Release Date: August 20, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

Positive Points

• Record Q4 and annual non-GAAP EPS, with Q4 EPS up 17% year-over-year to $3.78 and annual EPS up 11% to $10.35.

• Record Q4 operating cash flow of $182 million and annual operating cash flow of $276 million, with expectations for fiscal 2027 free cash flow to exceed 100% of net income.

• Record backlog of approximately $1.9 billion, providing strong visibility into fiscal 2027 and beyond.

• Recent major contract wins, including two sole-awardee IDIQ contracts from CBP (totaling $285 million) and a $235 million RF award, positioning OSI Systems Inc ( NASDAQ:OSIS ) for future growth.

• Strong performance in Opto Electronics (9% revenue growth) and healthcare (operating margin expansion from 1% to 10% in Q4), with overall adjusted operating margin expanding 200 basis points to 17.7%.

Negative Points

• Q4 revenues declined 4% year-over-year, and full-year revenues of $1.79 billion fell below guidance due to approximately $50 million in delayed security deliveries from Middle East conflicts.

• Security division revenues declined 7% in Q4, impacted by Middle East delivery delays and a difficult comparison against prior-year Mexico program revenues.

• Fiscal 2026 revenues were nearly $150 million lower due to Mexico security contracts, with an additional $25 million headwind expected in fiscal 2027, concentrated in the first half.

• Fiscal 2027 guidance is conservative, with revenue growth of 5%-8.1% and EPS growth of 7.5%-11%, reflecting cautious assumptions on Middle East timing and only a portion of new CBP orders included.

• The Middle East conflict continues to defer bookings and deliveries, with a substantial portion of expected revenue from new awards pushed to fiscal 2028 and beyond.

Q & A Highlights

Q: How should we think about the timing of revenue contributions from the recent CBP IDIQ awards and the $235 million RF contract, and what is the expected impact on fiscal 2027 guidance? A: Ajay Mehra (CEO) clarified that while a portion of the CBP IDIQ awards (totaling $285 million in ceiling value) will contribute to fiscal 2027 revenue, the vast majority is expected in fiscal 2028 and beyond. He emphasized that OSI is the sole awardee on both IDIQs, providing strong long-term visibility. Alan Edrick (CFO) added that approximately 80% of the $235 million RF award was booked into backlog in Q3, with deliveries expected over the next couple of years.

Q: Can you provide more detail on the situation in the Middle East and how it is impacting demand and deliveries? A: Ajay Mehra (CEO) explained that the delays are due to customers in the Middle East prioritizing immediate force protection needs amid the conflict. He noted that while some orders have been deferred, the company views this as a long-term opportunity, particularly as force protection becomes more critical for DOD and other customers. Alan Edrick (CFO) added that the company has taken a conservative approach in fiscal 2027 guidance, assuming a later delivery schedule for Middle East orders, with a substantial portion expected in the second half of the fiscal year.

Q: What is driving the expected strong growth in service revenues in fiscal 2027, and how do these margins compare to product revenues? A: Alan Edrick (CFO) attributed the service revenue growth to multiple factors: the transition of Mexico product revenues into service revenues, the growing installed base across cargo, vehicle inspection, aviation, and RF products, and the expansion of SaaS and turnkey security offerings. He noted that service revenues inherently carry higher margins than product revenues, and as they become a larger proportion of total revenues, they should drive significant operating margin expansion in the security division over the long term.

Q: What is the outlook for free cash flow in fiscal 2027, and how will collections from the Mexico customer impact this? A: Alan Edrick (CFO) stated that the company anticipates strong free cash flow in fiscal 2027, potentially exceeding 100% of net income. He noted that collections from the Mexico customer, which stood at $190 million at the end of Q4 (down from $345 million at Q3), are expected to significantly decrease further throughout fiscal 2027, contributing to a front-loaded cash collection pace and overall strong cash flow performance.

Q: Can you elaborate on the strength of the RF business and its growth prospects, particularly in relation to Golden Dome initiatives? A: Ajay Mehra (CEO) described fiscal 2026 as an outstanding year for the RF business, with customer engagement at the highest level ever seen. He highlighted the company's involvement in multiple Golden Dome initiatives and the award of its largest RF contract to date ($235 million). He expects strong growth to continue into fiscal 2028, noting that the Middle East conflict only strengthens the case for the Golden Dome program. The company is also a participant in the Shield IDIQ, providing a vehicle to pursue additional programs as they are defined.

Q: What is the book-to-bill ratio for Q4 and the full fiscal year, and how does this reflect on the company's backlog position? A: Alan Edrick (CFO) reported that the Q4 book-to-bill was just shy of 1.0, with very strong performance in the Opto division and solid results in Security and Healthcare. For the full year, the book-to-bill was slightly above 1.0, contributing to a record backlog of approximately $1.9 billion at the end of June. This provides strong visibility as the company enters fiscal 2027.

Q: How should we interpret the fiscal 2027 guidance, which shows revenue growth of 5-8% but EPS growth of only 7.5-11%, especially given the benefit from share repurchases? A: Alan Edrick (CFO) explained that the company is being "a little bit modest and conservative" coming out of the gate. The guidance reflects increased investments in OpEx, new innovative products, and associated infrastructure. He emphasized that there is no structural change in the margin outlook, and the company's long-term plan remains to pair top-line growth with operating margin expansion across all divisions.

Q: Can you provide an update on the TSA checkpoint scanner contract and when it might come into focus? A: Ajay Mehra (CEO) indicated that the TSA is currently prioritizing checkpoint upgrades, and the company expects the scanner contract opportunity to materialize in a few years. He noted that once it begins, the program is expected to span several years, representing a significant long-term opportunity for the company.

Q: What is driving the improved operating margin in the Opto Electronics division, and is this sustainable? A: Alan Edrick (CFO) attributed the margin improvement to a stronger customer profile and the benefits of economies of scale. He stated that the company's plan for fiscal 2027 is to continue pairing revenue growth with operating margin expansion, though results may vary quarter-to-quarter based on revenue mix. The company expects further operating margin expansion through fiscal 2027 as new capacity is utilized.

Q: How is the healthcare division performing, and what are the expectations for its margin trajectory? A: Ajay Mehra (CEO) noted that healthcare delivered an improved fourth quarter with revenues up 5% year-over-year and operating margin expanding to 10% from 1% in the prior year quarter. The improvement reflects operational improvements implemented throughout the year. Alan Edrick (CFO) added that while one quarter should not be extrapolated, the results demonstrate the division's potential as volumes grow. The company remains focused on expanding its install base and advancing its next-generation patient monitoring platform.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .