OSIS - Earnings call transcript Q2 2022

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Operator

Good day, and thank you for standing by. Welcome to the OSI Systems, Inc., Second Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. To ask a question during that session, [Operator Instructions]. today's being that advised be conference recorded. is Please

go assistance, I conference will you Edrick. to require like Instructions]. further any Please Alan Officer, the If now [Operator to Chief Financial ahead. OSI over hand

Alan Edrick

Good conference morning us. Edrick, today Systems. Vice OSI Executive Welcome with OSI fiscal for call. Deepak and second of President I'm Systems I'm to and CFO CEO. Alan President And thank and you joining here quarter Chopra, XXXX, our the

can join and you year as we today, We issued financial that are results. release fiscal us review our second operational we pleased 'XX financial quarter Earlier results. announcing a press our

to All results, will such forward-looking the or Safe the are or take available on to currently Before these I forward-looking we Private respect discussion like Harbor provisions otherwise. new that obligation include with of to discuss update statements Litigation XXXX no and statements. remind of call the Reform statements Act this today's subsequent made events wishes based advantage everyone based on undertakes Forward-looking to and Securities of would in information company information Forward-looking company statement any the

describing both call, refer today's will measures results. and company's to we financial non-GAAP when During the GAAP

discussion for financial full release. - earnings our financial our For of more for regarding finish performance. and I then fiscal quantitative company's the results, year. Deepak a I with will over reconciliation GAAP with to for an 'XX, then information and performance business regarding fiscal GAAP of today's measures overview the of call and begin turn non discussion outlook a refer second the please detail of XXXX and our measures, results of our will of to the quarter those a figures,

Omicron despite chain costs. quarter, including and delays, are emergence the logistics impacts of with marketplace this challenges, with results our an heightened variant, increasing from We COVID, global the pleased supply

OSI long-term company this our Systems on through customers the priority our the of environment, preserving to remains while our to work a at and for deliver commitments success top position to continue we employees. As safety to and partners

through and the in our financial $XXX of a QX. summary Now, results. prior Increased we QX that million product offset high-level by sales QX QX Opto higher were as of division year primarily non-GAAP R&D, Healthcare slight comparable were mix. a division reduction in per 'XX, increased with costs, due along were in sales X% will year-over-year share from change in expected. mostly of a go Security revenues in the to earnings a $X.XX, increase down the sales fiscal with division, of chain supply a X%

quarter X.X. 'XX book-to-bill book-to-bill X.X. beginning resulting quarter billion, year. was exceeding XX% $X.X The of the 'XX, backlog up share, of diluted For book-to-bill fiscal second a the bit X% EPS QX we fiscal softer half of QX of ratio We a in since first the of record first-half the X.X, increase in year-over-year. following fiscal 'XX, over non-GAAP with the of XXX the fiscal a were Bookings reported per ended

was $XXX favorable our in very $XXX we as facility pricing, optionality credit to has the and Lastly, convertible from five increased quarter million, XXXX. in Libor due end December, the maintaining which amended notes a capacity to of our as increasing the term This September extending plus years, fresh XXX. million come

turn our will results, financial call more now to the I diving deeply Deepak. into Before over

Deepak Chopra

of to healthcare over the key our Border that the an have at and quantity previously to several captured Protection, the we equipment division quarter. the slightly than indefinite and chain, in systems, environment, had of acceptance fiscal XXXX each to half working the end Customs phases our quarter, and year, deliveries, by especially a thanks Local their $XXX upgrade, for the on of performance were impacted customer unit hamper you, provide during enter of these rapid our in and first the The from delivered than environment. two half and and expectations. Opto to QX been in prior first significantly security of has were starting the cargo pandemic-challenged tough and good ended cycles. value test, Discussing team Security IDIQs, Taking while of backlog aviation that million. replacement, with from some million border in latest [Indiscernible] execute the first booking was and in $XX certain one also inspection challenging parcel Omicron security affected called QX logistics, highlights, call. variant. international while COVID fiscal vehicle In and installation, ceiling CBP, training Thank half and most security $XXX the revenues maintenance a prolonged quarter are today's board quarter products. the revenues performed $X.X were impacted, second-quarter travel a related of division's travel. approximately received continues airports as us This and a the timing We our with billion Electronics so We a the the contracts and baggage a and in totaling with were Omicron announced service market, that supply QX, impacted restrictions globe half, the and indefinite customer in first second the services. higher valued certain less announced for of the about that under the end inspection that orders of the near variant onto half regions joining million Alan, macro to business-related of everyone and U.S. by systems, XXXX to wins At spread quarter, higher X% of We aviation environment affected QX Security. collectively XXXX. Security ability opportunities fiscal confidence

its for these under and strengthens cargo and to the for there IDIQs vehicles, Internet inspection the contraband to one hidden in --we support further and cargo orders CBP are industry. border the of we solution broadest additional vehicle drugs security customer's programs what offerings that non-intrusive believe illegal in As have opportunities

that and on have projects and and existing mentioned E are scan we will XXXX. this several new is maintain before, and Internationally, we the -- installations. inspection working and contract the shipments on As and systems rapid towards more cargo vehicle AS into QX to upgrade currently

-secure to high-energy of and goods our among is at a and these are utilized incorporating border and vehicle also On and inspection checkpoints, others, backscatter some customs at thereby sixties, process. Our fixed-gantry ZBV, can configurations, image projects, and called and inspection the helps one CertScan manage mobile inspection software. provide integrate with crossings. which GXX clearance multi-energy software streamlining Scan, ports third travel, systems be integration identification, data, and software for are inspection more vans, designed vehicle standalone with other work Search to of projects cyber sold facilitating and portals, Auto as drive-through proprietary was cargo configurations at we systems, or IT party

equipment traction model, from with We with SaaS our inspection customers or software-as-a-service, have platform. that potential continue software utilize CertScan the multiple gain vendors to to

Albania, installation, Software on contract $XXX continue that our and good well before, cases, involves managing also. operating projects announced as have equipment been turnkey in Rico, from a win Software have capabilities in a these also. to us integration, invaluable operating there Puerto and services, before, which mentioned the that allowed we In portion CertScan have differentiate projects the perform turnkey scope, derived critical and is some system training, and our programs Guatemala, civil As CertScan experience in security they ourselves million to of and border works,

a continued And logistics support providers to set to efforts expansion require e customers. the of and global third-party work match well explosive we commerce inspection on with we capturing flow. this - to solutions goods their again, of various broad in here these detection. quarter, the by growth infrastructure for parcel solutions driven primarily, very focused increased requirements that new are have area opportunities They that During

has for air job market. us QX, prudently travel while with structure, we managing as customers quarantines Secura before, cost bans, and very to the and placed travel delivering become test commendable portfolio a a did mentioned product delays. that feel good dealing that the cargo best our disruptions, In our portfolio As product acceptance we are the and supply for broad ongoing

ahead, second Looking we a with opportunity solid our backlog and believe a that for pipeline security year. half fiscal of well-positioned is strong

definitely of got later, Security QX revenue into some the will Alan QX. and in talk QX pushed As from

and the division. team has to costs $XX material third-party yet we Optoelectronics to achieved still among quarter dealt workarounds Moving division, shortages, Opto automotive, instances QX praised industries in represented and an with a various done presence global anticipate price chain maintain to record profit aerospace, potential had supply deliveries telecommunication to on of our increases, the as record our well by operational another increasingly to higher plan constraints macro new for and leveraging to needed component million deliver in OEMs customers. Opto's OEM strong revenues defense, quarterly healthcare, environment, and of Opto difficult our others.

online approximately medical we in facility order we Opto's second the growth operation, communication in to larger as critical half quarter, products, XXXX. an wireless especially expanding a manufacture for million To for which we're the for provider. will our $X a announced Asia, to support come shortly, During of India's sub-assemblies transition

they able that have with the price in year. extra a to chain. over the customers pass and to comment of perform ahead, anticipate in ending Opto make the we been continuing record increases on the second I Looking cases, OEM want to have helped half in cooperative, well some QX been fiscal super we've business, an Opto And customers, our the supply them. in to us backlog,

revenues had which a expected. QX than year's healthcare from onto hospitals, expanding period from million, for their of year pandemic. capacity Last a the reported ago, tailwinds the revenues still bit division, Moving ICU the we same $XX lower was

the a Stations, a accessories. These US solutions, $X Qube including During of announced monitoring and we related from transport and in patient monitors, wide of ordered array regions. North totaling Xhibit West South wins key patient the couple hospitals Central our million quarter, hospitals

we developing further strengthen cardiology the our for for to future. patient and product to continued in quarter, During lines significantly monitoring new the invest the offering products

new with launched, channel together building cardiology in cardiology, out For top-line in strong have in we sales drive invested growth helped half. the products first U.S. a that, QX also

U.S. U.S. patient monitoring, While just started a in portion significant revenues have for our we getting for of the cardiology. establishing presence for we're

quickly that currently plan are Going variant. pleased first certain to to additional increase the the hospitals by with need on execution XXXX that may due we COVID that strained forward, we maintain handle half capacity, Overall, and to demand variant. fiscal operational considering the stay conditions to arose the agile performance Omicron focus being arise our from latest company's

We as are from the will are that impact as Omicron signs already dissipate of picking overall hopeful quickly There started. it it. them

the security go ongoing the confident product half, the guidance challenges the while second slightly worldwide security. beginning over will year. employees, back now but their the to Thank us earnings its top-line their like by before our look detail. Alan for I and expected are focus the to in simultaneously, we thank providing proven more our I increasing we our margins and forward ability and due for operating variant, mix shareholders turn to to latest revising lower the more exasperated with customers However, in improving the Since with the has feeling health, critical questions. further Alan our to into company guidance call and to which range, maintain on of now a second helping I will pandemic, open and roles call revenue, its to of half you. performance discuss safety fiscal confidence public financial customers, would our of

Alan Edrick

our I will greater fiscal financial Deepak. the now in quarter you, detail. review for results Thank second

sales. As mentioned of the were but slightly were same with revenues QX reduced revenues as Security roughly the fiscal increased that product up QX. division sales, prior-year earlier, service

Opto quarter. sales, the completion seen of pandemic testing, has the throughout XXXX. and including momentum As impacted increased of projects affected acceptance timing security adversely revenues Deepak which sales, certain continuing this intercompany year-over-year, X% the fiscal mentioned,

elevated by demand offset in Third-party revenues year-over-year was The fiscal patient pandemic, year-over-year was monitoring earlier partially the up stages comps the security anticipated sales X% This in Opto the quarter intercompany sales second increase support XX. in the of sales security creating year-over-year, in XX% division. half healthcare the while the the X% difficult in in the in in anticipated the the were sales up Opto division growth second given to of and were a quarter in reduction XX. for fiscal for products

a several monitoring While of to including patient fiscal to U.S. during are Cardiology the line, year, related sales this remainder gross each 'XX. costs also beginning out Like gross as product carries in lower QX stronger we Similar than building the division compared new less and off. each comparable gross of many on cardiology and fiscal within mix carries revenue other increases dynamic two The the the which margin in consolidated pressure reduced to XX% certain which companies, impacted divisions, other product margin. and surrounding related division pay releases in the in to year-over-year margin our gross a downward freight is sales sales margin product The than quarter. team in anticipated than two security were initiatives QX. was higher which experienced QX the sales to service our division, growth QX healthcare year's margin favorable prior increased revenues, reported our quarter, divisions, Opto gross last and places of division, XX.X% well. our of significantly in the continue component

period-to-period revenue and on other mix based volume Our factors. will fluctuate margin gross among from

expenses. Moving to operating

structure. of continue divisions our manage diligently improve cost to imprudently efficiencies, our across to We each SG&A work

year-over-year to prior representing This quarter's of QX X%. and expenses results $XX year million QX sales $XX of or these of again SG&A demonstrate QX. $XX were sales the compared development of success the XX.X% in XX.X% in were or million efforts. Research a million increase expenses

prior of to other security resources QX charges R&D, considerable of we development, and businesses. particularly our vital long-term on which dedicate year. in In Fiscal We $X.X healthcare. focused we 'XX, as remain in to million as product to the to compared success restructuring $X.X innovative million of the continue QX of of view a and We recorded fiscal benefit

period, eliminated taxes. in the interest to to the $XX fiscal debt. balance convertible XXXX-XX, ASU eliminating prior interest new discount the of million. of that adoption our resulted and to decreased QX the We primarily expense in $X.X with same other interest in from non-cash Net year standard million Moving million on debt and 'XX $X.X of standard, the accounting increased associated this the of sheet approximately unamortized note which also by expense due adoption

higher fiscal 'XX. effective in in QX was was of result, R&D, factors tax to of side, tax from QX now carry rate our XX.X% margins. our under items, 'XX, adjusted the fiscal in and tax in and adjusted 'XX QX to impact reported of QX the investment tax the of each margin in tend to our in fiscal On operating related 'XX QX healthcare of fiscal of million increased excluding to discussion 'XX, GAAP. of division, to and compared driven discrete 'XX, 'XX, Overall, non-GAAP compared the a of discussed QX by benefits of recognize I'll $X.X operating XX.X% XX% discrete gross of in margin. XX% XX.X% our decreased previously fiscal in We fiscal XX as to the a revenues in reduction effective XX.X% which rate fiscal in tax of margin, QX turn

Similarly, the reductions less due with costs operating as pleased are to year, our XX.X% XX.X% QX The prior freight and record compared support The in chain. margin infrastructure in in XX.X% increased in this adjusted to the This primarily the to and driven by year, our was the a improvement, of decrease QX to QX this environment, fiscal adjusted our Opto fiscal growth, other margin associated in the compared healthcare division costs year margin chain a of to the quarter. in XX.X% in of adjusted division's gross XX.X% investments supply challenging revenues last margin sales increase of second in rising component offset scale in QX in operating divisions. security of by QX in pandemic. customer operating year. primarily of during division, Opto was a economies in level by two last XX.X% the mix future 'XX, and and supply margin driven from the record with in was to which higher QX favorable onset higher We this expanded a decreased year

parties Cash was collection QX, flow. Moving to was have while were cash was in program. payments $X.X of depreciation decision levels from our delaying and million. We QX was again our buyback again to provided the to and cash In the in CAPEX quarter and in fiscal by some flow current timing customers $XX.X challenges, mitigate million, million. supply stock payments impacted second as amortization the operations business $X.X certain been by active increase inventory in to chain environment. vendors

approximately million the shares, million leaving QX, to under spent shares repurchase During available approximately to repurchase XXX,XXX we $XX program. X.X current

solid is with and buybacks. stock significant with X.X capacity sheet balance Our for net additional under acquisitions leverage

have We mature notes, to the obligations which in under satisfy September. options multiple our convertible

turning guidance. Finally, the

pandemic, challenges including timing revisit guidance. to and business which the the installation in more with described, have and Deepak As travel the impact supply testing on a difficult us associated acceptance impact the the product chain of led environment can Aviation

consignment a model. In and business off to shifted addition, customer to

While gross decreases last change it leads this margins, revenues. increased to

billion. $X.XX our we result, XX to a guidance $X.XX billion, fiscal sales are from to As to reducing $X.XXX $X.XXX

anticipate stronger operating we However, margins.

of impact the guidance. and believe QX in chain estimates, each to non-GAAP fiscal upon schedule, and the $X.XX into despite our this $X. delivery such, of As projected we QX. in revenues revenues, increasing to We earnings revenue non-GAAP are guidance COVID-XX range we've XXXX backlog to of reasonable challenges non-GAAP and $X.XX reduced expectations reflect Based increasing and anticipate guidance $X.XX anticipated we EPS a the from supply our sequential and currently of account EPS taken pandemic

delivered our from the financial chain earnings from predict due and the also vary of the discussed We reflected these scope diluted and challenging in believe continue these ranges difficult the of anticipated of ever-changing vary and face uncertainties growth and well SEC could to currently estimates of to half continue extent we through We could on to to and guidance. innovative in results providing other our from in is areas the remain strategic on other solutions. as uncertainty first the will and focused impact as to cost navigate solid leadership of per key capitalize non-GAAP effectively and pandemic and in on products to share and and Given Actual management filings. traction times, enable anticipated disruptions In company an COVID-XX company's our efforts environment impact the improving while duration businesses continued uncertainties the markets. in to however, growth OSI revenues our risks gaining as variables, end our structure. continue our positioning results supply areas the significantly the

Finally, the this dedication commitment stakeholders, value we'd to to to like thank the time, firm safety. creation call for Systems the and maintaining Global our At opportunity while of team to OSI contributing we'd questions. in for take to our a this continued supporting its open customers to like

Operator

first Ruttenbur thank Our Instruction] with Imperial question Capital. Brian [Operator And you. from is

line is Your open.

Brian Ruttenbur

very you Thank much. Great.

probably question First Alan. is towards

bit whole, where in as build and cash as a maybe one-time How you future you going cash of the nature, flows how in in your should think terms can going In and opinion, -- flows and then 'XX? to everything fiscal else flows, inventory about this are in year a be on. operating cash recover talk operating that, little

Alan Edrick

Yes, Hi, good it's Alan. Brian, question.

of affect past of operating years In metrics. some made strategic we've a know, our working the you that generator cash decisions we've capital will been here. 'XX, As each many in fiscal flow strong

faster although impacting well, flow some and anticipating chain to our as the we're a then you've on seen we're which is challenges as We supply given sheet there. sales balance some continuing second the into are paying in cash significantly that, little fiscal inventory, inventory 'XX. we're with vendors the also for half the bit risk, of increasing that strong to Simultaneous prepare increasing mitigate that

DSO a our Finally, bit is receivables on elevated. little side, the

new be this guidance the and our and bounce cash question the second cash is year then beyond, a into while to in from $XX.X And a here we be of your historical is So million don't we back provide are second unusual flow an fiscal strong we We we half anticipating there. year. five that about on bit levels to cash XX flow, that cash generator of point on better We're our in year and year. fiscal of as flow the more in will quarter. months. grow generated as flow operating move expecting fiscal And enter

Brian Ruttenbur

Okay.

XXX as norm ballpark the ballpark Just a basis has on cash that flow the follow-up the roughly XX that. to on operating right Historically, been is historically? and million,

Alan Edrick

that's on a north Yes. low each little flow million look We operating year. might of cash we 'XX even comment fiscal 'XX, at a the side. that was our through If $XXX

Brian Ruttenbur

Good. Great. Okay.

So front the on the next -- competitive the question next front. is

just So It soft can that down to everybody or little was the And and seasonality Deepak book-to-bill. you Alan, that slowing Deepak? address it this Is in brakes talk pass will that of the is a maybe is fourth bit because Omicron? sure or off I'm tapping you quarter. issue about

Deepak Chopra

which word a lines. Brian, the you broad product because good question. question It's competitive very mentioned in

to referring I security? you are that So presume

Brian Ruttenbur

Yes.

Deepak Chopra

very quarter. all out million back September as we there's runway And the you all from big going share. the competitors, the the thing, in because and ending, CBP, did that. got the that's And which a order more always first was over by year plus But of is security $XXX it, a still know, thing, government we've we announce to the fiscal largest the said various the way, largest lot strong

strong. had but our booking the But we orders aviation is was of still the out And in overall. with very disappointing, where revenue pushed down little This very quarter, reason a got strong our the security detection, a was some definitely backlog mostly bit side.

are so the orders visit is visit the come big make us, We ability face-to-face, changes become that haven't of and challenging, the lost that anything. customer, of are Good to to And other all and the pushed have customers agnostic aggressively, that acquired aggressively, these we globally, than has Certscan looking not the restrictions, our is stuff it very software. right. our to news That changed. more it the travel we're thing excited launch more very other U.S., positioned, got equipment some is the we very opens as well and not requirements that and thing They that are up but just still opportunities. in about more

on healthcare, be next very in bookings. Going to we continue lines, good other to it see had in Opto of product And especially for two have Even we both the expected continue it the some was very strong to in still the that six down, strong, and strong. but will months, U.S. healthcare, the

Brian Ruttenbur

you Thank much. Great. very

Operator

Thank you.

with from comes question Riley. next Our Josh Nichols B.

line open. is Your

Josh Nichols

at changes decreased levels, to that like X.X trimming not year for all? already taking a partaking little backlog strong the revenue EPS really one see wanted touched year these of is And about outs guidance out-year guidance, push maybe more really down on. that these there's the some and much fall revenue that to plus you're my that your raising the you the to [Indiscernible] profitability so despite But operating this some the bit. would still ongoing is, that at continued ask margins estimates maybe Thanks record of good hasn't to I guess given expect next backlog here, question. those the considering I thing to billion, are

Alan Edrick

Alan. question. good a Josh, is this Yes, It's

a which and pushed that right, timing changed that to visibility the guidance, a You're gap 'XX has half is have bit quite has of where amount. strong. into the a deliverables very of nicely so so fiscal to The little the year. narrow of We do of backlog fiscal remaining moves 'XX, little optoelectronics very, revenue second in guidance, revenue amount a the positioning of security it have backlog, into good we remains for right, us the our for particularly fill strong next bit bookings in

that still actually lower generate operating years. On on revenues, which increased margins. we in us really to and anticipate been the respect, earnings company the In forward sales we've we as experiencing will our in well margins future that profitability leverage operating us side, growth a move improve as positions higher overall,

Josh Nichols

Thanks. reason of might know was And then it. to of and is have Security that I quantify versus the how customers. on update going for estimate on was maybe going related there shift you revenue mentioned, the think division? the What reduction the I Opto of the part could a what's with much missed you I exactly one in

Alan Edrick

Sure, This had Alan again, model. so is shifted a who we Opto in called Josh, the thanks. what's to consignment customer a

variances. it scratch, been and taken than and consigned markup. being in a material, price items at then us rather the actually building large us. up we we securing the the and product of us get markup it from all value-add. a of sell this customer course difficult really get for end, the we to components markup it so ends to back, So the more can't that no find it selling the with the In had provide then In customer and cost items purchase good some The case, find that resulting that has over responsibility to on on

a that doesn't that margins million another inventory, despite the are the guidance with because on have shift. better the so are but operating need associated working Our the our a operating reducing impact the probably are as reason were of We guidance the just really stronger. bottom margins stronger, increase change margin, to line the gross And to to shift is much $XX in revenue a we revenue don't earnings better. guidance. carry capital so operating able really an is was necessarily change not do the in revenue lower of But profit, see we $XX why metrics result, what

Deepak Chopra

-- This

Josh Nichols

Thanks for Clara.

Alan Edrick

Yeah.

Deepak Chopra

add Deepak to what just is to said. This here, on Alan

going said it, change. second lower to Security is We're stronger which be carries more just mix we have half, to a The the the other is margin. thing the to going compared the Opto in side

to They customers desperately on one buy a model. raw very because that Alan's think better we the material very those away. And that want. changing can better get They important, they we way They consignment mix do our what that, are we To getting product. just of risk And They they that then the help. our to area, companies, with large could also it the Opto be for any need of add us to parts. price their can goes a it's had big take a than be they us. model. good have in value-add. provide their over it's So saying, just They

Josh Nichols

Thanks. last And ask the notes issues. then clearly, to question know to and so no due, hope get then something. to coming are I chance for But me, a --

a have very liquidity, You of easy. ton

you'd fact acquisitions nothing that ready does two really that off exceptionally at you're seeing or a the Is come you of there you like being to available that we that's today? as use with kind if you're something pipe where something act curious, liquidity far one just M&A. pay your potential might fiscal upsize completed really or opportunities about, expanding to see this I'm so time? potential just year as Are but just the capacity, Assuming are expectations you that this close facility probably down farther the also, lot and to of

Deepak Chopra

answer. inventory whatever While Whether We're it's on positioned, capitalize it's can, whether Alan? are positioned. well It's acquisitions, and good but buyback, we're look in our stock it's this know we and we it's at in whether observation, or to going be we very We well already opportunity you it. us. a can, definitely, strengthens to in every vague. got

Alan Edrick

for of to the the it credit looking No, more, us described gives all at was just extend We time those items increase options to we liquidity and to lots Deepak that are that opportune I agree. tenure, always an the amend question. to thought and your facility, M&A

Josh Nichols

all obviously, So plus it. Makes it Yes. lot sense, more a me. XXX, guys, I from appreciate Thanks, right? that's

Alan Edrick

you. Thank

Operator

Thank you.

question next with Solow CJS from Our is Larry Securities.

open. is line Your

Larry Solow

should thanks Deepak say afternoon Great, good good or morning, and and Alan. I

guys. Just for a follow-ups few you

fully that question has. appreciate Brian's the about backlog can bookings. on Just the And record near I

out again, there if the Just we final quarter of been. CBP funnel very decent I'm or -- more seems like and bit bit say. additional as being better to of potential choppy and it any actually a looking sort great large queue just and of just security, will realize are to down trying look -- in last been should the there? order, -- great obviously order couple think out, QX ever be quarters one, of -- I pressure. of But the the you again, take below that or one I if they've probably terms there take at as some one feel also Just orders -- I been, the book-to-bill in a large a orders your and amount, down little hopefully as concern little at were big get below Is a under those. are this is that are have of and orders trying but of

So any -- any color be to great. will that

Alan Edrick

Alan. a I'll at shot this is it. Larry, take

difficult some for so smaller, nature of business, orders. by it's So some ever always certain one-off exclude larger, orders, type to us our security have always we

aviation Our for But been as COVID, an first we Deepak then and comments, overall slowdown the is that earlier Omicron. with intensification prepared we've what with was has strong of in Delta seen side bookings first have seen bookings describing on a in the his level half.

we But feel we've security together, about aviation and little book-to-bill bit experienced first lighter about. the bookings it X.X, pretty principally in and a have on put six still So of the are that the to months which all we side.

Deepak Chopra

the in say year that said, always September. what to I on guess ends add Alan -- we government always

So that's big a This it was year always a slow year. order.

to some The challenging thing side bookings of the and and of right. we've the some and in also the interaction. things. for that you're good that need those On international have lost pushed a not And that orders comments, other it I bookings Department DOD very is said my the a that you away or the and other aviation from they bookings have State gone We customer reason observer is had them.

it or them, England to difficult closure. visit your You they and U.S. That to to face made make need come need you has need site or in travel restriction travel, to

it's more of the as time, more opportunity back and the customer stuff at that's go travel can at that that and need will reason away, away. hasn't So gone But come doesn't happened. interaction The same happen. the some

Larry Solow

Okay.

Customs I means talk CBP? that already, you think this mean maybe that total that And million orders Do that's less also guys do IDIQs Border [Indiscernible], coming. something large obviously more other up then others subject, IDIQs, by I at maybe to of from Patrol. there's IDIQs you within about of to and other the internationally? and on you no again, and vehicle pick Is Now, screening so over U.S. it discount that's additional the agencies? does you have mentioned for and agencies XXX [Indiscernible] than expect product half sound ordered like to the been What outside

Deepak Chopra

even get is the out is you DoD, the does more. there you all Then gives kinds defense. lot in get interest other the perform IDIQs government DoE, a definitely same -- aviation. right well, frankly, departments, input but there's to way order, the there, Well, of time State you them Department, an of

IDIQs, answer they in is don't the they're concept the but but same also, it So also call of kind internationally. yes,

order can albeit it X, going get you two into Phase Phase X. a then have Phase order. you're Phase one X, Phase follow to you You and Once the get

that the thing happen pretty So in in area. -- of these security that's natural kind especially

Larry Solow

Okay.

or the It Security. certainly look revenues about issues sounds I another mix question chain to Just in the were on and just guys you am trying like hurt sequentially year-over-year, even if margins. same. supply I

it would the generally actually so service that's product same would've a the about guess service but progress give up, declined margins product better thought I new So is on revenues. this, really grew even so is but deeper revenues that I Service from impact like take. margin Maybe carry mix. I made looks than -- assume into number, think or lift I generalization, not services. it your But that margin's I gotten a X% look year-over-year, so or again, are revenues absorption the clearly much operating level, if higher the over

feel because of little side, it trying to a or quarters, margin year-over-year these rebound? security, at stayed and pretty a drop just get I'm do for XXX So to levels it's to XXX trying on better that picture in couple bps sequentially considerable Thanks. bps that and a this just you get of in expect the that and

Alan Edrick

Sure, Larry.

have why of operating the really of stronger are expansion pointed some the revenues the out security QX Quarter, with security So forward and expecting operating the scale margins economies margin on in the balance I year. reasons dropped think but Second of for that, in you associated the through QX into the fiscal the we as move we

Deepak Chopra

thing. Also, I'd just mind top a I'd to chain like -- I also add in of guess that on have supply security it, the keep does

Freight has So supply an impact. has chain impact. an

especially everybody So that those two it, hurt, talking been three items is have -- as freight. about

things change, as that So will those improve. margin the

Larry Solow

I maybe historically, carried -- a true it's a correct, generalization, just And in am revenues, that I least thought service higher margin, or? not at is

Alan Edrick

That Service a higher margin revenues. compared is revenues to true. product do carry

Larry Solow

Does that side. like Do of sustainable? improvement And been that is took Okay. piece on you really feel switching then there's be mix bps year-over-year quick this to low some gears mix may or just and there have double-digits. portion -- margin consistently up sort XXX your issue Obviously, the Opto you fabulous a margin of

Alan Edrick

QX been it for solid XX-XX a the I say good Well, but each should a operating maybe down Opto was QX. for of the It's saw in to it was great have Opto. margin in improvement represent favorable in same in quite QX. the anticipate Opto certainly and would last QX, on We QX very strong margin. and the on but been quarter as and necessarily year-over-year QX, quarters for not environment level side would we margins

Larry Solow

percentage sales lastly, I the can force, the this of healthcare, of European business and from some kind not the basically is many sorting increase it what add? of of and sales are UK? maybe ground, reps UK ground just close you guess pretty based, on just -- I was an was us in are cardiology added this you just force could you in specifically most you and the then inning the bigger essentially, out targeting give this business How And is just just scope of the many will but bring on be to -- larger -- the a us side you business or Okay. to than give -- driven we from idea or as essentially maybe how on or the in sales it and

Alan Edrick

this is question. Alan. It's Larry, a good

sales Germany, and primary In well. hadn't good U.S., other world UK market, been it's as type we've began selling we because sale. of a do a the share then, of strong patient that business force a cardiology extremely sold a We a in really than Our do use for historically and year ago. earnest leads had in strong the been in they is different out We over cardiology sales which force different although building focus. parts in the monitoring,

led term basically leader, But at. going ramped team. the force we're because going patient U.S. in do on target a fully the as who and has has we're sales each we size well continue. can bottom force track quarter, And in sales a It's that of to nice to sales believe anywhere the us of quarter, contribution we New Systems, the the near OSI that's healthcare, that the first today, in that to record, anticipate growth not not that double-digit be that monitoring all as got flow-through cardiology really overall tremendous strong margins, it's of a different highest our our second to only have representing and see line. but with good effect in a

Larry Solow

Great. Thanks. there. color I the appreciate all

Operator

you. Thank

question with ahead. Partners. is Martin Jeff Please go ROTH next from Capital Our

Jeff Martin

environment Alan. a Deepak Thanks. challenging there. and Good job Nice getting morning, through really

Deepak Chopra

you. Thank

Jeff Martin

gain was travel, of backup Omnicom how travel acceptance? OSI case normal open to your installations some -- get Delta on with for a travel perspective with Did to security variant? with of sense, ever back to what variant? in for specifically respect level I might trying that to around specifically respect to the we of acceptance experience wanted Just get see the

Deepak Chopra

broad can in, sense. that say very use you. is, we would a at better the and Omicron the maybe look stuck customers we One We getting at is travel last then 't traveling looking I or what Jeff. there's quarter, question, can two in the ways. were comes customers things to Good travel see you restricted, come the and

England, East the installation to off need all of built, they Because then idea, they back have and is to to for want be they from out let's country so then back that person country to an quarantined that become products, give Many customer go a civil if to Second or they to sign other we quarantined come to the got couple installation find back the and get customer to have of that you thing works, of have done a days, COVID, after a they quarantined of send has restriction, and to say, get some this then do by again. Asian things. support And Middle has to, go be they the our again, is customer install has then other to just they England, they the then installations. a to it, come problem. or which not activity the are we there, hotel, person back

some So the And cost you efficient that in some has finish, to it by been going put out. have that thing pushed of system. isn't revenues structures time change. it's and a And in very the

There's is indication the open come guess up. lot news. mind. Every would guys positive, should Omicron is encouraging at peak, it's down, is Your have more to going that

in. hope another comes that variant that there is not Just

us the also very, especially very customer it's international sector. in important, interaction security the U.S. to in So especially, happened And the business, is in

Some tough the and having to or visiting of our us are go also back U.S. a off. sign able time sites customers been

peaks the up will a customers. again the lot stuff So really and we Omicron That all successes gets goes name thing hopefully, as end under down, up with been big getting better, issue, is the sign-ups travel. -- that has and it

Jeff Martin

of have like an on average And looks channel feedback the understand helpful. seeing on help bit in be Deepak. sales That's terms focus It'd helpful revenue to typical how kind then potential duration, customers more. the maybe you many years? Certscan? of also, Certscan that Wanted to a perspective. Thanks, and contract in size also Could you're from what us what

Deepak Chopra

from competitor, use about is it. and person in, whatever. the revenue even sale. comes and central the team questions of is to an they these Good And agnostic way ask firstly, software all excited it, one can our the central equipment a if station very to We The it's that. another another think interface software, interested getting it, training. which to long-term it, as all one the another then question. Certscan To and to system what licensing to equipment, customer get a from the the customer connect to the time. Basically, do first more to to our efficient or doesn't And Customer our accessible agnostic, be into all it's get or to centralizing again, who's, risk competitors’ is and station, is matter another seats, flow. make we got be interacts by and system we it data integrated uses, their And whether more to rapid able call scan system then site, it's we fee. going

That's So start revenue. all and forward, it's model in being to up we like margin and the Microsoft it, adds as tends will revenue I model U.S. it not that a or higher go call recurring to just typical, whatever, stuff be having a a that

will each I with integrating of it, that efficient some and pass the movement how secured and efficiency trading we world the be various if forth will will And the back are think the platform that of cargo become internationally. under We much about countries better. challenging then other data and can doing and software interact it's the think, logical, most important and stuff thing the just think

Jeff Martin

Right. for are are Are year initially target seven you talking of built-in five extension? a How the contracts long to couple they with contracts, contract? how average those targeted? we do And one-year

Deepak Chopra

to It's but this way. think too about it, early

established, the all you customer accessories, contracts, multiyear software onto -- the the is For platform and once get renewable. add-on business, into the it, is once options, do you

Jeff Martin

Right.

with excited within you're Okay. segment? passenger in a replacement horizon the other bit particularly an that And I are longer here, screening, cycle security what thinking the on upcoming longer-term term U.S., things more there's the know then about, particularly

Deepak Chopra

took and in -- know, aging new biggest mind, to as after the side (ph) stuff everybody congress is to One Well, obviously Everybody all the replacement will cargo of In borders to it. a XXX, certification equipment and and big or to There's time the going the continue a That's said to screening. [Indiscernible] and update we opportunity. been ports many baseline at and the because my you level. certified. has India checkpoints get XXX% is cycle inspection. passenger the there is one years model, a expand opportunity, integration in is grow get you

people got and said, to it up And it's well, X-X some X% stopped. years,

success a And lot and a it, been need the third we it's think of what requires between which to dormant our a we line of have calls are stuff, more grows, going think grow. e-commerce that greatest it cargo one, to I integration, opportunity. about they And there, the play. continue requires integration And And and even said and more conference becomes has product, having and placed. big lot more area air which then that's and in on it Somewhere it we security. and as very also a we're is well

us growth We that's the the before it biggest have in for one opportunity space. said been that air cargo of

Jeff Martin

Great. Thanks, the Deepak. Appreciate helpful. very color,

Operator

Thank you.

is line with Our Kahyaoglu question your Jefferies, next is from Sheila open.

Sheila Kahyaoglu

the Deepak for time. afternoon. good Thanks Hi, Alan.

think a seem And really level, indicate back lift. as material pricing? we that and to So Performance you inflation, is to is Is sustainable do leveraged that the go about has as maybe overall? previously Opto, thought business how business, raw this costs, to the I pricing it well to I the in want Opto. most this business. had good for the of but rest the

Alan Edrick

had business, area so is to there's biggest operating or when we're cost Alan. dealing where of we the that that it the which degradation the this have input tend there haven't is what increases, is reasons than the the more Sheila. with we customer. We OEMs one opportunity inflation to Opto is margins. a on Opto businesses, seen This typically of pass to why Hi, In see our

operating customers and money. to what's understand pay clearly our have more going had wants that nobody improvement on when up, margins pass them. and that chain our we as on fact, In we the They both to in gone understand them gross cost show our in supply an that need we've to costs

Sheila Kahyaoglu

then How the business. back the about saw the on sort in could we And could deceleration what you growth trends touch upon And in do to the mentioned quarter? and growth it. of maybe we bookings, about securities, you standout. if was you Got cargo a I the markets particular think given go Okay. think end different the saw you QX,

different the markets you end could you If on elaborate serve.

Deepak Chopra

Sheila, to No day In ship to not cases, gone to get I last the some freight emphasize business a right. not the We've Deepak to site It's at away. get some there. last pushed got this week, customer right. was could the The onto or ready. there. a was not the It that that had make explain. business we pushed is sure last has to want here. month,

a is not still continue. pipeline to right, and believe will deceleration. strong, pushing is that there, just it It we will be backlog the is So the very that there, and the

to Delta back dive. stuff to Now, increase to need it at I Everybody that aviation in, and the air QX is variant side sudden that cargo, to that it getting Omicron up invest go the took more happen. could people and thing that comes will the Alan, is as to continue they have right. to in grow Same passenger a was expecting mentioned after with mentioned airports, big going and and and really But up normal, ultimately, demand. upgrades, air and travel will increase travel there pushed then

demand, just right. as there this grow, there as So pushed as long there to travel, is got as security it will needed, business continue long to the is long as is as

Sheila Kahyaoglu

Okay. Understood. you very Thank much.

Operator

Thank you. [Operator Instructions] Oppenheimer. We with from have Christopher question Glynn a

is line open. Your

Christopher Glynn

Thank you. Good morning. afternoon and good

asked, my comes certainly in I when to ask get of flux. been execute. in to bookings. versus backlog most to did but security, you about think pricing Cost Backlog execute I questions pricing cost have is want

future in volatility are this Or does provisions? there how impact margins? So

Deepak Chopra

to then and you maybe Alan. make Well, it, want

Alan Edrick

this of to Chris lock right, Generally, security you an order, difficult take increase time the Good question. It's get that when pretty Alan. you is customers Sure. after that period in business. price. you're price in to

ago, half factor in of many sometimes and supply certainly had we our taken that had that that on absorb While we have have increases all bookings orders many outlook to we chain in see why all the our and for in said, we we put quarters backlog, operating That increased to business. year it believe we we some is why being together, or we that believe second had of new months the security the place. in we'll the we -- good what in margins which have looks for -- the

Christopher Glynn

that Is margin? the year-over-year as sequential comment or or growth comment security back as far half

Alan Edrick

It's definitely sequential It probably sequentially. well, the as on be side. was year-over-year I but thinking would

Christopher Glynn

Thank you.

Operator

the at not We're this any further queue right. questions showing All in time.

Deepak Chopra

same the also are And much. support say and it customers, easy. not the the thank the We're Well, the At time. was challenging that also confident of going want It's to we about second thank employees, you very saying half. patients to stockholders. of and are all we I been our a time, again,

is We're the a of country want is chain one a I have is strong, that Our challenge, distinguish but and there's challenge, with ourselves our competitors. had We freight there. backlog a integrated we again we but And Supply from well-positioned. to uncertainty things vertically emphasize, well-positioned.

Deepak Chopra

Latin in in in Asia, in America, U.S. operations manufacturing Europe,

' has to for big lot a cater have flexible. customers strength to flexibility we a it. to So That been of needs and be our

everybody you thank again and to quarter. you for support. to third your want I the So Goodbye. after And talk thank

Operator

you ladies we for thank in conference. participating And that, today's and with gentlemen,

You wonderful day. may now disconnect. Have a

OSI Systems (OSIS) 27 Jan 222022 Q2 Earnings call transcript