OSI Systems(OSIS) - 2021 Q3 - Earnings Call Transcript

Financial Performance - The company achieved record non-GAAP fiscal Q3 earnings per share of $1.38, up 15% from Q3 of fiscal 2020 [8] - Q3 adjusted operating margin was 12.6%, a 170-basis point increase from 10.9% in the same period last year [8] - Operating cash flow for Q3 was $42 million, with a record total of $131 million for the first nine months of fiscal 2021 [8][38] - Revenues in Q3 were $284 million compared to $293 million in the prior year Q3, with strong sales growth in Healthcare and Opto divisions offset by a 19% decline in Security division revenues [28][29] Business Line Performance - Security Division: Revenues decreased by 19% year-over-year due to pandemic impacts, but adjusted operating margins improved to 17.9% [29][36] - Healthcare Division: Revenues increased by 18% year-over-year, with significant operating margin expansion to 13.9% [21][37] - Optoelectronics and Manufacturing Division: Revenues were $19 million, a 29% increase year-over-year, with record operating income and backlog [23] Market Performance - The Security division's bookings were solid with a book-to-bill ratio of 1.1 for Q3, indicating a strong backlog of $1.1 billion [11][30] - The Healthcare division saw strength across multiple geographic channels, particularly in North America [29] - Opto division experienced growth in defense, space communication, and automotive sectors, indicating a broad customer base [24][71] Company Strategy and Industry Competition - The company is focused on executing its strategy for a safer and healthier world, with investments in product development and potential strategic acquisitions [42] - The company aims to maintain leadership in providing innovative products and solutions, leveraging a broad portfolio to capture large customers [66] - The company is well-positioned in the market with a strong product offering, particularly in cargo and border security [78] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the Security division as pandemic-related challenges begin to ease, with a strong backlog expected to drive revenue growth in Q4 [50][64] - The Healthcare division is expected to face some headwinds from COVID-related purchases but is investing in R&D for future growth [51] - Overall, management is optimistic about fiscal 2022, anticipating a return to normalcy and continued growth across divisions [55] Other Important Information - The company reported a decrease in SG&A expenses by 12% year-over-year, contributing to improved operating margins [33] - R&D expenses were $13.9 million, reflecting a commitment to innovation despite a slight decrease from the previous year [34] - The company has a strong balance sheet with net leverage of approximately 1.0, allowing for continued investment in growth [38] Q&A Session Summary Question: Outlook for Security division growth - Management noted that visibility for Q4 is strong, with a solid backlog and expectations for revenue growth as pandemic restrictions ease [49][50] Question: Healthcare segment growth and COVID impact - Management indicated that while there may be some downward pressure from COVID-related purchases, other product lines like cardiology are expected to pick up [51] Question: Visibility into next fiscal year and growth expectations - Management expressed optimism about returning to mid-to-high single-digit growth in fiscal 2022, supported by a strong backlog and order flow [55] Question: Timing of IDIQ orders - Management stated that while timing is difficult to predict, they expect activity to increase before the government fiscal year ends in September [56][57] Question: Operating leverage and margin expansion - Management aims to expand margins while balancing investments in R&D and sales, indicating a focus on both top-line growth and margin improvement [59] Question: Component and freight headwinds - Management acknowledged concerns but emphasized their strong vertical integration, which helps manage supply chain challenges effectively [69] Question: Security margins for fiscal 2022 - Management indicated that while there will be opportunities for margin expansion, some temporary cost reductions seen during the pandemic may revert [72]