• Revenue: Increased 23% year over year to $344 million, a Q1 record.
• Security Division Revenue: Up 36% year over year.
• Non-GAAP Adjusted Earnings Per Share: Record $1.25 for Q1.
• Backlog: Approximately $1.8 billion.
• Convertible Debt Financing: Raised $350 million in July.
• Gross Margin: 35.3% in Q1, compared to 35.4% in the prior year.
• SG&A Expenses: $72 million or 21.0% of sales.
• R&D Expenses: $17.8 million or 5.2% of revenues.
• Adjusted Operating Margin: Increased to 10.3% from 9.6% in the prior year.
• Cash Used in Operations: $37 million, primarily due to higher inventories and receivables.
• Capex: $7.7 million in Q1.
• Fiscal '25 Revenue Guidance: $1.67 billion to $1.695 billion.
• Fiscal '25 Non-GAAP EPS Guidance: $9 to $9.30 per share.

• Warning! GuruFocus has detected 6 Warning Signs with OSIS.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• OSI Systems Inc (NASDAQ:OSIS) reported a 23% year-over-year increase in revenues for Q1 fiscal 2025, reaching a record $344 million, driven by strong performance in the security division.
• The company achieved a record Q1 non-GAAP adjusted earnings per share of $1.25, reflecting significant revenue growth.
• OSI Systems Inc (NASDAQ:OSIS) ended the quarter with a robust backlog of approximately $1.8 billion, providing good visibility for future operations.
• The company completed a convertible debt financing in July, raising $350 million, which reduced borrowing costs and was immediately accretive.
• A strategic bolt-on acquisition in the security division is expected to be accretive to fiscal 2025 non-GAAP earnings per share, enhancing the company's technology portfolio.

Negative Points

• The healthcare division experienced a slight year-over-year decline in sales due to challenging market conditions, although profitability improved.
• Cash used in operations was $37 million in Q1, primarily due to higher inventories and receivables in support of the security division's revenue growth.
• The company's gross margin of 35.3% was slightly down from the previous year's 35.4%, with fluctuations expected due to revenue mix and supply chain costs.
• Net interest and other expenses increased to $7.4 million in fiscal '25 from $5.7 million in fiscal '24, primarily due to higher borrowings.
• The company faces potential risks from global economic conditions and geopolitical unrest, which could impact the timing of contract opportunities.

Q & A Highlights

Q: Can you provide more granularity on what's been driving the backlog growth in the security division despite it being a seasonally slower quarter? A: Alan Edrick, CFO: We've seen strength across our security division, with strong performance across geographies and product lines, including aviation and cargo solutions. This has positioned us with an excellent backlog as we look forward to the rest of fiscal '25 and beyond.

Q: What is the opportunity to increase market share in aviation and air cargo, where you're not the lead player like in cargo and vehicle inspection systems? A: Deepak Chopra, CEO: We see strong pipelines and expectations in the aviation and air cargo space, especially internationally. Airports are upgrading systems due to increased passenger traffic, and we are focused on innovative solutions like employee screening. We are well-positioned for growth in this area.

Q: Can you provide additional color on the recent RF technology acquisition and its expected impact? A: Deepak Chopra, CEO: This strategic acquisition fits well with our existing customer base, both domestically and internationally. It broadens our technology platform and allows us to leverage our global manufacturing and service infrastructure, enhancing our product portfolio.

Q: How should we think about the pipeline of opportunities over the next 6 to 12 months? Are there specific regions or contracts to watch? A: Deepak Chopra, CEO: While we can't be specific, we have a strong global pipeline, particularly in the cargo space. Our reputation and success in various regions position us well for future opportunities, and we expect these to mature in a timely fashion.

Q: Regarding the healthcare division, how did you achieve improved profitability despite flat sales, and what are the expectations moving forward? A: Alan Edrick, CFO: We improved profitability through operational enhancements and cost reductions. As revenues increase, there's significant pull-through to operating income. We expect stronger performance in future quarters due to a more linear cost structure and increased revenues.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.