Jan 25, 2019   SOURCE: BusinessWire

OSI Systems Reports Fiscal 2019 Second Quarter Financial Results

OSI Systems, Inc. (the “Company” or “OSI Systems”) (NASDAQ: OSIS) today announced financial results for the three and six months ended December 31, 2018.

Deepak Chopra, OSI Systems’ Chairman and Chief Executive Officer, stated, “We are pleased to report excellent second quarter financial performance. We achieved record revenues leading to strong profits and solid cash flow. With a substantial backlog, we continue to see the Company well positioned for the remainder of fiscal 2019.”

The Company reported revenues of $303.2 million for the second quarter of fiscal 2019, an increase of 9% from the $277.5 million reported for the second quarter of fiscal 2018. Net income for the second quarter of fiscal 2019 was $19.1 million, or $1.03 per diluted share, compared to net loss of $47.0 million, or ($2.47) per diluted share, for the second quarter of fiscal 2018. Non-GAAP net income for the second quarter of fiscal 2019 was $22.1 million, or $1.19 per diluted share, compared to non-GAAP net income for the second quarter of fiscal 2018 of $19.1 million, or $0.97 per diluted share.

For the six months ended December 31, 2018, revenues increased 7% to $569.5 million, compared with the same period a year ago. Net income for this period was $28.5 million, or $1.53 per diluted share, compared with net loss of $36.8 million, or ($1.95) per diluted share, for the same period a year ago. Non-GAAP net income for the six months ended December 31, 2018 was $37.3 million, or $2.00 per diluted share, compared with non-GAAP net income of $34.6 million, or $1.76 per diluted share, for the comparable prior-year period.

During the quarter ended December 31, 2018, the Company’s book-to-bill ratio for equipment and related services was 0.9. As of December 31, 2018, the Company’s backlog was approximately $998 million representing a 20% year-over-year increase. Operating cash flow during the quarter ended December 31, 2018 was $43.7 million, and capital expenditures were $4.8 million.

Mr. Chopra commented, “Our Security division delivered record second fiscal quarter revenues of $189 million, or a 10% increase compared with the prior-year period and delivered strong operating profit during the quarter. We were also pleased with our sales activity in the key markets of aviation, port and border security.”

Mr. Chopra continued, “The performance in our Healthcare division improved significantly from the first quarter. Bookings accelerated leading to stronger sales. With an enhanced focus on profitable product lines and channels coupled with a reduced cost structure, the division returned to double digit operating margins excluding restructuring and other charges.”

Mr. Chopra concluded, “Our Optoelectronics and Manufacturing division continued to perform well in the quarter delivering year-over-year sales growth of 13%, operating margin expansion, and strong cash flow.”

The Company’s effective tax rate for the three and six months ended December 31, 2018 was 26.8% and 23.0%, respectively. Excluding the benefit of certain discrete tax items, the Company’s tax rate for the three and six months ended December 31, 2018 was 28.3% and 28.2%, respectively. As a result of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017, the Company recognized a charge of $56 million, or $2.96 per share, in the second quarter of fiscal 2018. The Company’s reported tax rate, which included the charge, was 465.0% for the second quarter of fiscal 2018, and 231.4% for the first half of fiscal 2018. The Company’s tax rate, excluding the charge related to the Tax Act and certain discrete tax items, was 28.0% and 28.2% for the three and six months ended December 31, 2017.

Fiscal Year 2019 Outlook

The Company is raising its fiscal 2019 sales guidance to a range of $1.150 billion - $1.185 billion, which would represent growth of 6% to 9% compared to the prior fiscal year. In addition, the Company is increasing its non-GAAP earnings guidance to $3.93 - $4.10 per diluted share for fiscal 2019. Actual sales and non-GAAP diluted earnings per share could vary from this guidance due to factors discussed under “Forward-Looking Statements” and other factors.

The Company’s fiscal 2019 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 to GAAP diluted EPS (the most directly comparable GAAP measure) on a forward-looking basis because the Company is unable to provide a meaningful or accurate compilation of reconciling items and certain information is not available. This is due to the inherent difficulty and complexity in accurately forecasting the timing and amounts of various items that would be excluded from GAAP diluted EPS, including, for example, acquisition costs and other non-recurring items that have not yet occurred, are out of the Company’s control, or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of unavailable information which may be material and therefore could result in GAAP diluted EPS, the corresponding GAAP financial measure, being materially less than projected non-GAAP diluted EPS.

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 and six month periods ended December 31, 2017 and 2018 is provided to allow for the comparison of the underlying performance of the Company, net of impairment, restructuring and other charges (including certain legal costs), amortization of intangible assets acquired through business acquisitions and non-cash interest expense related to convertible debt, and their associated tax effects, and the impact of discrete income tax items including charges resulting from the implementation of the Tax Act. 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 purposes of planning, forecasting, and assessing the performance of the Company’s businesses, (iii) a meaningful comparison of results of the current period against results of past periods, and (iv) financial results that are comparable to those of peer companies. Non-GAAP financial measures should not be assessed in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events for which adjustments are made.

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 beginning at 1:30 p.m. PT (4:30 p.m. ET) today to discuss its results for the second quarter of fiscal 2019. 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 February 7, 2019. The replay can either be accessed through the Company’s website, www.osi-systems.com, or by telephonic replay by calling 1-855-859-2056 and entering the conference call identification number ’5456605’ 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 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 provided regarding expected revenues, earnings, growth, and performance in fiscal 2019. 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; failure to secure the renewal of key customer 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; unfavorable currency exchange rate fluctuations; effect of changes in tax legislation; 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 those in any forward-looking statements, see the section titled “Risk Factors” in the Company’s most recently filed Annual Report on Form 10-K and other risks described therein and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, which 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 under federal securities laws.

 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
  Three Months Ended   Six Months Ended
December 31, December 31,
2017   2018 2017   2018
Revenue:        
Products $ 181,393 $ 225,402 $ 347,046 $ 407,882
Services   96,135     77,803     187,615     161,572  
Total revenues 277,528 303,205 534,661 569,454
Cost of goods sold:
Products 122,464 150,131 236,644 275,502
Services   53,434     42,730     105,116     87,695  
Total cost of goods sold   175,898     192,861     341,760     363,197  
Gross profit 101,630 110,344 192,901 206,257
Operating expenses:
Selling, general and administrative 60,098 67,097 115,745 128,804
Research and development 15,088 12,805 30,188 26,558
Impairment, restructuring and other charges   8,297     (1,265 )   9,427     2,931  
Total operating expenses   83,483     78,637     155,360     158,293  
Income from operations 18,147 31,707 37,541 47,964
Interest expense and other, net   (5,282 )   (5,620 )   (9,531 )   (10,952 )
Income before income taxes 12,865 26,087 28,010 37,012
Provision for income taxes   (59,816 )   (6,980 )   (64,804 )   (8,503 )
Net income (loss) $ (46,951 ) $ 19,107   $ (36,794 ) $ 28,509  
 
Diluted earnings (loss) per share $ (2.47 ) $ 1.03   $ (1.95 ) $ 1.53  
Weighted average shares outstanding – diluted   18,971     18,624     18,874     18,679  
 
 
UNAUDITED SEGMENT INFORMATION
(in thousands)
 
  Three Months Ended   Six Months Ended
December 31, December 31,
2017   2018 2017   2018
Revenues – by Segment:
Security division $ 172,269 $ 188,684 $ 334,514 $ 358,644
Healthcare division 52,506 51,559 98,035 89,832
Optoelectronics and Manufacturing division (including intersegment revenues) 63,886 72,019 122,812 142,973
Intersegment revenues eliminations   (11,133 )   (9,057 )   (20,700 )   (21,995 )
Total $ 277,528   $ 303,205   $ 534,661   $ 569,454  
 
Operating income (loss) – by Segment:
Security division $ 22,471 $ 26,063 $ 45,164 $ 49,113
Healthcare division 603 2,209 1,450 334
Optoelectronics and Manufacturing division 4,502 8,067 9,677 14,892
Corporate (9,118 ) (4,560 ) (17,871 ) (15,911 )
Eliminations   (311 )   (72 )   (879 )   (464 )
Total $ 18,147   $ 31,707   $ 37,541   $ 47,964  
 

 
OSI SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
  June 30, 2018   December 31, 2018
Assets
 
Cash and cash equivalents $ 84,814 $ 95,967
Accounts receivable, net 210,744 226,086
Inventories 313,552 315,200
Other current assets   41,587   43,949
Total current assets 650,697 681,202
Property and equipment, net 115,524 121,270
Goodwill 292,213 305,164
Intangible assets, net 142,001 140,202
Other non-current assets   55,256   49,839
Total Assets $ 1,255,691 $ 1,297,677
 
Liabilities and Stockholders' Equity
 
Bank lines of credit $ 113,000 $ 149,000
Current portion of long-term debt 2,262 2,107
Accounts payable and accrued expenses 194,815 180,392
Other current liabilities   133,245   138,415
Total current liabilities 443,322 469,914
Long-term debt 248,980 253,184
Other long-term liabilities   73,953   78,383
Total liabilities 766,255 801,481
Total stockholders’ equity   489,436   496,196
Total Liabilities and Stockholders’ Equity $ 1,255,691 $ 1,297,677
 

 
RECONCILIATION OF GAAP TO NON-GAAP
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
(in thousands, except share and earnings per share data)
 
  Three Months Ended December 31,   Six Months Ended December 31,
2017   2018 2017   2018
Net     Net    
income Net income Net
(loss) EPS income EPS (loss) EPS income EPS
GAAP basis $ (46,951 ) $ (2.47 ) $ 19,107 $ 1.03 $ (36,794 ) $ (1.95 ) $ 28,509 $ 1.53
Impairment, restructuring and other charges 8,297 0.44 (1,265 ) (0.07 ) 9,427 0.50 2,931 0.16
Amortization of acquired intangible assets 3,533 0.19 4,022 0.22 7,076 0.37 8,190 0.44
Non-cash interest 1,870 0.10 1,955 0.10 3,674 0.19 3,881 0.21
Tax benefit of above adjustments (3,838 ) (0.20 ) (1,331 ) (0.07 ) (5,680 ) (0.30 ) (4,231 ) (0.23 )
Discrete tax items 56,212 2.96 (392 ) (0.02 ) 56,919 3.02 (1,934 ) (0.11 )
Impact of diluted shares 1   --     (0.05 )   --     --     --     (0.07 )   --     --  
Non-GAAP basis $ 19,123   $ 0.97   $ 22,096   $ 1.19   $ 34,622   $ 1.76   $ 37,346   $ 2.00  
 

1

 

For the three and six months ended December 31, 2017, the weighted average diluted shares used to calculate EPS on a GAAP basis exclude potential common shares (stock options and restricted stock units) due to their antidilutive effect resulting from the Company’s reported net loss. For the three and six months ended December 31, 2017, the weighted average diluted shares used to calculate EPS on a non-GAAP basis were approximately 19,655,000 shares and 19,628,000 shares, respectively.

 
 
RECONCILIATION OF GAAP TO NON-GAAP
OPERATING INCOME (LOSS) AND OPERATING MARGIN BY SEGMENT
(in thousands, except percentages)
 
Three Months Ended December 31, 2017
      Optoelectronics and    
Security Healthcare Manufacturing Corporate /
Division Division Division Elimination Total
  % of   % of   % of   % of
Sales Sales Sales Sales
GAAP basis – operating income (loss) $ 22,471 13.0 % $ 603 1.1 % $ 4,502 7.0 % $ (9,429 ) $ 18,147 6.5 %
Impairment, restructuring and other charges 1,591 0.9 % 5,022 9.6 % 1,221 1.9 % 463 8,297 3.0 %
Amortization of acquired intangible assets   3,152 1.9 %   14 0.0 %   367 0.6 %   -     3,533 1.3 %
Non-GAAP basis– operating income (loss) $ 27,214 15.8 % $ 5,639 10.7 % $ 6,090 9.5 % $ (8,966 ) $ 29,977 10.8 %
 

 

Three Months Ended December 31, 2018

      Optoelectronics and    
Security Healthcare Manufacturing Corporate /
Division Division Division Elimination Total
  % of   % of   % of   % of
Sales Sales Sales Sales
GAAP basis – operating income (loss) $ 26,063 13.8 % $ 2,209 4.3 % $ 8,067 11.2 % $ (4,632 ) $ 31,707 10.5 %
Impairment, restructuring and other charges (46 ) 0.0 % 3,335 6.5 % 46 0.0 % (4,600 ) (1,265 ) (0.4 %)
Amortization of acquired intangible assets   2,818   1.5 %   -- --     1,205 1.7 %   - -     4,023   1.3 %
Non-GAAP basis– operating income (loss) $ 28,835   15.3 % $ 5,544 10.8 % $ 9,318 12.9 % $ (9,232 ) $ 34,465   11.4 %
 
 
Six Months Ended December 31, 2017
      Optoelectronics and    
Security Healthcare Manufacturing Corporate /
Division Division Division Elimination Total
  % of   % of   % of   % of
Sales Sales Sales Sales
GAAP basis – operating income (loss) $ 45,164 13.5 % $ 1,450 1.5 % $ 9,677 7.9 % $ (18,750 ) $ 37,541 7.0 %
Impairment, restructuring and other charges 1,901 0.6 % 5,022 5.1 % 1,221 1.0 % 1,283 9,427 1.8 %
Amortization of acquired intangible assets   6,314 1.9 %   29 0.0 %   733 0.6 %   - -     7,076 1.3 %
Non-GAAP basis– operating income (loss) $ 53,379 16.0 % $ 6,501 6.6 % $ 11,631 9.5 % $ (17,467 ) $ 54,044 10.1 %
 
 

 

Six Months Ended December 31, 2018

      Optoelectronics and    
Security Healthcare Manufacturing Corporate /
Division Division Division Elimination Total
  % of   % of   % of   % of
Sales Sales Sales Sales
GAAP basis – operating income (loss) $ 49,113 13.7 % $ 334 0.4 % $ 14,892 10.4 % $ (16,375 ) $ 47,964 8.4 %
Impairment, restructuring and other charges -- -- 3,526 3.9 % 420 0.3 % (1,015 ) 2,931 0.5 %
Amortization of acquired intangible assets   5,916 1.6 %   -- --     2,274 1.6 %   --     8,190 1.5 %
Non-GAAP basis– operating income (loss) $ 55,029 15.3 % $ 3,860 4.3 % $ 17,586 12.3 % $ (17,390 ) $ 59,085 10.4 %