OSIS - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the OSI Systems Inc., Second Quarter 2020 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alan Edrick, Chief Financial Officer. Thank you. Please go ahead, sir.

Alan Edrick

Thank you. you us. thank and afternoon for joining Good I'm OSI with Systems, Executive Vice Deepak CFO of President and and our and Alan President Edrick, Chopra, CEO. I'm here today

OSI a warm to conference the Welcome on second first-time is welcome Fiscal our like extend would conference anyone quarter calls. to to call. Systems a We participant who XXXX

are that We glad you can join us.

results. a press quarter XXXX financial second release fiscal our issued announcing we today, Earlier year

include forward-looking Before to our will that I'd be today's conference to this like to under take the Safe wishes everyone In securities we Harbor the remind statements. call, to Act Reform forward-looking the provisions statements with discuss results, of Litigation of company respect with may connection that of deemed laws. discussion the Securities XXXX Private advantage be

based the financial are revenues of contingencies, and management's operating Such statements and limitation, on risks, and company's company and include, the control. earnings. divisions, current performance many uncertainties, to its including are expected company's expected statements the without forward-looking and regarding These operational subject of assumptions the which outside are expectations information

information are currently due described update of events information that available to Undue or numerous not new reports reliance placed call in statements results on could untrue statement and as based no SEC time. on including, our and factors be filed call, of this date becomes this in factors the from of forward-looking otherwise. subsequent differ only the forward-looking the statements company materially or the should company's made any because limited obligation speak our undertakes with forward-looking statements, to, as but from to All forward-looking not actual to periodic time

and to call, we conference financial measures. today's refer both During GAAP may non-GAAP

has and Form report reconciliation those which measures non-GAAP X-K. results earnings furnished a as an our of please and GAAP current to on quantitative to company's exhibit press SEC figures, refer of release today's been the comparable regarding measures to the information For

to high Before turning quarter and to financial a provide overview I'll Deepak company's the results. few of second take general discuss call the level over to business minutes operations, a the

we was division $XXX million First, revenues by of The revenues record a our the increased key XXXX X% which increase. for strength healthcare fiscal driver was the partially security quarter reported year-over-year sales. sales, division offset of second

we same at Second, of record to prior QX QX per in later Non-GAAP share in share compared release EPS diluted management $X.XX as also strong compared earnings for referenced expense $X.XX generate recorded call came which the earnings GAAP higher period. $X.XX items we revenues certain diluted earnings year on a diluted of for excludes $X.XX in this record to our and fiscal share and specified to per XXXX QX per fiscal growth. 'XX leveraged of

by from operations bookings profits book bill inventory cash flow approximately XXXX and fiscal division our multiple $XX security ratio million QX Third, XXXX And management. improved QX X.X record to driven by platforms. was strong driven finally, across was our

to of $XXX million XXXX. of as Our XX, sequentially million at increased from December QX end backlog the $XXX

results over financial XXXX let the our turn our me to and updated deeply Before call diving discussing into more fiscal Deepak. guidance,

Deepak Chopra

Alan, you, today's joining Thank everyone on thanks for and call. us to

flow. achieved of second and again and quarter the we robust delivered record sales XXXX, earnings For fiscal cash

the highlights security. beginning review division Let's the each QX performance and with for

the and border of solutions from applications. airport for in sales strong applications were history. We any sales security security port the division our QX $XXX cargo and a vehicle for prior record year in service quarter for checkpoints air achieving and and million, inspection and revenues X% increase cargo systems saw

the growth these in of marketplace. future We continued to see sustainable areas

at strong to an X.X ratio. bill the quarter million approximate in representing were bookings Security $XXX book

port to customers. with traction continued and border gain the We

future. near in programs turnkey in MSAT the week the announced program We in We expect our XXXX. until of begin Mexico to and May last Guatemala the extension Lanka Sri

on actively are program. long-term engaged government a broader with Mexico's We

had a ongoing we positioned. know, years you As well successful program we eight we've and are believe very that

any the known we and matter. As heightened. calls U.S., the on With cannot non-intrusive fairly you Mexico said equipment. the respect with well that to significant to U.S. is further government's comment it we in leading border for this it funding the Southern It's focus can security on understand, previous have is increased

side. we As cargo scanning the the on equipment lot a of you have know, at border U.S.

been have look opportunity pipeline there to some outs, robust. continues the Although, order very, very push

also $XX during a We three units by of to an other wins the announced with PXX of international installation Eagle would high million inspection several systems as we systems the provide to We customers. and border port works maintenance multiple company's have quarter construct award had these follow authority the and plus where vehicle support port energy on provide and Rapiscan x-ray of training as civil support. and well cargo

provide to and third, for and Two, of follow contract. million award baggage parcel by approximately systems cargo maintenance screening systems $XX at support international and valued AS&E provide a systems inspection maintenance multiple an and inspection with Rapiscan award the to an the vehicle And on $XX and and units services million service systems. customer security operation

with our and cargo RTT explosive tomography, to detection passenger aviation, good security, In real-time we air systems. make continued XXX progress

global detection of open the initial of approval airport standards with pipeline certification we've comply European achieved the This of This since the upcoming for example upon RTT XXXs a $XX million quarter, one years the XXXX. builds customers for numerous ahead European cargo provider seeking award the success air of to a from over XXX in in international air win an we up logistics wins these deadline. a As announced cargo. RTT the explosive

requirements getting now global companies. which offer and further also our the threat for detection this logistics the in latest to us The TSA Over product standard air position recently enhanced we by few allows stringent to XXX RTT United RTT the the cargo accuracy. the has more X.X, approved for in States false was last by this Unions marketplace months, the ACTSL, certified alarm XXX air European to which have standard

XXX that after been at finally, shortly approved has China's for airports. the RTT notified aviation authority, And quarter use CAAC, end, the China's us

very Overall, with momentum remains of to activity performance our and half XXXX before, the this pipeline, division. look The the we strong mentioned second for as and fiscal forward marketplace. pleased we in security are

the Moving improved history. to operating our and optoelectronics quarter million the QX were the income efficiencies division, expanded QX. $XX revenues sales in resulting a division record the favorable margins a adjusted Opto for through mix for in division's highest operational operating

As on the expand would strategic of helps of division. to this and growth infrastructure we we type that division all channels core through that focused this to in the manufacturing have through the leveraging add acquisitions mentioned before, existing are competencies profitability

revenue than lower ago. the Moving on healthcare revenue which a year of in $XX period million same the reported division, XX% the

delays. We readiness are due schedule results. or trend projects We've significantly construction of certain cycle been to purchasing sales a overall resulting these the result although disappointed drop by in for higher group partially The hospital a that lengthened has seen of sales outs resulted push The intermediaries. division. from as backlog

is healthcare strengthening fiscal operations division cost is and year QX market focused making our president and The strides and who position us rationalization. on joined in new

and our enhance monitoring core We working patient also offerings to products develop cardiology. are for new and

The first The civil integrated of training, offerings market works, data divisions, allows complete pipeline. to step infrastructure, increasingly management, we its Overall, also which division's include to opto and healthcare remain deliver are the U.S. us the service, to in are business. cargo strategic to growth and the seeking the we long-term organically and ahead, through in provide. especially strong the solution our invest continues continue International pleased for which end will ability in robust growth we security favorable, customers efforts to opportunities improve and opportunity positioned markets are see prospects analytics from Looking division to acquisitions. profitability well transportation,

are monitoring positioned forward operational end and the to division's addressable improvements stable better look half. in and healthcare I performance in markets of the execution second the thus future. markets translate to and Finally, should cardiology related financial and

for financial Thank back opening I further Alan questions. turn call our all. you will to now discuss before the the performance over call to

Alan Edrick

Deepak. you, Thank

I review our in fiscal financial quarter XXXX results will the detail. greater Now for second

QX a mentioned reached of XX our increase a growth driven of security cargo equipment million XXX by the sales. previously, year-over-year million. in X% in Revenues primarily level of revenues QX in division fiscal and inspection XXX record As were checkpoint

increased And down division struggled division increase Opto In strong year-over-year. to modestly support sales pointed service our in markedly. countered also sales revenues external out, division security by a sales addition, were healthcare as Deepak with intercompany as security the reduction sales.

While the healthcare year. as pushed remained out. QX of deliveries XX% in timing the certain the to end as of has requested strong, customers fiscal up prior by The compared backlog

from XX.X% in XX.X% same fiscal of Our prior quarter the of year, and sequentially comparable was QX with up margin XX. QX gross recorded

to will among previous gross period on our calls, other mix mentioned period revenue based margin As from factors. on fluctuate

expenses decreased were and Moving X% to well-managed operating expenses. year-over-year. SG&A

of our percentage this SG&A the divisions to efforts. these structure. a of another XX.X% XX.X% XX efficiencies QX good in prior decreased We of As sales, compared of example cost worked area to our prudently year. of across QX quarter's to was improve in fiscal each this diligently and expenses manage performance In in

as innovative QX was division. more focused investments to the vital prior the the which our in Each security long-term same largely of $XX.X costs, increase we year. by million from were development, but driven product R&D remain incurred business. view XX% of the quarter up expenses on division R&D success in the We

QX benefit other recoveries benefit a In in primarily QX recorded a of 'XX. X.X of X.X through restructuring fiscal charges, and compared in fiscal to due XX, we insurance million million

in prior to due strong result credit million average and Interest average lower and lower interest move period million Let's year rates of as our a other under from X.X QX taxes. facility. expense same decreased the in interest the and to of trailing to borrowings XX flow year cash X.X

items, compared rate tax tax QX for benefit also X.X recognized side, for was to tax equity-based completed a of XX.X% discrete in We the compensation of QX a last the year. XX quarter benefit tax 'XX. recently million XX.X% fiscal most our quarter of On discrete to same the fiscal effective in the of compared compensation X.X tax in excluding equity-based impact million primarily in

tax result, XX.X% fiscal As we reported 'XX. provision XX.X% compared in a fiscal QX of to a XX GAAP of QX in under of

of non-GAAP restructuring fiscal and of QX margin margin operating Let's divisions our in of last of fiscal acquired fiscal QX expense now this non-GAAP fiscal turn increased XX.X% adjusted other division. operating XX.X% XX.X% operating QX and The intangible momentum record margin expanded saw its excludes XX.X% The opto operating discussion to of margins reduced of division charges amortization in operating operating in by 'XX. and XX.X% assets. adjusted in our The to margin XX.X% a 'XX. margin, fiscal year. partially to reporting We in the QX XX of company's nice security continued from to a our a in which of division's from QX security offset compared in in QX XX healthcare fiscal year opto expansion

sales This 'XX collection day sales. sales XX Moving to longer QX as percentage was improved higher inventory of the operating and generated driven prior in hand to cash year. fiscal a times fiscal overall approximately to in of of QX as partially of days XX, fiscal QX QX we In flow. days XX inventory average days by increase cash from XX XX flow XXX from in million profits in offset represented in an days strong decreased by of management international days involving on XXX outstanding

quarter fiscal the CapEx were million amortization the quarter. second program We stock during quarter shares expense in acquiring X.X depreciation in buyback the XX.X in our million. active was XXX,XXX was and while

current XXXX, program. available shares December were XX, under XXX,XXX the for additional of As repurchase

ended sheet as with second Our We facility X.X. leverage of our the under fiscal balance calculated strong. under remains net credit quarter

And guidance. finally, turning to

reflects For we sales a $X.XX as billion guidance the diluted coupled given to we're billion of range $X.XX. our effects EPS our non-cash Despite healthcare push to we other expected non-GAAP margins, division range we're are tax earnings interest and share expense X.XXX receive. of restructuring well assets charges, excludes X.XXX and fiscal reduction positioned as reducing impairment the softness in stronger to tax to sales and continue consolidated This U.S. diluted intangible slightly with potential items. per guidance discrete to orders some well security XX, of non-GAAP to acquired their change increasing amortization the that outs believe associated

non-GAAP These and site in the vary We timing operate. guidance as business discussed renewals for acceptance other affecting and risks affecting orders and currently believe of filings. earnings, and control our sales to reasonable ranges earnings industries anticipated non-GAAP and the in in each trade and we the and risks policies, reflect product sales readiness include risks due actual of uncertainties items from installations, beyond could such SEC however, specifically which uncertainties division, contract and products government estimates, the customer generally our evolving our and uncertainties our

We on the leadership selective solutions. making of our development, have product innovative efforts providing business our products believe and OSI continued role to growth managing in and cost enable structure. investing focus in We continue strategic our while these to acquisitions will

Thank participating call. you And like the we to questions. for conference this to time, at on open this would call

Operator

Instructions] [Operator Partners. from Jeff Our is Capital question Martin ROTH first from

is line open. Your now

Jeff Martin

guys. Good Thanks. afternoon,

Deepak Chopra

Good afternoon.

Alan Edrick

Jeff. Hi,

Jeff Martin

tied customers border wondering those was on the order push work if you to you're essentially the are I getting. could elaborate outs, in related

Deepak Chopra

here. Deepak is This Yes.

non-interest it of bit year group Customs a of has more some of we of As said have calls for Patrol and because Border over you it. the last of the in the We that previous increase the and increased about significantly reducing for equipment have the know, execution very the little those their feel orders and challenging significant budgets. confident become budget stuff

involved. actively are We

We ready side about and and continues feel The Mexico the to U.S. a to ordered the both strong, are we lot it. of it. sort the on is but they receive equipment border be pipeline thing of at they real both the when have when get sides, good and

Jeff Martin

Right.

to -- control the out those then in half is idea Okay. of What they of guidance exactly related terms And Any year? your fiscal in outs Healthcare in of the second hit the when seemed nature. in or push are more going your might of included one-time be

Deepak Chopra

change other. space. in And Well, particular on one. purchasing groups of have so from bit they predict. that of receiving become of has work the on bigger, there's there's these And or consolidation lots one the construction you difficult to as equipment, little to side as marketplace that a hospitals Basically know a little changes delay, get the groups more the in IDM going the hospital really much with, to bit

mentioned it. looks depended things of the readiness customer that I the of good, the one and And that a is to shipping acceptance mentioned, actual lot of upon receive the Alan as but the some backlog

Alan Edrick

this Jeff, And Alan. is

next color, QX Just based move of are fiscal those to and into more add a little we on year. some hearing of push what customers the into bit some from will outs our

Jeff Martin

calls what robust two. your I pipeline, on that helpful. That's U.S., the shift Great. international plans? more really focused then, are of marketplace stronger touch in being And you wanted to especially near-term Is in comment where on previous seeing in in the in you the the terms as the of a

Deepak Chopra

that very some there both of at emphasize are equipment Just book-to-bill shot-term why the wanted We on these have just and look stuff. that's our clarify, in security to already the activity very also group. robust. finite lot we sides and reason that The to is strong the is And side products. of a U.S. set I X.X

change So, pursue opportunities we pipeline over the international the the both and in continue there globe. is robust to no and shortage domestic all or

Jeff Martin

Great. taking questions. my Thanks for

Alan Edrick

you. Thank

Operator

you. Thank

line next CJS from question Our of from comes Larry Securities. the Solow

Your line is now open.

Larry Solow

afternoon, guys. Great, thanks. Good

that actually way will Is bit. growth, maybe growing the like not summarize that? a even on seems that the short-term side for on but Just But, more it may sounds But, the sort on sounds bit sounds what guidance. out sooner like, it maybe and to maybe you a the a in issue it's like be security pushed to had overall of expectation, sounds was like by clarify -- little your there. Southern expectations sales contemplated opportunity like a Deepak, it good It more it's some border. little U.S. be than the

Deepak Chopra

It's it we couldn't budget significantly have said pipeline I The strong very exactly and Absolutely. the what feel. better. is increased.

We well positioned. are

a lot have equipment. of We

we be want We relationship the continues sides I And robust to that have with good very feel both expect the again, we and customer. border. to to of emphasize successful. the be that quite And pipeline

Larry Solow

the going it much, potentially Mexico you too a side, but forward. deal comment you sounds like mentioned And know can't on broader I

patrol maybe So, to on more that on would but I that, that Is other be, broader areas say? border fair even I And more right? the too. side, guess, assume based

Deepak Chopra

less we the Well, talk better. the

Larry Solow

Okay.

Deepak Chopra

appreciated, all is I but inclusive. say it's can It's all been

Larry Solow

Okay, or of before that's enough. I know fair do to standard that months. I may that four-month you some of contract that's not you do that But something -- is guys don't just sort expect or new end? negotiate extension. toward have until you And a happen a a know maybe sort four add the to expect

Deepak Chopra

hopefully have way. of but they and Well, the end should is is basically the are we in that there broader And May, discussions by it their program, guarantee. thing no active do a we

Larry Solow

turnkey, set ago maybe and costs And you did thought and Guatemala the to two get were delayed Lanka, bit? start Okay. ahead they a are I on or those then little some quarter that? of quarters a Sri And incurring

Deepak Chopra

always the unpredictable. the these Well, kind thing starting actual is date of is programs, little

are tested is We future. to we everything, a else and scanning. near been expecting are we they've have And and excited The want it. now we everything we just And in had we the are announced carefully equipment to it's yes, ready. there, of it quite starting say doing it start done before, now question about and

Larry Solow

non-turnkey, was then, sort it. you the least that's right? of So And orders, revenue, refer right? know total turnkey there not, if that, of versus any number guess book-to-bill, don't your of guys bookings just sort I but this revenue, Got at the is on usually probably encompassing turnkey I to sort

Alan Edrick

This is overall this overall. was division for and Alan. Yes. the company the Larry,

Larry Solow

Right.

Alan Edrick

There there. turnkey in orders some were

Larry Solow

Okay.

Alan Edrick

Yes.

Larry Solow

All right.

Okay.

the on new a Just -- Healthcare lastly, in little division. anything President color can the more you just

mistaken. quarter, in just think said, he I if last not you I'm came

Deepak Chopra

comes Philips from about are is very other industry guy, positive a very big some of boys, and medical Seattle, focused. quite the He from based in we the detail-oriented much him. Well,

We at rationalization, are focus looking a cost more product development. looking at on

focusing, last patient the and very in said are much we on monitoring we've As focusing call, cardiology.

this want and We business do you have with is something? anesthesia Alan, exited guy on very and working it us. much add the to focused

Alan Edrick

hopeful the nice energized we're pleased very in and doing. that direction that We're we're see team the President with the they're to confident moving work some new very Yes. right and has is progress. our going He and

Larry Solow

Great. it. Appreciate Excellent. Thank you.

Operator

you. Thank

from Our the comes Riley, FBR. question from of next Nichols Josh B. line

Your line is now open.

Josh Nichols

did been you to I U.S. sales direct want couple push my has and over despite last been going taking the continue. to of help it a opportunity for tick frame the processed? to company's of U.S. years now the big where Thanks an question. to everything that's XXXX certified have the nice this is in RTT see sounds few to be Could there ask, regarding up likely Yes. and government, you how deadline outs, a that's February like you have approaching within XXX

Deepak Chopra

Deepak is Good question. This here.

it on up focus to business cargo. that want the mostly the tick till now up U.S. I Firstly, side the has of in in been

you on checked there know for going As the in actively baggage is procurement airports. that not

the very been new using well space the received. Our cargo into has endeavor of RTT air

large with we in carriers feel logistics good international and working very both continue. are We had and it and will rate growth domestic success that a have

in come, be positioned cargo when border we cargo and to growth for and the pipeline, the the years, come that aviation, air especially XXXX, and new but U.S., also the deadlines well feel will we continue total next international. requirements both couple So and of that the XXXX, believe we the in are certs

Josh Nichols

million that half Alan? year, good management. Thanks. and I the the with company for strong capital first the of cash year, the flow expense this What half working in the for regard really want some has expectations And to $XX operating are hit had then, of back on,

Alan Edrick

Good Josh. Sure. question,

profits nice generate to us cash continue those the we to but flow guidance of of good to not cash well. a two expect that provide focus in year metric as is flow strong should Cash generate flow. the increased for working back on on to and combine half we're capital to going overall, We operating the continue management and

Josh Nichols

Middle progress coming the you East about contract bit could little the along? before how about we've a been update, integrated talked regarding that's provide service And and in of the

Deepak Chopra

we as we of Well, future. to people there change and live the -- been before, and that said are to places, used has look it and the progress catching more remain integrated Lot no that Obviously of get to are hoping progress of and and near those interest we the service and political continue thing we very interesting positive. is climates And but more get is lack go we in making at it, in some interest. up.

that in Latin in broad and at very various Middle a we continue opportunities, even to America, Asia marketing working have but look globally group just frankly area to in at and and look We East, not U.S.

Josh Nichols

And That's Thank back queue. hop great. I'll the in you.

Operator

comes next Greg our Thank Konrad [Operator you. question from Instructions] And from Jefferies.

is now Your open. line

Greg Konrad

Good evening.

U.S. mean, just cycle numbers last So, any how potential way provided touch know the European are that the I into how requirements? mean, we far the on there upgrade you through in I question. some is about filters I and to kind past. think of to

Deepak Chopra

Good question, again.

the I year couple aggressively quite calls I'll would but for we've ask, to forward remainder half about and said to be successful maybe continue think that ago, they say pursue it done, as of guessing, the XX%, of and have I go been XX%, the did we we more that somebody a deadline.

Greg Konrad

in bit color. Thank a And was just to I Healthcare, you. get little hoping more then,

two, of reason had about talked competitiveness to think I maybe volume. kind And been lengthened most one, incrementals? volumes a the Is has margins hold sales always that cycle that back terms in -- come any to been relationship think of when larger that not are sensitive business that buying I there would there of groups. the market? in mean, has and You change any

Deepak Chopra

you've And is very nature yes, no tied healthy. yourself. is remain beast we've There Good. question. the revenue. the ASP of it's to think that erosion that Margins I much the seen. And Good answered very

bottom the add as Alan, contribution So revenue the be margin comes to line significant. the to something? you will want back up,

Alan Edrick

highest the our sensitive Healthcare margin which is very Well line. is business contribution top to No. The said. business,

and course, revenues up, margins, a through there's of true is operating as as big to inverse So the well. pull go

Greg Konrad

me. just seemed it or last six that And Security. the for kind driving I things mentioned of are Thanks. mean, five growth then, in one like you

One around notable the security. were mean, or I services regional kind broad of them that or for is perspective any fairly of airport based? color

Deepak Chopra

it's I based. emphasize the police, Again, logistics, a airports not stuff, cargo, lines, crossings, are just air border very good events, broad want pretty we I placed growth very to and is and ports, well opportunity border air sporting we say, would feel cruise in that.

Greg Konrad

Thank you.

Operator

Thank the would you. no questions. remarks. to At this closing turn showing time, back over call I'm speakers further I the like for to

Deepak Chopra

thanks our Ladies call forward earnings participating for the We April. day. speaking you in and gentlemen, once again and call. second at in you next for the with Thank half Good conference everyone. to QX look

Operator

this call. you for today's Thank Ladies and conference concludes gentlemen, participating.

now may disconnect. You

OSI Systems (OSIS) 28 Jan 202020 Q2 Earnings call transcript