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OSI Systems Reports Fiscal 2023 Third Quarter Financial Results

  • Q3 Revenues of $303 Million
  • Q3 Earnings Per Diluted Share
    • GAAP EPS of $1.27
    • Non-GAAP Adjusted EPS of $1.49
  • Record Q3 Ended Backlog of $1.5 Billion (19% increase from June 30, 2022)
  • Q3 Operating Cash Flow of $65 Million
  • Company Reiterates FY 2023 Revenues Guidance and Non-GAAP Adjusted EPS Guidance
    • Q4 Year-Over-Year Expected Revenue Growth of 11% - 18%
    • Q4 Year-Over-Year Expected Adjusted EPS Growth of 26% - 38%

OSI Systems, Inc. (the “Company” or “OSI Systems”) (NASDAQ: OSIS) today announced its financial results for the three and nine months ended March 31, 2023.

Deepak Chopra, OSI Systems’ Chairman and Chief Executive Officer, stated, “We were pleased with our third quarter performance as revenues and adjusted operating income increased 4% and 17%, respectively. Towards the end of the quarter, we announced a major win in our Security division, which was booked upon contract execution in the fourth fiscal quarter. Given our significant backlog, we anticipate strong revenue and adjusted earnings growth in the fourth quarter as we build momentum heading into fiscal 24.”

For the third quarter of fiscal 2023, the Company reported revenues of $302.9 million, a 4% increase compared to the $290.5 million reported for the third quarter of fiscal 2022. Net income for the third quarter of fiscal 2023 was $21.8 million, or $1.27 per diluted share, compared to net income in the third quarter of fiscal 2022 of $42.7 million (which included a gain on sale of $27.4 million for a sale-leaseback transaction), or $2.41 per diluted share. Non-GAAP net income for the third quarter of fiscal 2023 was $25.6 million, or $1.49 per diluted share, compared to non-GAAP net income for the third quarter of fiscal 2022 of $25.5 million, or $1.43 per diluted share.

For the nine months ended March 31, 2023, revenues were $866.6 million compared to $846.4 million in the same period a year ago. Net income for the nine months ended March 31, 2023 was $49.4 million, or $2.88 per diluted share, compared to net income for the same period a year ago of $81.6 million (which also included the sale-leaseback transaction gain on sale of $27.4 million), or $4.52 per diluted share. Non-GAAP net income for the nine months ended March 31, 2023 was $61.0 million, or $3.55 per diluted share, compared with non-GAAP net income of $69.9 million, or $3.87 per diluted share, for the comparable prior-year period.

As of March 31, 2023, the Company's backlog was $1.5 billion, representing an increase of 19% from the Company’s backlog as of June 30, 2022. During the quarter ended March 31, 2023, operating cash flow was $64.5 million, significantly surpassing the $38.4 million generated for the same quarter of the prior year. Capital expenditures were $5.7 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively.

Mr. Chopra commented, “The Security division’s revenues for the third quarter increased 13% year-over-year contributing to strong operating margin expansion. Just after quarter end, we executed the contract on the previously announced approximately $600 million Mexico award (including VAT), which we believe highlights our industry leadership position. We are poised for a strong finish to fiscal 2023, and we believe we are well-positioned in the Security division for fiscal 24.”

Mr. Chopra continued, “Our Optoelectronics and Manufacturing division delivered solid Q3 revenues along with significant operating margin expansion. This division continues to capitalize on our vertically integrated structure, experiencing robust demand from customers that we believe are drawn to suppliers with demonstrated international manufacturing and fulfillment operations.”

Mr. Chopra concluded, “Our Healthcare division experienced a challenging quarter with lower year-over-year revenues and operating income. While our third quarter fiscal 2023 performance was softer than we had expected, we are anticipating strong sequential improvement for the fourth quarter. We continue to strengthen the division’s offerings with new product development, principally in our patient monitoring portfolio.”

Fiscal Year 2023 Outlook

The Company is reiterating its fiscal 2023 revenues guidance of $1.240 billion - $1.265 billion and non-GAAP adjusted diluted earnings per share guidance of $6.02 - $6.25. Actual revenues and adjusted diluted earnings per share could vary from this guidance due to factors discussed under “Forward-Looking Statements” or other factors.

The Company’s fiscal 2023 adjusted diluted earnings per share guidance is provided on a non-GAAP basis only. The Company does not provide a reconciliation of guidance for adjusted diluted EPS to GAAP diluted EPS (the most directly comparable GAAP measure) on a forward-looking basis because the Company is unable to provide a meaningful or accurate compilation of reconciling items and certain information is not available. This is due to the inherent difficulty and complexity in accurately forecasting the timing and amounts of various items included in the calculation of GAAP diluted EPS but excluded in the calculation of adjusted diluted EPS, such as acquisition costs and other non-recurring items that have not yet occurred, are out of the Company’s control or cannot otherwise reasonably be predicted. For the same reasons, the Company is unable to address the significance of unavailable information which may be material and therefore could result in GAAP diluted EPS, the most directly comparable GAAP financial measure, being materially different from projected adjusted diluted EPS.

Presentation of Non-GAAP Financial Measures

This earnings release includes a presentation of non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating income (loss) by segment and non-GAAP operating margin, all of which are non-GAAP financial measures. The presentation of these non-GAAP figures for the three and nine months ended March 31, 2022 and 2023 is provided to allow for the comparison of the underlying performance of the Company, net of impairment, restructuring and other charges (including certain legal costs), amortization of intangible assets acquired through business acquisitions, gain on sale of property in fiscal 2022, non-cash interest expense, and their associated tax effects, and the impact of discrete income tax items. Although we exclude amortization of acquired intangible assets from our non-GAAP figures, revenue generated from such intangibles is included within revenue in determining non-GAAP financial performance of the Company. Management believes that the non-GAAP financial measures presented in this earnings release provide (i) enhanced insight into the ongoing operations of the Company, (ii) meaningful information regarding the Company’s financial results (excluding amounts management does not view as reflective of ongoing operating results) for purposes of planning, forecasting, and assessing the performance of the Company’s businesses, (iii) a meaningful comparison of financial results of the current period against results of past periods, and (iv) financial results that are generally more comparable to financial results of peer companies than are GAAP figures. Non-GAAP financial measures should not be assessed in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as measures used by other companies due to possible differences in methods and in the items or events for which adjustments are made.

Reconciliations of GAAP financial information to non-GAAP financial information are provided in the accompanying tables. The financial results calculated in accordance with GAAP and reconciliations from those financial results should be carefully evaluated.

Conference Call Information

The Company will host a conference call and simultaneous webcast beginning at 9:00am PT (12:00pm ET) today to discuss its results for the third quarter of fiscal 2023. To listen, please visit the Investor Relations section of the OSI Systems website at http://investors.osi-systems.com/index.cfm and follow the link that will be posted on the front page. A replay of the webcast will be available beginning shortly after the conclusion of the conference call until May 11, 2023. The replay can be accessed through the Company’s website at www.osi-systems.com.

About OSI Systems

OSI Systems is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries. The Company combines more than 40 years of electronics engineering and manufacturing experience with offices and production facilities in more than a dozen countries to implement a strategy of expansion into selective end-product markets. For more information on OSI Systems and its subsidiary companies, visit www.osi-systems.com. News Filter: OSIS-E

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to the Company's current expectations, beliefs, and projections concerning matters that are not historical facts. Forward-looking statements are not guarantees of future performance and involve uncertainties, risks, assumptions, and contingencies, many of which are outside the Company's control and which may cause actual results to differ materially from those described in or implied by any forward-looking statement. Forward-looking statements include, but are not limited to, information provided regarding expected revenues, earnings, growth, and operational performance in fiscal 2023 and beyond. The Company could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts; failure to secure the renewal of key customer contracts; delays in customer programs; delays in revenue recognition related to the timing of customer acceptance; changes in domestic and foreign government spending and budgetary, procurement and trade policies adverse to the Company's businesses; the impact of the Russia-Ukraine conflict, including the potential for broad economic disruption; global economic uncertainty; impact on the Company’s business related to or resulting from the COVID-19 pandemic such as material delays and cancellations of orders or deliveries thereon, supply chain disruptions, plant closures, or other adverse impacts on the Company’s ability to execute business plans; unfavorable currency exchange rate fluctuations; effect of changes in tax legislation; market acceptance of the Company's new and existing technologies, products, and services; the Company's ability to win new business and convert orders received to sales within the current fiscal year; contract and regulatory compliance matters, and actions which, if brought, could result in judgments, settlements, fines, injunctions, debarment, or penalties; and other risks and uncertainties, including, but not limited to, those detailed herein and from time to time in the Company's Securities and Exchange Commission filings, which could have a material and adverse impact on the Company's business, financial condition, and results of operations. Many of the referenced risks could be amplified by the magnitude and duration of the COVID-19 pandemic. For additional information on these and other factors that could cause the Company's future results to differ materially from those in any forward-looking statements, see the section titled "Risk Factors" in the Company's most recently filed Annual Report on Form 10-K and other risks described therein and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, which are based on currently available information and speak only as of the date on which they are made. The Company assumes no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information, or otherwise, except to the extent required to do so under federal securities laws.

 

OSI SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

Revenues:

 

 

 

 

Products

$

221,857

 

$

223,724

 

$

634,446

 

$

637,563

 

Services

 

68,620

 

 

79,165

 

 

211,969

 

 

228,994

 

Total net revenues

 

290,477

 

 

302,889

 

 

846,415

 

 

866,557

 

Cost of goods sold:

 

 

 

 

Products

 

150,311

 

 

156,534

 

 

432,277

 

 

458,197

 

Services

 

37,308

 

 

42,569

 

 

112,177

 

 

120,870

 

Total cost of goods sold

 

187,619

 

 

199,103

 

 

544,454

 

 

579,067

 

Gross profit

 

102,858

 

 

103,786

 

 

301,961

 

 

287,490

 

Operating expenses:

 

 

 

 

Selling, general and administrative

 

57,813

 

 

53,707

 

 

170,015

 

 

161,148

 

Research and development

 

15,150

 

 

14,852

 

 

44,944

 

 

43,848

 

Impairment, restructuring and other charges, net

 

1,469

 

 

890

 

 

4,810

 

 

4,366

 

Total operating expenses

 

74,432

 

 

69,449

 

 

219,769

 

 

209,362

 

Income from operations

 

28,426

 

 

34,337

 

 

82,192

 

 

78,128

 

Interest and other expense, net

 

(2,301

)

 

(5,727

)

 

(6,534

)

 

(14,339

)

Other income, net

 

27,373

 

 

--

 

 

27,373

 

 

--

 

Income before income taxes

 

53,498

 

 

28,610

 

 

103,031

 

 

63,789

 

Provision for income taxes

 

(10,763

)

 

(6,802

)

 

(21,447

)

 

(14,392

)

Net income

$

42,735

 

$

21,808

 

$

81,584

 

$

49,397

 

 

 

 

 

 

Diluted earnings per share

$

2.41

 

$

1.27

 

$

4.52

 

$

2.88

 

Weighted average shares outstanding – diluted

 

17,709

 

 

17,184

 

 

18,036

 

 

17,151

 

 

UNAUDITED SEGMENT INFORMATION

(in thousands)

 

 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

Revenues – by Segment:

 

 

 

 

 

 

 

Security division

$

158,644

 

 

$

178,752

 

 

$

454,079

 

 

$

491,188

 

Healthcare division

 

52,178

 

 

 

43,911

 

 

 

155,191

 

 

 

130,994

 

Optoelectronics and Manufacturing division, including intersegment revenues

 

92,122

 

 

 

93,888

 

 

 

275,917

 

 

 

286,513

 

Intersegment eliminations

 

(12,467

)

 

 

(13,662

)

 

 

(38,772

)

 

 

(42,138

)

Total

$

290,477

 

 

$

302,889

 

 

$

846,415

 

 

$

866,557

 

 

 

 

 

 

 

 

 

Operating income (loss) – by Segment:

 

 

 

 

 

 

 

Security division

$

20,559

 

 

$

29,496

 

 

$

60,323

 

 

$

66,014

 

Healthcare division

 

7,480

 

 

 

1,787

 

 

 

20,430

 

 

 

4,819

 

Optoelectronics and Manufacturing division

 

11,177

 

 

 

12,493

 

 

 

34,342

 

 

 

35,963

 

Corporate

 

(10,729

)

 

 

(10,148

)

 

 

(32,855

)

 

 

(29,572

)

Intersegment eliminations

 

(61

)

 

 

709

 

 

 

(48

)

 

 

904

 

Total

$

28,426

 

 

$

34,337

 

 

$

82,192

 

 

$

78,128

 

OSI SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

June 30, 2022

 

March 31, 2023

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

64,202

 

$

65,622

Accounts receivable, net

 

307,973

 

 

300,663

Inventories

 

333,907

 

 

371,795

Other current assets

 

40,062

 

 

40,454

Total current assets

 

746,144

 

 

778,534

Property and equipment, net

 

109,684

 

 

109,139

Goodwill

 

336,357

 

 

346,716

Intangible assets, net

 

138,370

 

 

140,192

Other non-current assets

 

112,595

 

 

108,722

Total Assets

$

1,443,150

 

$

1,483,303

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Bank lines of credit

$

60,000

 

$

215,000

Current portion of long-term debt

 

244,575

 

 

8,080

Accounts payable and accrued expenses

 

194,266

 

 

188,143

Other current liabilities

 

115,113

 

 

139,190

Total current liabilities

 

613,954

 

 

550,413

Long-term debt

 

48,668

 

 

138,190

Other long-term liabilities

 

142,104

 

 

127,783

Total liabilities

 

804,726

 

 

816,386

Total stockholders’ equity

 

638,424

 

 

666,917

Total Liabilities and Stockholders’ Equity

$

1,443,150

 

$

1,483,303

 

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

NET INCOME AND EARNINGS PER SHARE

(in thousands, except earnings per share data)

 

 

Three Months Ended March 31,

Nine Months Ended March 31,

 

2022

2023

2022

2023

 

Net income

EPS

Net income

EPS

Net income

EPS

Net income

EPS

GAAP basis

$

42,735

 

$

2.41

 

$

21,808

 

$

1.27

 

$

81,584

 

$

4.52

 

$

49,397

 

$

2.88

 

Impairment, restructuring and other charges, net

 

1,469

 

 

0.08

 

 

890

 

 

0.05

 

 

4,810

 

 

0.27

 

 

4,366

 

 

0.25

 

Amortization of acquired intangible assets

 

3,357

 

 

0.19

 

 

3,738

 

 

0.22

 

 

9,717

 

 

0.54

 

 

11,226

 

 

0.65

 

Non-cash interest expense

 

188

 

 

0.01

 

 

124

 

 

0.01

 

 

313

 

 

0.02

 

 

419

 

 

0.02

 

Gain on sale of property

 

(27,368

)

 

(1.55

)

 

--

 

 

--

 

 

(27,368

)

 

(1.52

)

 

--

 

 

--

 

Tax benefit of above adjustments

 

5,330

 

 

0.30

 

 

(1,102

)

 

(0.07

)

 

2,854

 

 

0.15

 

 

(3,775

)

 

(0.21

)

Discrete tax items

 

(225

)

 

(0.01

)

 

168

 

 

0.01

 

 

(2,023

)

 

(0.11

)

 

(646

)

 

(0.04

)

 

 

 

 

 

 

 

 

 

Non-GAAP basis

$

25,486

 

$

1.43

 

$

25,626

 

$

1.49

 

$

69,887

 

$

3.87

 

$

60,987

 

$

3.55

 

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

OPERATING INCOME (LOSS) AND OPERATING MARGIN BY SEGMENT

(in thousands, except percentages)

 

Three Months Ended March 31, 2022

 

 

Security Division

 

Healthcare Division

 

Optoelectronics and Manufacturing Division

 

Corporate / Elimination

 

Total

 

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

 

 

% of Sales

GAAP basis – operating income (loss)

 

$

20,559

 

13.0

%

 

$

7,480

 

14.3

%

 

$

11,177

 

12.1

%

 

$

(10,790

)

 

 

$

 

28,426

 

9.8

%

Impairment, restructuring and other charges, net

 

 

633

 

0.4

%

 

 

-

 

-

 

 

 

-

 

-

 

 

 

836

 

 

 

1,469

 

0.5

%

Amortization of acquired intangible assets

 

 

2,448

 

1.5

%

 

 

202

 

0.4

%

 

 

707

 

0.8

%

 

 

-

 

 

 

3,357

 

1.1

%

Non-GAAP basis– operating income (loss)

 

$

23,640

 

14.9

%

 

 

$

 

7,682

 

14.7

%

 

$

11,884

 

12.9

%

 

$

(9,954

)

 

 

$

 

33,252

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

Security Division

 

Healthcare Division

 

Optoelectronics and Manufacturing Division

 

Corporate / Elimination

 

Total

 

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

 

 

% of Sales

GAAP basis – operating income (loss)

 

$

29,496

 

16.5

%

 

$

1,787

 

4.1

%

 

$

12,493

 

13.3

%

 

$

(9,439

)

 

$

34,337

 

11.3

%

Impairment, restructuring and other charges, net

 

 

493

 

0.3

%

 

 

307

 

0.7

%

 

 

32

 

0.1

%

 

 

58

 

 

 

890

 

0.3

%

Amortization of acquired intangible assets

 

 

2,784

 

1.5

%

 

 

268

 

0.6

%

 

 

686

 

0.7

%

 

 

-

 

 

 

3,738

 

1.3

%

Non-GAAP basis– operating income (loss)

 

$

32,773

 

18.3

%

 

$

2,362

 

5.4

%

 

$

13,211

 

14.1

%

 

$

(9,381

)

 

$

38,965

 

12.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended March 31, 2022

 

 

Security Division

 

Healthcare Division

 

Optoelectronics and Manufacturing Division

 

Corporate / Elimination

 

Total

 

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

 

 

% of Sales

GAAP basis – operating income (loss)

 

 

$

 

60,323

 

13.3

%

 

$

20,430

 

13.2

%

 

$

34,342

 

12.4

%

 

$

(32,903

)

 

 

$

 

82,192

 

9.7

%

Impairment, restructuring and other charges, net

 

 

1,261

 

0.3

%

 

 

-

 

-

 

 

 

-

 

-

 

 

 

3,549

 

 

 

4,810

 

0.6

%

Amortization of acquired intangible assets

 

 

6,985

 

1.5

%

 

 

605

 

0.4

%

 

 

2,127

 

0.8

%

 

 

-

 

 

 

9,717

 

1.1

%

Non-GAAP basis– operating income (loss)

 

 

$

 

68,569

 

15.1

%

 

$

21,035

 

13.6

%

 

$

36,469

 

13.2

%

 

$

(29,354

)

 

 

$

 

96,719

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended March 31, 2023

 

 

Security Division

 

Healthcare Division

 

Optoelectronics and Manufacturing Division

 

Corporate / Elimination

 

Total

 

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

% of Sales

 

 

 

 

 

% of Sales

GAAP basis – operating income (loss)

 

$

66,014

 

13.4

%

 

$

4,819

 

3.7

%

 

$

35,963

 

12.6

%

 

$

(28,668

)

 

$

78,128

 

9.0

%

Impairment, restructuring and other charges, net

 

 

1,358

 

0.3

%

 

 

2,753

 

2.1

%

 

 

47

 

0.0

%

 

 

208

 

 

 

4,366

 

0.5

%

Amortization of acquired intangible assets

 

 

8,487

 

1.7

%

 

 

671

 

0.5

%

 

 

2,068

 

0.7

%

 

 

-

 

 

 

11,226

 

1.3

%

Non-GAAP basis– operating income (loss)

 

$

75,859

 

15.4

%

 

$

8,243

 

6.3

%

 

$

38,078

 

13.3

%

 

$

(28,460

)

 

$

93,720

 

10.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

For Additional Information, Contact:

OSI Systems, Inc.

Ajay Vashishat

Vice President, Business Development

Tel: (310) 349-2237

avashishat@osi-systems.com

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