Summary of OSI Systems Conference Call Company Overview - OSI Systems operates in three divisions: Security, Health Care, and Optoelectronics [3][4] - The Security division, RapidScan Systems, accounts for over two-thirds of revenues and is a leader in security detection [4][5] Key Points and Arguments Security Division - The Security division is primarily known for aviation products but is experiencing rapid growth in cargo and border solutions, particularly in the U.S. and internationally [4][5][10] - The U.S. government has significantly increased funding for non-intrusive inspection (NII) technology, with a proposed budget of $1.1 billion, quadrupling previous expectations of $300 million [12][14] - International growth remains strong, with notable opportunities in the Middle East, Latin America, Asia, and Europe [10][12] Revenue and Growth - Recent contracts in Mexico have matured, leading to a 50% decline in revenues from that region, but overall security revenues increased by 10% [15][16] - The service revenue from the installed base in Mexico is expected to increase as products roll off warranty, leading to higher margins [16][21] - The life cycle of security products is approximately 7-10 years, with aftermarket service revenues potentially doubling the initial product sale [20][21] Optoelectronics Division - The Opto business has shown resilience during a destocking period, with a 15% growth in the last quarter [30][31] - Companies are increasingly looking to shift manufacturing away from China, presenting opportunities for OSI Systems due to its global manufacturing footprint [32] Health Care Division - A new patient monitoring platform is set to launch in summer 2024, which is expected to drive significant growth [34][36] - The health care division has the highest contribution margins, and improvements in top-line revenue could lead to higher operating margins [36] Cash Flow and Financial Outlook - Free cash flow conversion is expected to be strong, with significant cash generation anticipated in fiscal 2026 [41][42] - The company has a disciplined approach to capital allocation, focusing on M&A, stock buybacks, and debt reduction [52][53] Market Position and Competition - OSI Systems is the largest security detection company and continues to gain market share, particularly in ports and borders [66][68] - The company is exploring acquisitions primarily in the security and optoelectronics sectors, with a focus on bolt-on opportunities [62][63] Leadership Transition - A new CEO has been appointed from within the company, ensuring continuity in strategy and operations [69][70] Margins and Future Expectations - Margins in the aviation sector are expected to be comparable to those in the cargo and border sectors, with no anticipated negative impact on overall operating margins [72] Additional Important Points - The company is actively managing costs, with SG&A as a percentage of sales decreasing as revenues grow [49][50] - Tariffs are not expected to have a material impact on the business, with the health care division being the most exposed [56][57] - The company has adequate manufacturing capacity to meet growing demand without significant new investments [60][61]

Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.Whil ...

Investors might want to bet on OSI Systems (OSIS) , as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices. The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tracked by the system. Since a ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-23125 OSI SYSTEMS, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of ...

OSI Systems, Inc. (NASDAQ:OSIS) Q3 2025 Earnings Conference Call May 1, 2025 12:00 PM ET Company Participants Alan Edrick - EVP & CFO Ajay Mehra - President & CEO Conference Call Participants Jeff Martin - Roth Capital Partners Larry Solow - CJS Securities Matt Akers - Wells Fargo Josh Nichols - B. Riley Seth Seifman - JP Morgan Mariana Perez Mora - Bank of America Christopher Glynn - Oppenheimer Operator Thank you for standing by. Hello and welcome to the OSI Systems Inc. Third Quarter 2025 Conference Call ...

Financial Performance - Revenues increased 10% year over year to a record $444 million in Q3, with growth in all three divisions, including a 10% increase in the Security division and a 15% increase in the Opto division [7][22] - Non-GAAP adjusted earnings per share reached a record $2.44, and the company finished the quarter with a record backlog exceeding $1.8 billion [7][8] - Operating cash flow for Q3 was a record $82 million, a significant improvement from negative cash flow of $52 million in the same quarter last year [8][29] Business Line Performance - Security division revenues increased 10% year over year to $315 million, driven by strong demand and significant new orders, including a $76 million order for explosive detection systems [12][22] - Optoelectronics and Manufacturing division saw revenues grow 15% year over year, surpassing $100 million in sales, with strong operating margin expansion [16][22] - Healthcare division achieved a 5% year-over-year revenue increase, with new leadership expected to drive future growth [18][19] Market Data - The company is actively addressing challenges posed by evolving global trade environments, particularly U.S. tariff policies, while maintaining strong international revenue streams [10][11] - The backlog is diversified across various sectors, including cargo, aviation, and security, providing confidence for sustained growth [51][90] Company Strategy and Industry Competition - The company is focused on cost optimization and strategic pricing discussions to mitigate impacts from trade frictions, leveraging a diversified portfolio and strong customer relationships [10][20] - The acquisition of an RF-based solutions business is expected to enhance capabilities in defense and security markets, with significant growth opportunities anticipated [39][40] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate tariff impacts, with no anticipated meaningful P&L impact from tariffs in Q4 [11][35] - The company is increasing guidance for fiscal year 2025 revenues and non-GAAP diluted EPS, reflecting strong performance and a robust pipeline of opportunities [29][30] Other Important Information - The gross margin for Q3 was 33.8%, up from 33.6% in the same quarter last year, with operating expenses managed effectively [24][25] - The company anticipates strong cash flow in Q4 and beyond, with opportunities for working capital enhancements [41][77] Q&A Session Summary Question: Can you expand on the tariff situation and its impact? - Management indicated no impact on Q4 and limited exposure to tariffs in the largest divisions, with ongoing discussions with customers and suppliers to mitigate risks [34][35] Question: What drove the strength in service revenue? - The increase in service revenues is attributed to a growing installed base of security products rolling off warranty, leading to higher recurring revenue [36][38] Question: What is the outlook for the RF Solutions acquisition? - The acquisition is expected to provide a long runway of growth, particularly with established products like over-the-horizon radars [39][40] Question: How do you see cash flow trends for Q4 and fiscal 2026? - Management anticipates strong cash flow in Q4, with opportunities for further improvement in DSO and working capital [41][77] Question: What is the expected trend for the Mexico contract? - Revenue from Mexico is expected to decline year over year, but strong bookings in other areas are anticipated to support continued growth in the security division [60][61] Question: What opportunities are anticipated with the new administration's budget? - There is potential for significant funding for border security, with a multi-year budget expected to provide visibility for future opportunities [62][74]

Financial Performance - Revenues increased 10% year over year to a record $444 million in Q3, with growth in all three divisions, including a 10% increase in the Security division and a 15% increase in the Opto division [6][20] - Non-GAAP adjusted earnings per share reached a record $2.44, and the company finished the quarter with a record backlog exceeding $1.8 billion [6][27] - Operating cash flow for Q3 was a record $82 million, a significant improvement from negative cash flow of $52 million in the same quarter last year [6][25] Business Line Performance - Security division revenues increased 10% year over year to $315 million, driven by strong demand and significant new orders, including a $76 million order for explosive detection systems [20][12] - Optoelectronics and Manufacturing division achieved a 15% revenue growth year over year, surpassing $100 million in sales, with strong operating margin expansion [14][15] - Healthcare division saw a 5% year-over-year increase in revenues, with a new president leading efforts for long-term growth [16][17] Market Data - The company is actively addressing challenges posed by evolving global trade environments, particularly U.S. tariff policies, while maintaining strong international revenue generation [9][10] - The backlog is diversified across various sectors, including cargo, aviation, and security, providing confidence for sustained growth [49][90] Company Strategy and Industry Competition - The company is focused on cost optimization and strategic pricing discussions to mitigate impacts from trade frictions, leveraging a diversified portfolio and strong customer relationships [9][10] - Anticipated growth in defense and security funding is expected to benefit the company, with ongoing investments in R&D to support innovative product development [18][24] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate tariff impacts and highlighted a strong pipeline of opportunities for future growth [10][18] - The company is increasing its revenue and non-GAAP EPS guidance for fiscal year 2025, reflecting a positive outlook based on current performance and backlog [27][28] Other Important Information - The effective tax rate under GAAP was reported at 14.3%, down from 22.6% in the previous year, while the adjusted operating margin improved to 14.2% [24][25] - The RF Solutions acquisition contributed $29 million to the top line in Q3, indicating strong growth from this segment [79] Q&A Session Summary Question: Impact of tariffs on segments - Management indicated no anticipated impact from tariffs on Q4 results, with limited exposure in the largest divisions [30][31] Question: Strength in services revenue - Services revenue saw significant growth due to an increasing installed base of security products rolling off warranty, leading to higher recurring revenue [32][34] Question: RF Solutions acquisition growth potential - The acquisition is expected to provide a long runway for growth, particularly with established products like over-the-horizon radars [36][37] Question: Cash flow expectations - Strong cash flow is anticipated to continue into Q4 and fiscal year 2026, with opportunities for improvement in working capital [38][39] Question: Mexico contract trends - Revenue from Mexico is expected to decline year over year, but overall security division growth is anticipated due to strong bookings in other areas [57][59] Question: Opportunities in border security funding - The upcoming budget reconciliation includes significant funding for border security, which is expected to provide multi-year visibility for the company [61][75] Question: Pipeline for security projects - The pipeline of opportunities is strong and growing, with increased diversification in backlog across various sectors [90]

Core Insights - OSI Systems reported revenue of $444.35 million for the quarter ended March 2025, marking a year-over-year increase of 9.6% and an EPS of $2.44 compared to $2.16 a year ago, exceeding Zacks Consensus Estimates [1] - The company achieved a revenue surprise of +2.03% and an EPS surprise of +2.52% compared to analyst expectations [1] Revenue Breakdown - Healthcare division revenue was $43.72 million, exceeding the estimated $43.38 million, reflecting a year-over-year increase of +5.4% [4] - Intersegment eliminations reported a revenue of -$15.14 million, slightly worse than the estimated -$15.08 million, but showing a significant year-over-year change of +51% [4] - Optoelectronics and Manufacturing division revenue, including intersegment revenues, was $100.86 million, surpassing the estimated $99.90 million, with a year-over-year change of +14.7% [4] - Security division revenue reached $314.91 million, exceeding the estimated $308.89 million, representing a year-over-year increase of +10.1% [4] Operating Income Analysis - Non-GAAP operating income for the Security Division was $56.91 million, above the average estimate of $55.79 million [4] - Non-GAAP operating loss for Corporate/Elimination was -$10.09 million, worse than the average estimate of -$9.85 million [4] - Non-GAAP operating income for the Healthcare Division was $2.23 million, slightly above the average estimate of $2.07 million [4] - Non-GAAP operating income for the Optoelectronics and Manufacturing Division was $14.09 million, exceeding the average estimate of $13.29 million [4] Stock Performance - OSI shares have returned +3.3% over the past month, contrasting with a -0.7% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1: Earnings Performance - OSI Systems reported quarterly earnings of $2.44 per share, exceeding the Zacks Consensus Estimate of $2.38 per share, and up from $2.16 per share a year ago, representing an earnings surprise of 2.52% [1] - The company posted revenues of $444.35 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.03%, compared to year-ago revenues of $405.41 million [2] - OSI has surpassed consensus EPS estimates for four consecutive quarters [2] Group 2: Stock Performance and Outlook - OSI shares have increased approximately 22.3% since the beginning of the year, while the S&P 500 has declined by 5.3% [3] - The future performance of OSI's stock will depend on management's commentary during the earnings call and the earnings outlook for upcoming quarters [4][6] - The current consensus EPS estimate for the next quarter is $3.20 on revenues of $497.04 million, and for the current fiscal year, it is $9.26 on revenues of $1.7 billion [7] Group 3: Industry Context - The Electronics - Miscellaneous Components industry, to which OSI belongs, is currently ranked in the bottom 42% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact OSI's stock performance [5]

Financial Performance - Q3 FY25 revenues reached $444.4 million, a 10% increase from $405.4 million in Q3 FY24[3] - Q3 FY25 net income was $41.1 million, or $2.40 per diluted share, compared to $34.0 million, or $1.95 per diluted share in Q3 FY24[3] - For the nine months ended March 31, 2025, revenues totaled $1.208 billion, up from $1.058 billion in the same period last year[4] - Total revenues for the three months ended March 31, 2025, were $444,354 thousand, representing a 9.6% increase from $405,406 thousand in the same period of 2024[18] Backlog and Guidance - The Company's backlog exceeded $1.8 billion as of March 31, 2025, with a book-to-bill ratio above 1.0 for Q3 FY25[5] - The Company has increased its fiscal 2025 revenue guidance to $1.690 billion - $1.715 billion, up from the previous range of $1.685 billion - $1.710 billion[8] - Non-GAAP diluted EPS guidance for fiscal 2025 is now projected at $9.15 - $9.45, an increase from the previous guidance of $9.10 - $9.40[8] Division Performance - The Security division reported a 10% year-over-year revenue increase, contributing to operating income growth despite challenging comparisons[6] - The Optoelectronics and Manufacturing division experienced a 15% revenue growth in Q3 FY25, benefiting from a vertically-integrated structure[6] - The Security division generated revenues of $314,908 thousand for the three months ended March 31, 2025, up from $285,960 thousand, reflecting a growth of 10.5%[18] - The Healthcare division reported revenues of $43,722 thousand for the three months ended March 31, 2025, a 5.4% increase from $41,493 thousand in the same period of 2024[18] - The Optoelectronics and Manufacturing division's revenues rose to $100,860 thousand for the three months ended March 31, 2025, up from $87,974 thousand, indicating a growth of 14.5%[18] Operating Income and Cash Flow - Operating cash flow for Q3 FY25 was $81.6 million, a significant improvement from cash used in operations of $52.1 million in Q3 FY24[5] - Operating income for the total company for the three months ended March 31, 2025, was $56,217 thousand, an increase of 9.4% compared to $51,363 thousand in the same period of 2024[18] - Non-GAAP net income for the three months ended March 31, 2025, was $41,865 thousand, translating to diluted earnings per share of $2.44, compared to $37,660 thousand and $2.16 per share in the same period of 2024[22] Assets and Liabilities - Total assets increased from $1,936,008 thousand as of June 30, 2024, to $2,080,997 thousand as of March 31, 2025, marking an increase of 7.4%[20] - The company’s total liabilities increased from $1,072,525 thousand as of June 30, 2024, to $1,201,672 thousand as of March 31, 2025, reflecting a rise of 12%[20] Operating Margins and Charges - The Security division's operating income margin was 17.5% for the three months ended March 31, 2024, and decreased to 16.4% for the same period in 2025[23] - Restructuring and other charges for the nine months ended March 31, 2024, totaled $2,496, which is 0.2% of sales[25] - For the nine months ended March 31, 2025, restructuring and other charges were $3,648, accounting for 0.3% of sales[25] - Amortization of acquired intangible assets for the nine months ended March 31, 2024, was $12,268, or 1.2% of sales[25] - The amortization of acquired intangible assets for the nine months ended March 31, 2025, increased to $13,226, which is 1.1% of sales[25] Healthcare Division Performance - The Healthcare Division reported a GAAP operating income of $2,157, representing 1.8% of sales for the nine months ended March 31, 2024[25] - The Healthcare Division's GAAP operating income for the nine months ended March 31, 2025, was $3,830, accounting for 3.0% of sales[25] - The Healthcare division is expected to gain positive momentum with new leadership introduced during the quarter[6] Future Strategies - The company plans to continue investing in new technologies and market expansion strategies to drive future growth[18]