OSI Systems, Inc. (OSIS) Earnings Call Transcript & Summary

Dave Chen at Morgan Stanley, and welcome, Alan, to the Morgan Stanley Tech Conference.

Thanks for having us, David.

Wonderful. So this is OSI Systems, and Alan has been the CFO since 2006. That was an amazing run at this great company.

So yes, so maybe just give us -- just to start off, just warm us up with. We'll dive in into different components in a second, but just give us a sense for the mission of the company is to drive solutions for a safer and healthier world. And so what was sort of the origins of the company and the mission and how it all fits together?

Yes, that tagline really comes back to our 2 primary divisions: Security and Healthcare, which are supported by our third division, Optoelectronics. And we make security products that really protect the world. And it's difficult to turn on the news these days without seeing an event taking place somewhere in the world. And while quite unfortunate circumstances, it plays very well into what we do. And similarly, on the Healthcare side, we provide products that go into hospitals, medium and large hospitals. And during COVID, our products were needed at an accelerated pace. So it's really -- that's where the tagline really kind of comes from in terms of solutions for a safer and a healthier world.

Makes sense. And then just at the highest level, is it from a -- in terms of what brings it all together, is it -- is there a technology core? Is there a kind of a sales and marketing or R&D?

Yes. The core technology really is our sensors, our detectors, our electronics components that our Optoelectronics division makes. So in Security and Healthcare, where we sell to the end customers, in Opto, we really provide sensors, detectors and electronic components to some of the leading OEMs in the world, technology companies, aerospace and defense, medical, industrial, automotive, but that same technology, we also supply many of the key components to go into our Security products and into our Healthcare products. So through that vertical integration, we end up enhancing the margins overall OSI Systems, we can be much faster and more responsive to our customer needs. And then some of the days of supply chain challenges, which we've particularly seen in the last few years, it's been incredibly helpful for us and giving us a real competitive advantage in the marketplace.

All right. Great. So let's dive into, I think, the business that probably OSI is best known for. So just give us a sense for the Security business, the products you sell -- you sell to some of your biggest customers.

Sure. So our Security business, which does represent over 60% of our revenues. Our brand is called Rapiscan systems. And you see it all the time when you go through airports and other locations. We're best known for the aviation setting because it's so visible where we sell X-ray systems and CT systems for check baggage, for carry-on baggage and then we make trace detection products and the like. But the biggest and fastest-growing part of our business is actually our cargo and vehicle inspection products where we sell products for the ports, the borders and critical infrastructure. The same products that we sell throughout ports and borders, are more specifically some of the checkpoint products in aviation, we also sell to sporting events, hotels, office buildings, so it's really quite a wide array and the markets just kind of keep on expanding, unfortunately, as events take place in the world.

Yes. So maybe just touch on that. So some of the last 3 to 5 years. Obviously, from a geopolitical perspective, we all can read the news. But just broader tailwinds in your business and what drives that Security business?

Well, a lot of things really drive it, but events in the world. Some of the events we're seeing, unfortunately, right now in Ukraine and the Middle East drive demand. Terrorist events drive demand. But fundamentally, there's just an increased need for countries to secure the borders, to secure their ports. There's always been a regulatory need to secure airports and the like but fundamentally with the increasing risks taking place in the world, countries really want to secure, not just countries, but commercial organizations want to secure themselves as well.

Is it primarily a -- has it all been penetrated? Or are there literally some countries or certain markets that are actually putting in security systems for the first time? Or is it all kind of more of a replacement market every 3 to 5 years?

Yes, really a great question. And it really -- the answer is it really depends on which markets we're talking about. In aviation, of course, there are new airports being built and there's new terminals, which require new equipment. But aviation is largely a replacement market or technological upgrades and the like. But ports and borders, which is our fastest-growing market and our largest market as well is really in the early, early innings in its infancy here in the United States as well as internationally. So we think the opportunities for growth in this area are extremely robust.

Interesting. Give us a sense for just -- if you're just trying to understand the market, the structure, how do you think about the main split in lanes of competition and where is OSI the strongest and where maybe are you maybe #2 or #3 and you're trying to get to #1?

Yes. So we would generally characterize ourselves as #1 or #2 in the industry. And then when you look at it by submarket segment, if you look at cargo and vehicle inspection, we believe we're the #1 player and we believe we're the #1 player by a long shot, which is a great place to be, especially in a big and growing market like it is today, and it's early innings. When we look at aviation, we're probably #2, the biggest competitors that we have and throughout our business really ends up being misdetection out of the U.K. and Leidos. And there's a few other companies as well. But this is really where we would look at our market position.

So basically, ports and borders and aviation. Anything else? Or is that -- those are the 2 main...

Those are really the main areas. I mean we play in personnel screening where there's a number of companies as well and various checkpoints that are non-aviation again, in those things like office buildings and courthouses and hotels and sporting events, where there's probably a little bit more competition in that regard. But in the big areas of customs and border protection aviation, there's a very finite amount of competitors.

I'm super interested in just the actual -- we've all been through a -- some of us have done like a CT scan, and there's some pretty cutting-edge technology on the medical side. But actually, it's really interesting what is under the hood in the advanced level of capabilities that an OSI machine has. So give us a sense what just the actual technology that you actually have.

Yes. So we have multi modalities, a number of different types of technology. On the cargo and vehicle inspection side, we have the broadest technology in the industry. We have what's called low energy, medium energy and high energy x-ray. We developed a lot internally as well as by acquisition. Some was brought in. We take those technologies and we're able to combine them into combinational technologies, being one of the industry's only company to be able to do that. And that's really given us a distinct advantage while some of our competitors have to push a particular technology in the company, we can see what's right for the customer, and we offer all types of different technologies which has been really helpful. We invest a significant amount in R&D that's driving a lot of the new technologies that we're coming out with. You're right on the CT side, which is used predominantly for aviation. We've come out with some of the fastest and best imaging out there. So it's really quite exciting. We really think we're on the forefront and we always love to be the technology leaders in the security detection space.

Right. One on the business model side, just how has the business model evolved in terms of how you price and sell? And then maybe just before you get -- go there, just how do you actually distribute? Is it direct or is it through channel -- through channel partners?

Yes. So to your last question first, we sell predominantly direct. We do have some distributors and agents in certain countries where it makes sense to do so. But the bulk of our sales are on a direct basis.

Yes. Okay. And in terms of -- in case of the business model evolution, is it -- I'm going to assume the original business model was basically sell a direct product to a customer, and that's kind of it, one and done.

Yes. So you're exactly right. So our basic business model in the past has always been we sell the product to the customer, and then we get nice recurring revenue through the service and maintenance which is key for us and it gives a lot of recurring revenue for us.

What's the approximately -- is it 80-20 in terms of the value of the service versus the...

Yes. The initial state, it's probably 85-15 but what you end up getting is over the life of the product out there, you probably get twice the original purchase price or pretty close to that through the recurring annual revenue over a 7-plus year basis.

And that's a typical contract? 7-ish years?

Yes. The replacement cycle, typically 7 years. Sometimes it could be extended a little bit longer with technological upgrades in between. But several years ago, we challenged ourselves, to your point and said, how can we expand the revenue potential? How can we expand the margins? And we said, well, what if there's a customer set out there that either doesn't have the capital, they don't have the money to buy the equipment or if they do, what if they don't have the operational expertise to run it. What if we do a full program for them, we call the turnkey program. And it's our -- it's another version of a SaaS model, Security-as-a-Service as opposed to Software-as-a-Service. And we were the first to come out with this. We've had a tremendous first mover advantage. We've had a number of successes. And what we do is rather than sell the equipment, we manufacture the equipment. We place it at the customer site, we staff it up with our people, but we own the equipment. And then we charge a fee per scan or a fee per site per month. We enter into a long-term contract, the contracts that range from 5 years to 15 years, and we get higher margins on these. So now we've got great recurring revenue at more attractive margins, which has been a tremendous success story for us. And one of the best things that came out of it was the proprietary software that we developed called CertScan which has really been an industry first and has given us a clear differentiation in the marketplace.

Give us a sense for the functionality of CertScan.

Yes. So CertScan is really a command and control center. We've -- using the images that we were able to obtain through our turnkey program that gave us an advantage over our competition with millions of images, we're really able to try to perfect the software. And while we predominantly use the software in our turnkey programs, we've now taken it out as a stand-alone SaaS, Software-as-a-Service model for us. And again, just in its infancy, we think it's going to have tremendous growth potential for us at SaaS-like margins, increasing our recurring revenue percentage significantly. And it's not just helpful as a stand-alone product, but it continues to help us in our actual product equipment sales. For instance, we won a couple of very, very large contracts in the last fiscal year. And one of the big reasons why we won those contracts for the equipment was because it included CertScan as well that no other company could provide. So while we thought we might share some of those contracts with our competition, we ended up becoming sole sourced and winning 100%, and we believe CertScan was a big contributor to that decision-making process on the part of the customer.

Well. In terms of the -- so back on the -- so that's a SaaS product, but that grew out of just the overall evolution of the turnkey business model. And so with the turnkey business model, how should we think about that and how prevalent that will be across the entire Security business? Is it kind of like 1 or 2 contracts a year? Or is it something where you're turning the entire company to do turnkey?

Well, ideally speaking, we would love if every customer went turnkey. And the reality is most customers prefer to still buy the equipment themselves and operate it and then we get a nice service contract. But we do really look at all customers, particularly on ports and borders, but now moving into aviation. We won our first aviation turnkey more recently as really potential opportunities for turnkey. So yes, we'd like to migrate it even faster, but it does represent a huge potential for us.

Okay. You mentioned some of the big contracts. Can you just drill into that? I think you mentioned 2 big contracts that you signed, I think one was $200 million and one was $500 million?

Yes, you're exactly right. So over the -- really over the past 12 months or so, we signed 2, what we consider very sizable contracts for us, $200 million plus and $500 million plus, as you mentioned. The $500 million contract was in Mexico with the Mexican Army called SEDENA and the $200 million contract was also an international contract. Both of these, while we thought -- as I alluded to a little bit earlier, we thought we might share these awards with some of our competitors ended up sole sourcing to us, to OSI systems. And some of the reasons we think for that, so for instance, the $500 million contract with SEDENA in Mexico, Mexico talked to the United States, who gave us a tremendous reference in that regard, working with CBP, Customs and Border Protection, which is an outstanding customer of the company. These contracts have been great. We're just starting to scale them up right now. So it's providing tremendous visibility. We're sitting today at a record backlog or at the end of our fiscal year at a record backlog which gives us the best visibility we've ever had in our company's history. So it's exciting. We've increased our capacity and our throughput significantly to scale up for these contracts and our factories are rocking and rolling.

But you would say that the main driver, I think you mentioned one of them was the CertScan capability relative to -- your competitors just simply didn't have this.

Yes, our competitors didn't have CertScan. We think that was a huge differentiation for us. That landed us 100% of that $500 million contract as opposed to potentially sharing it with 1 or 2 competitors.

Was that aviation or was that in the port and border side?

This was on the border side. This was for borders.

Both of them?

Yes, both of them are in that area.

What about on the -- just more on the geopolitical side. So Israel and Ukraine and just what's it been like on the ground? And is that -- how much of that is actually driving your business? Obviously, we see the headlines, but actually when you break it down to the 500 feet level, like is it actually on the ground driving your business?

Well, it's certainly helping our business. It hasn't resulted in material new sales as of yet. But the Ukraine conflict, they're certainly looking to secure their internal borders, they've talked to us. There's business coming there. Not just in Ukraine but in their neighboring countries as well. So it represents significant opportunities. We're in discussions with them regularly. Similarly in the Middle East, very unfortunate in the world, but we're also looking at screening folks coming over from Gaza into Egypt, screening folks going back into Israel. It's supplying some nice opportunities. So nothing that's necessarily driven our business so far in this fiscal year, but stuff that's going to lead to, we think it's going to lead to some substantial opportunities in the future.

Yes. And I guess I have to ask just from a federal budget perspective. Just what's it like? And what's -- I don't want to ask for your prediction, but just how are you planning for the current situation with the federal [indiscernible]?

Yes. So we would, of course, love to see the U.S. federal government pass the budget. It's important to remember that more than half of our security business is outside the United States. While they're operating on continuing resolution here in the United States, we continue to work with them on our existing programs, which has been fantastic but the new federal budget will then allow for new programs to be funded and the like. So that's important to us. We think we stand in a good position to receive some substantial contracts if and when that does occur. And we know it will happen. It's just a question of time.

Sounds good. All right. So let's maybe move into the Healthcare side. So maybe just do the same thing, just level set for us the core product areas within the Healthcare business.

Yes. So our Healthcare business, sort of important to remember, it represents 12-or-so percent of our revenue. So it's our smallest division but it's our highest contribution margin division. Every incremental dollar that we sell in Healthcare, a big amount drops to the bottom line. In Healthcare, we sell to medium and large hospitals.

Direct?

Direct. So we sell mostly direct. We sell direct in the U.S. and Western Europe and through distributors in other parts of the world. We're also direct in Canada. But we sell this patient monitoring products and cardiology products and what the patient monitoring products are is the monitor that you might see at your bedside while you're sitting in the hospital that's connected to a central station where a nurse can look at multiple rooms simultaneously, which is connected to our telemetry products, so the patient can be continuously monitored as they move throughout the hospital, which is also connected to the hospital's electronic medical records. So it's really a fully connected solution, an important area for us. In hospitals, it's predominantly a replacement market. As there are some new hospitals and new wings being built but it's mostly a replacement market that we're dealing with in both patient monitoring as well as in cardiology.

And once again, just give us a sense for the competitive landscape in the different submarkets that...

So our biggest market in Healthcare is patient monitoring together with the service and the supplies and accessories, the nice recurring revenue that we get. Patient monitoring can represent approximately 2/3 of our overall revenue. Unlike Security, where we're #1 or #2 in the market, in Healthcare, we compete against a few of the big boys like Philips and GE. We're not naive enough to believe that we're going to overtake either one of those. But we think there's a great opportunity to capture some additional market share. We're coming out with some new products that we think will really help that as well.

How about the cardiology?

So cardiology is a bit more fragmented business. We also compete against folks like Philips and GE and formerly Hill-Rom, but it's a much more fragmented market.

In terms of the recent results on the Healthcare side in the last quarter, just give us a sense for the environment with hospital spending. And I guess, what do you -- what's going on there and when do you think that'll recover?

So the hospital spending environment, CapEx spending environment has been a little bit more challenged. Hospital's own balance sheets have been tougher. So as a result, if they can defer certain CapEx spending, they are -- they also pulled a lot of spending forward. So when COVID first occurred, they brought a lot of the patient monitoring purchases they might have made in future years into '21 -- '20, '21, '22.

You're experiencing a pull forward.

That's exactly right.

When do you think that normalizes?

We think it's beginning to normalize now and then we expect really the more sizable growth for our own business to be coming with kind of the -- really the launch of our next-generation platform.

Makes sense. Yes. That's obviously a CapEx burden on these hospitals. So you've been doing some interesting things to try to lessen that burden?

Yes, exactly. So hospitals, because they've had a challenging capital expenditures budgets we've been saying, how can we operate within their own operating budgets. And to that end, we created a model we call the equity subscription model. So for many years, hospitals have sometimes rented equipment for companies. And when they rent equipment, they sometimes end up paying 2 to 3x what they would actually pay if they just bought the equipment themself. Through our equity subscription model, it's kind of a rent-to-own model where they're paying us under their existing operating budgets, which is easier to kind of get through their environment. And then at the end, they can own the equipment for a certain transfer cost, which is substantially less than the traditional just renting. Yes. So we've seen great receptivity at the highest levels of some of these healthcare organizations. So a brand-new model for us. We've already gotten some nice wins on it, but we expect it's going to be significant for us going forward.

Right. On the margin side, why is the Healthcare division the highest contribution margin segment? What drives the margins there?

I think it's the nature of the industry. When you look at medical devices in Healthcare, because of the level of R&D spend, because of the sales and marketing organizations required to sell the product, they generally carry higher margins. It's a very rational competitive landscape. So it's not a race to the bottom as you see in some industries. Everybody kind of keeps pricing relatively stable, not to say for certain deals, you might go a little bit more aggressive. But it's a very rational marketplace. And these are the type of margins that you tend to see in the medical device arena, which is a bit more favorable than we like to see in our other segments.

Makes sense. All right, finishing off with the Opto side. So Opto is, call it, what, 30-ish percent?

Yes, a little bit less than that.

A little bit less than that, right. Yes. So just refresh us on what are the core products?

Yes. So on Opto again, we make sensors and detectors and electronic components. We're an OEM manufacturer. So we sell to the leading technology companies, many right here in the Silicon Valley in San Francisco. We sell to the leading aerospace and defense companies and medical companies, automotive, industrial. We get engineered into their products. And once we're engineered into the products, it tends to be very, very sticky. We can be there for the entire life cycle of the product, unless we screw something up, which not -- rarely ever happens. So many of our customers have been with us for well over a decade on particular programs and then we try to mine new programs from them. We operate in multiple locations in a lot of low-cost jurisdictions, so we operate in -- we do a lot of our manufacturing in Indonesia, Malaysia, India. We also have U.S.-based operations as well as in the U.K. and a newer Mexico location. So it's been a great area for us. Our third-party sales are great. And of course, fundamentally, that vertical integration that you started the conversation with is paramount to kind of everything we do. So many of the key components, again, that go into our Security and Healthcare products are made by our Opto division and sold at arm's length pricing.

Actually right. So do you give the percentage publicly? What percentage are you selling to yourself versus externally?

Around 85% of our sales are third party and about 15% are intercompany. And although that 15% gets eliminated in consolidation, the margin remains in-house and it stays with us.

Okay. Got it. You recently established a location in Mexico on the office side.

Yes. Very exciting for us. Yes. So as just mentioned, we do a lot of our manufacturing in Southeast Asia. We don't do anything in China, but a lot of our manufacturing in Southeast Asia. And our customers have been clamoring now for near-shoring opportunities. So in December, we now have a new location in Mexico, in Tecate, Mexico. So we're very excited about that. We've got some new customers there. We're bringing on a number of new customers. We think that's going to lead to some nice growth in our Opto division as we move into fiscal '25 here in about 4 months, and our customers couldn't be happier. So now we have a combination of offering them manufacturing in places like Batam, Indonesia and Malaysia, but also in Mexico for those who want the near-shoring capability.

Why is the near-shoring so critical in that global market, lots of products are manufactured everywhere, Asia, the U.S., et cetera. So why is this so critical?

Some customers like the proximity. U.S.-based customers like to be able to just go right over the border to Mexico as opposed to flying halfway across the world. That's a huge thing for them. Some like the shortened logistics time through -- when you manufacture it, shipping it is far shorter rather than doing ocean-bound freight, it can be a much briefer period.

Makes sense. So you started off hitting kind of the idea of the turnkey business, the Security side. And then you actually mentioned you have kind of a pseudo turnkey business on the Healthcare side with your rent-to-own model. And so on the recurring side for the Opto side, obviously, you probably don't have something like that, but the business is inherently recurring. So give us a sense for how much of that -- how much recurring revenue do you have in the Opto side, versus Healthcare and Security?

Yes. So when we look at it, and it often surprises people, we think about maybe around 45% of our overall revenue business are recurring. And when you speak to Opto specifically, those repeat revenues, we think it's well over 80%. In fact, for customers who buy $1 million or more for us the last 3 or 4 years, that repeat revenue is 100%.

That's because you're designed into these products.

Precisely. That's precisely right. So very exciting for us.

That's great. All right. So just in terms of just going back to core technology. What's next on the horizon here? What's the cutting edge that you're going to come out with in the next few years. I mean, you don't have to mention specifically but just thematically, just what are you excited about across the 3 different divisions?

Yes. So we spent a nice amount in R&D. Most of the R&D that you see reflected in our P&L is in Security and Healthcare because the R&D that we spend in Opto is generally customer funded. When we look at Healthcare, the exciting thing is we're coming out with a next-generation patient monitoring platform. So we've been selling the same platform for a number of years. This will be our first new platform for quite some time. That's got a lot of remote monitoring capabilities, and we think it's going to really make us state-of-the-art. So that's where a lot of our development is going and quite exciting. On the Security side, a lot of exciting things we're developing there. Unfortunately, we can't talk to them right now until we release it, but that's where the bulk of our R&D spending is. And like we've shown in the past, which has allowed us to become the market leader in the Cargo & Solutions business, a lot of the stuff that we're developing, we think, will allow us to not only be the market leader in Cargo & Solutions but ultimately to be hopefully the largest security detection company overall.

Great. Last quarter was very strong. You surpassed $1 billion in revenues and then record quarter just from a top line perspective. So just give us a sense for just more from a financial lens, what are some of your core priorities going into '24?

Yes, I mean, it couldn't be more exciting for us. You're right. We just had a record quarter on the top line. We had a 26% revenue growth, which we leveraged to significantly faster operating income and EBITDA growth which is always sort of our core mantra. We always want to grow our bottom line faster than we're growing our top line, leveraging our infrastructure. We sit here with the best visibility that we've really had in our company's history by virtue of the backlog that we have, but we also have an outstanding pipeline of opportunities. So as we think about '24 to your question, for us, it's execution, execution, execution. It's just about executing. And our teams have historically done a great job at that. We see no reason why that's not going to continue. And then just as importantly, our sales teams, which are doing such a fantastic job with new business development opportunities, we want to continue to land those strong bookings to give us visibility out for an extended number of years. So that's really our primary focus on an organic basis that we're quite excited about.

Right. What about just more on the balance sheet side. Just give us a sense for -- I think you have a revolver in place and just your broader capital allocation strategy in any given year and maybe going in '24?

Yes. Our balance sheet is pristine. We have low net leverage overall. We'd like to use that on an opportunistic basis in the past with the free cash flow that we've driven. We've done some significant amounts of stock buyback. We've done acquisitions. And the excess cash we have, we've often used to pay down debt. But again, that net leverage is low. Right now, as we're growing so rapidly, there's working capital usage as we're growing inventory and receivables and the like, but that's exactly what we want to put our balance sheet to work for. So from a capital allocation standpoint, we don't think we're limited to any of the 3, we think we can do. We can continue to do M&A. We can continue to do stock buyback. We can continue to invest in capital expenditures. We don't think it's mutually exclusive.

All right. Let's have a couple of more questions, and I'd love to open it up for the audience here. So one of the potential uses would be acquisitions. And can you just remind us in history, how many acquisitions OSI has made and how critical has that been as a tool kit to kind of grow the company?

Acquisitions are a big part of our strategy and acquisition is in our DNA. We do acquisitions -- most of the acquisitions we do are accretive out of the gate or very soon thereafter, usually very strategic that will fill a channel need, a technology need, maybe take out a competitor. We've had some examples of some extraordinary acquisitions that we did. We took out one of our publicly traded competitors called AS&E a few years back, and we can only characterize that as a grand slam. It brought that leading low-energy X-ray technology to us that we blend it with our medium energy and high energy, giving us really the leading Cargo & Solutions company today. It brought us some incredible talent to the organization, which has really helped us as well. So that's just kind of an example. So sometimes the acquisitions we've done have been larger. Most of the time, they've been more bolt-on technologies and companies and the like as we look forward. Acquisitions and M&A are a key part of our strategy. We see nice organic growth going for us, but we'd like to turbocharge that with some acquisitions as well, utilizing the strength of the balance sheet, as you mentioned. So that will clearly be part of our strategy going forward.

You have 3 main pillars. Do you think you would ever think about a fourth pillar for OSI that brings it together or you have enough to chew off with the 3?

We believe that the 3 main pillars are sort of the right pillars for us. We do not foresee necessarily adding a fourth pillar. Never say never, but it's not part of our current line of thinking.

Yes, I understand. Go back to -- all right, actually, let me just see if we have any questions from the audience. No, all right. Let's go back to on the international side. Obviously, we, at Morgan Stanley are very excited about areas like India, as an example, for next 10-year growth? Where should we see -- where are you under-leveraged today? And where should we see OSI really across any of your businesses?

Interesting, you mentioned India. We agree with Morgan Stanley. We see India as a tremendous opportunity as well. We have a base there and a beachhead in -- predominantly in our Security and Optoelectronics industries, but we see huge opportunity on the Security side in India with the expanding number of airports there, ports and borders, very much an underpenetrated area. So that is a huge part of our strategic direction. In fact, as sit here today, our CEO happens to be in India right now. So India is a big part of our overall strategy.

But currently no existing kind of revenue traction today?

I wouldn't say that -- no, we do do revenues. We have been selling into India for years, but we believe the opportunities are multiple times greater kind of going forward. So it's a real important area for us. As is much of the Asia Pacific region, we also look at the Middle East as very fertile territory throughout the Middle East. Right here in the United States, we continue to believe there's tremendous opportunities for us, particularly at the borders. Latin America, much of Latin America continues to be underpenetrated as well, notwithstanding the big Mexico contract we talked about earlier, when you look at Central America, South America and the like, still tremendous, tremendous opportunities.

Great. So yes, let's maybe just wrap it up with a wrap-up question. Just where do you see OSI kind of longer term, like next 5 to 10 years?

Yes. Yes, great question. I mean we think we've had some nice success over the past several years but we really think the best is yet to come. As we look forward, I think we're going to migrate more and more to the services element of the business and that recurring revenue that we are talking about and the SaaS portion of our business is going to become a bigger and bigger part of our business, which is extremely exciting for us as the SaaS margins and the service margins in general carry -- are much stronger than product margins. So as we look forward, though Security now is well north of 60% of our revenues, we expect it to probably continue to be the fastest-growing part of our business. And notwithstanding acquisitions, we expect that to probably increase more and more. And we couldn't be more excited as we look out over the next 5 years with our product road map, the pipeline of opportunities, some of the big replacement cycles that are slated to happen here in a few years, we think the future is extremely bright.

All right. Thank you very much.

Thank you.

We appreciate it. Thanks.