OSI Systems [OSIS]
3Q14 3Q13
Sales $204M $198.4M
Net Inc. $4.8M, 0.23 $13.5M, 0.66
Net income tumbled largely due to a $7.6 million charge incurred at the company’s Rapiscan Systems division related to tax elections taken on the turnkey screening services program with Mexico to accelerate depreciation and realize immediate cash tax savings of about $21 million. Restructuring and other charges, mainly related to issues with Rapiscan’s work with the Transportation Security Administration (TSA), also helped lead earnings down. Rapiscan, which makes up OSI’s Security segment, saw its operating income slide 12 percent to $14.2 million. Sales grew 3% on the strength of a double-digit increase at the Optoelectronics and Manufacturing group and a slight gain at Healthcare while the Security segment fell 5% to $95 million due to the slippage of $10 million in international cargo shipments into the fourth quarter. OSI maintained its sales guidance for the year but lowered the high end of its adjusted EPS expectations by a dime to between $3.10 and $3.29. OSI CEO Deepak Chopra says the company is ramping up production of its new handheld explosives trace detector, adding that the pipeline of business opportunities for the product is growing although he didn’t announce any awards. He also says there are numerous multi-million dollar opportunities for large cargo inspection systems that the company is awaiting decisions on in the next three to four months. Bookings in the quarter were just under 1.0 while Security bookings were 1.1 driven by international cargo orders and a contract for the company’s Real Time Tomography explosive detection system with an airport in Norway, the company says. Overall backlog stood at $800 million, down $100 million from the second quarter. Free cash flow was a record $42.5 million in the quarter. Chopra says that the company hasn’t had substantive discussions the past few months with the Department of Homeland Security regarding an ongoing review of whether to debar Rapiscan from federal contracting due to a failure last fall by the company to disclose to TSA that it had included a non-certified subsystem in a winning X-Ray system. He says that the agency certified the X-Ray generator during the third quarter and the subsystem is approved for use in the company’s Advanced Technology X-Ray systems used by TSA at aviation security checkpoints.