OSI Systems, Inc.
Aug 24, 2017

OSI Systems Reports Fourth Quarter and Fiscal 2017 Financial Results

HAWTHORNE, Calif.--(BUSINESS WIRE)-- OSI Systems, Inc. (the "Company" or "OSI Systems") (NASDAQ: OSIS) today announced financial results for the quarter and fiscal year ended June 30, 2017.

"We are pleased to announce outstanding fiscal fourth quarter results. Each of our three operating divisions contributed to the successful conclusion of a strong fiscal year. Performance at the Security division, in particular, drove top-line growth and margin expansion," said Deepak Chopra, OSI Systems' Chairman and Chief Executive Officer.

The Company reported revenues of $252 million for the fourth quarter of fiscal 2017, an increase of 14% from the $221 million reported for the fourth quarter of fiscal 2016. Net income for the fourth quarter of fiscal 2017 was $1.5 million, or $0.08 per diluted share, compared to net income of $5.9 million, or $0.30 per diluted share, for the fourth quarter of fiscal 2016. Non-GAAP net income for the fourth quarter of fiscal 2017 was $19.9 million, or $1.02 per diluted share, compared to non-GAAP net income for the fourth quarter of fiscal 2016 of $11.4 million, or $0.58 per diluted share.

For the fiscal year ended June 30, 2017, the Company reported revenues of $961 million, an increase of 16% as compared to the same period a year ago. Net income for fiscal 2017 was $21.1 million, or $1.07 per diluted share, compared to net income of $26.2 million, or $1.30 per diluted share, in the same period a year ago. Non-GAAP net income for the fiscal year ended June 30, 2017 was $58.8 million, or $2.99 per diluted share, compared to non-GAAP net income of $44.3 million, or $2.21 per diluted share, for the 2016 fiscal year.

During the three months ended June 30, 2017, the Company's book-to-bill ratio for equipment and related services (non-turnkey) was 1.4. As of June 30, 2017 the Company's backlog (measured as quantifiable purchase orders or contracts for which revenues are expected to be recognized within the next five years) was $738 million, compared to $623 million as of June 30, 2016. During fiscal 2017, cash flow generated from operations was $62.8 million and capital expenditures were $17.1 million.

Mr. Chopra stated, "Our Security division had an outstanding finish to the year. Fourth quarter revenues increased 33% to a record $147 million, $23 million of which was generated by our AS&E business, which we acquired in September 2016. Excluding the AS&E revenues, fourth quarter sales in our Security division increased 12% over sales in the same prior-year fiscal period. We leveraged our growth and benefitted from synergies from the AS&E acquisition to significantly improve our fourth quarter year-over-year operating income excluding the impact of impairment, restructuring and other charges."

Mr. Chopra further commented, "Our Optoelectronics and Manufacturing division closed the year with an outstanding operating margin due to operational improvements, together with a more favorable product mix and a migration to more profitable customers."

Mr. Chopra concluded, "Our Healthcare business continued to emerge from previous operating difficulties and a challenging hospital spending environment. During the fourth quarter, sales decreased by 3%; however, excluding the impact of a non-core healthcare business divestiture in February 2017, fourth quarter sales increased by 7% over the prior year. We believe that we are well-positioned for top-line growth and margin expansion heading into fiscal 2018."

Fiscal Year 2018 Outlook

Subject to risks described in this press release, the Company anticipates 8% to 12% growth in fiscal 2018 sales to $1,040,000,000 - $1,080,000,000. In addition, the Company anticipates 12% to 20% growth in non-GAAP earnings per diluted share to $3.35 - $3.60, excluding the fiscal 2018 impact of impairment, restructuring and other charges, amortization of acquired intangible assets and non-cash interest expense, and their related tax effects. As a result of the matters discussed under "Forward-Looking Statements," actual sales and non-GAAP diluted earnings per share could vary from this guidance.

The Company's fiscal 2018 diluted earnings per share guidance is provided on a non-GAAP basis only. The Company does not provide a reconciliation of non-GAAP diluted EPS guidance on a forward-looking basis to GAAP diluted EPS, the most directly comparable GAAP measure, because it is unable to provide a meaningful or accurate compilation of reconciling items and certain information is not available.

Presentation of Non-GAAP Financial Measures

This earnings release includes a presentation of non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating income (loss) by segment and non-GAAP operating margin, all of which are non-GAAP financial measures. The presentation of these non-GAAP figures for the three months and fiscal years ended June 30, 2016 and 2017 is provided to allow for the comparison of the underlying performance of the Company, net of impairment, restructuring and other charges, amortization of intangible assets acquired through business acquisitions, non-cash interest expense related to convertible debt, gain from the disposition of a business and their associated tax effects, and the adoption of ASU 2016-09 that affects income taxes. Management believes that these non-GAAP financial measures provide (i) additional insight into the ongoing operations of the Company, (ii) meaningful supplemental information regarding the Company's results, excluding amounts management does not view as reflective of ongoing operating results, for planning, forecasting and assessing the performance of the business, (iii) a meaningful comparison against results of past periods and (iv) comparable financial results to those of peer companies. Non-GAAP financial measures should not be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP.

Reconciliations of GAAP to non-GAAP financial information are provided in the accompanying tables. The financial results calculated in accordance with GAAP and reconciliations from those financial results should be carefully evaluated.

Conference Call Information

The Company will host a conference call and simultaneous webcast over the Internet beginning at 1:30pm PT (4:30pm ET) today to discuss its results for the fourth quarter of fiscal 2017. To listen, please visit the Investor Relations section of the OSI Systems website, http://investors.osi-systems.com/index.cfm and follow the link that will be posted on the front page. A replay of the webcast will be available shortly after the conclusion of the conference call until September 7, 2017. The replay can either be accessed through the Company's website, www.osi-systems.com, or via telephonic replay by calling 1-855-859-2056 and entering the conference call identification number '72416491' when prompted for the replay code.

About OSI Systems

OSI Systems is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense, and aerospace industries. The Company combines more than 40 years of electronics engineering and manufacturing experience with offices and production facilities in more than a dozen countries to implement a strategy of expansion into selective end-product markets. For more information on OSI Systems or its subsidiary companies, visit www.osi-systems.com. News Filter: OSIS-E

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to the Company's current expectations, beliefs and projections and similar expressions concerning matters that are not historical facts. Forward-looking statements are not guarantees of future performance and involve uncertainties, risks, assumptions and contingencies, many of which are outside the Company's control and which may cause actual results to differ materially from those described in or implied by any forward-looking statement. Forward-looking statements include, but are not limited to, information regarding expected revenues, earnings and growth in fiscal 2018. In addition, the Company could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts; delays in customer programs; delays in revenue recognition related to the timing of customer acceptance; unanticipated impacts of sequestration and other U.S. Government budget control provisions; changes in domestic and foreign government spending and budgetary, procurement and trade policies adverse to the Company's businesses; global economic uncertainty; our ability to successfully integrate the Explosives Trace Detection acquisition and achieve our profitability goals, impact of volatility in oil prices; unfavorable currency exchange rate fluctuations; market acceptance of the Company's new and existing technologies, products and services; the Company's ability to win new business and convert orders received to sales within the fiscal year; enforcement actions in respect of any noncompliance with laws and regulations, including export control and environmental regulations and the matters that are the subject of some or all of the Company's ongoing investigations and compliance reviews; contract and regulatory compliance matters, and actions, if brought, resulting in judgments, settlements, fines, injunctions, debarment or penalties; and other risks and uncertainties, including, but not limited to, those detailed herein and from time to time in the Company's Securities and Exchange Commission filings which could have a material and adverse impact on the Company's business, financial condition and results of operations. For additional information on these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2016 and other risks described therein and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the date on which they are made. The Company assumes no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent it is required to do so in connection with requirements under federal securities laws.

OSI SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 

June 30, 2016

  June 30, 2017
Assets
 
Cash and cash equivalents $ 104,370 $ 169,650
Accounts receivable, net 141,716 206,526
Inventories 273,288 248,510
Other current assets   35,944   28,314
Total current assets 555,318 653,000
Goodwill 122,819 242,129
Intangible assets 56,283 118,450
Other non-current assets   257,303   216,508
Total Assets $ 991,723 $ 1,230,087
 
Liabilities and Stockholders' Equity
 
Bank lines of credit $ 125,000 $ 103,000
Current portion of long-term debt 2,759 2,396
Accounts payable and accrued expenses 117,455 137,559
Other current liabilities   122,621   103,179
Total current liabilities 367,835 346,134
Long-term debt 6,054 241,750
Deferred income taxes 29,160 20,681
Other long-term liabilities   47,828   52,309
Total liabilities 450,877 660,874
Total stockholders' equity   540,846   569,213
Total Liabilities and Stockholders' Equity $ 991,723 $ 1,230,087

OSI SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
  Three Months Ended   Fiscal Year Ended
June 30, June 30,
  2016       2017     2016       2017  
Revenues $ 221,467 $ 252,402 $ 829,660 $ 960,951
Cost of goods sold   150,702     165,611     552,801     637,450  
Gross profit 70,765 86,791 276,859 323,501
Operating expenses:
Selling, general and administrative 43,888 48,032 166,655 192,560
Research and development 11,945 11,140 49,816 50,951
Impairment, restructuring and other charges   6,380     24,813     22,014     46,698  
Total operating expenses   62,213     83,985     238,485     290,209  
Income from operations 8,552 2,806 38,374 33,292
Interest expense, net (827 ) (3,913 ) (2,852 ) (9,629 )
Other income (expense), net   31     -     (27 )   2,088  
Income (loss) before income taxes 7,756 (1,107 ) 35,495 25,751
Provision for (benefit from) income taxes   1,855     (2,654 )   9,338     4,675  
Net income $ 5,901   $ 1,547   $ 26,157   $ 21,076  
 
Diluted earnings per share $ 0.30   $ 0.08   $ 1.30   $ 1.07  
Weighted average shares outstanding - diluted   19,512     19,479     20,076     19,689  
 
UNAUDITED SEGMENT INFORMATION

(in thousands)

 
  Three Months Ended   Fiscal Year Ended
June 30, June 30,
  2016       2017     2016       2017  
Revenues - by Segment:
Security division $ 110,532 $ 147,160 $ 411,212 $ 555,197
Healthcare division 55,332 53,607 211,458 200,034
Optoelectronics and Manufacturing division (including intersegment revenues) 63,088 60,236 247,502 236,100
Intersegment revenues eliminations   (7,485 )   (8,601 )   (40,512 )   (30,380 )
Total $ 221,467   $ 252,402   $ 829,660   $ 960,951  
 
Operating income (loss) - by Segment:
Security division $ 8,122 $ (1,511 ) $ 37,845 $ 35,256
Healthcare division 2,221 4,151 8,351 2,624
Optoelectronics and Manufacturing division 5,576 7,643 19,654 23,792
Corporate (8,017 ) (7,477 ) (27,199 ) (29,359 )
Intersegment eliminations   650     -     (277 )   979  
Total $ 8,552   $ 2,806   $ 38,374   $ 33,292  

RECONCILIATION OF GAAP TO NON-GAAP
NET INCOME AND EARNINGS PER SHARE

(in thousands, except earnings per share data)

 
  Three Months Ended   Fiscal Year Ended
June 30, June 30,
2016   2017 2016   2017
Net   Net   Net   Net  
income EPS income EPS income EPS income EPS
GAAP basis $ 5,901 $ 0.30 $ 1,547 $ 0.08 $ 26,157 $ 1.30 $ 21,076 $ 1.07
Impairment, restructuring and other charges 6,380 0.33 24,813 1.27 22,014 1.10 46,698 2.37
Amortization of acquired intangible assets 811 0.04 2,357 0.12 2,648 0.13 8,382 0.43
Non-cash interest expense - - 1,771 0.09 - - 2,477 0.13
Gain from disposition of business - - - - - - (2,110 ) (0.11 )
Tax effect of above adjustments (1,720 ) (0.09 ) (8,161 ) (0.42 ) (6,488 ) (0.32 ) (15,305 ) (0.78 )
Impact of adoption of ASU 2016-09   -     -     (2,433 )   (0.12 )   -     -     (2,433 )   (0.12 )
Non-GAAP basis $ 11,372   $ 0.58   $ 19,894   $ 1.02   $ 44,331   $ 2.21   $ 58,785   $ 2.99  

RECONCILIATION OF GAAP TO NON-GAAP
OPERATING INCOME (LOSS) AND OPERATING MARGIN BY SEGMENT

(in thousands, except percentages)

 
Three Months Ended June 30, 2016
      Optoelectronics and   Corporate /  
Security Division Healthcare Division Manufacturing Division Elimination Total
  % of   % of   % of   % of

Sales

Sales

Sales

Sales

GAAP basis - operating income (loss) $ 8,122 7.3% $ 2,221 4.0% $ 5,576 8.8% $ (7,367 ) $ 8,552 3.8%
Impairment, restructuring and other charges 2,505 2.3% 1,405 2.6% 268 0.4% 2,202 6,380 2.9%
Amortization of acquired intangible assets   219   0.2%   166 0.3%   426 0.7%   -     811 0.4%
Non-GAAP basis- operating income (loss) $ 10,846   9.8% $ 3,792 6.9% $ 6,270 9.9% $ (5,165 ) $ 15,743 7.1%
 

 

Three Months Ended June 30, 2017
Optoelectronics and Corporate /
Security Division Healthcare Division Manufacturing Division Elimination Total

% of

% of

% of

% of

Sales

Sales

Sales

Sales

GAAP basis - operating income (loss) $ (1,511 ) (1.0)% $ 4,151 7.8% $ 7,643 12.7% $ (7,477 ) $ 2,806 1.1%
Impairment, restructuring and other charges 21,849 14.9% 967 1.8% 473 0.8% 1,524 24,813 9.8%
Amortization of acquired intangible assets   1,980   1.3%   14 0.0%   364 0.6%   -     2,358 1.0%
Non-GAAP basis- operating income (loss) $ 22,318   15.2% $ 5,132 9.6% $ 8,480 14.1% $ (5,953 ) $ 29,977 11.9%

RECONCILIATION OF GAAP TO NON-GAAP
OPERATING INCOME (LOSS) AND OPERATING MARGIN BY SEGMENT

(in thousands, except percentages)

 
Fiscal Year Ended June 30, 2016
      Optoelectronics and   Corporate /  
Security Division Healthcare Division Manufacturing Division Elimination Total
 

% of

 

% of

 

% of

 

% of

Sales

Sales

Sales

Sales

GAAP basis - operating income (loss) $ 37,845 9.2% $ 8,351 3.9% $ 19,654 7.9% $ (27,476 ) $ 38,374 4.6%
Impairment, restructuring and other charges 10,048 2.4% 3,088 1.5% 3,322 1.4% 5,556 22,014 2.7%
Amortization of acquired intangible assets   830 0.2%   655 0.3%   1,162 0.5%   -     2,647 0.3%
Non-GAAP basis- operating income (loss) $ 48,723 11.8% $ 12,094 5.7% $ 24,138 9.8% $ (21,920 ) $ 63,065 7.6%
 

 

Fiscal Year Ended June 30, 2017
Optoelectronics and Corporate /
Security Division Healthcare Division Manufacturing Division Elimination Total

% of

% of

% of

% of

Sales

Sales

Sales

Sales

GAAP basis - operating income (loss) $ 35,256 6.3% $ 2,624 1.3% $ 23,792 10.1% $ (28,380 ) $ 33,292 3.5%
Impairment, restructuring and other charges 36,979 6.7% 3,315 1.7% 1,026 0.4% 5,378 46,698 4.8%
Amortization of acquired intangible assets   6,558 1.2%   373 0.2%   1,451 0.6%   -     8,382 0.9%
Non-GAAP basis- operating income (loss) $ 78,793 14.2% $ 6,312 3.2% $ 26,269 11.1% $ (23,002 ) $ 88,372 9.2%

OSI Systems, Inc.
Ajay Vashishat
Vice President, Business Development
(310) 349-2237
avashishat@osi-systems.com

Source: OSI Systems, Inc.

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