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OSIS
Earnings call · Jun 2026 (Q4 FY26)

OSI SYSTEMS Q4 FY26 earnings call OSIS

Aug 20, 2026 Source

Executive summary

OSI Systems Q4 FY26 — Record Backlog and Strong Cash Generation Despite Revenue Delays

OSI Systems closed fiscal 2026 with record backlog and strong cash generation, despite revenue shortfalls in Q4 due to deferred security deliveries in the Middle East. The company delivered record non-GAAP EPS and operating cash flow, while strategically investing in R&D and returning capital to shareholders. Management provided a conservative FY27 outlook, anticipating stronger growth in the second half as delayed orders convert and new contract awards begin to contribute.

Highlights

5

  • Record fourth quarter operating cash flow of $182 million.

  • Non-GAAP earnings per share grew 17% to a record $3.78 in Q4 FY26.

  • Ended the year with a record backlog of approximately $1.9 billion.

  • Full-year adjusted EPS grew to a record $10.35, up 11% year-over-year.

  • Net leverage at 2.1x, providing ample capacity for investments and acquisitions.

Concerns

4

  • Fourth quarter revenues of $484 million were down approximately 4% year-over-year.

  • Full-year revenues of $1.79 billion finished below guidance range due to $50 million of security deliveries delayed by Middle East conflicts.

  • Security division revenues declined 7% year-over-year in Q4 FY26.

  • Mexico security contracts resulted in nearly $150 million lower FY26 revenues compared to prior year, with a $20 million adverse impact in Q4.

Guidance & targets

CategoryTargetConfidence
Revenue
$1.875 billion to $1.93 billion
high materiality
High
Non-GAAP Earnings Per Share
$11.13 to $11.49
high materiality
High
Service Revenue Growth
strong double-digit growth
medium materiality
Medium
Mexico Security Contracts Revenue Headwind
less than $25 million
medium materiality
High
FY27 Growth Phasing
strongest in the second half
medium materiality
High
Free Cash Flow Conversion
could exceed 100% of net income
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Security
Revenues declined due to Middle East conflict delays and difficult comparison against higher Mexico program revenues in prior year. Adjusted operating margin expanded from 20.4% to 20.8% driven by stronger gross margin and reduced operating expenses.
—-7%—20.8%
Optoelectronics and Manufacturing
Delivered strong performance with full-year revenues growing 9%. Q4 revenues increased 5% year-over-year. Adjusted operating margin increased from 13.6% to 14.7% primarily from economies of scale and a more favorable revenue mix. Strong bookings and broad-based demand are expected to continue.
$451 million9% (full-year)5%14.7%
Healthcare
Delivered an improved fourth quarter with revenues growing approximately 5% year-over-year. Operating margin expanded significantly to 10% from 1% in the prior year Q4, reflecting operational improvements and operating leverage from volume growth.
—5%—10%

Orderbook & backlog

Backlog $1.9 billion Q4 FY26

Record backlog at year-end, includes $50 million of security deliveries deferred from Q4 FY26 due to Middle East conflicts.

Deals & partnerships

LA28 Official supporter of Team USA and official physical screening and security technology hardware and software solutions provider of the LA28 Olympic and Paralympic Games.

Strategic partnership building upon prior security efforts at major events like FIFA World Cup, Paris Olympics, and Milan Winter Games.

CBP Two 5-year IDIQ contracts for relocatable rapid scan passenger vehicle inspection systems and van-mounted mobile X-ray inspection systems. Ceiling of approximately $200 million (first IDIQ), Ceiling of roughly $85 million (second IDIQ) 5 years

OSI Systems is the only awardee on both IDIQs. These represent continued funding under the omnibus bill. The $21 million task order is a firm fixed order that goes into backlog.

Homeland Security Defense Undefinitized contract action for the production and integration of an over-the-horizon radar transmit subsystems. Not-to-exceed value of approximately $235 million

Positions the company at the forefront of national defense priorities. Follow-on opportunities related to this program are expected.

Risks & headwinds

Conflict-related delays and site access constraints in the Middle East Q4 FY26, impacting FY27

$50 million of planned security deliveries pushed beyond Q4 FY26

Mitigation:Orders remain firmly in backlog and are expected to be delivered on a later schedule; company has taken a conservative approach in FY27 guidance.

Difficult comparison against higher Mexico program revenues FY26, moderating in FY27

Nearly $150 million lower FY26 revenues related to Mexico contracts compared to prior year, including a $20 million adverse impact in Q4 FY26

Mitigation:Expected headwind to moderate to less than $25 million for FY27, concentrated in the first half.

Near-term bookings impact from Middle East conflicts FY27

Affected near-term bookings

Mitigation:Guidance factors in the expected impact; resolution of matters could represent future opportunities.

What to watch in Q1 FY27

Conversion of Middle East deferred revenue

H1 FY27
Current $50 million deferred from Q4 FY26
Target Initial deliveries in H1 FY27

Why it matters

This will indicate the pace of recovery from geopolitical disruptions and the realization of existing backlog.

Importantly, these results were affected by the timing of approximately $50 million of planned security deliveries that moved beyond our June 30th fiscal year-end because of conflict-related delays and site access constraints in the Middle East.

Q&A highlights

Will FY27 free cash flow exceed net income, and what is the expected pace of collections?

Management anticipates strong free cash flow in FY27, expecting it to exceed 100% of net income. Collections are expected to be strong throughout the fiscal year, with hopes for it to be more front-loaded.

“We are anticipating a strong cash flow year in fiscal '27, strong free cash flow, and we do anticipate that our free cash flow could exceed 100% of net income and fully expect that to occur.”

asked by Josh Nichols · answered by Alan Edrick

2 min read 5 chapters

Detailed narrative

Impact of Middle East Conflicts and Deferred Deliveries

OSI Systems' Q4 FY26 revenues were negatively impacted by approximately $50 million in planned security deliveries that were delayed beyond the fiscal year-end due to conflict-related issues and site access constraints in the Middle East. These orders remain in backlog and are expected to be delivered on a later schedule, primarily in the second half of FY27. The company has adopted a conservative approach in its FY27 guidance regarding these deferred revenues and future orders from the region.

Strong Bookings and Backlog for Future Growth

Despite the Q4 revenue pushouts, OSI Systems achieved solid bookings across all three divisions, contributing to a record backlog of approximately $1.9 billion at year-end. This provides strong visibility into fiscal 2027 and beyond. Recent significant awards include two 5-year IDIQ contracts with CBP totaling $285 million in ceiling value, and an undefinitized contract action for $235 million for Homeland Defense radar systems, with the majority of revenue expected in FY28 and later.

Operational Efficiency and Margin Expansion

The company demonstrated strong profitability, with Q4 FY26 non-GAAP adjusted operating margin expanding by 200 basis points to 17.7%. All three divisions contributed to this expansion, with Security at 20.8%, Opto at 14.7%, and Healthcare significantly improving to 10%. This was driven by a favorable revenue mix, economies of scale, and diligent management of SG&A expenses, which decreased as a percentage of sales for the eighth consecutive year.

Exceptional Cash Generation and Capital Allocation

OSI Systems delivered record operating cash flow of $182 million in Q4 and $276 million for the full fiscal year, driven by strong collections, including $159 million from its largest Mexico customer. The balance sheet remains solid with $360 million in cash and no drawn credit lines. The company repurchased 1.1 million shares in FY26 and authorized an additional 1 million shares, reflecting a commitment to returning capital to shareholders while maintaining flexibility for organic investment and acquisitions.

Strategic Partnerships and Market Opportunities

The Security division secured a strategic partnership with LA28 to be the official physical screening and security technology provider for the Olympic and Paralympic Games, building on its track record at major global events. The RF business continues to see strong momentum with its over-the-horizon radar programs and Iron Dome initiatives, positioning the company at the forefront of defense priorities with customer engagement at an all-time high for this product line.

AI-generated summary of the company's earnings call. Not investment advice.