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OSI SYSTEMS INC (OSIS)·Q1 2026 Earnings Summary

Executive Summary

  • OSI Systems delivered a clean beat and raise: Q1 FY26 revenue $384.6M vs S&P consensus $372.0M* (+3.4%) and non‑GAAP EPS $1.42 vs $1.377* (+3.1%); revenue +12% YoY; non‑GAAP EPS +14% YoY .*
  • Broad‑based strength: Security +13% YoY to $254.2M, Optoelectronics +12% to $109.5M, Healthcare +10% to $40.7M; non‑GAAP operating margin held at 10.3% despite mix headwinds .
  • Backlog and recurring mix are key: book‑to‑bill ~1.1 and record Q1 backlog “approaching $1.9B”; service revenue +23% YoY, Mexico program revenues fell to $25M (from $70M) yet organic growth remained strong .
  • Guidance raised: FY26 revenue now $1.825–$1.867B (6.5%–9.0%) and non‑GAAP EPS $10.20–$10.48 (9%–12%); midpoints align with S&P FY26 consensus revenue $1.84B* and EPS $10.33* .*
  • Likely stock catalysts: accelerating high‑margin services, RF momentum ($19M in Q1), expected Security margin expansion post‑Dec quarter, and potential “Golden Dome” funding tailwinds; management guides strong FY26 FCF conversion, potentially >100% of net income .

What Went Well and What Went Wrong

  • What Went Well

    • Broad‑based growth: all three divisions posted double‑digit revenue growth; Security +13% to $254M, Optoelectronics +12% to $109M, Healthcare +10% to $41M .
    • Recurring and backlog strength: services +23% YoY; book‑to‑bill ~1.1; record Q1 backlog near $1.9B. CEO: “we achieved 12% revenue growth… Robust bookings contributed to a record backlog” .
    • Strategic wins and RF ramp: ~$75M non‑intrusive inspection and >$60M RF orders; RF revenue ~$19M in Q1 vs ~$4M prior‑year partial; $37M RF order announced Oct 2 .
    • Quote: CFO: “Excluding… Mexico contracts and revenues… acquired in Fiscal 2025, our underlying consolidated revenues grew roughly 26% in Q1” .

  • What Went Wrong

    • Margin mix headwinds: Q1 gross margin ~32% and Security adjusted operating margin 13.5% (down 90 bps YoY) on less favorable product mix and higher R&D .
    • Mexico revenue normalization: Security revenue from Mexico dropped to $25M from $70M YoY; FY26 Mexico contribution guided to be just under ~$100M, creating tough near‑term comps .
    • Product margins softer: management flagged “significantly lower” product gross margins vs historical due to mix; expects improvement ahead .

Financial Results

MetricQ1 FY25 (YoY base)Q4 FY25 (Prior qtr)Q1 FY26 (Reported)
Revenue ($M)$344.0 $505.0 $384.6
GAAP EPS ($)$1.05 $3.03 $1.18
Non‑GAAP EPS ($)$1.25 $3.24 $1.42
GAAP Operating Margin (%)8.8% 14.5% 8.6%
Non‑GAAP Operating Margin (%)10.3% 15.7% 10.3%
Cash from Operations ($M)$(37.2) $0.6 $17.1
CapEx ($M)$7.7 $6.1 $7.0

Estimate comparison (S&P Global):

  • Revenue: Q1 FY26 actual $384.6M vs consensus $372.0M*; beat +3.4% .*
  • Non‑GAAP EPS: Q1 FY26 actual $1.42 vs consensus $1.377*; beat +3.1% .*

Segment performance (Q1 FY26 vs Q1 FY25)

SegmentRevenue Q1 FY25 ($M)Revenue Q1 FY26 ($M)Non‑GAAP Op Margin Q1 FY25Non‑GAAP Op Margin Q1 FY26
Security$224.3 $254.2 14.4% 13.5%
Optoelectronics & Manufacturing$97.8 $109.5 12.0% 11.9%
Healthcare$37.1 $40.7 3.4% 6.0%

Key KPIs and operational datapoints

KPIQ1 FY25Q1 FY26
Book‑to‑Bill1.2 ~1.1
BacklogRecord Q1 backlog (not disclosed)“record Q1 backlog approaching $1.9B”
Service revenue growth YoY—+23%
Mexico revenue in quarter~$70M ~$25M
RF revenue in quarter~$4M (partial) ~$19M
Operating cash flow$(37.2)M $17.1M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY26$1.805B–$1.850B $1.825B–$1.867B Raised
Revenue YoY GrowthFY265.4%–8.0% 6.5%–9.0% Raised
Non‑GAAP EPSFY26$10.11–$10.39 $10.20–$10.48 Raised
EPS YoY GrowthFY268.0%–11.0% 9.0%–12.0% Raised
Qualitative factorsFY26Initial outlook with Mexico headwindIncorporates ~60% YoY reduction in Mexico revenues; faster growth in services Updated assumptions

Notes:

  • Company reiterates FY26 EPS guidance is non‑GAAP only and not reconciled to GAAP due to forecasting limitations .

Earnings Call Themes & Trends

TopicQ3 FY25 (Q‑2)Q4 FY25 (Q‑1)Q1 FY26 (Current)Trend
Services/recurring mixServices rising with installed base; aim to grow services as % of revenue Record FY and backlog; service momentum highlighted Services +23% YoY; high‑margin recurring emphasized Accelerating
Mexico programMexico revenues normalizing; still grew Security +10% despite halving YoY in Q3 FY26 outlook embeds headwind $25M vs $70M prior‑year; FY26 Mexico just under ~$100M Headwind fading post‑Dec
Security demandLarge cargo/aviation wins; $76M airport award; strong RF momentum Record FY; backlog >$1.8B Broad‑based growth across EMEA/Americas/APAC; strong bookings; CBP SIP win; $75M NII + $60M RF orders Robust and diversified
MarginsNon‑GAAP op margin 14.2% in Q3; Security margin dipped on mix/R&D Q4 non‑GAAP op margin 15.7% Non‑GAAP op margin 10.3%; Security adj margin 13.5% with mix pressure; expect expansion after Dec qtr Near‑term mix drag, improving in CY26
RF/“Golden Dome”RF building momentum; over‑the‑horizon radar positioned —RF ~$19M revenue; expects clarity in next 2–3 quarters; $37M RF order announced Oct 2 Growing
Tariffs/supply chainMonitoring tariffs; flexible global mfg footprint (MX/CA/US) can benefit —Limited shutdown impact; minor delays only; essential operations continue Manageable
HealthcareNew division president; aiming next‑gen platform in ~18 months —Sales +10% YoY; margin improving; “considerable way to go” Early progress

Management Commentary

  • CEO Ajay Mehra: “We are pleased to begin fiscal 2026 with record first quarter revenues and non‑GAAP earnings per share… Robust bookings contributed to a record backlog for the first fiscal quarter” .
  • CFO Alan Edrick: “Excluding contributions from… Mexico contracts and revenues… acquired in Fiscal 2025, our underlying consolidated revenues grew roughly 26% in Q1” .
  • CFO on services/backlog: “service revenues grew 23%… with a book‑to‑bill ratio of approximately 1.1… finished with a record Q1 backlog approaching $1.9 billion” .
  • CFO on margins/mix: “Q1 gross margin was 32%… less favorable revenue mix on product sales outweighed an increase in gross margin from higher service revenues” .
  • CEO on demand drivers: “governments worldwide are investing heavily in advanced systems… escalating global threats” .
  • CFO on cash/credit: “net leverage was ~1.9… extended the maturity date to July 2030 and increased borrowing capacity to $825M” .

Q&A Highlights

  • Services growth outlook: Management expects faster growth in recurring service revenue than product in FY26, though product also grows; no segment guidance granularity provided .
  • Mexico revenue and cash: Mexico revenue ~$25M in Q1 (vs $70M LY); FY26 Mexico revenues “slightly below” $100M; unbilled receivables declining with strong cash collections expected in FY26 .
  • Security margins: Mix drove lower product margins; management expects product margin to improve and Security margin expansion post‑December quarter as Mexico comps normalize .
  • RF momentum/Golden Dome: RF contributed ~$19M in Q1 (vs ~$4M PY partial); expects more clarity on “Golden Dome”‑related spending in 2–3 quarters .
  • Government shutdown: Minimal operational impact; some order timing but not expected to affect FY26; essential services continue .
  • Free cash flow: Management believes FY26 FCF conversion can exceed 100% of net income given Mexico collections and working capital improvements .

Estimates Context

  • Q1 FY26 results vs S&P Global consensus: Revenue $384.6M vs $372.0M*; non‑GAAP EPS $1.42 vs $1.377* — both beats .*
  • FY26 guidance vs consensus: Company revenue $1.825–$1.867B vs consensus $1.841B* (midpoint ~$1.846B ~in line); non‑GAAP EPS $10.20–$10.48 vs consensus $10.335* (midpoint ~$10.34 ~in line) .*
  • Implications: Street models likely revise up near‑term service growth and RF contribution; Security margin cadence may push intra‑year EPS phasing toward 2H as Mexico mix normalizes .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Clean beat/raise quarter driven by diversified Security strength and accelerating services; recurring revenue growth should support margin quality and multiple resilience .
  • FY26 raised guidance embeds ~60% Mexico revenue decline; underlying demand and services offset, reducing concentration risk and smoothing cash collections .
  • Expect Security margin re‑expansion after December quarter as product mix normalizes and services scale; monitor mix and R&D cadence near‑term .
  • RF portfolio is scaling ($19M in Q1; $37M order announced), with potential “Golden Dome” and border funding catalysts over the next 2–3 quarters .
  • Strong FY26 cash generation expected; management targets FCF conversion potentially >100% of net income, enabling deleveraging, buybacks or disciplined M&A .
  • Watch tariff/regulatory dynamics and shutdown noise; management cites minimal near‑term impact and flexible manufacturing footprint .
  • Near‑term trading setup: seasonal QoQ revenue step‑down from Q4 is normal; beats plus raised guide and backlog visibility are supportive; incremental wins and Security margin commentary could be catalysts into 2H FY26 .

Appendix: Additional Relevant Press Releases in Q1 FY26

  • Oct 2: $37M order for advanced RF‑based solutions (Security division) .
  • Sep 29: Rapiscan launched Orion Road 930DX‑V mobile X‑ray system, expanding checkpoint/mobile capabilities .

Detailed Guidance and Non‑GAAP Notes

  • FY26 guidance excludes potential impairment, restructuring, amortization of acquired intangibles and discrete tax items; company does not provide GAAP reconciliation due to forecasting limits .