OSI Systems, Inc.

Thank you for standing by and welcome to the OSI Systems first quarter 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Ellen Edrick. Chief Financial Officer. Please go ahead, sir.

Good morning, and thank you for joining us. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems, and I'm here today with Deepak Chopra, OSI's President and CEO. Welcome to the OSI Systems Fiscal 2024 First Quarter Conference Call. We are pleased that you can join us as we review our financial and operational results. Earlier today, we issued a press release announcing our 2024 fiscal year first quarter financial results. And before we discuss our results, however, I'd like to remind everyone that today's discussion will include forward-looking statements and the company wishes to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. All forward-looking statements made in this call are based on currently available information and the company undertakes no obligation to update any forward-looking statement based on subsequent events or new information or otherwise. During today's call, we will refer both to GAAP and non-GAAP financial measures when describing the company's results. For further information regarding non-GAAP measures and comparable GAAP measures of the company's results and a quantitative reconciliation of those figures, please refer to today's earnings release. I will begin with a high-level summary of our financial performance for the first quarter of fiscal 24 and then turn the call over to Deepak for a discussion of our business and operational performance. We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 24. Our first quarter financial results were generally solid with the security division again generating double digit revenue growth and significant year over year operating margin expansion. and the Opto Division performing very well, while the Healthcare Division experienced a challenging quarter. We are enthusiastic about the overall significant revenue and earnings growth anticipated for the balance of Fiscal 24. Let's start with a high-level summary of our Q1 results. First, we reported Q1 revenues of $279 million, representing a year-over-year increase of 4%, driven by revenue growth of 14% in our Security Division, and 2 percent in the opto division, which were partially offset by a 13 percent decrease in revenue in the healthcare division. Second, we reported Q1 non-GAAP adjusted earnings per share of 91 cents, up 5 percent from Q1 of the prior fiscal year, as strong operating results overcame the impact of approximately 11 cents per share of additional interest expense associated with higher interest rates in our borrowings. We ended the quarter with a backlog of nearly 1.8 billion. The strong backlog provides outstanding visibility for the full fiscal year. Before diving more deeply into our financial results and discussing the fiscal 2024 outlook, I will turn the call over to Deepak.

Thank you very much, Alan. Good morning to everyone. I'm pleased to report that our fiscal 2024 first quarter performance aligned with our expectations. we achieved 4% revenue growth with increased margins. With a strong backlog coupled with a significant recent awards and high visibility into the opportunity pipeline, we expect significant revenue and adjusting earnings per share growth through fiscal 24 and beyond. So let's dive into the performance and highlights of each division during the quarter and begin with the security division which saw an increase of 14% in Q1 revenues and operating margin expansion. The division had bookings of $174 million during the quarter, resulting in a book-to-bill ratio of 1.1. During the quarter, we made considerable progress on the ramp-ups for our recently awarded port and border security initiatives with Mexico's defense agency, Sedena, and the other international customer. We anticipate that both programs will contribute substantial revenues in this fiscal year. During Q1, we successfully captured several port and border security customer opportunities in the US and internationally. On the international front, we announced an award for $14 million from a Latin America-based customer to provide multiple units of our Eagle P60 high-energy drive-through cargo and vehicle inspection system. Also, the VM250 radiation portal monitors and the Mini-Zs, handheld backscatter devices, along with our proprietary search scan integration installation software and training and maintenance service and support. In addition, we also announced a $10 million contract from an international customs agency to provide dual energy X-ray cargo and vehicle inspection solution, including multi-year maintenance service and support. In the U.S., we announced a $14 million award from an existing U.S. customer to provide civil works and installation support for our cargo and vehicle inspection systems. And wrapping it up in the ports and borders, shortly after the quarter end, we announced an award that we received in Q1 of a 10 year contract to provide a turnkey screening solution to Uruguay's Ministry of Economics and Finance. The Eagle T60 high energy trailer mounted vehicle inspection system will be used to perform security screening and remote image analysis utilizing the proprietary CertScan integration platform. We will also provide on-site operator training, ongoing maintenance, service and support. I just want to talk a little bit more about our CertScan software, which is our proprietary software solution that helps manage inspection image data, traffic and vehicle identification at checkpoints. Along with search scans utilization as a critical piece in a turnkey solution, we utilize search scan frequently on traditional hardware installations as customers increasingly integrate screening systems with existing data and communication centers. Furthermore, when new data managed infrastructure is required for specific program initiatives, we are often involved in supporting the planning and construction of these facilities. The Uruguay program will join our long-standing successful turnkey projects like Puro Rico, Albania, etc., where we have demonstrated our experience and capabilities in handling large-scale programs for customs and border protection agencies. We have an extensive presence with the U.S. Customs and Border Protection, CBP, in the United States, where we are actively supporting recent border security efforts through equipment and service orders received to date for about 200 million. The CBP has room under two active indefinite delivery indefinite quantity that have IDIQs that have a combined total potential award value of about 870 million. Although the U.S. government is currently operating under a continuing resolution, We are hopeful that additional orders could be issued once the U.S. government's 24 budget is passed and signed into law. Our checkpoint security products and related services team continues to support its customer base in airports, transportation, government facilities, and other critical infrastructures. Our latest explosive trace detection system, ETD, the Itemizer 5X, is now approved by the european union for use at european airports qualified by tsa acstl for air cargo and certified by the china aviation authority or cac for use at airports the itemizer 5x has some of the most advanced software algorithms and optimized detection libraries making it an ideal tool for identifying explosives narcotics and other harmful compounds. We have been diligently collaborating with international airports regarding potential passenger and baggage screening enhancements to align with the latest technology regulatory standards. We remain optimistic about the continued expansion in the aviation CT checkpoint and checked baggage area together with the itemizer 5X projects and have a good healthy backlog. Overall, the Security Division had a great start for Fiscal 24, and with a strong backlog, we expect it will do significantly better in the remainder of Fiscal 24. Moving to the Opto Electronics and Manufacturing Division. Opto delivered impressive results during the first quarter with another all-time quarterly revenue record, achieving $96 million in revenue, including intercompany and generating strong profitability. In addition to being a vital supplier to our security and healthcare divisions, Apto continues to serve its diverse OEM customer base that provides various solutions in aerospace, defense electronics, test and measurement, medical devices, automotive, and consumer electronics. With a strong global presence manufacturing covering the US, England, India, Indonesia, and Malaysia, Combined with a continued trend of customers seeking robust manufacturing alternates to China manufacturing, we look forward to capturing new opportunities with our existing customer base and with new customers. Finally, on to the healthcare division, where Q1 was a tough quarter as sales went down 13% year over year due to challenging marketing conditions, especially in the U.S., where hospital profitability has been hampered. which in turn has caused delays in capital expenditures. The silver lining was growth in the European region backed by recently launched cardiology products and services. The capital constraints and hospitals are actually helping to drive market adoption of a new business model that we have talked before also that reduce the need for significant capital outlays. This division continues to develop innovative new business models and solutions, such as leasing and subscription programs. The Rothman Index-based predictive analytics software and safe and sound patient alarm management software are good examples of tools that can help hospitals increase the efficiency of their existing patient monitoring infrastructure. We continue to invest significantly in R&D and new product innovations. Although healthcare didn't start well in first quarter, we expect its performance to improve during the rest of the year 24. In summary, with significant backlog in security and opto, we are confident about our prospects in these divisions. We also expect more robust performance from healthcare as we look forward to the rest of the fiscal 24. With that, I will turn the call back over to Alan Edrick to talk in more detail about our financial performance before opening the call for questions. Thank you.