OSI Systems Fiscal Q4 Earnings: EPS Rises despite Lower Revenue

OSI Systems (NASDAQ: OSIS) reported fiscal 2026 fourth-quarter revenue of $484.1 million, down 4% from $505.0 million a year earlier, while GAAP diluted EPS rose 8% to $3.27 from $3.03. For the quarter ended June 30, 2026, stable gross profit, lower SG&A and interest expense, and a reduced diluted share count supported earnings, while operating cash flow reached a record $182.1 million and backlog ended at $1.9 billion.

Core Financial Results

The revenue decline was concentrated in the Security division, where Middle East conflicts shifted the timing of planned deliveries. OSI Systems said the affected orders were delayed rather than canceled and remained in backlog with revised delivery schedules.

Profitability held up better than revenue. Gross profit was nearly unchanged, GAAP operating margin expanded by 80 basis points, and non-GAAP operating margin increased by 200 basis points.

Non-GAAP results exclude impairment, restructuring and other charges, acquired-intangible amortization, and related tax adjustments. Separately, full-year fiscal 2026 revenue increased 4% to $1.786 billion, while GAAP and non-GAAP diluted EPS reached $8.95 and $10.35, respectively.

Business and Segment Performance

Security remained OSI Systems’ largest division but recorded lower quarterly revenue because of the delivery disruptions. Growth in Optoelectronics and Manufacturing and Healthcare provided a partial offset, with both divisions increasing revenue by approximately 5%.

Security’s margin improvement indicates that the delivery delays primarily affected revenue timing rather than eliminating divisional profitability. Management also reported healthy bookings and said the division entered fiscal 2027 with a substantial backlog and opportunity pipeline.

Optoelectronics and Manufacturing benefited from broad-based demand across aerospace, defense, healthcare, technology, and industrial markets. Healthcare posted the largest margin improvement following operational changes implemented during fiscal 2026; its GAAP operating result moved to a $1.6 million profit from a $1.4 million loss a year earlier.

Lower Costs and Fewer Shares Offset the Revenue Decline

Quarterly cost of goods sold declined to $316.1 million from $336.7 million, nearly matching the reduction in revenue and allowing gross profit to remain stable. SG&A expense also fell to $69.7 million from $74.7 million, although impairment, restructuring, and other charges increased to $4.8 million from $1.7 million.

Interest and other expense improved to $4.1 million from $7.2 million. Meanwhile, the diluted weighted-average share count declined by approximately 3% to 16.9 million, helping GAAP EPS grow faster than net income. These factors explain why EPS and operating margins increased even though consolidated revenue fell.

Cash Flow and Balance Sheet

Operating cash flow rose to $182.1 million from just $0.6 million in the prior-year quarter. After $9.3 million of capital expenditures, quarterly operating cash flow less capital expenditures was approximately $172.8 million, compared with negative $5.6 million a year earlier. Full-year operating cash flow was $275.9 million, up from $97.6 million.

Cash and cash equivalents ended fiscal 2026 at $359.8 million, compared with $106.4 million one year earlier. OSI Systems eliminated $178.0 million of bank credit-line borrowings, but long-term debt increased to $998.5 million from $463.5 million after the company refinanced and expanded its debt and extended maturities.

The company also repurchased 564,880 shares during the quarter for $123.6 million. The repurchases contributed to a lower diluted share count, but the company did not characterize them as an indication that its shares were undervalued.

Fiscal 2027 Guidance

OSI Systems introduced fiscal 2027 guidance calling for continued full-year revenue and non-GAAP EPS growth. The ranges use fiscal 2026 revenue of $1.786 billion and non-GAAP diluted EPS of $10.35 as their comparison bases.

The EPS outlook is provided only on a non-GAAP basis. OSI Systems did not provide a GAAP reconciliation because it said the timing and amounts of potential acquisition costs, nonrecurring items, and other adjustments cannot be forecast accurately.

Recent Insider Transactions

The supplied Yahoo Finance data show 38,634 insider shares purchased across 21 transactions over the latest six-month period and 20,000 shares sold in one transaction, resulting in net purchases of 18,634 shares. Separately, the ten latest reported transactions were direct stock awards rather than open-market purchases, so they should not be interpreted as cash buying activity.

Risks Investors Should Monitor

• Security delivery timing: Middle East conflicts delayed planned deliveries during the quarter. Although the orders remain in backlog, further schedule changes could shift revenue between reporting periods.
• Backlog conversion: The $1.9 billion backlog supports future activity, but converting it into reported revenue depends on delivery schedules, project execution, and customer acceptance.
• Higher long-term debt: Cash increased and bank credit-line balances were eliminated, but long-term debt more than doubled year over year to $998.5 million.
• Healthcare improvement must prove durable: Healthcare’s fourth-quarter margin improved sharply, but full-year fiscal 2026 revenue declined to $162.7 million from $168.4 million and its GAAP operating result was roughly break-even.
• GAAP adjustment costs: Quarterly impairment, restructuring, and other charges increased, contributing to the $0.51 difference between GAAP and non-GAAP diluted EPS.

Summary

OSI Systems’ fiscal 2026 fourth quarter combined a Security-driven revenue decline with higher EPS, wider margins, and substantially stronger cash generation. Lower costs, reduced interest expense, fewer diluted shares, and improved results in Optoelectronics and Manufacturing and Healthcare offset the delivery delays. The main issues to monitor in fiscal 2027 are the timing of Security backlog conversion, the durability of margin improvements, and execution against the company’s new revenue and non-GAAP EPS guidance.