Executive Summary

Record Q3 FY25 results: revenue $444.354M (+10% YoY), GAAP EPS $2.40, non-GAAP EPS $2.44; backlog >$1.8B; book-to-bill >1.0 .
Q3 revenue and EPS modestly beat S&P Global consensus; revenue $444.354M vs $436.487M* and non-GAAP EPS $2.44 vs $2.404*; guidance raised for FY25 revenue to $1.690–$1.715B and non-GAAP EPS to $9.15–$9.45. Bold beat: revenue and EPS .
Security led growth (+10% YoY) with diversified wins across ports/borders and aviation; Optoelectronics up +15% YoY with margin expansion; Healthcare returned to growth under new leadership .
Near-term catalysts: largest-ever airport award ($76M), multiple cargo/vehicle orders ($17M, $24M), rising high-margin services mix, and potential U.S. border-security funding ($1.1B reconciliation) over multiyears; tariff uncertainty seen as manageable, with no Q4 impact expected .

What Went Well and What Went Wrong

What Went Well

Security bookings and backlog reached record levels; “book-to-bill ratio exceeding 1.0” and backlog >$1.8B provide strong visibility .
Optoelectronics posted 15% YoY revenue growth with adjusted operating margin expansion to 14.0%; management: “well-positioned to take advantage of future growth opportunities” .
Management delivered “record Q3 operating cash flow” and improved working capital/DSO; CFO: $81.6M operating cash flow and 10% sequential DSO reduction after a 16% reduction the prior quarter .

What Went Wrong

Security adjusted operating margin eased to 18.1% (from 18.6% YoY) on mix and higher R&D; management expects normalization into FY26 .
Mexico contract revenue fell to $69M vs $137M YoY as programs wind down; growth elsewhere offset the headwind, but mix impacted margins .
Net interest and other expense increased YoY to $8.2M (from $7.4M) due to higher borrowings tied to working capital, acquisition, and buybacks, partially offset by convertible notes .

Financial Results

Revenue, EPS and Margins (Quarterly)

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Revenue ($USD Millions)	$344.007	$419.820	$444.354
GAAP Diluted EPS ($)	$1.05	$2.22	$2.40
Non-GAAP Diluted EPS ($)	$1.25	$2.42	$2.44
Adjusted Operating Margin % (Total)	10.3%	15.0%	14.2%
Gross Margin %	—	—	33.8%

Notes:

Q3 YoY revenue growth +10% and record EPS per release .
CFO cited Q3 gross margin 33.8% vs 33.6% in the prior year .

Segment Breakdown – Q3 FY25

Segment	Revenue ($USD Millions)	GAAP Operating Income ($USD Millions)	Non-GAAP Operating Income ($USD Millions)	Non-GAAP Operating Margin %
Security	$314.908	$51.505	$56.908	18.1%
Optoelectronics & Manufacturing	$100.860	$13.650	$14.087	14.0%
Healthcare	$43.722	$1.308	$2.231	5.1%
Intersegment Eliminations	$(15.136)	$(0.112)	$(0.093)	—
Total	$444.354	$56.217	$63.133	14.2%

Cross-reference note: CFO verbally referenced Security revenues differently ($350M and $315M); segment table confirms $314.908M for Q3, which we treat as authoritative .

KPIs and Operating Metrics

KPI	Q3 FY25	Prior-Year Q3
Backlog	>$1.8B	—
Book-to-Bill	>1.0	—
Operating Cash Flow	$81.6M (press release); $82M (call)
Services Revenue	$103.175M	$78.046M
Mexico Security Revenue	$69M	$137M
RF Solutions Contribution (Security)	$29M	—

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2025	$1.685B – $1.710B	$1.690B – $1.715B	Raised
Non-GAAP Diluted EPS	FY2025	$9.10 – $9.40	$9.15 – $9.45	Raised
Revenue Growth Rate	FY2025	9.5% – 11.1%	9.8% – 11.5%	Raised
Non-GAAP EPS Growth Rate	FY2025	11.9% – 15.6%	12.5% – 16.2%	Raised

Note: Company provides non-GAAP EPS guidance only; GAAP-to-non-GAAP reconciliation not provided due to forecasting limitations .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25, Q2 FY25)	Current Period (Q3 FY25)	Trend
Security demand and backlog	Q1: Security +36% YoY; backlog ~$1.8B; RF acquisition; increased guidance . Q2: Security +16% YoY; adj. op margin 19.9% (near record); backlog at record levels; raised guidance .	Backlog >$1.8B; diversified wins in ports/borders and aviation; book-to-bill >1.0 .	Sustained strength, more diversified pipeline.
Aviation security awards	Major airport infrastructure investments; momentum building .	Largest-ever airport award: ~$76M for RTT110 and Itemiser 5X .	Acceleration.
Ports & borders orders	Strong cargo inspection pipeline .	New awards: $12M Eagle M60 VX, $17M Eagle M60, $24M Z Portal; $50M follow-on U.S. cargo awards .	Broadening and scaling.
Services revenue (recurring/high-margin)	Installed base expansion; warranty roll-offs expected to boost services .	Services up significantly; baseline “north of $100M” per quarter targeted over time .	Structurally rising mix/margin.
Mexico contract wind-down	Peak in FY24; anticipated decline .	Q3 Mexico revenue $69M vs $137M PY; offset by growth elsewhere .	Headwind moderating; offset by diversified wins.
RF Solutions acquisition	Acquired in Q1 to extend defense/security capabilities .	Q3 contribution $29M (vs $17M Q2); momentum building .	Ramp continuing.
Tariffs/macro	Not highlighted .	No impact expected in Q4; mitigation via global footprint; potential upside from onshoring .	Manageable near term; watch Q4+ outlook.
U.S. border-security funding	—	DHS reconciliation could add ~$1.1B over multiyears atop CBP baseline; potential AI/software opportunities (CertScan) .	Potential multiyear tailwind.
Healthcare leadership/R&D	Patient monitoring focus; improved margins .	New President appointed; next-gen platform in ~18 months; bookings award ~$4M post-Q3 .	Early signs of improvement.

Management Commentary

“Record-breaking third quarter for revenues, non-GAAP earnings and operating cash flow, led by excellent performance in the Security division and growth in the Optoelectronics and Manufacturing division.” — Ajay Mehra, CEO .
“Security division quarter-ended backlog reached a new record high.” — Ajay Mehra .
“Optoelectronics… reporting 15% growth in revenues with strong operating margin expansion… vertically-integrated structure… well-positioned…” — Ajay Mehra .
“No [tariff] impact on Q4… limited exposure on our largest 2 divisions with China… in healthcare somewhat a little bit more, but… mitigated.” — Ajay Mehra .
“Q3 gross margin of 33.8%… up 20 bps YoY… adjusted operating margin 14.2%.” — Alan Edrick, CFO .
“RF acquisition contributed $29M… up from $17M in Q2.” — Alan Edrick .
“Record Q3 operating cash flow of $82M… opportunity for strong cash flow in Q4 and next 12 months.” — Alan Edrick .

Q&A Highlights

Tariffs: Management expects no Q4 P&L impact; mitigation via diversified manufacturing footprint (U.S., Canada, Mexico et al.); potential opportunities from package screening changes and AI analytics with freight forwarders .
Services: Strong growth as installed base rolls off warranty; recurring and higher margin; baseline “north of $100M” quarterly viewed as attainable over time .
Mexico contract: Q3 $69M vs $137M prior year; despite wind-down, Security grew +10% YoY on diversified bookings in cargo/aviation; services to rise as Mexico becomes smaller mix .
RF Solutions: $29M Q3 contribution; technology (over-the-horizon radar) gaining traction; synergies from OSI scale .
Cash flow/working capital: Sequential DSO reduction (10% in Q3 after 16% in Q2), with further improvements expected over next six months; inventory and receivables targeted .

Estimates Context

Results versus S&P Global consensus:

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Revenue Consensus Mean ($USD)	$318.655M*	$406.609M*	$436.487M*
Revenue Actual ($USD)	$344.007M	$419.820M	$444.354M
Primary EPS Consensus Mean ($)	$1.075*	$2.33*	$2.404*
Non-GAAP EPS Actual ($)	$1.25	$2.42	$2.44

Q3 FY25: bold beat on revenue and EPS (actuals above consensus)* .
Trajectory: consistent beats across Q1–Q3 reinforce raised FY25 guidance .

Values retrieved from S&P Global.*

Key Takeaways for Investors

Security strength is broadening (ports/borders, aviation) with record backlog and >1.0 book-to-bill, supporting FY25/26 visibility; largest airport award ($76M) and multiple cargo orders underpin near-term revenue conversion .
Mix shift toward higher-margin services is underway; recurring revenue base expanding as installed systems roll off warranty, supporting margin resilience .
Mexico wind-down headwind is being offset by diversified wins; watch product mix and R&D spend for near-term margin variability (Security adj. margin 18.1% vs 18.6% YoY) .
RF Solutions is ramping ($29M Q3), enhancing Defense/Security exposure; synergy and order momentum could be a medium-term earnings lever .
Working capital and cash generation improving (record Q3 OCF; DSO reductions); supports deleveraging and capital flexibility into FY26 .
Policy tailwinds possible: DHS reconciliation ~$1.1B over multiyears (additive to CBP baseline) with AI/software opportunities (CertScan) .
Near-term trading implication: positive bias from beats and raised FY guide; monitor tariff developments and quarterly margin mix changes; medium-term thesis benefits from diversified backlog, services mix, and potential U.S. border funding .

Appendix: Additional Q3-Period Press Releases

Aviation security: ~$76M RTT110 and Itemiser 5X award at major international airport .
Cargo/vehicle inspection: ~$17M Eagle M60 order (North America, framework) ; ~$24M Z Portal award (international) .

Discrepancy Notes

Operating cash flow: press release states $81.6M; call rounds to $82M .
Security revenue cited verbally at $350M/$315M; segment table confirms $314.908M for Q3 .

OSI SYSTEMS INC (OSIS)·Q3 2025 Earnings Summary