OSI Systems Q1 FY2027 earnings rise to $24.6M
OSI Systems’ net income and operating cash flow increased year over year, while Middle East-related project delays affected quarterly results.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
OSI Systems, Inc. reported first-quarter fiscal 2027 revenue of $403.5 million for the three months ended September 30, 2026, compared with $384.6 million a year earlier. Net income was $24.6 million versus $20.6 million, diluted earnings per share were $1.51 versus $1.18, and operating cash flow was $37.1 million versus $17.1 million.
Management said Middle East conflict disruptions delayed shipments, installations, customer acceptance and project schedules, negatively affecting revenue and operating results. Affected orders had not been canceled to date and remained in backlog with revised delivery schedules. Remaining performance obligations were approximately $2.0 billion at September 30, with approximately 64% expected to be recognized as revenue over the next 12 months.
At September 30, 2026, cash and cash equivalents were $236.3 million, short-term investments were $65.7 million and long-term debt, net was $998.3 million. OSI Systems repurchased 305,559 shares during the quarter; 773,172 shares remained available under the repurchase program at September 30.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNet income rose to $24.6 million from $20.6 million year over year.
- Moderate pointOperating cash flow was $37.1 million, compared with $17.1 million a year earlier.
Negative
- Moderate pointMiddle East conflict disruptions negatively affected first-quarter revenue and operating results.
Filing Explained
At September 30, OSI Systems had $637.4 million available on its revolver, while neither convertible-note series was eligible for conversion.
At quarter-end, OSI Systems reported that neither convertible-note issue was eligible for conversion; the notes’ potential cash-and-share conversion mechanism had not reached that stage.
The
If conversion results in shares being issued, the additional shares increase the total share count and reduce existing holders’ percentage ownership, absent offsetting changes.
At September 30, the OSI Systems revolving facility had no borrowings,
Key Figures
Key Terms
remaining performance obligations financial
unbilled revenue financial
cash flow hedge financial
contingent consideration financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What was OSIS revenue in the first quarter of fiscal 2027?
How much net income did OSIS report for the quarter?
What were OSIS’s remaining performance obligations?
How many shares did OSIS repurchase in the first quarter of fiscal 2027?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
| | |
| ||
(State or other jurisdiction of | | (I.R.S. Employer |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Accelerated filer ☐ | |
| | |
Non-accelerated filer ☐ | | Smaller reporting company |
| | |
| | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 23, 2026, there were
OSI SYSTEMS, INC.
INDEX
| | PAGE |
| | |
PART I — FINANCIAL INFORMATION | 3 | |
| | |
Item 1 — | Financial Statements (Unaudited) | 3 |
| Condensed Consolidated Balance Sheets at June 30, 2026 and September 30, 2026 | 3 |
| Condensed Consolidated Statements of Operations for the three months ended September 30, 2025 and 2026 | 4 |
| Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2025 and 2026 | 5 |
| Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2025 and 2026 | 6 |
| Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2025 and 2026 | 7 |
| Notes to Condensed Consolidated Financial Statements | 8 |
Item 2 — | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
Item 3 — | Quantitative and Qualitative Disclosures about Market Risk | 33 |
Item 4 — | Controls and Procedures | 33 |
| | |
PART II — OTHER INFORMATION | 34 | |
| | |
Item 1 — | Legal Proceedings | 34 |
Item 1A — | Risk Factors | 34 |
Item 2 — | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
Item 3 — | Defaults Upon Senior Securities | 34 |
Item 4 — | Mine Safety Disclosures | 34 |
Item 5 — | Other Information | 34 |
Item 6 — | Exhibits | 35 |
Signatures | 36 | |
2
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share amounts and par value)
| | | | | | |
| | June 30, | | September 30, | ||
| | 2026 | | 2026 | ||
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Short-term investments | | | | | | |
Accounts receivable, net | |
| | | | |
Inventories | |
| | | | |
Prepaid expenses and other current assets | |
| | | | |
Total current assets | |
| | | | |
Property and equipment, net | |
| | | | |
Goodwill | |
| | | | |
Intangible assets, net | |
| | | | |
Other assets | |
| | | | |
Total assets | | $ | | | $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | |
Current portion of long-term debt | | $ | | | $ | |
Accounts payable | |
| | | | |
Accrued payroll and related expenses | |
| | | | |
Advances from customers | |
| | | | |
Deferred revenue | |
| | |
| |
Other accrued expenses and current liabilities | |
| | | | |
Total current liabilities | |
| | | | |
Long-term debt, net | |
| | | | |
Deferred income taxes | |
| | | | |
Other long-term liabilities | |
| | | | |
Total liabilities | |
| | | | |
Commitments and contingencies (Note 10) | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | |
Preferred stock, $ | |
| — | | | — |
Common stock, $ | |
| | | | |
Retained earnings | |
| | | | |
Accumulated other comprehensive loss | |
| ( | | | ( |
Total stockholders’ equity | |
| | | | |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share data)
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Net revenues: | | | | | | |
Products | | $ | | | $ | |
Services | | | | | | |
Total net revenues | | | | | | |
Cost of goods sold: | | | | | | |
Products | | | | | | |
Services | | | | | | |
Total cost of goods sold | | | | | | |
Gross profit | | | | | | |
Operating expenses: | | | | | | |
Selling, general and administrative | | | | | | |
Research and development | | | | | | |
Restructuring and other charges | | | | | | |
Total operating expenses | | | | | | |
Income from operations | | | | | | |
Interest and other expense, net | | | ( | | | ( |
Income before income taxes | | | | | | |
Provision for income taxes | | | ( | | | ( |
Net income | | $ | | | $ | |
Earnings per share: | | | | | | |
Basic | | $ | | | $ | |
Diluted | | $ | | | $ | |
Shares used in per share calculation: | | | | | | |
Basic | | | | | | |
Diluted | | | | | | |
See accompanying notes to condensed consolidated financial statements.
4
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in thousands)
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Net income | | $ | | | $ | |
Other comprehensive loss: | | | | | | |
Foreign currency translation adjustment, net of tax | |
| ( | | | ( |
Other, net of tax | | | ( | | | ( |
Other comprehensive loss | | | ( | | | ( |
Comprehensive income | | $ | | | $ | |
See accompanying notes to condensed consolidated financial statements.
5
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(amounts in thousands, except share data)
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | ||||||||||||
| | | | | | | | | | Accumulated | | | | |
| | Common Stock | | | | | Other | | | | ||||
| | Number of | | | | | Retained | | Comprehensive | | | | ||
| | Shares | | Amount | | Earnings | | Loss | | Total | ||||
Balance—June 30, 2025 |
| | | $ | | | $ | | | $ | ( | | $ | |
Exercise of stock options |
| | | | | | | — | | | — | | | |
Vesting of RSUs |
| | | | — | | | — | | | — | | | — |
Shares issued under employee stock purchase plan |
| | | | | | | — | | | — | | | |
Stock-based compensation |
| — | | | | | | — | | | — | | | |
Taxes paid related to net share settlement of equity awards |
| ( | | | ( | | | — | | | — | | | ( |
Net income |
| — | | | — | | | | | | — | | | |
Other comprehensive loss |
| — | | | — | | | — | | | ( | | | ( |
Balance—September 30, 2025 | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2026 | ||||||||||||
| | | | | | | | | | Accumulated | | | | |
| | Common Stock | | | | | Other | | | | ||||
| | Number of | | | | | Retained | | Comprehensive | | | | ||
| | Shares | | Amount | | Earnings | | Loss | | Total | ||||
Balance—June 30, 2026 | | | | $ | | | $ | | | $ | ( | | $ | |
Exercise of stock options | | | | | | | | — | | | — | | | |
Vesting of RSUs | | | | | — | | | — | | | — | | | — |
Shares issued under employee stock purchase plan | | | | | | | | — | | | — | | | |
Stock-based compensation | | — | | | | | | — | | | — | | | |
Repurchase of common stock | | ( | | | | | | ( | | | — | | | ( |
Taxes paid related to net share settlement of equity awards | | ( | | | ( | | | — | | | — | | | ( |
Net income | | — | | | — | | | | | | — | | | |
Other comprehensive loss | | — | | | — | | | — | | | ( | | | ( |
Balance—September 30, 2026 |
| | | $ | | | $ | | | $ | ( | | $ | |
6
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net income | | $ | | | $ | |
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions: | | | | | | |
Depreciation and amortization | |
| | | | |
Stock-based compensation | |
| | | | |
Provision for losses on accounts receivable | | | | | | |
Deferred income taxes | | | | | | |
Amortization of debt discount and issuance costs | |
| | | | |
Other | |
| ( | | | ( |
Changes in operating assets and liabilities—net of business acquisitions: | | | | | | |
Accounts receivable | |
| | | | |
Inventories | |
| ( | | | ( |
Prepaid expenses and other assets | |
| ( | | | ( |
Accounts payable | |
| | | | |
Accrued payroll and related expenses | | | ( | | | ( |
Advances from customers | |
| | | | |
Deferred revenue | | | ( | | | ( |
Other | |
| ( | | | ( |
Net cash provided by operating activities | |
| | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Acquisition of property and equipment | |
| ( | | | ( |
Proceeds from sale of property and equipment | | | | | | — |
Purchases of short-term investments | | | — | | | ( |
Acquisition of business, net of cash acquired | |
| ( | | | — |
Payments for intangible and other assets | |
| ( | | | ( |
Net cash used in investing activities | |
| ( | | | ( |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Net borrowings on bank lines of credit | |
| | | | — |
Proceeds from long-term debt | |
| | | | — |
Payments on long-term debt | |
| ( | | | ( |
Proceeds from exercise of stock options and employee stock purchase plan | |
| | | | |
Payment of contingent consideration | | | ( | | | ( |
Repurchase of common stock | |
| — | | | ( |
Taxes paid related to net share settlement of equity awards | |
| ( | | | ( |
Net cash provided by (used in) financing activities | |
| | | | ( |
Effect of exchange rate changes on cash | |
| ( | | | ( |
Net increase (decrease) in cash and cash equivalents | |
| | | | ( |
Cash and cash equivalents—beginning of period | |
| | | | |
Cash and cash equivalents—end of period | | $ | | | $ | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid, net during the period for: | | | | | | |
Interest | | $ | | | $ | |
Income taxes | | $ | | | $ | |
See accompanying notes to condensed consolidated financial statements.
7
OSI SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 filed with the SEC. The results of operations for the three months ended September 30, 2026 are not necessarily indicative of the operating results to be expected for the full 2027 fiscal year or any future periods. Short-term investments of $
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales, costs of sales and expenses during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs, contingent consideration, allowance for doubtful accounts, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Due to the inherent uncertainty involved in making estimates, our actual amounts reported in future periods could differ materially from these estimates.
Earnings Per Share Computations
We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the
8
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Net income available to common stockholders | | $ | | | $ | |
Weighted average shares outstanding—basic | |
| | | | |
Dilutive effect of equity awards | |
| | | | |
Dilutive effect of 2029 Notes | | | | | | |
Weighted average shares outstanding—diluted | |
| | | | |
Basic earnings per share | | $ | | | $ | |
Diluted earnings per share | | $ | | | $ | |
Shares excluded from diluted earnings per share due to their anti-dilutive effect | | | — | | | |
Cash and Cash Equivalents
We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.
Our cash and cash equivalents totaled $
Short-Term Investments
Our short-term investments consist primarily of U.S. Treasury securities classified as available-for-sale debt securities. These securities are carried at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss), net of tax.
The amortized cost, gross unrealized gains and losses, and fair value of our available-for-sale debt securities were as follows as of September 30, 2026 (in thousands):
| | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | ||||
U.S. Treasury securities | | $ | | | $ | | | $ | | | $ | |
All of our available-for-sale debt securities outstanding at September 30, 2026 were contractually scheduled to mature within one year.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, short-term investments, insurance company contracts, accounts receivable, accounts payable, debt instruments, an interest rate swap contract and foreign currency forward contracts. The carrying values of financial instruments, other than long-term debt instruments and our interest rate swap contract, are representative of their fair values due to their short-term maturities. The carrying values of our term loan and lease obligations are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us. The fair values of our foreign currency forward contracts were not significant as of June 30, 2026 or as of September 30, 2026.
Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The “Level 1” category comprises assets and liabilities measured at quoted prices in active markets for identical assets and liabilities. The “Level 2” category comprises assets and liabilities measured from observable inputs other than quoted market prices. The “Level 3” category comprises assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement. Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the “Level 3” category for valuation purposes.
9
The fair values of our financial assets and liabilities are categorized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2026 | | September 30, 2026 | ||||||||||||||||||||
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | ||||||||
Assets—Insurance company contracts | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Assets – Interest rate swap contract | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Assets – Short-term investments | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Liabilities—Convertible notes | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Liabilities—Contingent consideration | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Derivative Instruments and Hedging Activity
Our use of derivatives consists of foreign currency forward contracts, a cross-currency interest rate swap contract and an interest rate swap agreement. Our foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations. These contracts have original maturities of up to three months. We use a cross-currency interest rate swap contract to hedge our net investment in a foreign subsidiary. We also manage our risk to changes in interest rates using derivative instruments. We use fixed interest rate swaps to effectively convert a portion of the variable interest rate payments to fixed interest rate payments. We do not use hedging instruments for speculative purposes.
The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations, and the amounts reported for the three months ended September 30, 2025 and 2026 were not significant. The fair value of our foreign currency forward contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of June 30, 2026 and September 30, 2026, we held foreign currency forward contracts with notional amounts totaling $
In July 2026, we settled our previously outstanding cross-currency interest rate swap and concurrently entered into a replacement contract extending the maturity from June 2027 to December 2027. The net settlement amount was not significant. The net gains or losses from our cross-currency interest rate swap contract, which is designated as a net investment hedge instrument in a foreign subsidiary, are reported in accumulated other comprehensive loss in the consolidated statements of stockholders’ equity, and the amount reported for the three months ended September 30, 2026 was not significant. The fair value of our cross-currency interest rate swap contract is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of June 30, 2026 and September 30, 2026, the notional amount of this contract was $
The interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to our variable, Secured Overnight Financing Rate (“SOFR”) based debt. The interest rate swap matures in December 2026. The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of other comprehensive income (loss) in our consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings. A qualitative and quantitative assessment of the interest rate swap hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective. As of June 30, 2026 and September 30, 2026, the notional amount of the interest rate swap hedge derivative instrument was $
10
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | | $ | ( | | | ( |
Loss recognized in other comprehensive loss, net of tax | | | ( | | | ( |
Hedge benefit reclassified from accumulated other comprehensive income (loss) to interest and other expense, net | | | | | | |
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption.
Accounting Guidance Adopted
In December 2024, the FASB issued Accounting Standards Update 2024-04, “Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments” (“ASU 2024-04”), which clarifies the accounting for induced conversions of convertible debt instruments by requiring entities to apply the inducement guidance regardless of whether the convertible debt instrument includes a cash conversion feature or is otherwise within the scope of Subtopic 470-20. We adopted ASU 2024-04 on July 1, 2026 on a prospective basis; there were no settlements or inducement offers related to our 2029 Notes or 2031 Notes during the three months ended September 30, 2026, therefore the adoption had no impact on our condensed consolidated financial statements.
In July 2025, the FASB issued Accounting Standards Update 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets” (“ASU 2025-05”) which provides a practical expedient that permits an entity, when developing reasonable and supportable forecasts for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, to assume that conditions existing as of the balance sheet date will remain unchanged for the remaining life of those assets. We adopted ASU 2025-05 on July 1, 2026 on a prospective basis, and elected to apply the practical expedient which did not have a material impact on our condensed consolidated financial statements.
Accounting Guidance Not Yet Adopted
In November 2024, the FASB issued Accounting Standards Update 2024-03, “Income Statement-Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures”, (“ASU 2024-03”) which requires additional disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and may be applied either on a prospective or retrospective basis. We are evaluating the potential impact of ASU 2024-03 on disclosures in our Consolidated Financial Statements which will be effective beginning with our Form 10-K for fiscal year 2028.
In September 2025, the FASB issued Accounting Standards Update 2025-06 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”) which modernizes the accounting for internal-use software to current development practices, clarifies when to begin capitalizing costs and enhances disclosure requirements. This standard is effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual periods. Early adoption is permitted. The amendments are to be applied retrospectively, prospectively, or a modified transition approach may be used based on the status of the project and whether software costs were capitalized before the date of adoption. We are evaluating the potential impact of ASU 2025-06 on our Consolidated Financial Statements and related disclosures which will be effective beginning with our Form 10-Q for the first quarter of fiscal year 2029 and our Form 10-K for fiscal year 2029.
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In December 2025, the FASB issued Accounting Standards Update 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”), which clarifies the application, form and content, and required disclosures for interim financial statements prepared in accordance with GAAP. ASU 2025-11 is effective for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the potential impact of ASU 2025-11 on disclosures in our Consolidated Financial Statements which will be effective for interim periods beginning in fiscal year 2029.
In December 2025, the FASB issued Accounting Standards Update 2025-12, “Codification Improvements” (“ASU 2025-12”). ASU 2025-12 includes changes that clarify, correct, or otherwise improve certain components of the Accounting Standards Codification. The improvements consist of narrow-scope amendments, technical corrections, clarification of existing guidance, and updates to clarify the appropriate scope and application of certain disclosure requirements. ASU 2025-12 is effective for annual periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. We are evaluating the potential impact of ASU 2025-12 on disclosures in our Consolidated Financial Statements which will be effective for interim periods beginning in fiscal year 2028.
2. Business Combinations
Under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition method of accounting requires us to record assets acquired and liabilities assumed from an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price over the estimated fair value of the net assets acquired should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based on assumptions which are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period for fair value, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available, we may record adjustments to the preliminary assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are included in earnings. There were
3. Balance Sheet Details
The following tables set forth details of selected balance sheet accounts (in thousands):
| | | | | | |
| | June 30, | | September 30, | ||
Accounts receivable, net | | 2026 | | 2026 | ||
Accounts receivable | | $ | | | $ | |
Less allowance for doubtful accounts | |
| ( | | | ( |
Total | | $ | | | $ | |
| | | | | | |
| | June 30, | | September 30, | ||
Inventories | | 2026 | | 2026 | ||
Raw materials | | $ | | | $ | |
Work-in-process | |
| | | | |
Finished goods | |
| | | | |
Total | | $ | | | $ | |
12
| | | | | | |
| | June 30, | | September 30, | ||
Property and equipment, net | | 2026 | | 2026 | ||
Land | | $ | | | $ | |
Buildings, civil works and improvements | |
| | | | |
Leasehold improvements | |
| | | | |
Equipment, tooling, furniture and fixtures | |
| | | | |
Computer equipment | |
| | | | |
Computer software | |
| | | | |
Computer software implementation in process | | | | | | |
Construction in process | |
| | | | |
Total | |
| | | | |
Less accumulated depreciation and amortization | |
| ( | | | ( |
Property and equipment, net | | $ | | | $ | |
Depreciation and amortization expense for property and equipment was $
4. Goodwill and Intangible Assets
The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2026 were as follows (in thousands):
| | | | | | | | | | | | |
| | | | | Optoelectronics | | | | | | ||
| | | | | and | | | | | | ||
| | Security | | Manufacturing | | Healthcare | | | | |||
| | Division | | Division | | Division | | Consolidated | ||||
Balance as of June 30, 2026 | | $ | | | $ | | | $ | | | $ | |
Goodwill adjustments during the period (see Note 2) | |
| | | | — | | | — | | | |
Foreign currency translation adjustment | |
| ( | | | | | | — | | | ( |
Balance as of September 30, 2026 | | $ | | | | | | | | | | |
Intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | |
| | June 30, 2026 | | September 30, 2026 | ||||||||||||||
| | Gross | | | | | | | | Gross | | | | | | | ||
| | Carrying | | Accumulated | | Intangibles | | Carrying | | Accumulated | | Intangibles | ||||||
| | Value | | Amortization | | Net | | Value | | Amortization | | Net | ||||||
Amortizable assets: | | | | | | | | | | | | | | | | | | |
Software development costs | | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | |
Patents | | | | | | ( | | | | | | | | | ( | | | |
Developed technology | | | | | | ( | | | | | | | | | ( | | | |
Customer relationships | | | | | | ( | | | | | | | | | ( | | | |
Total amortizable assets | |
| | | | ( | | | | | | | | | ( | | | |
Non-amortizable assets: | | | | | | | | | | | | | | | | | | |
Trademarks | |
| | | | — | | | | | | | | | — | | | |
Total intangible assets | | $ | | | $ | ( | | $ | | | $ | | | $ | ( | | $ | |
Amortization expense related to intangible assets was $
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At September 30, 2026, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):
Fiscal Year
| | | |
2027 (remaining 9 months) | | $ | |
2028 | |
| |
2029 | |
| |
2030 | |
| |
2031 | | | |
Thereafter | |
| |
Total | | $ | |
Software development costs for software products incurred before establishing technological feasibility are charged to operations. Software development costs incurred after establishing technological feasibility are capitalized on a product-by-product basis until the product is available for general release to customers at which time amortization begins. Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product bear to the total current and anticipated future revenues for that product. In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in “Thereafter” in the table above. For each of the three months ended September 30, 2025 and 2026, we capitalized software development costs of $
5. Contract Assets and Liabilities
We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheets. We may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability in either Current liabilities or Other long-term liabilities. We recognize these contract liabilities as sales after all revenue recognition criteria are met.
The table below shows the balance of contract assets and liabilities as of June 30, 2026 and September 30, 2026, including the change between such dates. There were no substantial non-current contract assets for the periods presented.
Contract Assets (in thousands)
| | | | | | | | | | | | |
| | June 30, | | September 30, | | | | | |
| ||
| | 2026 | | 2026 | | Change | | % Change |
| |||
Unbilled revenue (included in accounts receivable, net) | | $ | | | $ | | | $ | | | | % |
Contract Liabilities (in thousands)
| | | | | | | | | | | | |
| | June 30, | | September 30, | | | | |
| |||
| | 2026 | | 2026 | | Change | | % Change | | |||
Advances from customers | | $ | | | $ | | | $ | | | | % |
Deferred revenue—current | |
| | | | | | | | | — | % |
Deferred revenue—long-term | |
| | | | | | | ( | | ( | % |
Contract Assets. Unbilled revenue increased by $
14
Contract Liabilities. Advances from customers increased by $
Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the portion of the transaction price allocated to performance obligations under contracts which are fully or partially unsatisfied at the end of the period. As of September 30, 2026, the aggregate portion of the transaction price allocated to remaining performance obligations was approximately $
Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of
6. Leases
The components of operating lease expense were as follows (in thousands):
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Operating lease cost | | $ | | | $ | |
Variable lease cost | | | | | | |
Short-term lease cost | | | | | | |
| | $ | | | $ | |
Supplemental disclosures related to operating leases were as follows (in thousands):
| | | | | | | | | |
| | Balance Sheet Category | | June 30, 2026 | | September 30, 2026 | | ||
Operating lease ROU assets, net |
| Other assets | | $ | | | $ | | |
| | | | | | | | | |
Operating lease liabilities, current portion |
| Other accrued expenses and current liabilities | | $ | | | $ | | |
Operating lease liabilities, long-term |
| Other long-term liabilities | | | | | | | |
Total operating lease liabilities | | | | $ | | | $ | | |
| | | | | | | | | |
Weighted average remaining lease term | | | | | | | | | |
Weighted average discount rate | | | | | | | | | % |
Supplemental cash flow information related to operating leases was as follows (in thousands):
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Cash paid for operating lease liabilities | | $ | | | $ | |
ROU assets obtained in exchange for new lease obligations | |
| | | | |
15
Maturities of operating lease liabilities at September 30, 2026 were as follows (in thousands):
| | | |
| | September 30, 2026 | |
Less than one year | | $ | |
1 – 2 years | |
| |
2 – 3 years | |
| |
3 – 4 years | |
| |
4 – 5 years | |
| |
Thereafter | |
| |
| |
| |
Less: imputed interest | |
| ( |
Total lease liabilities | | $ | |
7. Restructuring and Other charges
We endeavor to align our global capacity and infrastructure with demand by our customers as well as fully integrate acquisitions and thereby improve operational efficiency.
During the three months ended September 30, 2026, we recognized $
During the three months ended September 30, 2025, we recognized $
The following tables summarize restructuring and other charges for the periods set forth below (in thousands):
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | |||||||||||||
| | | | | Optoelectronics and | | | | | | | | | | |
| | | | | Manufacturing | | Healthcare | | | | | | | ||
| | Security Division | | Division | | Division | | Corporate | | Total | |||||
Acquisition-related costs | | $ | | | $ | — | | $ | — | | $ | — | | $ | |
Employee termination costs | |
| | |
| | |
| | |
| — | |
| |
Other | |
| | |
| — | |
| | |
| | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2026 | |||||||||||||
| | | | | Optoelectronics and | | | | | | | | | | |
| | | | | Manufacturing | | Healthcare | | | | | | | ||
| | Security Division | | Division | | Division | | Corporate | | Total | |||||
Acquisition-related costs | | $ | | | $ | — | | $ | — | | $ | — | | $ | |
Employee termination costs | | | | | | | | | | | | | | | |
Facility closure/consolidation | | | | | | — | | | — | | | — | | | |
Legal and other expense | |
| | |
| — | |
| | |
| — | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | |
16
The accrued liability for restructuring and other charges is included in other accrued expenses and current liabilities in the condensed consolidated balance sheets.
| | | | | | | | | | | | | | | |
| | | | | | | | Facility | | | | | | ||
| | Acquisition- | | Employee | | Closure/ | | Legal | | | | ||||
| | Related | | Termination | | Consolidation | | and Other | | | | ||||
| | Costs | | Costs | | Cost | | Costs | | Total | |||||
Balance as of June 30, 2026 | | $ | — | | $ | | | $ | — | | $ | | | $ | |
Restructuring and other charges | |
| | | | | | | | |
| | | | |
Payments, adjustments and reimbursements, net | |
| | | | ( | | | ( | |
| ( | | | ( |
Balance as of September 30, 2026 | | $ | | | $ | | | $ | — | | $ | | | $ | |
8. Borrowings
Long-term debt consisted of the following (in thousands):
| | | | | | |
| | June 30, | | September 30, | ||
| | 2026 | | 2026 | ||
Term loan | | $ | | | $ | |
2029 Notes, net | |
| | |
| |
2031 Notes, net | |
| | |
| |
Other long-term debt | |
| | |
| |
| |
| | |
| |
Less current portion of long-term debt | |
| ( | |
| ( |
Long-term portion of debt | | $ | | | $ | |
Future principal payments of long-term debt by fiscal year as of September 30, 2026 are as follows (in thousands):
| | | |
2027 (9 months remaining) | | $ | |
2028 | |
| |
2029 | |
| |
2030 | |
| |
2031 | |
| |
2032 and thereafter | |
| — |
| |
| |
Less unamortized debt discount and issuance costs | |
| ( |
Total | | $ | |
Revolving Credit Facility
Our senior secured credit facility comprises a term loan and a $
17
Borrowings under the amended facility bore interest at SOFR plus a margin of
In July 2024, we issued an aggregate of $
The 2029 Notes are unsecured obligations which bear regular interest at
Holders of the 2029 Notes may convert all or a portion of their 2029 Notes at their option prior to May 1, 2029, in multiples of $1,000 principal amounts, only under the following circumstances (i) during any calendar quarter commencing after the quarter ended on September 30, 2025 (and only during such calendar quarter), if our common stock price exceeds
On or after May 1, 2029, the 2029 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2029 Notes who convert the 2029 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2029 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate.
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We accounted for the issuance of the 2029 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
| | | |
| | September 30, | |
| | 2026 | |
Principal amount | | $ | |
Unamortized debt discount and issuance costs | |
| ( |
Net carrying amount | | $ | |
| | | |
Fair value (Level 2) | | $ | |
The 2029 Notes were not eligible for conversion as of September 30, 2026. No sinking fund is provided for the 2029 Notes, which means that we are not required to redeem or retire them periodically. As of September 30, 2026 we were in compliance with applicable financial covenants under the indenture governing the 2029 Notes.
For each of the three months ended September 30, 2026 and 2025, total interest expense for the 2029 Notes was $
In November 2025, we issued an aggregate of $
The 2031 Notes are unsecured obligations which bear regular interest at
Holders of the 2031 Notes may, at their option, convert all or a portion of their 2031 Notes prior to November 1, 2030, in multiples of $1,000 principal amounts, only (i) during any calendar quarter if our common stock price exceeds
On or after November 1, 2030, the 2031 Notes will be convertible by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2031 Notes who convert the 2031 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2031 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate.
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We accounted for the issuance of the 2031 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
| | | |
| | September 30, | |
| | 2026 | |
Principal amount | | $ | |
Unamortized debt discount and issuance costs | |
| ( |
Net carrying amount | | $ | |
| | | |
Fair value (Level 2) | | $ | |
The 2031 Notes were not eligible for conversion as of September 30, 2026. No sinking fund is provided for the 2031 Notes, which means that we are not required to redeem or retire them periodically. As of September 30, 2026 we were in compliance with applicable financial covenants under the indenture governing the 2031 Notes.
For the three months ended September 30, 2026, total interest expense for the 2031 Notes was $
Other Borrowings
Several of our foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters-of-credit. As of September 30, 2026, $
9. Stockholders’ Equity
Stock-based Compensation
As of September 30, 2026, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.
We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2025 | | 2026 | ||
Cost of goods sold | | $ | | | $ | |
Selling, general and administrative | | | | | | |
Research and development | | | | | | |
Stock-based compensation expense | | $ | | | $ | |
As of September 30, 2026, total unrecognized compensation cost related to stock-based compensation grants under the OSI Plan was estimated at $
20
The following summarizes stock option activity during the three months ended September 30, 2026:
| | | | | | | | | | |
| | | | Weighted | | | | | | |
| | | | Average | | Weighted-Average | | Aggregate | ||
| | Number of | | Exercise | | Remaining Contractual | | Intrinsic Value | ||
| | Options | | Price | | Term | | (in thousands) | ||
Outstanding at June 30, 2026 |
| |
| $ | |
| | | | |
Granted |
| — | | | — | | | | | |
Exercised |
| ( | | | | | | | | |
Expired or forfeited |
| ( | | | | | | | | |
Outstanding at September 30, 2026 |
| | | $ | | | | $ | | |
Exercisable at September 30, 2026 | | | | $ | |
| | $ | | |
The following summarizes RSU award activity during the three months ended September 30, 2026:
| | | | | |
| | | | Weighted- | |
| | | | Average | |
| | Shares | | Fair Value | |
Nonvested at June 30, 2026 |
| | | $ | |
Granted |
| | | | |
Vested |
| ( | | | |
Forfeited |
| ( | | | |
Nonvested at September 30, 2026 |
| | | $ | |
As of September 30, 2026, there were approximately
We granted
Stock Repurchase Program
In August 2026, our Board of Directors approved an additional
During the three months ended September 30, 2026, we repurchased
Dividends
We have not paid any dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any dividends in the foreseeable future. Our Board of Directors will determine the payment of future dividends, if any. Certain of our current bank credit facilities restrict the payment of dividends and future borrowings may contain similar restrictions.
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10. Commitments and Contingencies
Acquisition-Related Contingent Obligations
Under the terms and conditions of the purchase agreements associated with certain acquisitions, we may be obligated to make additional payments based on the achievement of certain sales or profitability milestones through the acquired operations. For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments was $
These projections and probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities.
| | | |
Beginning fair value, June 30, 2026 | | $ | |
Foreign currency translation adjustment | | | |
Changes in fair value for contingent earnout obligations | |
| ( |
Payments on contingent earnout obligations | |
| ( |
Ending fair value, September 30, 2026 | | $ | |
Guarantees
We are periodically required to provide performance bonds to do business with certain customers. These arrangements are common in the industry and generally have terms ranging between
Environmental Contingencies
We are subject to various environmental laws. We conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations. In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants.
At present, we are not considered a responsible party to any environmental release or contamination, nor are we responsible for any environmental remediation at sites we occupy currently or have occupied in the past. We have not accrued for loss contingencies relating to environmental matters because we believe that, although unfavorable outcomes are possible, they are not considered by our management to be probable and reasonably estimable. If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material.
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Indemnifications
In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our directors and certain of our officers. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. We have not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2026.
Legal Proceedings
We are involved in various potential or actual claims and legal proceedings arising in the ordinary course of business. In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. We have not accrued for loss contingencies relating to any non-ordinary course matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to our company, the impact on our business, financial condition, results of operations and cash flows could be material.
11. Income Taxes
The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
The effective tax rates for the three months ended September 30, 2025 and 2026 were
12. Segment Information
We operate in
23
The following tables present our results of operations and identifiable assets by our three industry segments, along with amounts for intersegment eliminations and unallocated corporate items, which are reconciled to consolidated amounts (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | |||||||||||||||||||
| | | | | Optoelectronics | | | | | | | | | | | | | | | | |
| | | | | and | | | | | Total | | | | | | | | | |||
| | Security | | Manufacturing | | Healthcare | | Reportable | | Intersegment | | Unallocated | | | | ||||||
| | Division | | Division | | Division | | Segments | | Eliminations | | Corporate | | Consolidated | |||||||
Revenues (1): | | | | | | | | | | | | | | | | | | | | | |
External customer revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | |
Intersegment revenue | |
| — | | | | | | — | | | | | | ( | | | — | | | — |
Total revenues | |
| | | | | | | | | | | | | ( | | | — | | | |
Cost of goods sold | |
| | | | | | | | | | | | | ( | | | — | | | |
Selling, general and administrative expenses | |
| | | | | | | | | | | | | — | | | | | | |
Research and development expenses | |
| | | | | | | | | | | | | — | | | — | | | |
Segment income from operations | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | | | |
Segment assets (2) (3) | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
Capital expenditures | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | | |
Depreciation and amortization | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Reconciliation to consolidated income from operations – Three Months Ended September 30, 2025 | | | | | | | | | | | | | | | | | | | | | |
Consolidated segment income from operations | | | — | | | — | | | — | | | — | | | — | | | — | | $ | |
Restructuring and other charges | | | — | | | — | | | — | | | — | | | — | | | — | | | ( |
Consolidated income from operations | | | — | | | — | | | — | | | — | | | — | | | — | | $ | |
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| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2026 | |||||||||||||||||||
| | | | | Optoelectronics | | | | | | | | | | | | | | | | |
| | | | | and | | | | | Total | | | | | | | | | | ||
| | Security | | Manufacturing | | Healthcare | | Reportable | | Intersegment | | Unallocated | | | | ||||||
| | Division | | Division | | Division | | Segments | | Eliminations | | Corporate | | Consolidated | |||||||
Revenues (1): | | | | | | | | | | | | | | | | | | | | | |
External customer revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | |
Intersegment revenue | |
| — | | | | | | — | | | | | | ( | | | — | | | — |
Total revenues | |
| | | | | | | | | | | | | ( | | | — | | | |
Cost of goods sold | |
| | | | | | | | | | | | | ( | | | — | | | |
Selling, general and administrative expenses | |
| | | | | | | | | | | | | — | | | | | | |
Research and development expenses | |
| | | | | | | | | | | | | — | | | — | | | |
Segment income from operations | | $ | | | $ | | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | |
| |
| | | | | | | | | | | | | | | | | | | |
Segment assets (2) (3) | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
Capital expenditures | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | | |
Depreciation and amortization | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Reconciliation to consolidated income from operations – Three Months Ended September 30, 2026 | | | | | | | | | | | | | | | | | | | | | |
Consolidated segment income from operations | | | — | | | — | | | — | | | — | | | — | | | — | | $ | |
Restructuring and other charges | | | — | | | — | | | — | | | — | | | — | | | — | | | ( |
Consolidated income from operations | | | — | | | — | | | — | | | — | | | — | | | — | | $ | |
Segment assets as of June 30, 2026, for comparative purposes (2) (3) | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
(1) | For the three months ended September 30, 2025 and 2026, |
(2)As of June 30, 2026 and September 30, 2026,
(3)Eliminations in assets reflect the amount of inter-segment profits in inventory and inter-segment ROU assets under ASC 842 as of the balance sheet date. Such inter-segment profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this report, “OSI”, the “Company”, “we”, “us”, “our” and similar terms refer to OSI Systems, Inc. together with our wholly-owned subsidiaries.
This management’s discussion and analysis of financial condition as of September 30, 2026 and results of operations for the three months ended September 30, 2026 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 filed with the SEC.
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to our current expectations, beliefs, and projections concerning matters that are not historical facts. Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “may,” “should,” “will,” “would,” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve uncertainties, risks, assumptions and contingencies, many of which are outside our control. Assumptions upon which our forward-looking statements are based could prove to be inaccurate, and actual results may differ materially from those expressed in or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from our expectations are disclosed in this report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 (including Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and other documents filed by us from time to time with the Securities and Exchange Commission (“SEC”). Such factors, of course, do not include all factors that might affect our business and financial condition. We could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts; failure to secure the renewal of key customer contracts; delays in customer programs; government shutdowns and other lapses in, or delays of government appropriations; delays in revenue recognition related to the timing of customer acceptance; the impact of potential information technology, cybersecurity or data security breaches; changes in domestic and foreign government spending and budgetary, procurement and trade policies adverse to our businesses; the impact of the Russia-Ukraine conflict or conflicts in the Middle East, including the potential for broad economic disruption, increased global tensions, or potential disruptions to customer operations, procurement activities, transportation networks and project timing; global economic uncertainty, including the impact of tariffs; material delays and cancellations of orders or deliveries thereon, supply chain and transportation networks disruptions, plant closures, or other adverse impacts on our ability to execute business plans; unfavorable currency exchange rate fluctuations; unfavorable interest rate fluctuations; the effect of changes in tax legislation; market acceptance of our new and existing technologies, products and services; our ability to win new business and convert any orders received to sales within the current fiscal year; the timing of collection of receivables from significant customers; contract and regulatory compliance matters, or actions, which if brought, could result in judgments, settlements, fines, injunctions, debarment or penalties; and other risks and uncertainties, including but not limited to those factors described in our other SEC filings. All forward-looking statements contained in this report are qualified in their entirety by this section. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information, or otherwise, except to the extent required to do so under federal securities laws.
Executive Summary
We are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace. We have three operating divisions, each of which is a reportable segment: (a) Security, providing security and inspection systems, high-power RF systems and turnkey security screening solutions; (b) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for applications in the defense and aerospace markets, among others, and for our Security and Healthcare divisions; and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.
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Security Division. Through our Security division, we provide security screening products, multi-platform software solutions, and services globally, as well as turnkey security screening solutions. These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband. We also provide high-power RF systems for transmission, surveillance and other applications for defense, research and industrial use. Revenues from our Security division accounted for 66% and 65% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.
Optoelectronics and Manufacturing Division. Through our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, and consumer products. We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 23% and 26% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.
Healthcare Division. Through our Healthcare division, we design, manufacture, market and service patient monitoring, cardiology and remote monitoring, and connected care systems globally for sale primarily to hospitals and medical centers. Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient’s bedside, in another area of the hospital or even outside the hospital. Revenues from our Healthcare division accounted for 11% and 9% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.
Trends and Uncertainties
The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations.
Global Economic Considerations. Our products and services are sold in numerous countries worldwide, with a large percentage of our sales generated outside the United States. Therefore, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, interest rate policies, and labor shortages. Increasing diplomatic and trade friction between the U.S. and China has also created significant uncertainty in the global economy. These global macroeconomic factors, coupled with political unrest internationally and the volatile U.S. political climate, have created uncertainty and impacted demand for certain of our products and services. In addition, the military conflicts in the Middle East and the continued conflict between Russia and Ukraine, each as discussed further below, together with the sanctions, export controls and other measures imposed in response to these conflicts have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations. We do not know how long this uncertainty will continue. These factors could have a material adverse effect on our business, results of operations and financial condition.
Global Trade. The current domestic and international political environment, including in relation to recent and further potential changes by the U.S. and other countries in policies on global trade and tariffs, has resulted in uncertainty surrounding the future state of the global economy and global trade. This uncertainty is exacerbated by sanctions imposed by the U.S. government against certain businesses and individuals in select other countries. Tariffs, trade restrictions and retaliatory measures by such other countries could result in reductions in our revenues or cost increases on materials used in our products, which could materially and adversely affect our business, financial condition, results of operations and cash flows. Consistent with our strategy, we are taking measures to contain costs to reduce the impact of tariffs. To date, our strategies have mitigated, but not eliminated, our exposure to these conditions. We continue to monitor changes in trade policies and evaluate additional actions to manage potential effects on product costs, supply availability and customer demand. Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.
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Supply and Demand for Memory and Semiconductor Components. We have experienced tighter supply conditions and increased costs for certain memory and other semiconductor components, reflecting a broader global imbalance between supply and demand for memory used in data center and AI-related infrastructure. While we have taken actions to mitigate these impacts, including qualifying alternative sources, purchasing certain components in advance of demand and seeking price adjustments from customers, we may not be able to fully offset these cost increases, and continued constraints in component availability could delay our ability to fulfill customer orders and adversely affect our gross margins, business and results of operations.
Geopolitical Environment. The global security environment remains subject to significant uncertainty due to ongoing geopolitical tensions, military conflicts, terrorist threats, and regional instability, including the ongoing military conflict in the Middle East. Governments, transportation authorities, border protection agencies, and critical infrastructure operators continue to assess evolving security risks and may increase investments in security screening, inspection, and detection technologies. As a result, demand for certain of our security inspection products and related services could be affected by changes in government spending priorities and security requirements. At the same time, geopolitical events may influence the timing and execution of customer procurement decisions, funding approvals, contract awards, and project implementations. The extent to which current or future conflicts may affect our business will depend on the duration, geographic scope, and economic consequences of such events, as well as governmental responses that remain difficult to predict.
Conflicts in the Middle East. We generate a significant portion of our revenues from international markets and maintain a global supply chain supporting the design, manufacture, and servicing of our products. Escalation of geopolitical conflicts, including the military conflict involving the United States, Israel and Iran, which escalated significantly in February 2026 and included the closure of strategic airspaces and critical maritime routes such as the Strait of Hormuz and the Red Sea, have disrupted transportation routes, logistics networks, airspace, supplier operations, and international trade flows. These disruptions have resulted, and may continue to result, in shipment delays, longer lead times, project schedule delays, inventory management challenges, or higher operating costs. The conflicts in the Middle East continued to adversely affect certain customer projects during the first quarter of fiscal 2027, resulting in delays in shipments, installations, customer acceptance procedures, project schedules and the timing of certain orders, which negatively impacted our revenues and operating results for the period. Certain customers in the region have also reprioritized near-term spending and procurement activities. To date, these delays have not resulted in the cancellation of orders, and the related orders remain in our backlog with revised delivery schedules; however, there can be no assurance that further delays or cancellations will not occur. Continuation or further escalation of the conflict, including any expansion of hostilities to additional countries in which we or our customers operate, a prolonged disruption of shipping through the Strait of Hormuz or the imposition of additional sanctions or export controls, could adversely affect our ability to procure components, fulfill customer orders, deploy personnel, or complete installations in a timely manner and could have a material adverse effect on our business, results of operations and financial condition.
Russia-Ukraine Conflict. The ongoing conflict between Ukraine and Russia and the sanctions and export controls imposed in response to this conflict have increased global economic and political uncertainty. This has the potential to indirectly disrupt our supply chain and access to certain resources. While we have not experienced significant adverse impacts to date resulting from this conflict, we have certain research and development activities within Ukraine for our Healthcare division which have experienced limited disruption. This conflict and the conflict in the Middle East also have increased the threat of malicious cyber-activity from other countries and other actors.
Currency Exchange Rates. On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.04% for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, primarily due to the weakening of the U.S. dollar against certain other foreign currencies compared to the prior year period. Any strengthening of the U.S. dollar against foreign currencies would adversely impact our sales in future periods, and any weakening of the U.S. dollar against foreign currencies would positively impact our sales in future periods.
Healthcare Considerations. Certain hospitals and healthcare systems continue to face financial pressures arising from labor costs, inflation, reimbursement challenges and elevated interest rates. To the extent these conditions persist, healthcare providers may defer or reduce capital equipment purchases, which could adversely affect demand for our Healthcare products.
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Government Policies. Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies, as well as potential or actual U.S. government shutdowns, including the impact on near-term bookings and revenues of the most recent Department of Homeland Security shutdown. U.S. government operations are currently funded under a continuing resolution that expires on December 11, 2026. A further lapse in appropriations, or an extended period of funding under continuing resolutions, could delay U.S. government procurements, contract awards, deliveries and payments and adversely affect our results of operations.
Results of Operations for the Three Months Ended September 30, 2025 (Q1 Fiscal 2026) Compared to the Three Months Ended September 30, 2026 (Q1 Fiscal 2027) (amounts in millions)
Net Revenues
The table below and the discussion that follows are based upon the way in which we analyze our business. See Note 12 to the condensed consolidated financial statements for additional information about our business segments.
| | | | | | | | | | | | | | | | |
| | Q1 | | % of | | Q1 | | % of | | | | |
| |||
| | Fiscal 2026 | | Net Revenues | | Fiscal 2027 | | Net Revenues | | $ Change | | % Change | | |||
Security |
| $ | 254.3 | | 66.1 | % | $ | 264.1 | | 65.5 | % | $ | 9.8 | | 3.9 | % |
Optoelectronics and Manufacturing | | | 89.6 | | 23.3 | | | 104.3 | | 25.8 | | | 14.7 | | 16.4 | |
Healthcare | | | 40.7 | | 10.6 | | | 35.1 | | 8.7 | | | (5.6) | | (13.8) | |
Total net revenues |
| $ | 384.6 | | 100.0 | % | $ | 403.5 | | 100.0 | % | $ | 18.9 | | 4.9 | % |
Revenues for the Security division during Q1 fiscal 2027 increased year-over-year due to increases in product and service revenues of approximately $3.6 million and $6.2 million, respectively. The increase in product revenues was primarily due to increases in RF system and checkpoint screening revenues, partially offset by lower cargo and vehicle inspection revenues. The increase in service revenues was primarily attributable to growth in the installed base of products and airport screening services.
Revenues for the Optoelectronics and Manufacturing division during Q1 fiscal 2027 increased year-over-year due to increases in product revenues of approximately $5.5 million in our optoelectronics business and $9.2 million in our contract manufacturing business.
Revenues for the Healthcare division during Q1 fiscal 2027 decreased year-over-year primarily due to lower patient monitoring revenues, principally in the U.S., reflecting the timing of customer orders.
Gross Profit
| | | | | | | | | | | |
| | Q1 | | % of | | Q1 | | % of | | ||
| | Fiscal 2026 | | Net Revenues | | Fiscal 2027 | | Net Revenues | | ||
Gross profit | | $ | 123.2 | | 32.0 | % | $ | 123.8 | | 30.7 | % |
Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, tariffs, and logistics. Gross profit for Q1 fiscal 2027 increased to $123.8 million from $123.2 million in the prior-year period. The increase was primarily attributable to higher gross profit in our Security and Optoelectronics and Manufacturing divisions, partially offset by lower gross profit in our Healthcare division. Gross profit as a percentage of net revenues decreased to 30.7% from 32.0% in the prior-year period, reflecting lower Healthcare revenues, which generally carry relatively higher gross margins; unfavorable changes in revenue mix within the Security division; and higher Optoelectronics and Manufacturing revenues, which generally carry relatively lower gross margins.
Operating Expenses
| | | | | | | | | | | | | | | | |
| | Q1 | | % of | | Q1 | | % of | | | | | | | ||
| | Fiscal 2026 | | Net Revenues | | Fiscal 2027 | | Net Revenues | | $ Change | | % Change | | |||
Selling, general and administrative | | $ | 67.0 | | 17.4 | % | $ | 68.7 | | 17.0 | % | $ | 1.7 | | 2.5 | % |
Research and development | |
| 20.4 | | 5.3 | | | 19.4 | | 4.9 | | | (1.0) | | (4.9) | |
Restructuring and other charges | | | 2.7 | | 0.7 | | | 2.1 | | 0.5 | | | (0.6) | | (22.2) | |
Total operating expenses | | $ | 90.1 | | 23.4 | % | $ | 90.2 | | 22.4 | % | $ | 0.1 | | 0.1 | % |
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Selling, general and administrative. Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense. SG&A expense for Q1 fiscal 2027 increased $1.7 million compared to the same prior-year period, primarily due to higher salaries and benefits, occupancy costs, and certain technology, marketing, and outside-services costs. These increases were partially offset by lower acquired-intangible amortization, bad-debt expense, external commissions, and travel expense.
Research and development. Research and development (“R&D”) expenses include research related to new product development and product enhancement expenditures. R&D expenses for Q1 fiscal 2027 decreased $1.0 million compared to the same prior-year period largely due to lower outside services costs, partially offset by higher compensation and certain technology and research-related expenditures.
Restructuring and other charges. Restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, costs related to acquisition activity, legal charges and other non-recurring charges. During Q1 fiscal 2027, restructuring and other charges were $2.1 million, which consisted of $0.2 million for acquisition-related costs, $0.5 million for employee terminations, $0.1 million for facility closures, $0.3 million in legal charges, and $1.0 million for non-recurring charges in the Security and Healthcare divisions. During Q1 fiscal 2026, restructuring and other charges were $2.7 million, which consisted of $2.4 million primarily for non-recurring charges in the Security and Healthcare divisions and $0.3 million for employee terminations.
Interest and Other Expense (Benefit), Net
| | | | | | | | | | | |
| | Q1 | | % of | | Q1 | | % of | | ||
| | Fiscal 2026 | | Net Revenues | | Fiscal 2027 | | Net Revenues | | ||
Interest and other expense, net of swap benefit | | $ | 7.9 | | 2.0 | % | $ | 6.1 | | 1.5 | % |
Net investment income | | | (0.5) | | (0.1) | | | (2.8) | | (0.7) | |
Interest and other expense (benefit), net | | $ | 7.4 | | 1.9 | % | $ | 3.3 | | 0.8 | % |
Interest and other expense, net. Interest and other expense, net for Q1 fiscal 2027 decreased $4.1 million compared with the corresponding prior-year period, primarily due to higher net investment income and lower interest expense on credit facility borrowings. These favorable impacts were partially offset by interest expense and amortization of debt issuance costs associated with the 2031 Notes issued in November 2025 and a lower benefit from the interest rate swap.
Income taxes. The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, (vi) return to provision adjustments and (vii) changes in tax legislation. For Q1 fiscal 2027 and 2026, we recognized a provision for income taxes of $5.7 million and $5.1 million, respectively. The effective tax rates for Q1 fiscal 2027 and 2026 were 18.8% and 19.9%, respectively. The decrease in the effective tax rate for Q1 fiscal 2027 primarily reflects discrete tax benefits associated with equity-based compensation recognized under ASU 2016-09 and the expiration of applicable statutes of limitations related to certain uncertain tax benefits. During Q1 fiscal 2027 and 2026, we recognized a net discrete tax benefit of $0.7 million and $0.9 million, respectively, related to equity-based compensation under ASU 2016-09. In addition, during Q1 fiscal 2027, we recognized a net discrete tax benefit of $0.5 million related to changes in uncertain tax benefits resulting from the expiration of applicable statutes of limitations.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents, short-term investments, cash generated from operations, existing cash borrowing arrangements and access to capital markets. Cash and cash equivalents totaled $236.3 million at September 30, 2026, compared with $359.8 million at June 30, 2026. Short-term investments were $65.7 million at September 30, 2026, compared with $0.2 million at June 30, 2026. We currently anticipate that our available cash and cash equivalents, short-term investments, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and foreseeable future. In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S. subsidiaries, and our credit facilities will be sufficient to satisfy our obligations in the U.S.
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Our senior secured credit facility comprises a term loan and a $725.0 million revolving credit facility which mature in July 2030. The revolving credit facility includes a $350.0 million sub-limit for letters of credit, which includes up to $300.0 million for borrowings in certain foreign currencies. As of September 30, 2026, there were no borrowings under the revolving credit facility, $87.6 million was outstanding under the letters of credit sub-facility, and $90.0 million was outstanding under the term loan. As of September 30, 2026, the amount available to borrow under the credit facility was $637.4 million. See Note 8 to the condensed consolidated financial statements for further discussion.
Cash Provided by Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period due to changes in net income, adjusted for non-cash items, and working capital. Cash provided by operating activities was $37.1 million during Q1 fiscal 2027, compared to $17.1 million during the same prior-year period. The increase was primarily due to higher net income and favorable changes in working capital. Significant contributors included increased accounts payable of $21.5 million compared to $12.0 million in the prior-year period, increased advances from customers of $21.7 million compared to $11.1 million in the prior-year period, and lower cash usage from deferred revenue. These favorable changes were partially offset by inventory growth of $48.5 million, compared to $47.4 million in the prior-year period, and a lower source of cash from accounts receivable of $10.3 million compared to $17.0 million in the prior-year period. Inventory increased to support anticipated fiscal 2027 revenue growth primarily in the Security and Optoelectronics and Manufacturing divisions.
Cash Used in Investing Activities. Net cash used in investing activities was $79.1 million during Q1 fiscal 2027, compared to $10.9 million during the same prior-year period. The increase in cash used in investing activities was primarily attributable to $65.5 million of purchases of short-term investments during the first quarter of fiscal 2027, compared to no such purchases in the prior-year period. Capital expenditures were $7.7 million during the first quarter of fiscal 2027 compared to $7.0 million in the prior-year period, while payments for intangible and other assets increased to $5.9 million from $4.4 million in the prior-year period.
Cash Provided by (Used in) Financing Activities. Net cash used in financing activities was $81.5 million during Q1 fiscal 2027, compared to net cash provided by financing activities of $12.2 million during the same prior-year period. The change was primarily due to common stock repurchases, including applicable excise taxes, of $62.8 million during the first quarter of fiscal 2027, compared to no repurchases in the prior-year period. Additionally, during the prior-year period, we generated net proceeds from debt financing activities, consisting of $100.1 million of long-term debt borrowings offset by $129.9 million of long-term debt repayments and $74.1 million of net borrowings on bank lines of credit, whereas there were no borrowings on bank lines of credit and $2.5 million of long-term debt repayments during the first quarter of fiscal 2027. These changes were partially offset by reduced taxes paid related to the net share settlement of equity awards, which decreased to $18.4 million from $34.4 million in the prior-year period.
Borrowings
See Note 8 to the condensed consolidated financial statements for a detailed discussion regarding our credit facility and other borrowings.
Cash Held by Foreign Subsidiaries
Our cash and cash equivalents totaled $236.3 million at September 30, 2026. Of this amount, approximately 35% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in India, the United Kingdom, Singapore, and Canada. We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S. operations. In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.
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Issuer Purchases of Equity Securities
The following table contains information about the shares of common stock we purchased during the quarter ended September 30, 2026:
| | | | | | | | | |
| | | | | | | | | Maximum number (or |
| | | | | | | | | approximate dollar |
| | | | | | | | | value) of |
| | | | | | | Total number of | | shares (or |
| | | | | | | shares (or units) | | units) |
| | | | | | | purchased as | | that may |
| | Total number of | | Average price | | part of publicly | | yet be purchased | |
| | shares (or units) | | paid per share (or | | announced plans or | | under the plans or | |
| | purchased | | unit) | | programs | | programs (1) | |
July 1 to July 31, 2026 |
| — | | $ | — |
| — |
| 78,731 |
August 1 to August 31, 2026 |
| 94,997 | | $ | 207.49 |
| 94,997 |
| 983,734 |
September 1 to September 30, 2026 |
| 210,562 | | $ | 202.83 |
| 210,562 |
| 773,172 |
|
| 305,559 | | | |
| 305,559 | | |
(1) | Upon repurchase, shares of common stock are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of common stock issued and outstanding in our consolidated financial statements. In August 2026, our Board of Directors approved an additional 1,000,000 shares for repurchase under our stock repurchase program. As of September 30, 2026, 773,172 shares remained available for repurchase under the program. |
Contractual Obligations
During the first quarter of fiscal year 2027, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption. During the first quarter of fiscal year 2027, we adopted ASU 2024-04 and ASU 2025-05. These adoptions did not have a material impact on our condensed consolidated financial statements. See Note 1 for further discussion.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. Except for purchases of short-term investments, there have been no material changes in our exposure to market risk during the three months ended September 30, 2026 from that described in the Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2026, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon management’s review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the first quarter of fiscal 2027 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company have been detected.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to litigation and other legal proceedings and claims arising in the ordinary course of our business or otherwise. More information regarding legal proceedings in which we are involved can be found under Note 10, “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Report, which is incorporated by reference into this Item 1.
ITEM 1A. RISK FACTORS
The discussion of our business, financial condition and results of operations in this Quarterly Report on Form 10-Q for the period ended September 30, 2026 should be read together with the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026, filed with the SEC on August 21, 2026, which describe various risks and uncertainties that could materially affect our business, financial condition and results of operations in the future. There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
See Issuer Purchases of Equity Securities discussion under Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference into this Item 2.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Our directors and officers (as defined in Rule 16a-1 under the Exchange Act) may from time to time enter into plans or other arrangements for the purchase or sale of our shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or may represent a non-Rule 10b5-1 trading arrangement under the Exchange Act. During the first quarter of fiscal 2027, none of our directors or officers informed us of the
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ITEM 6. EXHIBITS
Exhibit | | Description |
31.1 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
31.2 | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
32.1 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
32.2 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | Inline XBRL Taxonomy Extension Schema |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Hawthorne, State of California on the 29th day of October 2026.
| | |
| OSI SYSTEMS, INC. | |
| | |
| By: | /s/ Ajay Mehra |
| | Ajay Mehra |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| By: | /s/ Alan Edrick |
| | Alan Edrick |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer) |
| | |
| By: | /s/ Cary Okawa |
| | Cary Okawa |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
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