OSIS OSI Systems Inc

• Record Q3 Revenue of $215 million
• Q3 Earnings Per Diluted Share
  • Record Non-GAAP EPS of $0.78 (11% increase over prior year)
  • GAAP EPS of $0.64 (176% increase over prior year)

OSI Systems, Inc. (NASDAQ: OSIS) today announced financial results for the fiscal quarter ended March 31, 2015.

“We are pleased to announce our third quarter financial results,” said Deepak Chopra, OSI Systems’ Chairman and CEO. “We achieved record third quarter sales and profitability, excluding the impact of restructuring and other charges. While we are encouraged by our performance this year, we expect to continue to make appropriate business adjustments as the global macroeconomic environment evolves.”

The Company reported revenues of $215.4 million for the third quarter of fiscal 2015, an increase of 6% as compared to the same period a year ago. Net income for the third quarter of fiscal 2015 was $13.2 million, or $0.64 per diluted share, compared to net income of $4.8 million, or $0.23 per diluted share, for the third quarter of fiscal 2014. On a non-GAAP basis, excluding the impact of restructuring and other charges, and for fiscal 2014 the impact of tax elections to accelerate depreciation in our turnkey program in Mexico, net income for the third quarter of fiscal 2015 would have been $15.9 million, or $0.78 per diluted share, compared to net income of $14.3 million, or $0.70 per diluted share, for the comparable quarter of the prior year.

For the nine months ended March 31, 2015, the Company reported revenues of $691.6 million, an increase of 7% over the same period a year ago. Net income in this period was $42.7 million, or $2.08 per diluted share, compared to net income of $25.8 million, or $1.25 per diluted share, in the same period a year ago. On a non-GAAP basis, excluding the impact of restructuring and other charges, and for fiscal 2014 the impact of tax elections to accelerate depreciation in our turnkey program in Mexico, net income for the nine months ended March 31, 2015 would have been $47.4 million, or $2.31 per diluted share, compared to net income of $39.9 million, or $1.94 per diluted share, for the comparable period in the prior year.

As of March 31, 2015, the Company’s backlog was approximately $0.6 billion and the non-turnkey book to bill ratio for the three months ended March 31, 2015 was 1.0. During the third quarter, the Company generated $23.1 million of free cash flow, which contributed to record free cash flow of $77.6 million for the nine months ended March 31, 2015.

Mr. Chopra continued, “During the third quarter, our Security division’s revenues rose modestly by 4% over the prior year third quarter. We are pleased with the market’s reception of our new RTT™ 110 (Real Time Tomography) explosives detection systems (EDS). We have received several orders for this product, including a very strategic win in Europe, the recently-announced $27 million order from the Leonardo da Vinci – Fiumicino Airport in Rome. We believe that the potential of RTT as European airports meet the latest requirement for hold baggage screening, as well as a robust pipeline of opportunities in both our product and turnkey screening solutions businesses position this division well for the future.”

Mr. Chopra further commented, “Third quarter sales in our Healthcare division increased by 14% over the prior year third quarter, driven by organic growth as well as the impact of an acquisition completed in the first quarter. The launch of new products and indications of a rebound in the North American market provide an improving outlook about the performance of this division.”

Mr. Chopra concluded, “In our Optoelectronics and Manufacturing division, operational efficiencies coupled with a more favorable product mix resulted in strong operating margin expansion. In addition, we are taking advantage of an opportunity to consolidate facilities within our Optoelectronics and Manufacturing division and reducing costs in our Healthcare and Security divisions. These actions have commenced and are expected to be largely completed this fiscal year. We expect the benefit from these cost reductions will be partially realized in our fourth quarter and more fully thereafter.”

Fourth Quarter Fiscal Year 2015 Outlook

Subject to the risks described herein, the Company is updating its guidance and reducing its outlook for fiscal 2015 revenues and non-GAAP earnings per diluted share. The Company currently anticipates fiscal 2015 sales to be between $950 million and $975 million, and non-GAAP earnings per diluted share of $3.42 to $3.60, excluding the impact of impairment, restructuring and other charges. This revised guidance reflects lower than previously expected sales due to the adverse impact of the strong dollar as well as reduced sales volumes primarily in the Security division due to timing issues with less favorable product mix.

Presentation of Non-GAAP Financial Measures; Non-GAAP Figures

This earnings release includes a presentation of Adjusted EBITDA, non-GAAP net income and diluted earnings per share, and discussion of free cash flow, all of which are non-GAAP financial measures. Adjusted EBITDA is defined as net income, plus net interest expense, provision for income taxes and depreciation and amortization, as further adjusted to eliminate the impact of stock-based compensation, and restructuring and other charges. Not all companies use identical calculations and, accordingly, the Company's presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States and does not purport to be a substitute for net income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. Adjusted EBITDA is presented as a supplemental measure of the Company's financial performance that we believe is useful to investors because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company's operating activities across reporting periods. In addition, the Company uses Adjusted EBITDA to evaluate the effectiveness of the Company's business strategies and because the Company's credit agreements use measures similar to Adjusted EBITDA to measure compliance with certain covenants.

Discussion of adjustments to arrive at non-GAAP net income and diluted earnings per share figures and Adjusted EBITDA for the three and nine month periods ended March 31, 2014 and 2015 is provided to allow for the comparison of underlying earnings, net of restructuring and other charges. We believe that these non-GAAP figures provide additional insight into the ongoing operations of the Company. Non-GAAP financial measures should not be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP. We also believe that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s results primarily because they exclude amounts that we do not view as reflective of ongoing operating results when planning and forecasting and when assessing the performance of the Company’s business. We believe that our non-GAAP financial measures also facilitate the comparison of results for current periods and guidance for future periods with results for past periods.

This earnings release also discusses Free Cash Flow, which the Company defines as cash provided by operating activities less capital expenditures for property and equipment. We believe that this metric is useful to investors as a measure of cash generated by business operations that can be used to repay debt obligations, to invest in future growth through new business development activities or acquisitions and to repurchase stock of the Company, among other items. Reconciliations of GAAP to non-GAAP net income and diluted earnings per share, net income to Adjusted EBITDA, and cash provided by operating activities to Free Cash Flow are provided in the accompanying tables.

Conference Call Information

OSI Systems, Inc. will host a conference call and simultaneous webcast over the Internet beginning at 8:00 am PT (11:00 am ET) today to discuss its results for the third quarter of fiscal 2015. To listen, log on to the Company’s website at www.osi-systems.com and follow the link in the Investor Relations section. A replay of the webcast will be available shortly after the conclusion of the conference call until May 11, 2015. The replay can either be accessed through the Company’s website, www.osi-systems.com, or via telephonic replay by calling 888-286-8010 and entering the conference call identification number ‘38294880’ when prompted for the replay code.

About OSI Systems, Inc.

OSI Systems, Inc. is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The Company sells its products and provides related services in diversified markets, including homeland security, healthcare, defense and aerospace. The Company has more than 30 years of experience in electronics engineering and manufacturing and maintains offices and production facilities in more than a dozen countries. The Company implements a strategy of expansion by leveraging its electronics and contract manufacturing capabilities into selective end product markets through organic growth and acquisitions. For more information on OSI Systems, Inc. or any of 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, projections and similar expressions concerning matters that are not historical facts and are not guarantees of future performance. Forward-looking statements 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. Such statements include, but are not limited to, information provided regarding expected revenues, earnings and growth in fiscal 2015. 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 provisions of the Budget Control Act of 2011 as modified by the Bipartisan Budget Act of 2013; changes in domestic and foreign government spending, budgetary, procurement and trade policies adverse to the Company’s businesses; market acceptance of the Company’s new and existing technologies, products and services; the Company’s ability to win new business and convert any orders received to sales within the fiscal year in accordance with the Company’s operating plan; 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, as well as 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 a further discussion of 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, 2014 and other risks described 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 its ongoing requirements under federal securities laws.

           

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

  Three Months Ended March 31, Nine Months Ended March 31, 2014       2015 2014       2015 Revenues $ 203,956 $ 215,375 $ 646,638 $ 691,601 Cost of goods sold   133,449     142,771     427,246     455,481   Gross profit 70,507 72,604 219,392 236,120   Operating expenses: Selling, general and administrative expenses 39,399 37,970 127,169 130,046 Research and development 10,579 12,559 32,774 38,469 Restructuring and other charges   2,507     3,620     8,925     6,425   Total operating expenses   52,485     54,149     168,868     174,940   Income from operations 18,022 18,455 50,524 61,180 Interest expense and other, net   (1,370 )   (812 )   (4,343 )   (2,508 ) Income before income taxes 16,652 17,643 46,181 58,672 Provision for income taxes   11,851     4,415     20,413     15,954     Net income $ 4,801   $ 13,228   $ 25,768   $ 42,718     Diluted earnings per share $ 0.23   $ 0.64   $ 1.25   $ 2.08     Weighted average shares outstanding - diluted   20,548     20,529     20,585     20,515                            

CONSOLIDATED BALANCE SHEETS

(in thousands)

  June 30, 2014 (Unaudited)

March 31, 2015

Assets Cash and cash equivalents $ 38,831 $ 49,041 Accounts receivable, net 185,773 165,352 Inventories 234,138 265,415 Other current assets   120,488   101,063 Total current assets 579,230 580,871 Non-current assets   444,956   425,059 Total assets $ 1,024,186 $ 1,005,930   Liabilities and Stockholders' Equity Bank lines of credit $ 24,000 $ 6,000 Current portion of long-term debt 2,819 2,814 Accounts payable and accrued expenses 130,437 144,418 Deferred revenues 60,677 48,997 Other current liabilities   92,046   83,185 Total current liabilities 309,979 285,414 Long-term debt 10,436 9,028 Advances from customers 50,000 31,250 Deferred income taxes 73,161 68,280 Other long-term liabilities   48,397   54,696 Total liabilities 491,973 448,668 Total stockholders’ equity   532,213   557,262 Total liabilities and stockholders’ equity $ 1,024,186 $ 1,005,930      

SEGMENT INFORMATION

(in thousands)

(Unaudited)

  Three Months Ended

March 31,

Nine Months Ended

March 31,

2014   2015 2014   2015 Revenues – by Segment: Security division $ 95,007 $ 99,164 $ 298,748 $ 349,608 Healthcare division 52,188 59,383 161,081 176,710 Optoelectronics and Manufacturing division including intersegment revenues 66,331 65,291 214,000 199,912 Intersegment revenues elimination   (9,570 )   (8,463 )   (27,191 )   (34,629 ) Total $ 203,956   $ 215,375   $ 646,638   $ 691,601     Operating income (loss) – by Segment:

Security division(1)

$ 14,213 $ 13,266 $ 40,984 $ 50,926

Healthcare division(2)

4,084 3,707 11,312 11,258

Optoelectronics and Manufacturing division(3)

3,414 5,008 10,300 13,701

Corporate(4)

(3,488 ) (3,498 ) (11,888 ) (13,748 ) Eliminations   (201 )   (28 )   (184 )   (957 ) Total $ 18,022   $ 18,455   $ 50,524   $ 61,180     (1)     Includes restructuring and other charges of $2.1 million and $3.9 million for the three and nine months ended March 31, 2015, respectively; and $1.8 million and $5.1 million for the three and nine months ended March 31, 2014, respectively.   (2) Includes restructuring and other charges of $1.0 million and $1.1 million for the three and nine months ended March 31, 2015, respectively; and $2.0 million for the nine months ended March 31, 2014.   (3) Includes restructuring and other charges of $0.5 million and $0.7 million for the three and nine months ended March 31, 2015, respectively; and $0.3 million and $1.4 million for the three and nine months ended March 31, 2014, respectively.   (4) Includes restructuring and other charges of $ $0.7 million for the nine months ended March 31, 2015; and $0.4 million for each of the three and nine months ended March 31, 2014.                

Reconciliation of GAAP to Non-GAAP Net Income and Earnings Per Share

(in thousands, except earnings per share data)

(Unaudited)

  Three Months Ended March 31, Nine Months Ended March 31, 2014       2015 2014       2015

Net

income

      EPS

Net

income

      EPS

Net

income

      EPS

Net

income

      EPS   GAAP basis $ 4,801 $ 0.23 $ 13,228 $ 0.64 $ 25,768 $ 1.25 $ 42,718 $ 2.08   Restructuring and other charges, net of tax 1,873 0.10 2,714 0.14 6,456 0.32 4,678 0.23 Impact from election to accelerate depreciation for tax purposes 7,638 0.37 - - 7,638 0.37 - -                 Non-GAAP basis $ 14,312 $ 0.70 $ 15,942 $ 0.78 $ 39,862 $ 1.94 $ 47,396 $ 2.31                

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)

(Unaudited)

  Three Months Ended March 31, Nine Months Ended March 31, 2014       2015 2014       2015   Net income $ 4,801 $ 13,228 $ 25,768 $ 42,718   Interest expense, net 1,370 812 4,343 2,514 Provision for income taxes 11,851 4,415 20,413 15,954 Depreciation and amortization 13,608 13,366 40,024 45,448       EBITDA 31,630 31,821 90,548 106,634   Stock-based compensation 3,254 6,057 13,975 18,135 Restructuring and other charges 2,507 3,620 8,925 6,425       Adjusted EBITDA $ 37,391 $ 41,498 $ 113,448 $ 131,194                          

Reconciliation of Cash Provided by Operating Activities to Free Cash Flow

(in thousands)

(Unaudited)

 

Three Months Ended

March 31, 2015

Nine Months Ended

March 31, 2015

  Cash provided by operating activities $ 26,746 $ 87,696   Less acquisition of property and equipment (3,664 ) (10,113 )     Free cash flow $ 23,082   $ 77,583    

OSI Systems, Inc.Ajay VashishatVice President, Business Development12525 Chadron AveHawthorne, CA 90250Tel: 310-349-2237avashishat@osi-systems.com