Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OSI Systems Inc (OSIS, Financial) reported record revenues of $481 million for Q4, a 17% year-over-year increase.
- The security division saw a 27% year-over-year revenue increase in Q4, contributing significantly to overall growth.
- The company ended the fiscal year with a substantial backlog of approximately $1.7 billion, providing strong visibility for fiscal 2025.
- Non-GAAP adjusted earnings per share for Q4 reached a record $2.84, with full-year EPS at $8.13, a 31% increase over the prior year.
- The optoelectronics and manufacturing division achieved record Q4 revenues, indicating strong performance across multiple segments.
Negative Points
- The healthcare division's Q4 revenues were down 15% year-over-year due to a challenging hospital spending environment.
- Gross margin for Q4 decreased to 32.1% from 34.7% in the prior year, primarily due to a less favorable revenue mix.
- Operating expenses increased year-over-year, driven by higher compensation costs and unfavorable foreign exchange rates.
- Net interest and other expenses rose to $8.2 million in Q4 from $5.7 million in the prior year, mainly due to increased interest rates on higher borrowings.
- Cash used in operations was $29 million in Q4, primarily due to increases in accounts receivable associated with security division revenue growth.
Q & A Highlights
Q: Could you provide a little bit of color about how you expect the cadence of growth to play out as we go through the first quarter and build from there?
A: Typically, Q1 is our slowest quarter due to summer and holidays in various countries. However, given our strong backlog, we anticipate robust growth even in Q1, down sequentially but strong year-over-year. Revenues are expected to build into Q2 and Q3. - Alan Edrick, CFO
Q: What are the expectations for gross margins and free cash flow for fiscal year '25?
A: Gross margins will fluctuate, but we see an opportunity for expansion, particularly as service becomes a bigger component. We expect meaningful free cash flow in fiscal '25 and beyond, following significant investments in working capital in fiscal '24. - Alan Edrick, CFO
Q: How much of the current backlog is likely to be recognized in the next fiscal year, and what are the potential large opportunities in the pipeline?
A: We can't specify how much of the backlog will be shipped, but our pipeline is very strong with significant large opportunities internationally. The aviation sector is also coming back, and we expect to be a big participant in the US CBP business in fiscal '25 and beyond. - Deepak Chopra, CEO
Q: What are you hearing about the potential timing of follow-on orders from US CBP?
A: We are well-positioned and happy with our performance. There are IDIQs with room left, and budgets are being looked at. We see a strong possibility of growth in CBP business and expect to get a good share of it. - Deepak Chopra, CEO
Q: Can you provide some perspective on the completion status of the SEDENA and $200 million international orders?
A: We are further along on the $200 million international order, with significant shipments in fiscal '24. The SEDENA $500 million-plus order also saw significant shipments, with more to come. We also have a follow-on $100 million order with SEDENA for fiscal '25. - Alan Edrick, CFO
Q: Are there any planned submissions or approvals on products, and what end markets are they geared towards?
A: We continue to innovate and broaden our product portfolio, focusing on AI integration and customer-specific needs. We aim to remain ahead of the market with a broad product breadth, which is vital for our growth. - Deepak Chopra, CEO
Q: What is the outlook for service revenue growth and its impact on gross margins?
A: As our installed base grows and products roll off warranty, we anticipate nice growth in service revenues, which generally carry higher margins than product revenues. This will enhance margins not just this year but in future years as well. - Alan Edrick, CFO
Q: Are there other US agencies besides CBP that present opportunities for growth?
A: Yes, there are other agencies like DoD, air cargo, and the Department of State. The unrest in regions like the Middle East and Ukraine also drives demand for security, presenting growth opportunities. - Deepak Chopra, CEO
Q: What is the timeline for finding a replacement for the CEO position?
A: The plan is to have the new person on board by January 1. I will remain as Executive Chairman, and we are deeply involved in the selection process. - Deepak Chopra, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
