OSI Systems delivered a third quarter that outperformed Wall Street’s revenue expectations, with management attributing results to broad-based strength across all divisions and continued growth in high-margin service revenues. CEO Ajay Mehra emphasized the company’s ability to offset reduced contributions from large Mexico security contracts with robust performance in aviation, cargo, and radio frequency detection product lines. CFO Alan Edrick pointed to a record backlog and accelerating demand from recurring service agreements as key contributors.
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OSI Systems (OSIS) Q3 CY2025 Highlights:
- Revenue: $384.6 million vs analyst estimates of $366.6 million (11.8% year-on-year growth, 4.9% beat)
- Adjusted EPS: $1.42 vs analyst estimates of $1.38 (3.1% beat)
- Adjusted EBITDA: $52.66 million vs analyst estimates of $49.3 million (13.7% margin, 6.8% beat)
- The company lifted its revenue guidance for the full year to $1.85 billion at the midpoint from $1.83 billion, a 1% increase
- Management slightly raised its full-year Adjusted EPS guidance to $10.34 at the midpoint
- Operating Margin: 8.6%, in line with the same quarter last year
- Market Capitalization: $4.78 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From OSI Systems’s Q3 Earnings Call
- Josh Nichols (B. Riley Securities, Inc.) asked about the drivers behind strong Security division performance given typical seasonal softness, to which CFO Alan Edrick cited broad-based regional strength, exceptional service revenue growth, and increased RF product contributions.
- Josh Nichols (B. Riley Securities, Inc.) followed up on service revenue growth versus overall guidance, with Edrick confirming service growth is expected to outpace product revenue, though product sales will also remain solid despite tough Mexico comps.
- Jeff Martin (ROTH Capital Partners, LLC) inquired about the global increase in government security investments, and CEO Ajay Mehra explained that recent geopolitical tensions and new funding priorities are accelerating demand for advanced detection and integration capabilities.
- Mariana Perez Mora (BofA Securities, Research Division) questioned the timing and progress of Mexico receivable collections, with Edrick indicating continued improvement and projecting significant cash inflows that should drive strong free cash flow conversion.
- Seth Seifman (JPMorgan Chase & Co.) pressed on Security division margin trends, prompting Edrick to clarify that margin expansion is expected to resume as Mexico contract headwinds normalize after the next quarter.
Catalysts in Upcoming Quarters
In future quarters, we will focus on (1) the pace of recurring service revenue growth and its contribution to margin stability, (2) the timing and scale of new government security and integration contract awards, and (3) progress on collecting outstanding Mexico receivables to drive free cash flow. Additionally, the normalization of product mix and effective R&D investments will be important markers for sustained profitability.
OSI Systems currently trades at $281.91, up from $243.35 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
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