OSI Systems Reports Record Second Quarter Performance for Fiscal 2026
OSI Systems today announced its financial results for the second quarter of fiscal 2026, highlighting record revenues and strong earnings performance that reflect continued momentum across its core businesses, supported by favorable industry dynamics, disciplined execution, and sustained demand for the company’s specialized electronic systems and components across global markets.
CEO Highlights Record Revenues and Earnings Growth
Ajay Mehra, President and Chief Executive Officer of OSI Systems, stated that the company delivered record second-quarter revenues and non-GAAP earnings per share, driven by strong year-over-year growth from its industry-leading Security division and its Optoelectronics and Manufacturing division, while noting that the company’s significant backlog, robust opportunity pipeline, and expectations for strong bookings in the second half of the fiscal year position OSI Systems well for continued growth as it capitalizes on rising demand and advances strategic initiatives across key end markets.
Second Quarter and First Half Financial Performance Overview
For the three months ended December 31, 2025, OSI Systems reported revenues of $464.1 million, representing an 11 percent increase compared with $419.8 million in the same period of the prior year, while for the six months ended December 31, 2025, revenues reached $848.7 million, also reflecting 11 percent growth compared with $763.8 million in the prior-year period, demonstrating consistent top-line expansion across reporting periods.
Earnings Performance on a GAAP and Non-GAAP Basis
Diluted earnings per share on a GAAP basis for the second quarter remained flat year over year at $2.22, while six-month GAAP diluted earnings per share increased 4 percent to $3.39 from $3.27, reflecting operating performance improvements offset by certain OSI Systems non-operational factors, while on a non-GAAP basis, diluted earnings per share increased 7 percent to $2.58 for the quarter and rose 9 percent to $4.00 for the six-month period, underscoring improved underlying profitability and operating leverage.
Cash Flow Generation and Capital Expenditures
Cash flow provided by operating activities for the six months ended December 31, 2025 increased significantly to $79.3 million compared with $15.4 million in the prior-year period, reflecting improved earnings, disciplined working capital management, and strong operational execution, while capital expenditures for the same period totaled $13.7 million, reflecting continued investment in manufacturing capacity, technology, and infrastructure to support long-term growth.
Backlog Remains at Elevated Levels
The company reported total backlog of approximately $1.8 billion as of December 31, 2025, consistent with backlog levels reported at June 30, 2025, providing strong revenue visibility and reinforcing confidence in the company’s ability to sustain growth across multiple fiscal periods amid ongoing customer demand in its core markets.
Security Division Delivers Strong Revenue Growth
Mr. Mehra noted that the Security division delivered another strong quarter, with second-quarter revenues increasing 15 percent year over year, supported by continued expansion of recurring services revenue, which remains a strategic focus for the company as it seeks to drive predictable, profitable, and sustainable long-term growth through lifecycle services, maintenance contracts, and system upgrades.
Security Bookings and Margin Dynamics
While bookings in the Security division were softer than initially expected during the quarter, partly due to the U.S. government shutdown that delayed the receipt of certain anticipated orders, the division continues to maintain a healthy backlog and is experiencing expanding global demand, with margins impacted by a difficult year-over-year comparison but expected to normalize as booking activity improves and delayed orders convert into revenue.
Long-Term Growth Outlook for the Security Segment
Management emphasized that OSI Systems remains well positioned within the Security segment to capitalize on future opportunities driven by increasing global investments in aviation security, border protection, cargo and vehicle inspection, and critical infrastructure protection, supported by the company’s advanced inspection technologies, turnkey solutions, and comprehensive service offerings.
Optoelectronics and Manufacturing Division Performance
The Optoelectronics and Manufacturing division also generated robust financial results during the second quarter, achieving 12 percent revenue growth, expanding operating margins, and delivering a strong book-to-bill ratio, reflecting healthy customer demand across industrial, aerospace and defense, semiconductor, and medical markets.
Competitive Advantages of a Vertically Integrated Model
According to management, the strong performance of the Optoelectronics and Manufacturing division highlights the competitive advantage of OSI Systems’ vertically integrated global operating structure, which enables greater operational efficiency, enhanced supply chain flexibility, faster innovation cycles, and the ability to deliver high-performance solutions that meet stringent customer requirements.
Outlook for Continued Growth in Optoelectronics and Manufacturing
With customer demand continuing to increase and order momentum remaining solid, the company expects the Optoelectronics and Manufacturing division to sustain its growth trajectory, supported by investments in advanced manufacturing capabilities, expanded engineering resources, and long-standing relationships with leading original equipment manufacturers.
Convertible Notes Financing Strengthens Balance Sheet
In November 2025, OSI Systems completed the issuance of $575 million of convertible senior notes due in 2031 at an interest rate of 0.50 percent, with net proceeds partially used to repay the outstanding balance under the company’s revolving credit facility and to repurchase approximately $146 million of its common stock, enhancing balance sheet flexibility and optimizing the company’s capital structure.
CFO Commentary on Financing Transaction
Alan Edrick, Executive Vice President and Chief Financial Officer, stated that the company was highly pleased with the completion of the convertible notes financing at exceptionally favorable terms, noting that the transaction positions OSI Systems to capture additional growth opportunities while lowering its overall cost of capital, resulting in expected interest savings and reinforcing the company’s ability to invest in innovation and long-term strategic initiatives.
Fiscal 2026 Earnings Guidance Updated
OSI Systems announced that it is raising its fiscal 2026 guidance for non-GAAP diluted earnings per share while maintaining its previously issued revenue guidance, reflecting confidence in operating performance, margin trends, and second-half booking expectations across its business segments.
Revised Non-GAAP EPS Outlook
The company now expects non-GAAP diluted earnings per share for fiscal 2026 to be in the range of $10.30 to $10.55, representing year-over-year growth of approximately 10 percent to 13 percent, with management noting that actual results may vary due to factors discussed in forward-looking statements and other variables that could impact operating performance.
Explanation of Non-GAAP Guidance Approach
The company clarified that its fiscal 2026 diluted earnings per share guidance is provided on a non-GAAP basis only and that it does not provide a forward-looking reconciliation to GAAP diluted earnings per share due to the inherent difficulty in accurately forecasting certain items such as acquisition-related costs, restructuring charges, and other non-recurring or uncontrollable factors that could materially impact GAAP results.
Conference Call and Webcast Details
OSI Systems will host a conference call and simultaneous webcast at 1:30 p.m. Pacific Time, or 4:30 p.m. Eastern Time, to discuss its second-quarter fiscal 2026 financial results, with access available through the Investor Relations section of the company’s website and a replay scheduled to remain accessible for approximately three months following the conclusion of the call.
Global Operations and Business Segments Overview
OSI Systems designs and manufactures specialized electronic systems and components for critical applications and operates through three primary business segments including Security, Optoelectronics and Manufacturing, and Healthcare, serving customers in more than 170 countries through a strategically positioned global network of sales, service, research and development, and manufacturing facilities.
Security Segment Capabilities and Market Focus
The Security division delivers advanced inspection systems, turnkey screening solutions, and comprehensive support services designed to protect people and infrastructure across aviation, ports and borders, cargo screening, and critical facilities, positioning OSI Systems as a key technology provider in global security markets.
Optoelectronics, Manufacturing, and Healthcare Contributions
The Optoelectronics and Manufacturing segment serves as a global supplier of high-performance optoelectronic components and precision manufacturing services for leading OEMs, while the Healthcare segment focuses on patient monitoring, diagnostic cardiology, and related services aimed at enhancing clinical outcomes and improving patient care.
Use and Purpose of Non-GAAP Financial Measures
The earnings release includes non-GAAP financial measures such as non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating income by segment, and non-GAAP operating margins, which management believes provide enhanced insight into the company’s ongoing operations by excluding items that are not considered reflective of core operating performance.
Management’s View on Financial Transparency
Management stated that non-GAAP financial measures are intended to support planning, forecasting, and performance assessment, provide meaningful comparisons across periods and with peer companies, and should be evaluated alongside GAAP results rather than as a substitute, with reconciliations to GAAP financial measures provided in the accompanying tables for transparency and completeness.
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