopra -- Chairman, Chief Executive Officer and President

Thank you.

Operator

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 -- Chairman, Chief Executive Officer and President

Again want to thank everyone for joining our call. I want again emphasize we are very, very happy and pleased with our year end. We're looking forward to a positive growth, both in revenue and earnings in fiscal '22 with the caution of the uncertainty of the pandemic. Our primary goal is to cater to the needs of our customers. At the same time, look at it of the safety of our employees and the families and we are very much focused on to it at that. Thank you very much. Looking forward to talking to you after the first quarter.

Operator

[Operator Closing Remarks]

Duration: 77 minutes

Call participants:

Alan Edrick -- Executive Vice President and Chief Financial Officer

Deepak Chopra -- Chairman, Chief Executive Officer and President

Lawrence Solow -- CJS Securities -- Analyst

Brian Ruttenbur -- Imperial Capital -- Analyst

Ellen -- Jeffries -- Analyst

Jeff Martin -- Roth Capital Partners, LLC -- Analyst

Aman Gulani -- B Riley Securities -- Analyst

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