OSI Systems, Inc.

OSI Systems reported fiscal Q3 2026 revenue of $453 million, a record for the quarter, and non-GAAP diluted EPS of $2.60, also a Q3 record. Security division revenue was $319 million, with Mexico contract revenue falling to $11 million from $69 million a year ago; excluding Mexico, Security revenue grew 25% year over year. Optoelectronics and Manufacturing revenue increased 10% year over year to $111 million, and gross margin was 33%, slightly below the prior-year quarter. SG&A was $71.5 million, R&D was $19.5 million, adjusted operating margin was 14%, operating cash flow was $14 million, cash on hand was $345 million, and net leverage was approximately 2.2. Management maintained fiscal 2026 revenue and non-GAAP EPS guidance, while noting that DHS shutdown effects, Middle East conflict, tariffs, supply chain issues, and backlog conversion timing could influence near-term results; they also said the $74 million Mexico receivable collection after quarter-end should support strong Q4 cash flow and fiscal 2027 conversion.

Ajay Mehra emphasized execution, calling the quarter solid and highlighting record backlog, strong bookings, and the company’s ability to win larger strategic opportunities. He pointed to the $235 million Homeland Defense UCA, the $151 billion Shield IDIQ, and the roughly $1 billion in NII spending in the U.S. as meaningful opportunities, while noting that international demand remains strong and that service revenue expansion is a priority. His tone was constructive and confident, but he acknowledged that Middle East conflict and the DHS shutdown created timing-related disruptions.

Alan Edrick led with the hard numbers: $453 million of revenue, $2.60 of non-GAAP EPS, 33% gross margin, $71.5 million of SG&A, $19.5 million of R&D, $14 million of operating cash flow, $345 million of cash, and net leverage of about 2.2. He said the quarter was helped by growth in Security services, RF, and aviation, while margin was held back by mix, especially product mix. He also said the company collected about $74 million of its largest Mexico receivable shortly after quarter end, expects more collections in Q4 and fiscal 2027, and maintained full-year guidance for revenue and non-GAAP EPS.

Analysts focused on how much of Security growth came from outside Mexico, with management saying most of it was international and driven by services, aviation, and RF. Questions also centered on the DHS shutdown, and management said it mainly delayed bookings rather than indicating weaker underlying demand, with activity expected to normalize over the next few weeks to months. On the new Homeland Defense award and RF capacity, management said the contract came in during March, production capacity has been ramped, and the company feels well positioned for faster turnaround and possible additional opportunities, though it would not quantify them.