OSI Systems, Inc.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the OSI Systems, Inc. 3rd Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the conference over to Alan Edrick, Chief Financial Officer. You may begin.

Thank you. Good afternoon, and thank you for joining us. I'm Alan Edrick, Executive Vice President and CFO of OSI Systems, and I'm here today with AJ Mera, OSI's President and CEO. Welcome to the OSI Systems Fiscal 26 Third Quarter Conference Call. We are pleased that you could join us as we review our financial and our operational results. Before we discuss these results, I would 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 upon subsequent events, new information, or otherwise. We will also reference both GAAP and non-GAAP financial measures. Applicable reconciliations are available in today's earnings release. We delivered solid third quarter financial results, setting fiscal Q3 records across multiple metrics, despite facing the most challenging year-over-year comparison of fiscal 26, primarily driven by our Mexico contracts. The company's revenues reached a fiscal Q3 record of $453 million, and non-GAAP earnings per diluted share set a fiscal Q3 record of $2.60. Importantly, excluding revenues generated by the large Mexico security contracts in both periods, security revenues grew 25% year-over-year. Our Opto Electronics and Manufacturing Division also performed well, posting 10% growth and a Q3 record for that division. Bookings were strong, with a 1.3 book-to-bill ratio driven by both security and opto, resulting in a record backlog, highlighted by the previously announced Homeland Defense Award, about which AJ will provide more information shortly. On the cash side, we generated $14 million in fiscal Q3 operating cash flow, despite limited collections in the quarter on the receivables in Mexico. Shortly after quarter end, we collected approximately $74 million of the largest Mexico receivable, a strong start to Q4 cash flow. Before diving more deeply into our financial results and discussing our outlook for fiscal 26th, I will turn the call over to AJ for our business and operational discussion.

Thanks, Alan, and thank you, everyone, for joining us today. I'm pleased to be here to discuss our third quarter results for fiscal 2026. We delivered another quarter of solid execution and ended the quarter with a backlog of approximately $1.9 billion, the highest in the company's history. We remain focused on execution, leveraging our strengths in key markets, and utilizing our global operating model as we finish Q4 and head into fiscal 2027. Let's turn our businesses to discuss Q3 performance in more detail, starting with security. As expected, Q3 performance was up against difficult year-over-year comparisons, primarily due to our Mexico programs transitioning from significant product sales to long-term related service and support revenues. Despite that, security performed well with solid bookings, top-line growth, and operating margin expansion. Furthermore, we continue to be very active with customers across aviation, ports and borders, and defense-related applications. Bookings were highlighted by a sizable award from Homeland Defense of an Undefinitized Contract Action, or UCA, with a not-to-exceed value of approximately $235 million. for the production and integration of Homeland Defense over-the-horizon radar transmit subsystem. We continue to build strong traction with our RF engineered solutions and are hopeful that there may be additional opportunities in this area of future business. In addition, these capabilities position us well to further support Golden Dome, the U.S. initiative to create an integrated missile defense system. As you know, we are a participant in the 151 billion SHIELD IDIQ, which we announced last quarter, and we look forward to the opportunities that may arise from this initiative. During Q3, we also received several international awards for cargo and vehicle inspection systems, and airport screen solutions. In addition, we were an integral part of the security at the Milan Winter Olympic Games, providing our products to screen participants, officials, fans, as well as their baggage and cargo. Towards the latter half of Q3, we began to see initial impacts from conflict in the Middle East. Certain programs Activities have been delayed by factors such as logistic constraints, travel restrictions, and heightened security protocols. Certain customers in the region are facing pressure from disruptions tied to the conflict. If the situation persists, we could see further impact on the timing of order intake and project completion timelines. That said, once the region stabilizes, we could potentially see even stronger demand for security solutions. In the U.S., the order activity for security products was impacted during the quarter by the shutdown at DHS, which delayed the procurement of our products and services to support U.S. border initiatives. Now that the shutdown has ended, we are hopeful for order patents to normalize over the coming weeks and months. And I want to emphasize here that these are timing-related dynamics rather than changes in the underlying demand. In the U.S., we're also excited about the potential of our security solutions for high-profile upcoming events, such as the FIFA World Cup 26 soccer tournament and the 2028 Olympics. Furthermore, In the U.S., the roughly $1 billion outlined in the One Big Beautiful Bill for NII equipment remains a significant growth opportunity. And, of course, during the shutdown, the spending resulting from this bill was delayed in Q3. Turning to optoelectronics and manufacturing, Q3 performance was again strong as revenues increased 10% year-over-year, with a book-to-bill ratio well exceeding 1. In March, Opto received a $40 million award for the electronic sub-assemblies from a medical OEM, a significant award in a division where most orders are under $5 million. Customers continue to value a vertically integrated model and global manufacturing footprint as they diversify supply chains and launch new products. Our global manufacturing footprint across Malaysia, Indonesia, India, Canada, Mexico, the UK, and the U.S. allows us to offer customers attractive combinations of value and scalability. Opto's backlog remained at record levels, providing great long-term visibility across aerospace, defense, medical, industrial, and other end markets. And finally, our healthcare division, which continues its path of improving operations and focusing on new product development. In Q3, healthcare was adversely impacted by order timing. most notably in the U.S., resulting in lower sales and profitability. On the flip side, we did see growth in the EMEA region during the quarter. As you may know, health care's products generally carry the highest contribution margins at OSI. So even modest revenue growth has an outsized impact on profitability. Looking at OSI systems overall, our financial position remains strong. The robust and growing backlog, year-to-date cash flow generation, and a healthy balance sheet give us continued confidence in the company's prospects. In addition to large program opportunities highlighted earlier, we remain focused on increasing our mix of recurring revenues through expanded service and support agreements. As always, I would like to thank our employees, customers, and stockholders for the continued support and dedication. With that, I will turn the call over to Alan to discuss our financial results in more detail before we open the call for questions. Thank you.