OSI Systems delivered a positive start to the year, as both revenue and adjusted earnings surpassed Wall Street expectations, prompting a significant market response. Management credited the quarter’s performance to strong execution in its security and optoelectronics divisions, with robust bookings and recurring service revenues as particularly notable contributors. CEO Ajay Mehra highlighted that the company’s large backlog and diversified customer base supported momentum despite a challenging comparison period and ongoing international trade uncertainty. CFO Alan Edrick added, “The increase in our service revenues is almost entirely related to our security division,” noting this recurring revenue offers higher margins as more products roll off warranty.
Is now the time to buy OSIS? Find out in our full research report (it’s free).
OSI Systems (OSIS) Q1 CY2025 Highlights:
- Revenue: $444.4 million vs analyst estimates of $438.3 million (9.6% year-on-year growth, 1.4% beat)
- Adjusted EPS: $2.44 vs analyst estimates of $2.40 (1.5% beat)
- Adjusted EBITDA: $74.53 million vs analyst estimates of $73.5 million (16.8% margin, 1.4% beat)
- The company slightly lifted its revenue guidance for the full year to $1.7 billion at the midpoint from $1.7 billion
- Management slightly raised its full-year Adjusted EPS guidance to $9.30 at the midpoint
- Operating Margin: 12.7%, in line with the same quarter last year
- Backlog: $1.8 billion at quarter end
- Market Capitalization: $3.6 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions OSI Systems’s Q1 Earnings Call
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Jeff Martin (Roth Capital): Asked about the impact of tariffs on different divisions. CEO Ajay Mehra explained that exposure to China is limited in security and optoelectronics, and mitigation strategies are in place, but long-term effects remain uncertain.
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Matt Akers (Wells Fargo): Inquired about the trajectory for security division growth as Mexico contract revenues decline. CFO Alan Edrick responded that robust bookings and a diversified backlog should offset lower Mexico revenues and support continued growth.
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Larry Solow (CJS Securities): Sought clarification on the margin impact from changing service and product mix. Edrick stated that higher service revenue supports margins, though fluctuations in product mix and increased R&D spending temporarily softened margins this quarter.
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Mariana Perez Mora (Bank of America): Asked if new screening requirements due to tariff changes are generating demand for OSI’s solutions. Mehra noted early discussions with freight forwarders and suggested that rising demand for advanced screening could present future opportunities.
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Seth Seifman (JP Morgan): Questioned whether the $1.1 billion in U.S. government funding for border security is incremental. Mehra confirmed it is in addition to current budgets and highlighted the potential for multi-year contracts and increased software integration.
Catalysts in Upcoming Quarters
In the coming quarters, our analyst team will monitor (1) the pace and mix of new contract wins in security and defense, (2) service revenue momentum as more installed systems shift to recurring contracts, and (3) the company’s ability to navigate tariff and supply chain disruptions. Updates on healthcare segment progress and the impact of government funding cycles will also be important signposts.
OSI Systems currently trades at $214.54, up from $204.74 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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