OSI Systems (OSIS) 22 Aug 242024 Q4 Earnings call transcript

Hello, and thank you for standing by. Welcome to OSI Systems, Inc. Fourth Quarter and Fiscal Year 2024 Conference Call. [Operator Instructions] I would now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI. Sir, you may begin.

you. thank Well, thank and joining us. Good you morning, for and Alan with Systems, OSI Executive Deepak President Edrick, Vice CFO and OSI's and of President I'm Chopra, CEO. I'm here today OSI and the Welcome fourth fiscal call. quarter to year-end Systems conference 'XX

us are both we results. our We operational review our as can and that you pleased join financial

year press issued Earlier our 'XX results. today, a we fourth financial fiscal announcing release quarter and full

respect company with results, everyone forward-looking update Securities these statements or XXXX based currently forward-looking discuss on of however, to the available that statements forward-looking statements discussion we like information, or provisions otherwise. remind I upon of Before and subsequent to any Litigation made forward-looking advantage events undertakes All include new to on to today's will and the information call harbor obligation of the wishes based take would Reform safe such this are Act Private the company statements. no

During describing GAAP today's call, we financial company's the measures both non-GAAP and results. will refer to when

further and results non-GAAP refer measures today's of reconciliation earnings GAAP measures, figures, to those comparable regarding a quantitative company's press and the release. of For information please

begin summary for fourth then performance operational and of high-level our financial the for and over with turn of fiscal will 'XX, to call business our a quarter the Deepak of discussion I a highlights.

discussion We will then our outlook of financial a fiscal finish regarding for XXXX. and detail with more results year our

increase QX, income. of revenue the and outstanding Security each Following a resulting fourth the in operating by we saw and record led division, record growth year-over-year revenues non-GAAP and results significant quarter, QX again financial in EPS in in

business. are by our momentum We encouraged the in

our results. QX full start and a XXXX, Let's fiscal high-level of with summary year

were XX% record performance XX% million, to up year-over-year by revenues year-over-year. division, Security of increased the $XXX where QX QX revenues First, in our driven a

over XX% For were year, record the increase $X.XX billion, 'XX fiscal 'XX. fiscal a full a revenues

share the of record significant per earnings non-GAAP QX $X.XX. to Second, led adjusted revenue growth

adjusted non-GAAP XX% prior $X.XX, year, EPS a was the a fiscal year. increase For 'XX over the full fiscal record

with Third, bookings of were again $X.X approximately solid, quarter and billion. ended a backlog the we

of backlog Our healthy good opportunities we enter provide year and robust visibility XXXX. pipeline fiscal as

deeply Deepak. call more the I discussing and the to over will outlook, diving into financial turn fiscal Before our results 'XX

Thank you, us joining strong OSI today you for morning, we fourth the everyone. year. Thank the Good Alan. for full Systems' as XXXX quarter and performance fiscal discuss

resulting to Alan us tremendous say year-over-year our beyond. these both grew for XX% combined mentioned, revenues of for robust a with fiscal the XX% by strength backlog year We and $X.X proud periods. our year, of I'm the billion, approximately in pipeline fiscal in XXXX revenues As the for significant full very which, gives QX record fiscal ended of and confidence with

into increasing America, [ in many offerings of highlights. ] particularly fiscal was the the and regions, Latin again East This full year. Middle but The Pac delivered for revenues QX Asia year-over-year our Diving in XX% notable with fantastic Security and was results division in growth regions. XX% spread across geographic

as with in on $XXX SEDENA, successfully to over During Department QX, than our the the National of is we known Defense, expected major million which to of program revenue execute length more generate contract. continue Mexico's total

trucks, northern multisite inspection at including a buses and system we checkpoints. portals, high systems, and Mexico's provide border SEDENA, inspection energy platform low Carview southern integration the when CertScan the Eagle of and cars energy For range and inspection cargo vehicle the inspecting

another $XXX cargo international deliver We also customer. contract the continue million to with successfully an major on program,

underway valued revenues XXXX. in million they these commence program are with also programs, mid-fiscal is at $XXX won expected be contributors with in and well are expected again well to nice we additional fiscal SEDENA 'XX. We performing The from over to

recurring revenues as airport European Our further Guatemala providing great strong points Rico, opportunities. Puerto reference continued perform Albania, and turnkey a serving and in seamlessly, projects on to

also latest Our turnkey broad highly our our These to with of year. needs. Many projects, CertScan, integration apart adopted is operations CertScan commence worldwide. the and in customs and that meet to utilized their our of border hardware the port each end portfolio. to offerings customized project solutions customers' of Uruguay sets calendar the ability expected projects demonstrate successful enhancing deliver multisite increasingly our beside before platform our us competitors is from agencies by unique cargo turnkey our security requirements, value product

XXXX We with as to were increase. aviation customers, fiscal passenger traffic also active throughout continued

this to expect general trend We continue.

during totaling revenue. RTTXXX As end, for airports fiscal XXXX, checkpoint with comprehensive bookings in $XX and furnish of solutions, whole orders Orion QX, to our support from aviation-related were particularly announced the commitments security million a screening international for baggage the service security XXXCT array extensive approximately second and the to half recurring including we of that strong X and

border the security Eagle security and about systems, to international inspection efficient of security vehicle for cargo applications in enable X checkpoints maintenance relocation support. flexible million $XX for and ports including and mobile For borders MXX These announced platforms infrastructure. awards totaling optimize customers follow-on and QX, MXX and we from critical

a addition international and in We related customer $XX breakthrough solutions of an monitoring award for revenue million an border year Security and This profit to for also and support. approximately robust division security has services radiation the announced from growth. been

confidence in comprehensive we to the order securing position with ports, long-term continued effectively growth meet and beyond. a leader security provide our our borders and products value backlog further about This in efficiently. our and needs their services industry. aviation offering of strong in XXXX range reinforces strong deliver division's the solutions our are we in in prospects flexibility to ensures major of approach With customers and security projects the pipeline, strategy enthusiastic that a fiscal specific and Our in a the offer that as best success solidifying

Throughout of Group. fiscal adjust to forecast, with work we million. the our $XXX XXXX, achieved months. their in division to believe record $X Manufacturing we in leading a quarter, a to on QX to from repeat We significant behind announced with customer this rightsizing during million a sales order the coming made healthcare assemblies. we have device quarter. demand demand, Electronics progress for The nice to announced intercompany couple the OEM and putting including fourth including Moving this wins We customers the Opto of a portable revenues, activity Opto continue milestone us

We subassemblies also received electronic order solutions engineering another to provide an OEM. $X million to advanced

their benefit establish our globally U.K. are OEMs near-shoring and expansion as we XXXX, Opto to favorable Mexico, China-centric for in in the to Based operation chain. derisk Pac us to fiscal market activity that Tecate along or region customer Opto supply will with In customer large effectively division profitable position changes to our ability to of on and the recent continue demand, achieve expand chain Asia exposure will believe believe growth. trends their South we seeking in our to supply adjust into

including and we defer patient the a during Fiscal patient Healthcare turn to U.S., tough let's monitors. challenges to solutions million provide were the year-over-year quarter, on brought XXXX hospital for patient strongest attention our Qube revenues where division, the fiscal patient award though secured comparison. the a Now U.S.-based capital Xprezzon, $X related continue monitors as a monitoring Xhibit primarily for purchases. monitoring to QX accessories, these the and from Despite significant XXXX, year hurdles, Stations, down Central in hospitals

solution analytics and predictive index Rothman is seeing our success. increased Additionally,

received be also clients. clinical continue Our to offerings our services well by

division committed to structure We are are solutions next-generation We realizing enhancing features cost expected adjusted care of deliver our Healthcare doctors fiscal also, products start to innovative our primarily in benefits in clinicians monitoring patient the and XXXX. treatment. the which and help advancing health to quarter the the improved of

it and performance. fiscal to about To up, company's build our we our excited on sum stellar are confident XXXX future

in excited have beyond. close I confident the of by and and 'XX about stakeholders We customers fiscal a will all this played thanking OSI Systems' who and are portion success. our employees, discussion part extremely

will back call discuss much. turn to over financial questions. open you more call Thank to the With in guidance that, I before fiscal Alan results the and we XXXX detail very to our

Deepak. Well, thank you,

revenues quarter. XX% division, Again, The was fiscal increase cargo financial year-over-year 'XX contract QX inspection by up revenues our product our driven vehicle Division Security QX and aviation included our by March . QX product fourth in growth in fiscal compared let's the announced growth XX% greater cargo primarily So million-plus for This solid strong our January results largest continued in cargo the prior million-plus review and the $XXX revenues checkpoint of in 'XX the detail revenues in 'XX. announced as was $XXX sales in led were and quarter Security. year. from fourth our the in from as sales. well shipments with contract

year-over-year. nicely sales Opto Third-party X% bounced back as sales increased

through the of certain see levels adjusting and/or patterns, 'XX. ordering which anticipate to continue inventory Opto We we calendar customers balance

carry was prior the from Deepak the Although XX% as XX.X% due product the to which than comparison Healthcare The the with of margin security in in quarter. by particularly revenues service due strongest a a revenues mix mentioned, QX largely revenues were period QX the 'XX less environment. of of challenging sales than as as revenues security fiscal increase typically service as last fiscal security well the driven gross favorable growth was of QX year. margin revenues, spending of the down QX significant to This along of a favorable year, mix year a less margin were XX.X% was a hospital in division's challenging lower fiscal gross QX

The highest carries lower margin year-over-year gross of Healthcare decrease all to gross division, also the the X margin. in which revenues in inherently contributed the divisions

and of among changes from fluctuate mix chain will factors. gross Our inflation margin to generally and impacts on in volume, other period based revenue supply period generally, costs

expenses. operating to Moving

fees linked in QX each of our to to by dollar QX in items. or costs, SG&A manage growth, of compared sales rates, professional or year. and continue We incentive increase exchange significant to foreign was sales cost SG&A of compensation sales diligently including $XX.X among year-over-year compensation million our efficiency higher The and to expenses across XX.X% million prior divisions were XX.X% unfavorable other increased to cost the our improve of structure. driven work $XX.X

fiscal in million the expenses $XX.X were million prior same 'XX development and quarter. compared $XX.X year Research in to QX of

We restructuring of investment success year. development, in focused Security particularly million further of the in on million fiscal recorded resources quarter and and innovative long-term our remain view division 'XX we We to we the other the to vital product to increases $X.X continue to dedicate $X.X anticipate as our of compared we such QX as R&D, same in charges fiscal which in considerable in businesses. prior of 'XX,

talk Moving I'll year-end, level and to QX to million fiscal from expenses interest to Net which $X.X expected taxes. a increased year rates borrowings. primarily increased our in 'XX, more to note 'XX shortly. fiscal we million convertible to in $X.X of due in Subsequent about year and interest other interest on a fiscal future is which completed financing, higher reduce expense, interest

Our QX reported effective to tax fiscal in 'XX 'XX. rate in of under fiscal XX.X% QX was GAAP of XX.X% compared

tax of effective in the of our compared Excluding QX rate fiscal discrete tax in impact of normalized normalized 'XX XX.X% rate 'XX. of a items, was to QX effective XX.X%

fiscal tax XX.X% XX.X% normalized fiscal year, effective in the rate the For to in prior the 'XX year. was compared

now with which the was in Security division. fourth division the 'XX, in -- in in the line from but of XX.X% margin. adjusted mix down will health of XX.X% QX the fiscal driven in given a less discussion I roughly our and XX.X% in reductions adjusted that fiscal The was mix adjusted Security Overall, the favorable of operating top a non-GAAP in 'XX, margin 'XX, of less the favorable line of operating QX QX division. to was in of 'XX turn mix margin quarter fiscal XX.X% our fiscal in sales of compared care revenue to by operating QX

XX.X% prior its XX.X% fourth reported margin to Healthcare on operating XX.X% fiscal operating year X.X% year-over-year adjusted The of the strongest lower the The to fiscal increased Opto 'XX in 'XX in though decrease year's division adjusted last quarter a in in compared of margin quarter for QX. in our from to the revenues. year, fiscal of division QX

capital $XX.X in Cash to invested operations we million, significant associated growth. primarily used in flow. fourth company's in accounts to in QX in Security quarter was of was XXXX million. $X.X due was $XX the the million, in working with the CapEx amortization In fiscal expense cash increases amounts receivable revenue quarter QX depreciation 'XX, support growth. Moving in and of while the division fiscal

X.X. with sheet balance leverage solid, Our is modest of net

of bulk million bank under $X.X from of the our Aside fiscal 'XX. principal bank payments annual loan, our matures debt required in term

XXX,XXX initial X.XX% our notes coupon As were price revolver due conversion pay and in of as and The strategic transaction share liquidity million provides immediately the mentioned in issued proceeds used cost repurchased earlier, fiscal costs. bank accretive, being a and a of count. to on cover fiscal while reduction subsequent approximately XXXX down year-end, transaction to to an we given of common $XXX. stock of $XXX This convertible interest as with in simultaneously reduction well approximately future enhanced initiatives shares capitalize significant the

the X now over combination swap of versus In with fixed is entered X/X floating. rate approximately interest debt years existing well ago, into our

Finally, turning to guidance.

sales introducing are We EPS and guidance. fiscal our adjusted 'XX non-GAAP diluted

well intangible and assets For fiscal as items. interest and excludes billion in This and guidance $X.XX and noncash the anticipate nonrecurring associated diluted revenues as 'XX, potential share fiscal tax per discrete tax the and $X.XX 'XX earnings their EPS in billion non-GAAP diluted impairment, year restructuring effects range charges, expense of $X.XX non-GAAP of other we adjusted amortization other to acquired range of to $X.XX.

estimates. guidance conversion currently reasonable on our Actual company's SEC could earnings disruptions in to results filings. guidance. our other above currently the reflected to this The is the from changes, interest could the rates inflation discussed guidance predict anticipated uncertainties in backlog expected We per to timing in chain the also vary of actual indicated difficult and on significantly non-GAAP share and and diluted due impact the revenues, believe and and risks vary of reflects financial from impact revenues supply

time, and would to like We enable questions. growth At continue this businesses. open our We products the innovative on our to remain believe efforts to the we solutions. to call will continue providing focused OSI of

line [Operator Instructions] the from Nichols Our question Riley. first Josh with of comes B.

for year all, into I to I year, the Deepak, a of and the growth run, this although well, dive on than want for 'XX too. first to in right, set coming the looks going it fiscal north right, know question Board oversee things. guess, congratulations has a retirement, staying you're as been year on X%, good we Clearly, like to and I coming to If the great better company be another here, guess, what of I that see having and I close just a we're kind first slower of is had bit because given already that not activity there's thought. seasonally September X quarter, know much through curious, just in the little kind months to I'm the the of quarter Europe. rate bit we of just about of color you the cadence growth quarter play there? of kind through kind provide you from that little how as expect go of Could a to build out first

Alan. I'll question. that Josh, this take is

is the given revenues So a QX. But even in year-over-year really our growth a QX from robust anticipate then on building we kind would and good of a basis, our we question. the the given that and see QX, and down were. Yes, QX certainly anticipate slowest backlog, strong on of do into suggesting. sequentially countries QX quarter basis we where into being in and year-over-year our discussing various of you're year typically, That said, holidays we summer that some strong

these to has a I and cash make flow. now. kind free right Great. to persistently deliveries it seeing get will product the year. remain I of and free Or cadence given that And are wondering, lot like cadence cash gross large, high. where of become with they gross investing order some as likely we're behind how past I wanted today gross heavy get for you think inventory on the mix? for fiscal as is as the been flow are margins component that services do and touch I'm this the that's large of been margin just impact backlog revenue expectations sure like, that want 'XX the the in the what are, you Clearly, starts just margins year like, company things bigger to more a to

again. Again, Yes, question. really Josh, is Alan this a good

the described On comments. based earlier gross fluctuate had a margins, the period which in some they from factors, period I to of of will upon number

margin Sort speaking. a inherently annual particularly think as which generally of to an opportunity the expand bigger becomes see our a on gross basis, that higher an said, than I products component, carries margins, we service being

So move investment a I some years. expansion capital. gross this receivables We think was future in cash into a the we and with year From working opportunity we concluded as margin in perspective, year of as a significant for strong year this flow investment there's had growth. the big sales

So that do expect flip. said, we that effectively being to

free year, So growth when we the in beyond. with guidance higher last we to XX% DSO that inventory and the providing and 'XX or higher do fiscal generate this growth year of kind [indiscernible] we see meaningful very that so associated with have is cash an we're the opportunity days flow grew

exciting an it's period for us. So

And that you'll over backlog higher other have just price fiscal like, how potential out in have come then [ kind that know year, award importantly, that last the the how what you X.X the I still me. all of been of likely the are near like also the for to that that you the durable I skepticism of come to you wins with been these backlog despite a wins started to you there's guys company share think that today able record the market? record pipeline When last with story. recently is seeing kind lot sustainable about be has that opportunities levels over $X.X that of the at question right, so around large as you large opportunity do today, years you And a to people to to you fact year, securing. that you had think quarter equally starting be that, as When growth this is still look grind I'm billion, and curious, this current continue do much to recognized backlog next think time. of is look ] replenish

Good we shipped it stuff. it and from here. the question. backlog break current varies This quarter down is you customer, readiness of times, to many the how out. depending chain Deepak Alan can't supply much that Obviously, mentioned upon quarter gets has of the the to

confident are I opportunities, the my we like very about Regarding message, said in it.

Our pipeline get out. get and reference distinguish been over is saying customers checks globe larger a the and strong. at time, and from reputation, good very the get we And as ourselves competitors and all our some we bigger customers it and we've larger looking are the for

is there And keep CBP the was into the We are aviation for air business, contributor time, that is business. At another are that participant confident big be large internationally. especially pipeline positive XXXX quite are back. same in big us, the mind a that are very sector comes opportunities U.S. we XXXX. that and not significant there strong, And beyond, very and will cargo. coming as confident that in in That's a it

trying proudly positive crossed all add XXXX can space security move feel Security to it's very, maybe up a So the say that worldwide. in in very appreciate and backlog, it in all, division $X show And I color. to and not to now our we maybe about into mark And very we're it, the beyond good sitting the on size-wise maybe on #X a next billion our but we reputation. in I it. that are we been strong want year great

Our Partners. line from next of with question comes Martin ROTH Jeff the Capital

of CBP. the U.S. question off there 'XX. last segueing to kind a on fantastic with Congratulations answer your fiscal Deepak,

of orders. Just follow-on curious out terms potential hearing you're what of timing in there

feels confident that well everybody win a of to a follow-on I portion potential pretty positioned good there. you're order think

a I the a get CBP comment. share talked possibility that, budgets is is being as left are There CBP, some think are specifically, of with and well that our Well, can't we than presently we have it, on looked to There on more but of performance. are happy said. we some in it. it. and business, comment very basically, growth at about, positioned, are we still being strong there room are IDIQs should good More I you've very can't

million complete order, on That's are. international Yes. some could SEDANA With you was contracts if the percent those the perspective fair. X just what curious respect $XXX to I give and

Jeff, this is Alan.

months into are given million that offer a along the we previous order go specifics on that individual order. on while to So we that programs, I the few don't would further prior we international order $XXX received

in remember, with So shipments that come $XXX but make order fiscal on well, $XXX got as in million-plus a as project. a gearing SEDANA which on another we lot order that shipments up 'XX, to fiscal Yes. might as we did that reminder, order significant started on that more here actually also 'XX. And shipments SEDENA the you significant fiscal 'XX. the occurred QX shipping in we're for follow-on We million

on R&D be Alan then, markets and significant planned was curious, spending mentioned products And those Deepak, you mentioned submissions that, you Security. maybe was I have in might just towards? maybe for it significant geared or if what any end approvals

Well, way, are question there in a a little separate X good but things.

our at product of to breadth. we work customers' broadest investment We and efficient our And with line of into stories way, and customized that compared success our we especially the we certification that continue custom are DNA. continue CertScan very for grow. can needs. of competitors remain innovate ahead . product the continue want of products look their to doing it, important, the needs, broaden our that's into to but to more we our to R&D And to that kind product to continue to various market it into have about that's with doing, very and the innovation we the we to compared continue customers the to so our we it, of and That's integration in the of our in to proud AI one it, are put to spend, But have, portfolio competitors more technology. be and spend any to

CJS Larry Securities. Our of next question Solow comes from the line with

growth. Is grew color we as guys Security first so slow confident mid digit I specific you provide all any It improving, XXs like just to guidance, last security sort grow you that. with kind segments that couple years, of -- down. like are a segment little slower of What's in a Obviously, question, mid-single But grow just you're bit last expect had for and need do in year-over-year. fair to that Or drive going it curious of a first up, that X% kind we bookings? I acceleration point guess the in would mid-single-digit to X% your is probably and grow the component sort sounds year, to guess that don't faster, The but use know that in up all order maybe kick of be that? question. I that starting growth? bookings kick to service will than of are segments? great all maybe like kept

is Alan. this Larry,

being So to the correct. rightsizing that provide in occurring, division. We year. mentioned half more some would generally again expect of we'd our by half than we Opto but good inventories guidance good fiscal Security as first I the don't occur by And anticipate to division. year, the solid then some anticipating We're probably the followed maybe you modest second some in the growth But to for direction, growth just you're small growth. question. give as strongest comments, And said, weighted more in Opto, healthcare,

the the a piece, and flat kick looks sort service of get few in revenue give sort just What's QX quarters kind grown the on has like of, directionally? in warranty guess component base, you It remind terms color the period year-over-year, does last last I and I can as you was obviously, us grew product between on general I next Is of it you. service your there mix down know actually that know period margin of some basically over the mentioned year. significantly the outlook, of assume in in more a Got service year-over-year. lot, I more any service And and gross don't sort or year. difference us you where and installed there's revenue. service

is this Sure, Alan. Larry,

they off So hit our of on and of security begin roll revenues head, gotten and sort base products the of we've larger warranty, the as in. the a to as installed larger kick you've nail service

fiscal So there's superior service meaningful out we 'XX. generally would nice difference profile margin anticipate our point the on is to of service of a of in consolidated as you basis. as that throughout correctly some between the growth a a well, kind And revenues revenues two. product revenues And

So year, future as move lead this some margins to but all we years of enhanced for well. us, that can as not just into

good we at which service as are So for revenues the vital recurring revenues, look us.

question, there's a outstanding. And on you piece guess, just I timing guess question. a you. -- still just know the Got IDIQ or the I a whatnot. of follow-up But -- can't I CBP I another know answer the

for next of that a you of so So But funnel of here It hopefully, that besides U.S. is, other year guys? sort are will international. Are happen in in been agencies? or has your opportunities the guess whatever. there or they're I other my like there question growth looks lot agencies U.S. where CBP

That pretty the on budgets like, here, CBP side, from sitting yes we -- looks strong about is yes. us. are Good question. they're to it into there's and say talk through things is unrest Defense. as requires that approved customer that it and their of are settles yes, stuff, answer There's other of as all grow a that into it there's yes, a air area, for and the agencies. a more in of a next look one which there is significant the awkward budgets that bit And State this these, for the in other or the a One continues getting to it's it. the that top us. is at customer And East goes all world in year. Ukraine around security we way, DoD CBP Middle area. to is big big continues the On question, going of all cargo that, for And Ultimately, especially, down, as us. of it, little also do Department Department

besides other interest. right CBP look lot of and agencies we now, a at there's So

probably But Got to you. found I -- we search I a Is Chairman I probably expect thoughts Or for active that, someone expect guess you'll is of replacement not just on that remain fully year-end? a you. time it the what your I a think slow process, last imagine any Do line, as place? question, yourself. find sense when Deepak, and are hope in that? easy time line like you'll have before like there? someone any you that

I per board. that . in we But plan plan. I'll Executive on are the involved by And Chairman. X, selection. the we right that's there should mentioned, January now. mean, of person as as before have quite be our new announcement the that's deeply still now you our And it Well, right

no queue. I'm Instructions] in questions showing further Operator the

thank and much for conference October again to the and thanks very our once your first looking quarter. much, I stakeholders you to forward very again you cheers. want the support, attending after our Well, and for customers employees, call Thank thank call.

Ladies and for call. participation. concludes your you Thank today's this conference gentlemen,

You may disconnect. now