OSI Systems, Inc. (NASDAQ: OSIS) is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The company operates in three key divisions: Security, Optoelectronics and Manufacturing, and Healthcare.
Business Overview
The Security division provides security and inspection systems and turnkey security screening solutions globally. These products and services are used to inspect baggage, parcels, cargo, people, vehicles, and other objects for weapons, explosives, drugs, radioactive and nuclear materials, and other contraband. This division accounted for 66% of the company's total consolidated revenues in the first nine months of fiscal year 2024.
The Optoelectronics and Manufacturing division designs, manufactures, and markets optoelectronic devices and flex circuits, and provides electronics manufacturing services globally. These products are used in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, and consumer products. This division contributed 22% of total consolidated revenues in the first nine months of fiscal 2024.
The Healthcare division designs, manufactures, markets, and services patient monitoring, cardiology, remote monitoring, and connected care systems globally, primarily for sale to hospitals and medical centers. This division accounted for 12% of total consolidated revenues in the first nine months of fiscal 2024.
Financials
In the first nine months of fiscal year 2024, OSI Systems reported total revenues of $1,057.9 million, up 22.1% from the same period in the prior year. This strong revenue growth was driven by a 42.6% increase in the Security division's revenues, partially offset by a 3.4% decrease in Optoelectronics and Manufacturing revenues and a 7.6% decrease in Healthcare revenues.
The company's net income for the first nine months of fiscal 2024 was $83.5 million, compared to $49.4 million in the same period of the prior year. This represents a 69.1% increase in net income. OSI Systems' operating cash flow for the first nine months of fiscal 2024 was $-58.5 million, compared to $72.7 million in the same period of the prior year. Free cash flow for the first nine months of fiscal 2024 was $-83.4 million, compared to $60.0 million in the same period of the prior year.
The company's balance sheet remains strong, with $101.4 million in cash and cash equivalents as of March 31, 2024. OSI Systems has modest net leverage of 1.5x.
Quarterly Performance
In the third quarter of fiscal 2024, OSI Systems reported record revenues of $405.4 million, up 33.8% year-over-year. This was driven by a 60% increase in Security division revenues, partially offset by a 3% decrease in Optoelectronics and Manufacturing revenues and a 6% decrease in Healthcare revenues.
Gross margin in the third quarter of fiscal 2024 was 33.6%, down from 34.3% in the prior-year quarter, due to a shift in revenue mix towards lower-margin product sales in the Security division. Operating margin expanded to 13.9% in the third quarter of fiscal 2024, up from 12.9% in the prior-year quarter, driven by the strong performance of the Security division.
The company reported third-quarter fiscal 2024 non-GAAP earnings per share of $2.16, up 45% from the prior-year quarter.
Outlook
For fiscal year 2024, OSI Systems is increasing its non-GAAP diluted EPS guidance to growth of over 30% compared to fiscal 2023, while maintaining its revenue guidance of an increase of more than 19%.
The company cited continued strong bookings activity and a significant opportunity pipeline as reasons for its confidence in the outlook. OSI Systems ended the third quarter of fiscal 2024 with a backlog of nearly $1.8 billion, providing good visibility into fiscal 2025 and beyond.
Risks and Challenges
OSI Systems faces several risks and challenges, including global economic conditions, changes in government spending and policies, supply chain disruptions, and the competitive landscape. The company is also exposed to currency exchange rate fluctuations due to its global operations.
Conclusion
OSI Systems has demonstrated its ability to deliver strong financial performance, driven by the continued success of its Security division and its diversified business model. The company's focus on innovation, its broad product portfolio, and its global reach position it well to capitalize on the growing demand for security and inspection solutions, as well as healthcare technology. With a solid balance sheet, a robust backlog, and a positive outlook, OSI Systems appears poised for continued growth and success.