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Security and healthcare technology company OSI Systems (NASDAQ:OSIS) reported Q1 CY2025 results beating Wall Street’s revenue expectations , with sales up 9.6% year on year to $444.4 million. The company expects the full year’s revenue to be around $1.7 billion, close to analysts’ estimates. Its non-GAAP profit of $2.44 per share was 1.5% above analysts’ consensus estimates.

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OSI Systems (OSIS) Q1 CY2025 Highlights:

• Revenue: $444.4 million vs analyst estimates of $438.3 million (9.6% year-on-year growth, 1.4% beat)

• Adjusted EPS: $2.44 vs analyst estimates of $2.40 (1.5% beat)

• Adjusted EBITDA: $75.21 million vs analyst estimates of $73.5 million (16.9% margin, 2.3% beat)

• The company slightly lifted its revenue guidance for the full year to $1.7 billion at the midpoint from $1.7 billion

• Management slightly raised its full-year Adjusted EPS guidance to $9.30 at the midpoint

• Operating Margin: 12.7%, in line with the same quarter last year

• Free Cash Flow was $77.12 million, up from -$56.99 million in the same quarter last year

• Backlog: $1.8 billion at quarter end

• Market Capitalization: $3.8 billion

StockStory’s Take

OSI Systems attributed its first quarter sales growth to elevated demand in its security division and strong performance in the optoelectronics and manufacturing segment. Management pointed to significant new orders in cargo inspection, aviation security, and secure communications, as well as higher recurring service revenues stemming from an expanding installed base. CEO Ajay Mehra also noted that the healthcare division delivered consecutive quarters of sales growth, with new leadership already making an impact on focus and execution.

Looking ahead, management cited a record backlog and continued pipeline strength as reasons for slightly raising full-year revenue and profit guidance. CFO Alan Edrick emphasized that the company expects to maintain healthy cash flow and sees recurring service contracts as a foundation for margin expansion. However, Mehra cautioned about the evolving global trade environment, particularly new U.S. tariffs, and stated that "it is difficult at this time to assess impacts and periods further out on the calendar."

Key Insights from Management’s Remarks

OSI Systems’ management identified key operational trends and market dynamics that shaped quarterly results, emphasizing both growth drivers and evolving risks in its core businesses.

• Security Division Orders: The security division saw robust demand, with major new orders for cargo and aviation inspection systems, including a $76 million contract for a major international airport and several multi-million dollar cargo inspection awards. These wins demonstrated ongoing investment in border and aviation security infrastructure by government and commercial customers.

• Service Revenue Expansion: Management highlighted a significant increase in recurring service revenues as more installed security systems moved off warranty and into long-term maintenance contracts. CFO Alan Edrick described this as “excellent recurring revenue” that generally carries higher margins, supporting profitability.

• Optoelectronics Manufacturing Growth: The optoelectronics and manufacturing division achieved 15% year-over-year growth, benefiting from diversified sales to original equipment manufacturers (OEMs) in medical and consumer technology. The division’s global manufacturing footprint (spanning the U.S., Mexico, Canada, and Asia) allowed for operational flexibility amid shifting trade policies.

• RF Solutions Acquisition Progress: The recently acquired radio frequency (RF) solutions business for defense applications contributed to security division growth, with a notable $32 million international order. Management indicated early signs of momentum in this business and expects further integration benefits.

• Healthcare Division Leadership Change: The appointment of Wilson Constantine as healthcare division president was credited with improving team focus. Management expects continued investment in research and development to support new product platforms, with the goal of sustaining sales growth in healthcare over the next 18 months.