OSIS

Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at OSI Systems (NASDAQ:OSIS) and the best and worst performers in the specialized technology industry. Companies in this sector, especially if they invest wisely, could see demand tailwinds as the world moves towards more IoT (Internet of Things), automation, and analytics. Enterprises across most industries will balk at taking these journeys solo and will enlist companies with expertise and scale in these areas. However, headwinds could include rising competition from larger technology firms, as digitization lowers barriers to entry in the space. Additionally, companies in the space will likely face evolving regulatory scrutiny over data privacy, particularly for surveillance and security technologies. This could make companies have to continually pivot and invest. The 8 specialized technology stocks we track reported a very strong Q2. As a group, revenues beat analysts’ consensus estimates by 1.4% while next quarter’s revenue guidance was 6% above. While some specialized technology stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 2.3% since the latest earnings results. With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ:OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications. OSI Systems reported revenues of $484.1 million, down 4.1% year on year. This print fell short of analysts’ expectations by 8.5%. Overall, it was a softer quarter for the company with full-year revenue guidance missing analysts’ expectations and a slight miss of analysts’ full-year EPS guidance estimates. OSI Systems delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update of the whole group. The market seems disappointed with the results as the stock is down 5.2% since reporting and currently trades at $206.83. Is now the time to buy OSI Systems? Access our full analysis of the earnings results here, it’s free. Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ:NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems. Napco reported revenues of $55.81 million, up 10% year on year, outperforming analysts’ expectations by 6.2%. The business had an incredible quarter with a beat of analysts’ EPS estimates. Although it had a fine quarter compared to its peers, the market seems unhappy with the results as the stock is down 6.3% since reporting. It currently trades at $35.68. Is now the time to buy Napco? Access our full analysis of the earnings results here, it’s free. With its technology protecting workers in over 130 countries and equipment used in 80% of cancer centers worldwide, Mirion Technologies (NYSE:MIR) provides radiation detection, measurement, and monitoring solutions for medical, nuclear energy, defense, and scientific research applications. Mirion reported revenues of $266.8 million, up 19.7% year on year, falling short of analysts’ expectations by 1%. It was a mixed quarter as it posted a beat of analysts’ EPS estimates but a significant miss of analysts’ full-year EPS guidance estimates. As expected, the stock is down 4.3% since the results and currently trades at $16.06. Read our full analysis of Mirion’s results here. Born from a corporate transformation completed in 2023, Crane NXT (NYSE:CXT) provides specialized technology solutions for payment processing, banknote security, and authentication systems for financial institutions and businesses. Crane NXT reported revenues of $493.2 million, up 22% year on year. This number was in line with analysts’ expectations. Overall, it was a strong quarter as it also logged a beat of analysts’ EPS estimates and an impressive beat of analysts’ full-year EPS guidance estimates. Crane NXT scored the fastest revenue growth among its peers. The stock is down 4.3% since reporting and currently trades at $50.11. Read our full, actionable report on Crane NXT here, it’s free. Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products. Cognex reported revenues of $291.3 million, up 16.9% year on year. This result missed analysts’ expectations by 0.7%. More broadly, it was actually a very strong quarter as it put up revenue guidance for next quarter exceeding analysts’ expectations and a solid beat of analysts’ full-year EPS guidance estimates. Cognex delivered the highest guidance raise in the group. The stock is down 15.1% since reporting and currently trades at $60.01. Read our full, actionable report on Cognex here, it’s free. Over the past year, investors have been forced to repeatedly answer the same question: what is the market’s biggest risk? The answer has changed several times, and each shift has reshaped market leadership. Late in 2025 and early 2026, artificial intelligence became the market’s primary uncertainty. Investors questioned whether AI would erode software pricing power and weaken competitive moats as AI made it easier to replicate once-differentiated products. By the spring, technology took a back seat to geopolitics. The U.S. conflict with Iran briefly became the market’s dominant narrative, raising concerns about oil prices, inflation, and global growth. But as energy markets remained orderly and fears of a prolonged supply disruption faded, investors quickly turned their focus back to fundamentals. Want to invest in winners with rock-solid fundamentals? Check out our Hidden Gem Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.

OSI Systems’ second quarter performance was marked by lower-than-expected revenue, driven primarily by deferred security division deliveries in the Middle East. Management cited ongoing regional conflict and site access challenges as the core reason for the timing shift, emphasizing that these orders remain in backlog rather than being lost. CEO Ajay Mehra described the situation as “a delay deferment of some orders” and noted that operational improvements in healthcare and strong demand in optoelectronics partially offset the security headwinds. The negative market reaction reflected investor concerns over the impact of these delays on near-term growth. Is now the time to buy OSIS? Find out in our full research report (it’s free). Revenue: $484.1 million vs analyst estimates of $529 million (4.1% year-on-year decline, 8.5% miss) Adjusted EPS: $3.78 vs analyst estimates of $3.77 (in line) Adjusted EPS guidance for the upcoming financial year 2027 is $11.31 at the midpoint, missing analyst estimates by 1.1% Operating Margin: 15.3%, in line with the same quarter last year Backlog: $1.9 billion at quarter end, up 5.6% year on year Market Capitalization: $3.25 billion While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. Josh Nichols (B. Riley Securities) asked about the sustainability of strong free cash flow generation. CFO Alan Edrick responded that the company expects free cash flow to exceed net income, with collections front-loaded in the coming year. Josh Nichols (B. Riley Securities) questioned how much recent award activity was factored into guidance. CEO Ajay Mehra clarified that only a portion of the new IDIQ contracts is included for the coming year, with the majority expected in subsequent years. Christopher Glynn (Citigroup) sought details on current demand in the Middle East and the outlook for security project deliveries. Mehra acknowledged ongoing delays but framed long-term demand as an opportunity, particularly as force protection becomes a higher priority globally. Jeff Martin (ROTH Capital Partners) asked whether deferred deliveries were for Middle Eastern customers or transiting shipments. Mehra confirmed that the affected deliveries were mainly for customers in the Middle East. Lawrence Solow (CJS Securities) inquired about the impact of U.S. contract wins and guidance conservatism. Edrick explained that the guidance builds in only a small portion of anticipated U.S. growth, with the bulk expected in the following years. In the coming quarters, the StockStory team will watch (1) the pace at which delayed Middle East security orders are delivered, (2) service revenue growth and its impact on margin expansion, and (3) the timing and size of new U.S. government contract awards entering the backlog. Execution in optoelectronics and ongoing healthcare improvements will also be important indicators of the company’s ability to deliver on its diversification strategy. OSI Systems currently trades at $211.56, down from $218.09 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members). ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively. Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.

Find your next quality investment with Simply Wall St's easy and powerful screener, trusted by over 7 million individual investors worldwide. OSI Systems (OSIS) reported fourth quarter and full year 2026 results on August 20, with revenue of US$484.06 million for the quarter and US$1.79b for the year, along with updated fiscal 2027 guidance. See our latest analysis for OSI Systems. OSI Systems' share price has fallen 19.11% year to date, including a 5.21% drop on the latest results, even though the 3 year total shareholder return of 54.24% and 5 year total shareholder return of 109.45% indicate longer term momentum remains intact. If the recent earnings reaction has you reassessing your watchlist, this could be a good moment to look at other security and inspection peers and review 37 robotics and automation stocks The share price move at OSI Systems followed revenue that fell short of expectations alongside record earnings and a large backlog. The next step is to see whether current pricing reflects those fundamentals or a swing in sentiment. With OSI Systems closing at $206.73 against a narrative fair value of about $281.14, the gap between price and story is hard to ignore. Read the complete narrative. Want to see what is baked into that backlog story? The key assumptions blend steady revenue expansion, rising margins, and a higher earnings base. Curious which numbers sit behind that fair value jump. Result: Fair Value of $281.14 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, OSI Systems still faces real pressure points, including reliance on government contracts that can be delayed, as well as the ongoing drag from a weaker healthcare division. Find out about the key risks to this OSI Systems narrative. Mixed signals around OSI Systems can be confusing, so treat this as your prompt to review the underlying data and move quickly to your own view using the 5 key rewards and 1 important warning sign. If OSI Systems has your attention, do not stop here. Broaden your watchlist with fresh ideas that match different risk, income, and quality preferences. Target potential mispricing by scanning companies that combine quality fundamentals with room for upside using the 48 high quality undervalued stocks. Strengthen your income stream by focusing on businesses offering higher yields with staying power through the 12 dividend fortresses. Sleep easier at night by concentrating on resilient companies with steadier profiles via the 78 resilient stocks with low risk scores. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include OSIS. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

OSI Systems OSIS reported fourth-quarter fiscal 2026 adjusted earnings of $3.78 per share, up 16.7% year over year and surpassing the Zacks Consensus Estimate by 0.53%. Revenues fell 4.1% to $484.06 million and missed the consensus mark by 8.38%. About $50 million of planned Security deliveries shifted beyond fiscal year-end because of Middle East conflict-related delays and site access constraints. Backlog still ended at a record $1.90 billion. Security revenues declined 7.4% year over year to $339.73 million. The decrease reflected delayed Middle East deliveries and a difficult comparison with Mexico program revenues. Management said the fiscal fourth quarter included about a $20 million year-over-year revenue headwind from the Mexico security contracts. The underlying service picture was firmer. Excluding prior-year installation revenues tied to Mexico contracts, Security service revenues increased 9% year over year. Management stressed that the delayed Middle East deliveries were deferred rather than cancelled, while related orders remained in backlog with revised schedules. OSI Systems, Inc. price-consensus-eps-surprise-chart | OSI Systems, Inc. Quote Since the end of fiscal 2026 on June 30, 2026, U.S. Customs and Border Protection (CBP) awarded OSIS two five-year IDIQ contracts. One carries a ceiling of about $200 million for relocatable passenger vehicle inspection systems, while the other has an approximately $85 million ceiling for van-mounted mobile X-ray inspection systems. OSIS has already received delivery orders, including a roughly $21 million task order.Radio-frequency programs also remain an important growth avenue. During fiscal 2026, OSIS secured an undefinitized contract action with a not-to-exceed value of about $235 million for a homeland defense over-the-horizon radar transmit subsystem. Management said customer engagement across the RF portfolio is at its highest level to date. Optoelectronics and Manufacturing revenues rose 4.6% year over year to $117.81 million. Adjusted operating margin improved to 14.7% from 13.6%, aided by scale benefits and a more favorable revenue mix. Management expects the segment to pair revenue growth with further operating-margin expansion in fiscal 2027.Healthcare revenues increased 4.8% year over year to $44.75 million. Its adjusted operating margin climbed to 10.0% from 0.9% a year earlier, reflecting operating leverage and improvements implemented during the year. The division continues to focus on installed-base expansion and next-generation patient-monitoring products. Gross profit totaled $167.95 million compared with $168.24 million in the prior-year quarter. Gross margin expanded 140 basis points year over year to 34.7%, as a more favorable product sales mix more than offset the prior-year benefit from higher Mexico-related installation service revenues. Operating expenses declined 1.2% year over year to $94.07 million. Selling, general and administrative expenses fell 6.6% year over year to $69.75 million, representing 14.4% of revenues, down from 14.8% a year ago. R&D expenses increased to $19.50 million, or 4.0% of revenues, from $18.84 million, or 3.7%, as OSIS continued investing in innovation. Non-GAAP operating margin reached 17.7%, up 200 basis points from 15.7% in the prior-year quarter. Security, Optoelectronics and Manufacturing, and Healthcare all posted year-over-year adjusted operating margin improvement, with margins rising 40, 110 and 910 basis points, respectively. As of June 30, 2026, cash and cash equivalents were $359.83 million, up from $345.24 million as of March 31, 2026. As of June 30, 2026, the company had about $998.52 million of long-term debt up from $463.50 million a year earlier.Net cash provided by operating activities increased to $182.11 million in the fourth quarter of fiscal 2026 from $0.56 million in the year-ago period.a OSI Systems repurchased 564,880 shares for $123.6 million during the quarter. For fiscal 2027, OSIS expects revenues to be in the range of $1.875 billion to $1.930 billion, implying growth of 5.0% to 8.1%. Adjusted earnings are projected at $11.13 to $11.49 per share, representing growth of 7.5% to 11.0%.Management expects growth to be strongest in the second half, reflecting conservative assumptions for Middle East deliveries and limited near-term contributions from newer U.S. security awards. OSIS expects strong double-digit growth in service revenues, while larger contributions from recent CBP programs are anticipated in fiscal 2028 and beyond. Currently, OSI Systems carries a Zacks Rank #2 (Buy). NVIDIA NVDA, KLA KLAC and Synopsys SNPS are other stocks worth considering in the broader Zacks Computer and Technology sector, each carrying a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The long-term earnings growth rates for NVIDIA, KLA and Synopsys are pegged at 104.76%, 15.74% and 17.23%, respectively. Shares of NVIDIA have appreciated 8.5%, while Synopsys and KLA shares have declined 10.7% and 38.4%, respectively. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report OSI Systems, Inc. (OSIS) : Free Stock Analysis Report NVIDIA Corporation (NVDA) : Free Stock Analysis Report KLA Corporation (KLAC) : Free Stock Analysis Report Synopsys, Inc. (SNPS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

This article first appeared on GuruFocus. Revenue: Full-year revenues reached a record $1.79 billion, up 4% year-over-year; fourth-quarter revenues were $484 million, down approximately 4% year-over-year. Adjusted EPS: Fourth-quarter non-GAAP EPS grew 17% to a record $3.78; full-year adjusted EPS grew 11% to a record $10.35. Operating Cash Flow: Record fourth-quarter operating cash flow of $182 million; full-year operating cash flow of $276 million. Backlog: Record backlog of approximately $1.9 billion at fiscal year-end. Gross Margin: Fourth-quarter gross margin expanded to 34.7% from 33.3% in the prior-year quarter. Adjusted Operating Margin: Fourth-quarter adjusted operating margin was 17.7%, up 200 basis points from 15.7% in the prior-year quarter. Security Division Revenue: Fourth-quarter security revenues declined 7% year-over-year, impacted by Middle East conflict-related delivery delays. Opto Electronics Revenue: Full-year revenues grew 9% to $451 million with strong margins. Healthcare Division Revenue: Fourth-quarter revenues grew approximately 5% year-over-year; adjusted operating margin expanded to 10% from 1% in the prior-year quarter. Service Revenue: Full-year service revenues grew 13% to $441 million; fourth-quarter service revenues were fairly flat year-over-year. SG&A Expenses: Fourth-quarter SG&A expenses were $70 million, down 7% from the prior-year quarter, representing 14.4% of sales. R&D Expenses: Fourth-quarter R&D expenses were $19.5 million, or 4% of revenues, up from $18.8 million in the prior-year quarter. Net Interest and Other Expenses: Fourth-quarter net interest and other expenses were $4.1 million, down from $7.2 million in the prior-year quarter. Effective Tax Rate: GAAP effective tax rate was 20.8% in Q4 fiscal 2026, versus 19.8% in Q4 fiscal 2025; normalized effective tax rate was 21.5% versus 21.9% in the prior-year quarter. Cash Position: Ended the year with $360 million in cash, up from $106 million a year ago, with no amounts drawn under lines of credit. Share Repurchases: Repurchased approximately 565,000 shares in Q4 at an average price of about $219 per share for a total of $123.6 million; repurchased and retired 1.1 million shares during the fiscal year. Fiscal 2027 Guidance: Expects revenues of $1.875 billion to $1.93 billion (5% to 8.1% year-over-year growth) and adjusted EPS of $11.13 to $11.49 (7.5% to 11% year-over-year growth). Warning! GuruFocus has detected 4 Warning Signs with OSIS. Is OSIS fairly valued? Test your thesis with our free DCF calculator. Release Date: August 20, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Record Q4 and annual non-GAAP EPS, with Q4 EPS up 17% year-over-year to $3.78 and annual EPS up 11% to $10.35. Record Q4 operating cash flow of $182 million and annual operating cash flow of $276 million, with expectations for fiscal 2027 free cash flow to exceed 100% of net income. Record backlog of approximately $1.9 billion, providing strong visibility into fiscal 2027 and beyond. Recent major contract wins, including two sole-awardee IDIQ contracts from CBP (totaling $285 million) and a $235 million RF award, positioning OSI Systems Inc (NASDAQ:OSIS) for future growth. Strong performance in Opto Electronics (9% revenue growth) and healthcare (operating margin expansion from 1% to 10% in Q4), with overall adjusted operating margin expanding 200 basis points to 17.7%. Q4 revenues declined 4% year-over-year, and full-year revenues of $1.79 billion fell below guidance due to approximately $50 million in delayed security deliveries from Middle East conflicts. Security division revenues declined 7% in Q4, impacted by Middle East delivery delays and a difficult comparison against prior-year Mexico program revenues. Fiscal 2026 revenues were nearly $150 million lower due to Mexico security contracts, with an additional $25 million headwind expected in fiscal 2027, concentrated in the first half. Fiscal 2027 guidance is conservative, with revenue growth of 5%-8.1% and EPS growth of 7.5%-11%, reflecting cautious assumptions on Middle East timing and only a portion of new CBP orders included. The Middle East conflict continues to defer bookings and deliveries, with a substantial portion of expected revenue from new awards pushed to fiscal 2028 and beyond. Q: How should we think about the timing of revenue contributions from the recent CBP IDIQ awards and the $235 million RF contract, and what is the expected impact on fiscal 2027 guidance?A: Ajay Mehra (CEO) clarified that while a portion of the CBP IDIQ awards (totaling $285 million in ceiling value) will contribute to fiscal 2027 revenue, the vast majority is expected in fiscal 2028 and beyond. He emphasized that OSI is the sole awardee on both IDIQs, providing strong long-term visibility. Alan Edrick (CFO) added that approximately 80% of the $235 million RF award was booked into backlog in Q3, with deliveries expected over the next couple of years. Q: Can you provide more detail on the situation in the Middle East and how it is impacting demand and deliveries?A: Ajay Mehra (CEO) explained that the delays are due to customers in the Middle East prioritizing immediate force protection needs amid the conflict. He noted that while some orders have been deferred, the company views this as a long-term opportunity, particularly as force protection becomes more critical for DOD and other customers. Alan Edrick (CFO) added that the company has taken a conservative approach in fiscal 2027 guidance, assuming a later delivery schedule for Middle East orders, with a substantial portion expected in the second half of the fiscal year. Q: What is driving the expected strong growth in service revenues in fiscal 2027, and how do these margins compare to product revenues?A: Alan Edrick (CFO) attributed the service revenue growth to multiple factors: the transition of Mexico product revenues into service revenues, the growing installed base across cargo, vehicle inspection, aviation, and RF products, and the expansion of SaaS and turnkey security offerings. He noted that service revenues inherently carry higher margins than product revenues, and as they become a larger proportion of total revenues, they should drive significant operating margin expansion in the security division over the long term. Q: What is the outlook for free cash flow in fiscal 2027, and how will collections from the Mexico customer impact this?A: Alan Edrick (CFO) stated that the company anticipates strong free cash flow in fiscal 2027, potentially exceeding 100% of net income. He noted that collections from the Mexico customer, which stood at $190 million at the end of Q4 (down from $345 million at Q3), are expected to significantly decrease further throughout fiscal 2027, contributing to a front-loaded cash collection pace and overall strong cash flow performance. Q: Can you elaborate on the strength of the RF business and its growth prospects, particularly in relation to Golden Dome initiatives?A: Ajay Mehra (CEO) described fiscal 2026 as an outstanding year for the RF business, with customer engagement at the highest level ever seen. He highlighted the company's involvement in multiple Golden Dome initiatives and the award of its largest RF contract to date ($235 million). He expects strong growth to continue into fiscal 2028, noting that the Middle East conflict only strengthens the case for the Golden Dome program. The company is also a participant in the Shield IDIQ, providing a vehicle to pursue additional programs as they are defined. Q: What is the book-to-bill ratio for Q4 and the full fiscal year, and how does this reflect on the company's backlog position?A: Alan Edrick (CFO) reported that the Q4 book-to-bill was just shy of 1.0, with very strong performance in the Opto division and solid results in Security and Healthcare. For the full year, the book-to-bill was slightly above 1.0, contributing to a record backlog of approximately $1.9 billion at the end of June. This provides strong visibility as the company enters fiscal 2027. Q: How should we interpret the fiscal 2027 guidance, which shows revenue growth of 5-8% but EPS growth of only 7.5-11%, especially given the benefit from share repurchases?A: Alan Edrick (CFO) explained that the company is being "a little bit modest and conservative" coming out of the gate. The guidance reflects increased investments in OpEx, new innovative products, and associated infrastructure. He emphasized that there is no structural change in the margin outlook, and the company's long-term plan remains to pair top-line growth with operating margin expansion across all divisions. Q: Can you provide an update on the TSA checkpoint scanner contract and when it might come into focus?A: Ajay Mehra (CEO) indicated that the TSA is currently prioritizing checkpoint upgrades, and the company expects the scanner contract opportunity to materialize in a few years. He noted that once it begins, the program is expected to span several years, representing a significant long-term opportunity for the company. Q: What is driving the improved operating margin in the Opto Electronics division, and is this sustainable?A: Alan Edrick (CFO) attributed the margin improvement to a stronger customer profile and the benefits of economies of scale. He stated that the company's plan for fiscal 2027 is to continue pairing revenue growth with operating margin expansion, though results may vary quarter-to-quarter based on revenue mix. The company expects further operating margin expansion through fiscal 2027 as new capacity is utilized. Q: How is the healthcare division performing, and what are the expectations for its margin trajectory?A: Ajay Mehra (CEO) noted that healthcare delivered an improved fourth quarter with revenues up 5% year-over-year and operating margin expanding to 10% from 1% in the prior year quarter. The improvement reflects operational improvements implemented throughout the year. Alan Edrick (CFO) added that while one quarter should not be extrapolated, the results demonstrate the division's potential as volumes grow. The company remains focused on expanding its install base and advancing its next-generation patient monitoring platform. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Image source: The Motley Fool. Thursday, Aug. 20, 2026, at 4:30 p.m. ET Executive Vice President and CFO-Alan I. Edrick President and CEO-Ajay Mehra Operator: Thank you for standing by, and welcome to the OSI Systems Inc. Fourth Quarter 26 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' prepared remarks, there will be a Q&A session. To ask a question during this session, you will need to press *11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press *11 again. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Alan I. Edrick, chief financial officer. Please go ahead, sir. Alan I. Edrick: Thank you. Good afternoon, and thank you for joining us. I am Alan I. Edrick, Executive Vice President and CFO of OSI Systems. I am here today with Ajay Mehra, OSI's president and CEO. Welcome to the OSI Systems fiscal 2026 fourth quarter and year end conference call. We are pleased that you can join us as we review our financial and operational 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 2 thousand 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, new information, or otherwise. We will also reference both GAAP and non-GAAP financial measures. Applicable reconciliations are available in today's earnings release. I will begin with a high level summary of our financial performance for the fourth quarter and the full fiscal year and then turn the call over to AJ for a discussion of our business and operational performance. We will then finish with more detail regarding our financial results and our outlook for fiscal 2027. Before I discuss our fourth quarter records, let me address the revenue results. Full year revenues of $1.79 billion finished below our guidance range and fourth quarter revenues of $484 million were down approximately 4% year over year. Importantly, these results were affected by the timing of approximately $50 million of planned security deliveries that moved beyond our June 30 fiscal year end because of conflict related delays, and site access constraints in The Middle East. I want to emphasize that these expected revenues are deferred not orders lost. They remain firmly in our backlog and are expected to be delivered on a later schedule. Setting this aside, we were really pleased with the overall performance as multiple key performance metrics for Q4 and full fiscal year, were extremely strong. We closed fiscal 26 with exceptional cash generation and strong profitability driven by solid adjusted operating margin expansion. We delivered record fourth quarter operating cash flow of $182 million We grew fourth quarter non-GAAP earnings per share by 17% to a record $3.78 we ended the year with a record backlog of approximately $1.9 billion For the full year, revenues reached a record $1.79 billion up 4% year over year. And adjusted earnings per share grew to a record $10.35 up 11% year over year. Bookings were solid across the 3 divisions, and we finished the year with a record backlog and solid visibility as we enter fiscal 27. We also have a significant opportunity pipeline. And we have recently secured several important program wins. Our cash conversion was outstanding allowing us to strengthen the balance sheet while continuing to return capital to shareholders. During the fourth quarter, we repurchased approximately 565 thousand shares at an average price of about $219 per share for a total of $123.6 million Our board recently authorized an additional 1 million shares leaving approximately 1.1 million shares available under our stock buyback program. Before diving more deeply into our financial results, and discussing our outlook for fiscal 27, I will turn the call over to AJ. Ajay Mehra: Thank you, Alan. And thank you to everyone for joining us today. I am pleased to be here to discuss our fourth quarter and full fiscal year 2026 results. Fiscal 26 was a strong year for OSI Systems, capped by record annual revenues of $1.79 billion record Q4 and annual non-GAAP earnings per share and record Q4 and annual operating cash flow. That said, as Alan pointed out as well, we finished 2026 with revenues below expectations mostly due to delays with the situation in The Middle East. Overall, I am proud of how our team has performed across the portfolio delivering solid bookings that translated into record backlog of approximately $1.9 billion, which gives us good visibility as we enter fiscal 27. While the security division faced revenue headwinds in the quarter from The Middle East conflicts, that have shifted the timing of certain deliveries optoelectronics delivered strong growth on broad based demand and healthcare posted an improved quarter. The security related deliveries that were pushed out remain in backlog and are expected to be completed in future quarters. So let's-- let's discuss our business in more detail beginning with security. With DHS reopening in April, following the shutdown, we have seen procurement activity accelerate. Since the close of our fiscal year, CDP has awarded us 2 5-year IDIQ contracts, 1 with a ceiling of approximately $200 million for a relocatable Rapiscan passenger vehicle inspection systems and a second with a ceiling of roughly $85 million for van mounted mobile X-ray inspection systems. We have already received delivery orders under both these IDIQs, including a task order valued at about $21 million. These IDIQs represent continued funding provided under the big, beautiful bill. We expect to see some revenue contribution from these awards later in fiscal 27 but significant contributions are expected in fiscal 28 and beyond as well. We have also made growing recurring revenue a priority across the security division. And with the size of our installed base today, we expect that effort to translate into substantial service revenue growth in fiscal 27. Recently, we entered into an agreement with LA 28. To establish Rapiscan as an official supporter of Team USA and the official physical screening and security technology hardware and software solutions provider of the LA 28 Olympic and Paralympic games. This strategic partnership builds upon our security efforts at major recent events, such as FIFA World Cup, the Paris Olympics, and the Milan Winter Games. Few companies have a comparable track record at this scale. And our experience is a real advantage as we pursue future large venue and event security opportunities. We continue to see strong momentum in our radio frequency, also known as RF business and homeland security defense business. Our over the horizon radar programs and involvement in multiple Golden Dome initiatives position us at the forefront of some of the nation's most significant defense priorities. Fiscal 26 was an outstanding year for the RF business. During fiscal 26, we were awarded an undefinitized contract action with a not to exceed value of approximately $235 million. So the production and integration of a homeland defense over the horizon radar transmit subsystems. Our largest RF award to date. And we continue to see follow on opportunities related to this program. We are also a participant in the Shield IDIQ which supports much of the Golden Dome related initiatives and gives us a vehicle to pursue additional programs as they are defined over the next few years. All that said, the current level of customer engagement across our RF portfolio are the highest we have seen for this product line. Turning to optoelectronics and manufacturing. Which delivered another strong performance in fiscal 26, as full year revenues grew 9% to $451 million with strong margins. The bookings in Q4 reflected the strength and breadth of our end markets. And we expect these underlying trends to continue in fiscal 27. Our ability to support customers with our highly engineered products precision manufacturing, and global reach continues to differentiate us across the aerospace, defense, healthcare, and industrial customer base. Our vertically integrated model and global manufacturing footprint helps us continue to capture business as customers diversify supply chains and our backlog gives us strong visibility heading into fiscal 27. Finally, our healthcare division delivered an improved fourth quarter as revenues grew approximately 5% year over year and operating margin expanded to 10% from 1% compared to last year's Q4. These results reflected the operational improvements we have been implementing throughout the year. We remain focused on expanding our installed base supporting providers with innovative clinical solutions and advancing the product development initiatives behind our next generation patient monitoring platform. We are encouraged by the opportunities ahead. As we enter fiscal 27, our record backlog robust pipeline, and disciplined execution give us confidence for the coming years. As always, I would like to thank our employees, customers, and stockholders. For the continued support and dedication. With that, I will turn the call over to Alan to discuss our financial results and our fiscal 27 guidance in more detail before we open the call for questions. Alan I. Edrick: Thank you. Thank you, AJ. Let's begin with our revenue performance by division. Revenues in each of our Opto and Healthcare divisions increased 5% year over year. In security, revenues declined 7% reflecting the impact of the conflict in The Middle East, which delayed certain deliveries beyond our fiscal year end along with a difficult comparison against higher Mexico program revenues in the prior year quarter. We closed the year with approximately $1.9 billion in backlog, Deliveries that shifted out of the quarter remained in backlog, while certain expected bookings in the affected region were deferred. As expected, we reported nearly $150 million lower fiscal 26 revenues related to the Mexico security contracts compared to the prior year, which included about a $20 million adverse impact in Q4. As we move into fiscal 27, we expect this headwind to moderate to less than $25 million for the full year which is expected to be concentrated in the first half. Turning to services. For the full year, service revenues grew 13% to $441 million though we are fairly flat in Q4. Similar to Q3, fourth quarter service revenues in the prior year benefited from significant installation activity related to the Mexico contracts, Excluding those installation revenues, security service revenues increased 9% year over year in Q4. Looking forward, in fiscal 27, we expect strong double digit growth in service revenues for the full year. Our Q4 fiscal 26 gross margin expanded to 34.7% from 33.3% in the same quarter in the prior year, as a more favorable revenue mix on product sales more than offset the benefit in Q4 of the prior year received from higher installation related service revenue. Our margins can fluctuate, based on product and service mix and volume, supply chain cost, foreign exchange, tariffs, and other factors. Moving on to operating expenses. We continue to work diligently across all divisions to manage our SG&A cost structure efficiently SG&A expenses in the 2026 Q4 were $70 million down 7% from the prior year. in Q4, representing 14.4% of sales compared to 14.8% of sales in the prior year. R&D expenses in Q4 were $19.5 million or 4% of revenues, up from $18.8 million or 3.7% of revenues in the same quarter last year. This increase stems from our commitment to investing in innovation, resulting in market leading offerings and positioning OSI well for the future. We expect to continue our heightened R&D efforts to advance key initiatives. Even with these R&D investments, our combined SG&A and R&D expenses as a percentage of sales have decreased annually for each of the past 8 years. Underscoring our ability to drive operating efficiencies, while still funding growth initiatives. Now let's move below the operating line. Net interest and other expenses in Q4 were $4.1 million, down from $7.2 million in the same quarter of the prior year primarily due to reduced borrowing costs, coupled with increased interest income on higher cash balances. Our effective tax rate under GAAP was 20.8% in Q4 2026, versus 19.8% in Q4 last year. Excluding discrete tax items, our normalized effective tax rate which is the 1 used in calculating non-GAAP EPS, was 21.5% in Q4 compared to 21.9% in the same prior year quarter. On a non-GAAP basis, our Q4 2026 adjusted operating margin was 17.7%, up 200 basis points from the 15.7% we reported in the prior year fourth fiscal quarter. With each of the 3 divisions reporting growth. The security division's adjusted operating margin expanded from 20.4% to 20.8% in Q4 this year, driven by a stronger gross margin combined with reduced operating expenses. The Opto adjusted operating margin increased to 14.7% in Q4 of 26 from 13.6% in last year's fiscal Q4 primarily from the benefits of economies of scale and a more favorable mix of revenues. And on the heels of stronger revenues, the adjusted operating margin of our healthcare division as AJ said, increased to 10% in Q4 of this year from 1% in Q4 of the last fiscal year reflecting the operating leverage. And while we would not extrapolate 1 quarter, it shows what this division can do as volumes grow. Moving to cash flow. The balance sheet, we generated a record $182 million of operating cash flow in Q4 and $276 million for the full fiscal year, driven by strong collections across the businesses. This included collecting $159 million from our largest customer in Mexico in Q4. On that customer specifically, the balance stood at $345 million at the end of Q3, representing 40% of the company's total accounts receivable. And declined to $190 million or 25% of the company's total AR As of the end of Q4. This balance should significantly decrease further throughout fiscal 27 as substantial payments are expected to be received contributing to the strength in the anticipated fiscal 27 operating cash flow and free cash flow conversion. DSO in Q4 decreased 18% from third-quarter DSO. CapEx in Q4 was $9.3 million, while depreciation and amortization expense in the quarter was $13.3 million. Our balance sheet remains solid, providing us great flexibility We ended the year with $360 million in cash, up from $106 million a year ago, and with no amounts drawn under our lines of credit. During the year, we refinanced our credit facility and extended its maturity while adding low cost long term debt. Gross debt increased with these moves, and with the capital we returned to shareholders, our net leverage at the end of Q4 of fiscal 26 was approximately 2.1 as calculated under our credit agreement. This leaves us ample capacity for both organic investment and acquisitions. During the fiscal year, we repurchased and retired 1.1 million shares reflecting our conviction in the intrinsic value of our business. Our board recently authorized an additional 1 million shares for repurchase, with no expiration on this authorization. Now turning to our guidance. We are introducing our fiscal 27 guidance for revenues and non-GAAP earnings per share We currently expect revenues of $1.875 billion to $1.93 billion or 5% to 8.1% year over year growth. And adjusted earnings per share of $11.13 to $11.49 or 7.5% to 11% year over year growth. This guidance factors in the expected impact from the conflicts in The Middle East that have affected near-term bookings, so over a longer horizon, the resolution of these matters could represent future opportunities for the company. And although we are pleased with some notable wins with the Department of Homeland Security, over the past few months, and expect more, we believe a substantial amount of such bookings will lead to revenue in fiscal 28 and beyond. Thus, we have included a portion of the delivery orders from CBP already in hand rather than the full ceiling value of those programs. And assumed a later delivery schedule in the Middle East. Given the timing of each of these items, we currently expect fiscal 27 growth to be strongest in the second half. We know that our fiscal 2027 non-GAAP diluted EPS guidance excludes any impact of potential impairment, restructuring and other costs, amortization of acquired intangible assets and their associated tax effects, discrete tax and other nonrecurring items. We currently believe this guidance reflects reasonable estimates. The actual impact on the company's financial results of timing changes on the expected conversion of backlog to revenues new bookings, timing of cash collections, tariffs, the conflicts in The Middle East, and supply chain disruptions among other factors, is difficult to predict, and could vary significantly from the anticipated impact currently selected in our guidance. Actual revenues and non-GAAP earnings per diluted share could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings. In summary, fiscal 26 was a year of record cash generation, record backlog, and strong earnings quality. We strengthen our liquidity, and we return capital to shareholders. We are committed to operational excellence as we continue to grow our businesses and provide innovative products and solutions to our customers. We aim to invest in key strategic areas with the goal of driving long term value for our shareholders. Once again, we thank the entire global OSI team for their dedication to supporting our customers and our partners. Their efforts are what makes these results possible. And at this time, we would like to open the call to questions. Operator: Certainly. And our first question for today comes from the line of Josh Nichols from B. Riley Securities. Your question, please. Josh Nichols: Yeah. Thanks for taking my question. I understand the push-out, not lost orders regarding the Middle East timing, but, you know, free cash flow generation was pretty phenomenal. I was curious, 1, on that, do you expect that free cash flow generation in fiscal year 2027 could similarly ex exceed net income generally and how you think about the pace of collections is going to drive that this year? Alan I. Edrick: Josh, thank you. This is this is Alan, and good question. We are anticipating a strong cash flow year in fiscal 2027, strong free cash flow. And we do anticipate that, our free cash flow, could exceed 100% of net income and fully expect that to occur. With respect to the, you know, the pace of collections, we expect to, you know, be collecting nicely over the course of the fiscal year. We are hoping it is more front loaded than back loaded. We do anticipate a good strong overall year. Josh Nichols: I think, you know, I think the timing of understandable, right, for some of the orders and delays. But there is been a flurry of, like, award activity just over the last couple of weeks. I am curious, like, how much of that are you being conservative when you think about how much of that gets factored into the guidance for this fiscal year given the ongoing conflict? And are you assuming most of that gets pushed out to fiscal year 2028 and beyond. I am just trying to get a little bit better grasp on how you are thinking about these newer awards, not yet in the queues, and the timing in your guidance for this year. Ajay Mehra: So this is AJ. You know, like we pointed out, you know, there is a portion in 20 seventh but the vast majority is in, you know, 2028 and, beyond. You know, these are multiple year IDIQs. I do want to point out both the 200 million and the 85 million IDIQ with CBP is we are the only awardee on there. So, you know, it gives us a very good confidence that, as we look at not just 2027, but 2028, 2029 and beyond, the visibility really is, is there for us. Josh Nichols: Yeah. Qs. Thanks for clarifying. I will hop back in the queue. Operator: Thank you. And our next question comes from the line of Christopher Glynn from Citigroup. Your question please. Analyst: Hey, guys. Thanks for taking my question. Obviously, it is a complex situation in The Middle East. I was hoping to revisit just maybe offer a little more detail on kind of what is going on there for your perspective on the ground just to kind of give us a better feel for things and in the release, you used the phrase that demand for products and services remains encouraging. You know, in the prepared remarks, I felt like you used the word strong a few different times. When talking about the shape of the business. I am not trying to wordsmith this, but you know, maybe just revisiting The Middle East and exactly how you see the demand today, a bit of a temperature check would be helpful. Ajay Mehra: Sure. And I think when we talk about strong demand, you have to look at the overall business. The security, the opto, and even the improvements we have had on the healthcare side But specifically on security, you know, we have a lot of strong demand finally, you know, like I pointed out, DHS is starting to release orders. it is been-- it is been a flurry of activity. We have also had some strong orders, like we pointed out on the RF side. And international orders continue to be strong. Now specifically on the Middle East, yes, I think there is been a I guess, a delay deferment of some orders. You know, they are more interested in, you know, making sure they protect their people with incoming missiles, etcetera. And, you know, we are, you know, we are a partner. We work with them. Make sure that, you know, whatever they need, in the short run, we provide But we believe in the long run, it is actually an opportunity for us, not just for the Middle East, but really with the DOD and other places where force protection is going to get more and more important not just you know, overall security business and perhaps even including RF. So, it is a complicated situation. But, you know, we have got to look at it as an overall business in the entire world, and we remain very confident there. Got it. that is helpful. And for the RF product line, I think you used the phrase that customer engagement was the highest you have ever seen. And you know, certainly understandable given everything we are we are seeing in the defense complex and Golden Dome and etcetera. But I was hoping you could talk a little bit more about that and how are you kind of baking in the outlook for RF into the guidance for 2027? And might it continue to grow in 2028 as well? So we do not really break it down. But I will say on the RF side, we see very strong growth and we see that growth continue into 2028 And I think, you know, you talk about the conflict in The Middle East. If anything, what is been going on there when you talk about the Golden Dome, it only further strengthens the idea of why we need a Golden Dome. Going forward. Analyst: Got it. Appreciate the color. Thank you. Operator: Thank you. And our next question comes from the line of Jeffrey Michael Martin from ROTH Capital Partners. Your question please. Jeff Martin: Thanks. Good afternoon. Not to belabor The Middle East, but just was curious if you could clarify whether these were deliveries to customers in The Middle East or whether there was shipments going through the Strait that perhaps were intended for non Middle Eastern, you know, customers of other nations. That were also impacted. Ajay Mehra: These were mostly, if not all, customers in The Middle East. Jeff Martin: Okay. And then in terms of what you kind of were assuming in your, your updated fiscal 2026 guidance after the third quarter, were you assuming that all of these orders would be delivered in Q4? Or was the assumption that some of them would be and some of them would be pushed out further? Alan I. Edrick: Jeffrey, this is Alan. So as following the Q3 release, we assumed that a significant portion of these Middle East orders would be delivered in Q4. Not all of them, but a significant portion. Jeff Martin: Okay. And it sounds like your assumption is that a good portion of these will be delivered in the second half of fiscal 27. Is that fair to say? Alan I. Edrick: That is fair to say. Not all of it, but a substantial portion in the second half of fiscal 27. Jeff Martin: Okay. And then my other question is on the bookings. Could you speak to book to bill for the full year and then also kind of give us a sense on Q4. I know there were delays that impacted bookings in the second half in general, but just some, you know, contextual reference would be helpful. Alan I. Edrick: Sure, Jeffrey. So for Q4, our book to bill was just shy of 1. It was very strong in our Opto division. Solid in our Security division as well and Healthcare. So giving us a, you know, a very good book to bill in our highest revenue quarter. And for the full year, you know, our bookings were quite solid as well. So the book to bill was a little bit north of 1. For the full year, which led to, our highest overall backlog. At the end of June. Operator: And our next question comes from the line of Christopher Glynn from Oppenheimer. Your question please. Christopher Glynn: Hi. Hey. Thanks. Just want to talk a little bit about the mechanics of phasing from large project awards, IDIQ and RF, into backlog. You know, it was clear that the recent $285 million were subsequent to the quarter end. And I think you talked about $21 million firm order plus others. Should we think about the delivery orders as what goes into backlog? And then also, using that framework for the $235 million RF. I think most of that did go in backlog. In the prior quarter. So you know, I guess the implication would be those delivery orders were more coincident with the award. If you could clarify those points. Thank you. Alan I. Edrick: Sure, Larry. Excuse me. Sure, Christopher. Happy to do so with respect where. So sorry about that, Christopher. With respect to the RF order, the $235 million that you referred to that we won in Q3, roughly 80% of that was booked into backlog in the third quarter. Meaning we have it and, you know, a substantial portion of that is going to get delivered over the next couple of years. With respect to the 2 large IDIQs that we just won with CBP, the $285 million that you referred to, those are ceiling values where the sole awardee as AJ mentioned, what goes into our backlog is not the IDIQ value. It would be the firm fixed order, the delivery order, or the task order. That $21 million that AJ referred to. So over the course of time, we expect that to significantly increase and, you know, move into our backlog and then convert into revenue. Christopher Glynn: Okay. Great. And, yeah, and my understanding is this historically that those ceilings have essentially been realized and well within the IDIQ. Time frame. And in particular, the context here is there is a much bigger funding than these amounts, so they have got to get through, you know, these executing these portions in order to further exercise through the overall funding, which I think approximates $1 billion. Is that about the right understanding? Ajay Mehra: Yeah. that is the right understanding. I mean, keep in mind, these are orders that are being you know, released There are more orders that will be released in different products as we move along as part of the $1 billion funding. So these are specifically for the 2 types of systems that I pointed out in my prepared remarks. Christopher Glynn: Okay. Great. And last 1 was that I wanted to ask about the Opto segment profitability approaching 15%. I know you have brought on some new capacity. You are continuously expanding that business. Given the share opportunity with customers securing their supply chains. So as you utilize new capacity, are we talking about, you know, consistently higher margin opportunities for the O&M than over the past few years? Alan I. Edrick: Yeah, Christopher. This is Alan. Really good question. The Opto business has been bringing on a stronger customer profile that is leading to improved margins. Our plan for fiscal 27 is to continue to pair revenue growth with operating margin expansion. It will vary from quarter to quarter based upon the revenue mix. That we see and what products and which customers we happen to be selling to in that quarter, But we do believe that we will see further operating margin expansion through the course of fiscal 27. Christopher Glynn: Great. Thanks for the answers. Operator: Thank you. And our next question comes from the line of Lawrence Solow from CJS Securities. Your question please. Lawrence Scott Solow: Great. Thank you. I guess the first question, just to better frame the outlook for revenue guidance. So it sounds like you are including most of that $50 million to come in. But just how about qualitatively from The Middle East? Are you assuming that there is still sounds like there is still impact obviously going on there. So what are your high-level expectations for The Middle East? And also, what is incorporated in growth outlook from The United States? Not specifically, but is there some delays? Bookings obviously were delayed a lot. So it sounds like most of their benefits from the beautiful bill and the acceleration in The US that everybody's looking for. You are not building most of that in until 2028. Is that all fair to say? Alan I. Edrick: Larry, I should probably flip-flop and call you Christopher for the moment. But No, that will work. Christopher works. Good questions, Larry. So, you know, with respect to The Middle East, you know, we have taken a conservative approach in our guidance for fiscal 2027. Both with the planned deliveries that got deferred out of Q4 as well as for future orders, for obvious reasons while the while the conflict is taking place. With respect to The United States, know, the really exciting part for us is yes, we are getting nice bookings. We expect to get significantly more bookings. And you are exactly right. there is a portion built into fiscal 27, but a smaller portion. The much, much larger portion, is in the fiscal 28, 29, and even, even beyond that. So it really gives us some excellent visibility into real nice growth, beyond this fiscal year. So, you know, quite exciting for us. What was there a third element to it, or did I capture that? Lawrence Scott Solow: Yeah. No. I think you got it. I just the question that you know, a couple follow ups just on the so I think, you know, I know the big beautiful bill. I think it was at a 6 well, over 6 billion authorization. And obviously, I think the a billion of that and the heart of that was kind of in the heart of your nonobtrusive equipment I know that the Secure America Act came out. I think there was another, like, 3 billion or a little more than that, maybe north of that. Any clarity on how much of that could be funneled down into your kind of sweet spots? Ajay Mehra: So you know, it is a great question. You know, we are aware of it. We are working with a customer very closely. Obviously, they are trying to, make sure that they award with all the delays, award the billion dollars at the best pace possible. I think there is still some clarity to be had with, what the next $2 billion or $3 billion would be And I would add on the Big Beautiful Bill, you know, we talk about customs, but, there is substantial funding for the RF side as well. Which, which is obviously helping us as well. Lawrence Scott Solow: Okay. Can I just squeeze 1 more in? Just on the margins, you are forecasting 5% to 8% revenue growth and a little bit higher on the earnings, 7% to 11%, not much, but you are also getting a pretty good benefit from your repurchases. Right? You cut down your share count by, like, 3%. So you are actually building in, adjusted wise, a little bit less earnings growth versus sales growth. Is there any I missing something? Any reason for that? Thanks. Alan I. Edrick: Yeah, Larry. We are just being a little bit modest and conservative. Coming out of the gate here. We are doing a little bit more investments and some OpEx and positioning ourselves for the future as well in some of the new innovative products that are coming out. And the associated infrastructure sort of associated with it. But that is the general tone of it. Lawrence Scott Solow: Okay. So there is no structural change or anything. I mean, you still I know healthcare, which we have talked about, much smaller and Opto. Moderate size. But those you know, we have talked about margins going up in those segments over the next few years. Any reason to believe that security should not have upward trends in the margins as well? Maybe not so much this year, but just in general. Alan I. Edrick: Yeah. that is our plan. You know, our plan is to pair the top line growth with operating margin expansion. From a contract to contract basis that may change a little bit. So it may change things from a quarter to quarter. But over the over the long term, no, structurally, our goal is to continue to improve our margins. We expect our service revenues to be growing at a faster clip than our product revenues. And our service revenues inherently carry a higher margin. So as we start to look out beyond 2027, 2028, 2029, and 2030 as service revenues become a bigger and bigger proportion of our overall revenues, that can really drive some nice operating margin expansion in security as well. Right. Right. Thank you. I appreciate it. Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question Our next question comes from the line of Seth Seifman from JPMorgan. Your question, please. Analyst: Hi, guys. This is Rocco on for Seth Seifman. Ajay Mehra: Hi, Rocco. Analyst: Building on the prior comment on the services revenue growth, should we think about a driver of that growth being the transition of the work in Mexico toward services? And does the services revenue in Mexico carry a stronger margin relative to OSI's typical services revenue, kind of similar to the product revenue being a pretty strong margin. Alan I. Edrick: Yeah, Rocco. So nice questions. So our service revenues, the Mexico service revenues are more or less in line with overall service revenue margins, which are quite strong to begin with. So, you know, we are encouraged by that. In terms of the service revenue growth, what is driving it, it is kind of multifold. Part of it is the Mexico product revenue rolling off of warranty. And more and more of that moving into service revenues, that helps. The larger installed base, though, that we have throughout our cargo and vehicle inspection products, throughout our aviation and checkpoint products. And even some of the RF products will all drive, you know, more service revenues with strong margins. Also looking at some of the SaaS type work that we do. For our security as a service, our turnkey products, and we think there is some good opportunities going forward there. And also our software as a service, our true SaaS, for CertScan and otherwise, which carry, you know, substantial margins. And we see some, nice growth opportunities there as well. So the top line growth of service could be, you know, quite substantial for us. A much higher margin. Analyst: Great. That makes sense. And then kind of looking ahead, are there any updates on the TSA check bag scanner contract that is expected in 2027, and when should we start thinking about that kind of coming into focus? Ajay Mehra: Yes, I think, you know, there-- you know, we are looking at it and TSA basically is you know, trying to get their check checkpoint, taken care of first and you know, we think it is still a few years away, but it will go on for several years. So the opportunity definitely is still there. Analyst: Okay. Great. Thanks, guys. Operator: Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to management for any further remarks. Ajay Mehra: Once again, thank you all for attending our conference call. We look forward to speaking with you during our next earnings call following the completion of our first fiscal quarter. Thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Before you buy stock in OSI Systems, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and OSI Systems wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. OSI Systems (OSIS) Q4 2026 Earnings Call Transcript was originally published by The Motley Fool

Security and healthcare technology company OSI Systems (NASDAQ:OSIS) fell short of the market’s revenue expectations in Q2 CY2026, with sales falling 4.1% year on year to $484.1 million. The company’s full-year revenue guidance of $1.90 billion at the midpoint came in 2% below analysts’ estimates. Its non-GAAP profit of $3.78 per share was in line with analysts’ consensus estimates. Is now the time to buy OSIS? Find out in our full research report (it’s free). Revenue: $484.1 million vs analyst estimates of $529 million (4.1% year-on-year decline, 8.5% miss) Adjusted EPS: $3.78 vs analyst estimates of $3.77 (in line) Adjusted EPS guidance for the upcoming financial year 2027 is $11.31 at the midpoint, missing analyst estimates by 1.1% Operating Margin: 15.3%, in line with the same quarter last year Backlog: $1.9 billion at quarter end, up 5.6% year on year Market Capitalization: $3.59 billion OSI Systems’ second quarter performance was marked by lower-than-expected revenue, driven primarily by deferred security division deliveries in the Middle East. Management cited ongoing regional conflict and site access challenges as the core reason for the timing shift, emphasizing that these orders remain in backlog rather than being lost. CEO Ajay Mehra described the situation as “a delay deferment of some orders” and noted that operational improvements in healthcare and strong demand in optoelectronics partially offset the security headwinds. The negative market reaction reflected investor concerns over the impact of these delays on near-term growth. Looking ahead, management’s guidance incorporates a conservative approach to revenue recognition, especially regarding the timing of Middle East deliveries and new U.S. government contract awards. CEO Ajay Mehra highlighted that while some revenue from new contracts will contribute in the coming year, the majority will impact results in subsequent years. CFO Alan Edrick stated that the company expects “a good strong overall year” for free cash flow, underpinned by backlog conversion and ongoing collection efforts. Management also pointed to continued investment in R&D and a growing service revenue base as key factors for long-term margin expansion. Management attributed the quarter’s results to delayed security deliveries, offset by strength in optoelectronics and improved healthcare operations, while emphasizing backlog visibility and service revenue growth. Security division delays: The primary driver for underperformance was the deferment of approximately $50 million in planned security deliveries due to conflict and site access issues in the Middle East. Management clarified that these revenues are deferred, not lost, and remain in the company’s backlog. Optoelectronics demand strength: The optoelectronics division delivered strong growth, citing broad-based customer demand across aerospace, defense, healthcare, and industrial markets. Management pointed to the division’s vertically integrated manufacturing and global footprint as key differentiators supporting ongoing momentum. Healthcare operational improvements: The healthcare division saw year-over-year revenue and margin improvement, attributed to operational enhancements and product development initiatives focused on next-generation patient monitoring platforms. Service revenue expansion: Service revenues, particularly in security, continued to grow, driven by an expanding installed base and the transition of certain product revenues in Mexico to recurring service contracts. Management expects double-digit service revenue growth in the coming year, with higher associated margins. U.S. government contract wins: OSI Systems secured new multi-year U.S. government indefinite delivery/indefinite quantity (IDIQ) contracts for security inspection systems, but management indicated that a significant portion of the revenue from these awards will be realized in fiscal 2028 and beyond. OSI Systems’ outlook is shaped by conservative revenue recognition, delayed project deliveries, and a focus on expanding higher-margin service offerings. Middle East delivery uncertainty: Management’s guidance assumes continued site access challenges and conflict-related delays in the Middle East, resulting in a cautious approach to recognizing security division revenue. While some deferred deliveries are expected in the next year, the pace and timing remain unpredictable, representing a key risk. Service revenue and margin mix: The company anticipates service revenue to grow at a faster rate than product revenue, especially as more installations transition off warranty and require ongoing support. Management highlighted that higher-margin service and software-as-a-service (SaaS) offerings should help drive margin expansion over the longer term. U.S. and international contract pipeline: Recent large contract wins with U.S. government agencies are expected to provide visibility into future growth, but management emphasized that most revenue impact will be realized after the upcoming year. Continued expansion in optoelectronics and healthcare divisions is also expected to support the company’s diversification strategy. In the coming quarters, the StockStory team will watch (1) the pace at which delayed Middle East security orders are delivered, (2) service revenue growth and its impact on margin expansion, and (3) the timing and size of new U.S. government contract awards entering the backlog. Execution in optoelectronics and ongoing healthcare improvements will also be important indicators of the company’s ability to deliver on its diversification strategy. OSI Systems currently trades at $188.43, down from $223.89 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members). ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time. 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Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Full-year revenue of $1.79 billion fell below guidance due to approximately $50 million in planned security deliveries being deferred beyond fiscal year-end because of Middle East conflict-related delays and site access constraints. Management emphasized that deferred revenues remain firmly in the $1.9 billion record backlog and represent timing shifts rather than lost orders. Security division performance was impacted by a $150 million year-over-year revenue headwind from the rolling off of major Mexico contracts, though this impact is expected to moderate significantly in fiscal 2027. The Optoelectronics division achieved 9% revenue growth driven by broad-based demand and a vertically integrated model that captures business from customers diversifying global supply chains. Healthcare division margins expanded to 10% from 1% year-over-year, reflecting the successful implementation of operational improvements and increased volume leverage. The Radio Frequency (RF) business reached its highest level of customer engagement ever, driven by critical involvement in homeland defense over-the-horizon radar and 'Golden Dome' initiatives. Strategic focus on recurring revenue led to 13% service revenue growth for the full year, supported by a massive installed base and the transition of legacy projects into long-term service phases. Fiscal 2027 guidance assumes revenue growth of 5% to 8.1%, with performance expected to be strongest in the second half due to the timing of Middle East deliveries and new contract ramp-ups. Management is taking a conservative approach to guidance by including only a portion of recent CBP IDIQ delivery orders, with the vast majority of those multi-year programs expected to impact fiscal 2028 and beyond. Service revenues are projected to see strong double-digit growth in fiscal 2027 as more product installations roll off warranty and transition into high-margin service contracts. Free cash flow is expected to exceed 100% of net income in fiscal 2027, supported by the anticipated collection of remaining receivables from the large Mexico security contract. The company plans to continue heightened R&D investments to advance next-generation patient monitoring and security screening platforms while maintaining a downward trend in combined SG&A and R&D as a percentage of sales. Middle East geopolitical instability remains a primary risk factor for near-term booking and delivery timelines, though management views long-term force protection needs as a potential opportunity. The Mexico contract headwind is expected to decrease to less than $25 million in fiscal 2027, concentrated primarily in the first half of the year. A new 1 million share repurchase authorization was added to the existing 1.1 million shares available, reflecting management's conviction in the company's intrinsic value. The company maintains a net leverage ratio of approximately 2.1, providing ample capacity for organic investment and potential M&A activity. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management clarified that only firm task orders, such as a recent $21 million award, enter the backlog, not the total IDIQ ceiling values. While some revenue will contribute to fiscal 2027, the 'vast majority' of these awards are scheduled for fiscal 2028 and beyond. Margins are benefiting from a shift toward a 'stronger customer profile' and highly engineered products. Management expects to pair continued revenue growth with further operating margin expansion throughout fiscal 2027, despite potential quarter-to-quarter fluctuations. The $50 million in delayed deliveries were specifically for customers located in the Middle East, rather than transit delays for other regions. Current regional demand is shifting toward immediate protection needs (missile defense), which may defer traditional security screening procurement in the short term. Growth is driven by the Mexico contract rolling into service phases and increased adoption of 'Security-as-a-Service' and SaaS software like CertScan. Service margins are inherently higher than product margins, which management believes will drive long-term structural margin expansion for the entire Security division through 2030.

Interested in OSI Systems, Inc.? Here are five stocks we like better. Record fiscal 2026 performance: OSI Systems reported $1.79 billion in revenue, up 4%, and non-GAAP EPS of $10.35, up 11%. Fourth-quarter revenue missed expectations because roughly $50 million of Security deliveries were delayed by Middle East conflicts, but the orders remain in backlog. Backlog and defense opportunities expanded: Year-end backlog reached a record approximately $1.9 billion. New CBP contracts with ceilings totaling about $285 million, a $235 million homeland-defense radar award, and participation in the SHIELD vehicle support longer-term growth. Fiscal 2027 outlook calls for continued growth: Management forecast revenue of $1.875 billion to $1.93 billion and non-GAAP EPS of $11.13 to $11.49, with growth weighted toward the second half. The company expects strong cash flow, double-digit service growth, and continued shareholder returns through share repurchases. OSI Systems (NASDAQ:OSIS) reported record fiscal 2026 revenue, earnings and operating cash flow, while fourth-quarter sales fell short of expectations after conflict-related delays in the Middle East pushed roughly $50 million of planned Security division deliveries beyond the company’s June 30 fiscal year-end. Chief Financial Officer Alan Edrick said the delayed revenue represented deferred deliveries rather than lost orders. The affected projects remain in backlog and are expected to be completed on a later schedule, he said. → Datavault AI Locks Down CyberCatch in $94M Security Rollup For the fiscal year ended June 30, OSI reported record revenue of $1.79 billion, up 4% from the prior year, and record non-GAAP earnings per share of $10.35, up 11%. Fourth-quarter revenue was $484 million, down about 4% year over year, while non-GAAP EPS rose 17% to a record $3.78. The company ended fiscal 2026 with approximately $1.9 billion in backlog, its highest level to date. Edrick said full-year book-to-bill was “a little bit north of one,” while fourth-quarter book-to-bill was just below one. He described bookings as particularly strong in Optoelectronics and solid in Security and Healthcare. → Michael Burry Is Betting Against Palantir Again—Should Investors Care? President and CEO Ajay Mehra said demand remained strong across the company’s portfolio despite near-term disruptions in the Middle East. He said the Security division faced delivery headwinds during the quarter, while Optoelectronics posted broad-based growth and Healthcare improved. “The security-related deliveries that were pushed out remain in backlog and are expected to be completed in future quarters,” Mehra said. → Home Depot Analysts See a Path to $375 and Beyond Management said the delayed deliveries were primarily to customers in the Middle East. Edrick said that, after the third-quarter report, the company had expected a significant portion of those orders to be delivered in the fourth quarter. OSI now expects a substantial portion, though not all, to be delivered in the second half of fiscal 2027. Since the fiscal year-end, U.S. Customs and Border Protection has awarded OSI two five-year indefinite-delivery, indefinite-quantity contracts. One has a ceiling of approximately $200 million for relocatable Rapiscan passenger vehicle inspection systems, while the other has a ceiling of roughly $85 million for van-mounted mobile X-ray inspection systems. The company has received delivery orders under both contracts, including a task order valued at about $21 million. Mehra said OSI is the sole awardee under both IDIQ contracts. Management expects a portion of the orders already in hand to contribute to fiscal 2027 revenue, but said the larger contribution is expected in fiscal 2028 and beyond. Edrick noted that the ceiling values of the IDIQ contracts do not immediately enter backlog. Instead, firm delivery or task orders are added to backlog as they are received. In the company’s radio-frequency business, OSI previously received an indefinitized contract action with a not-to-exceed value of approximately $235 million for production and integration of homeland defense over-the-horizon radar transmit subsystems. Edrick said roughly 80% of that award entered backlog in the fiscal third quarter and will be delivered over the next couple of years. Mehra said OSI also participates in the SHIELD IDIQ vehicle supporting Golden Dome-related initiatives. He described customer engagement in the RF portfolio as the highest the company has seen for that product line and said the business is expected to experience strong growth into fiscal 2028. Fourth-quarter non-GAAP operating margin expanded 200 basis points to 17.7%. Security adjusted operating margin increased to 20.8% from 20.4%, while Optoelectronics margin rose to 14.7% from 13.6%. Healthcare adjusted operating margin increased to 10% from 1% in the prior-year quarter, supported by higher revenue and operating leverage. Optoelectronics and Manufacturing generated 9% full-year revenue growth to $451 million, according to Mehra. Edrick said the business has been attracting a stronger customer profile and that management intends to pair fiscal 2027 revenue growth with further operating-margin expansion, though quarterly results may vary with product and customer mix. Service revenue rose 13% for the full year to $441 million. While total service revenue was relatively flat in the fourth quarter, Edrick said Security service revenue increased 9% year over year excluding installation activity tied to Mexico contracts in the prior-year period. OSI expects strong double-digit service revenue growth in fiscal 2027. Operating cash flow reached a record $182 million in the fourth quarter and $276 million for the year, helped by collections across the business. The company collected $159 million from its largest Mexico customer during the fourth quarter, reducing that customer’s accounts receivable balance to $190 million from $345 million at the end of the third quarter. OSI ended the year with $360 million in cash, compared with $106 million a year earlier, and no borrowings under its lines of credit. During fiscal 2026, the company repurchased and retired 1.1 million shares. In the fourth quarter alone, it repurchased about 565,000 shares for $123.6 million, or an average of roughly $219 per share. The board authorized an additional 1 million shares for repurchase, leaving about 1.1 million shares available under the program. OSI forecast fiscal 2027 revenue of $1.875 billion to $1.93 billion, representing growth of 5% to 8.1%, and non-GAAP diluted EPS of $11.13 to $11.49, representing growth of 7.5% to 11%. Management said the outlook incorporates a conservative approach to Middle East deliveries and future orders amid the conflict. It also includes only a portion of the CBP delivery orders already received rather than the full ceiling value of the agency’s IDIQ awards. The company expects fiscal 2027 growth to be strongest in the second half. Edrick also said OSI expects strong operating and free cash flow during the year and anticipates free cash flow could exceed 100% of net income. OSI Systems, Inc (NASDAQ: OSIS) is a publicly traded technology company founded in 1987 and headquartered in Hawthorne, California. The company designs, develops and manufactures advanced security and inspection systems, optoelectronic devices and medical imaging equipment. Over its history, OSI Systems has grown its product offerings through internal research and development as well as strategic acquisitions, expanding its capabilities in mission-critical sensing and inspection technologies. OSI Systems operates three primary business segments. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "OSI Systems Q4 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.