OSI Systems, Inc.

Good day and thank you for standing by. Welcome to the OSI Systems, Inc. First Quarter Fiscal 2027 Earnings 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Edrick, Chief Financial Officer. Sir, please go ahead.

Well, 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 Ajay Mehra, OSI's President and CEO. Welcome to the OSI Systems Fiscal 27 First Quarter Conference Call. We are pleased that you can join us as we review our financial and our operational results. Today's discussion will include forward-looking statements and the company wishes to take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 with respect to such 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. We will also reference both GAAP and non-GAAP financial measures. Applicable reconciliations are available in today's earnings release. On our August call, we told you three things about fiscal 27, that we had built our guidance factoring in the situation in the Middle East, that we expected growth to be strongest in the second half, and that we expected free cash flow to exceed net income. These three factors will frame our discussion this quarter. First quarter revenues were $403 million, representing a Q1 record of 5% year-over-year. And adjusted earnings per diluted share grew to a first quarter record of $1.66, up 17% year-over-year. Operating cash flow increased to $7 million, more than double the same prior year quarter, and free cash flow which is operating cash flow less capital expenditures was approximately 30 million, about 120% of GAAP net income. Q1 bookings were strong. Our book to bill ratio was 1.4 and our backlog increased to a record 2.1 billion from approximately 1.9 billion at June 30th. I also want to be direct about certain reported figures for the first fiscal quarter. A meaningful part of our EPS growth this quarter came from below the operating line with lower net interest expense and a lower share count. And I'll quantify those for you later in this call. Margins were impacted by our revenue decline in the healthcare division and the mix of revenues and security, both of which Ajay and I will address. But before diving more deeply into our financial results and discussing our outlook for fiscal 27, I'm going to turn the call over to Ajay.

Thank you, Alan, and thanks to all of you for joining us today. As Alan mentioned, we achieved record fiscal first quarter revenues and earnings per share. Our activity was strong, resulting in a book-to-bill ratio of 1.4, which increased our backlog to a record $2.1 billion. The first quarter played out largely, as we outlined on our last call. Bookings were strong, backlog grew to a new all-time high, and we remain on track for a stronger second half of fiscal 2027. Now, let me turn to our three divisions, starting with security. Q1 revenues were $264 million, up 4% year-over-year, despite a challenging geopolitical environment, including the conflict in the Middle East. which continues to affect activity in the region. We continue to work closely with our customers there to support their ongoing needs. As anticipated, the transition of our Mexico program affected year-over-year comparisons consistent with our initial fiscal 27 outlook. That said, securities bookings were strong and the division ended the quarter with a record backlog. Let me share a few highlights from the quarter. During the quarter, we announced two five-year IDIQ contracts awarded by U.S. Customs and Border Protection, one with a ceiling of approximately $200 million for our relocatable rapid scan passenger vehicle inspection systems, and a second with a ceiling of about $85 million for van-mounted mobile X-ray inspection systems. We have received initial delivery orders totaling approximately $21 million under these contracts and expect more orders as we start delivering. To be clear, only firm orders rather than ceiling values are included in our backlog figures. Our RF business is performing exceptionally well. We continue to execute on our Homeland Defense Over the Horizon radar contract that was awarded last fiscal year, which has a not to exceed value of approximately 235 million and is our largest RF award today. Together with our participation in the SHIELD IDIQ, which supports a number of Golden Dome related initiatives, this award positions us well to compete for additional contracts in the future. In Q1, we announced further bookings in this business line, totaling approximately 90 million. Also, customer engagement across our RF portfolio remains at very high levels. Growing recurring revenues remains a priority. We continue to expect strong double-digit service revenue growth in fiscal 2027, with growth accelerating throughout the year. Given the size of our install base, we expect service to become a larger part of our revenue mix over time, which should support margin expansion. While security margins can vary from quarter to quarter with product and program mix, our long-term objective continues to focus on pairing growth with margin expansion as higher margin service revenue becomes a larger part of our business. We are also preparing for a role as an official physical screening and security technology hardware software solutions provider of the LA28 Olympic and Paralympic Games and an official supporter of Team USA. This is expected to be the largest sporting event in history. Furthermore, our experience at the FIFA World Cup, the Paris Olympics, and Milan Winter Olympics among many other global events is vital to our success here. And we also see LA28 as a platform to showcase our offerings and compete for future large venue and event security opportunities. Turning to our Opto Electronics and Manufacturing Division, Opto delivered another strong order. Revenues, including intercompany sales, were at a first Fiscal quarter record of $120 million, up 9% year-over-year, with sales to third-party customers up even higher at 16% year-over-year. During the quarter, revenue growth was paired with operating margin expansion. Bookings were robust across our EMS, select circuit, and optoelectronics product lines, and the division closed the quarter with its highest quarter end backlog. Our long standing OEM relationships, vertically integrated model, customized offerings, and global manufacturing footprint across North America, Europe, and Southeast Asia continue to serve customers well in aerospace, defense, healthcare, and industrial markets, particularly as they further diversify their supply chains. Finally, healthcare faced a challenging quarter. Revenue declined 14% year over year, primarily due to lower patient monitoring sales as hospitals continue to manage capital spending carefully. We remain focused on supporting our install base, improving operational efficiency, and completing the development of our next generation monitoring platform. We expect healthcare to return to growth in the upcoming quarters. In summary, our demand remains robust with a 1.4 book-to-bill ratio, a well-diversified $2.1 billion backlog, established CBP contract vehicles, promising additional U.S. government opportunities, a growing RF pipeline, and continued expansion in our optoelectronics division. Looking forward, we are focused on disciplined execution, converting our backlog into revenue, improving healthcare, and driving margin expansion across our business. I want to thank our employees, customers, and stockholders for their continued support. With that, I will turn the call back over to Alan to discuss our financial results and updated fiscal Thank you, Ajay.