OSI Systems [OSIS]

                                2Q18                      2Q17                     

Sales                       $277.5M                 $242.5M

Net Inc.                    ($47M, 2.47)           $4.8M, 0.25

Net income swung to a loss due to a $56 million charge related to tax reform legislation that lowers corporate taxes beginning Jan. 1, 2018, but is impacting many companies in the final quarter of 2017 related to overseas profits and a revaluation of deferred tax assets and liabilities. Excluding the tax impacts, net income in the quarter would have been $19.1 million ($2.47 EPS), up from $13.4 million (68 cents EPS). Sales were 14% on a record $172.3 million in revenue in the security segment, which was up 23% from a year ago. The company says its new explosive trace detection business, which it acquired last July, contributed $20 million of sales in the quarter. Operating profit at Rapiscan Systems, the security segment, more than doubled to $22.5 million versus $9.1 million a year ago, with adjusted operating margin up 230 basis points to 15.8%. Growth at Rapiscan was driven by the acquisition of the ETD business as well as higher sales in cargo and checkpoint products. Deepak Chopra, OSI’s chairman, president, and CEO, says a new two-year turnkey services contract the company signed with Mexico valued at $130 million is in line with expectations and was reflected in its sales guidance for FY ’18 announced last year. He also says that while the company for years has supplied security technology for sporting events, it now is moving into the market for integrated security services for events, and announced that OSI will be providing these services on the Professional Golf Association’s Senior Tour at an event in March in Mississippi.  OSI hopes to expand these services to other PGA Senior Tour events this year. Backlog at the end of the quarter stood at $830M, up 12 percent since the end of fiscal year 2017, and the company’s book-to-bill ratio was 1.1 times sales. Orders for security products in the quarter were $158 million. Free cash flow in the quarter was $42 million. The outlook for sales was increased slightly but is still expected to approach $1.1 billion this year and adjusted earnings were increased to $3.45 to 3.67 EPS versus the prior expectation of between $3.40 to 3.65 EPS.