OSI Systems [OSIS]

3Q20                   3Q19

Sales                    $292.9M             $304.3

Net Inc.               $19.6M, $1.06   $19.6, 1.05

Sales were down nearly 4% on declines at the Healthcare and Security segments, with Security down 3% to $187.1 million due to delays in aviation and cargo security business lines stemming from the ongoing COVID-19 pandemic. Access to some locations is limited and government personnel aren’t available to do final acceptance, Alan Edrick, OSI’s chief financial officer, said on the company’s earnings call. The company is negotiating a new turnkey services screening contract with Mexico but the “go-live” turnkey services efforts with Guatemala and Sri Lanka have been delayed for various reason, including COVID, Deepak Chopra, OSI’s president and CEO, said on the earnings call. The programs in Guatemala and Sri Lanka are expected to become operational in the next few months, he said. Lower taxes in the quarter offset increased restructuring charges and spending on research and development to keep net income level from a year ago. Free cash flow was a strong $41.4 million and backlog at the end of the quarter stood at $863 million, down from $911 million since the beginning of the fiscal year. The pandemic has also delayed orders in the Security segment. Chopra said on the call that early in the fourth quarter OSI made a strategic acquisition of a small artificial intelligence solutions company “that utilizes deep learning and computer vision to assist with image analysis and threat detection on X-Ray based detection platforms. We expect to utilize these AI tools across certain of our detection platforms for people, baggage and cargo.” The cost of the acquisition was immaterial but the assets, patents and intellectual property will help the segment “go faster in to the machine language and artificial intelligence to make automation better,” he said. The AI company has also “had some luck working with the government,” he added. Due to impacts from the pandemic and related uncertainty going forward, OSI reduced its sales outlook for the fiscal year to just below $1.2 billion from just above $1.2 billion. It also lowered its forecast for adjusting earnings to between $4.45 and $4.65 earnings per share (EPS) from the prior outlook of between $4.63 and $4.85 EPS.