OSI Systems Highlights Strong Bookings, “Outstanding” Cash Flow Outlook at JPMorgan Conference

OSI Systems reported strong H1 revenues, bookings and profits and expects U.S. growth to become “outstanding”; despite slower Mexico collections management says free cash flow over the next 12 months could be “simply outstanding.”
Management sees sizable near- and medium-term security opportunities from U.S. border funding, an upcoming aviation checked-baggage replacement cycle and robust international demand, while the RF acquisition has driven momentum (a 3.3 book-to-bill) and OSI is positioned on the “Golden Dome” $151B IDIQ.
Higher-margin services — including field maintenance, turnkey “security as a service”, CertScan® SaaS and training — are expanding and should support margin improvement, and capital deployment priorities are targeted M&A, share repurchases and debt paydown with net leverage ~2x.
OSI Systems (NASDAQ:OSIS) executives struck an upbeat tone on growth, bookings, and cash flow prospects during a fireside chat at the JPMorgan Industrials Conference, with CFO Alan Edrick pointing to a robust pipeline in security, continued momentum in a recently acquired RF solutions business, and improvements underway in the company’s healthcare segment.
Strong year-to-date performance and a shift toward U.S. growth
Edrick said OSI Systems has delivered “strong revenues, strong bookings, and strong profits” in the first half of its fiscal year (the company has a June 30 fiscal year-end) and is approaching its fiscal third quarter. He said the company has grown substantially internationally in recent years, but expects U.S. growth to become “outstanding” over the next few years.
Security: DHS timing issues, border funding, and aviation replacement cycle
In the security segment, Edrick said the company is seeing significant activity in requests for information (RFIs) and requests for proposals (RFPs) tied to U.S. government demand, including border security equipment funding. He referenced the impact of last year’s government shutdown on booking timing, but said it did not impact the current fiscal year because the delayed bookings were expected to generate revenue in later years (2027–2029 timeframe).
Although he noted that the Department of Homeland Security “is still shut down” from a funding standpoint for fiscal 2026, Edrick said OSI continues working with key government parties and remains optimistic about near- and medium-term order flow.
On U.S. border security equipment funding, Edrick discussed multiple categories of government spending, including “just over $1 billion” for non-intrusive inspection scanning equipment—an area he said aligns directly with OSI’s work with Customs and Border Protection (CBP). He also cited additional funding in other agencies and event-related spending tied to the Olympics and the World Cup, calling the total “a very significant and sizable sum” the company aims to participate in meaningfully.
When asked about potential share of CBP awards, Edrick said OSI previously received roughly 40%–45% of sizable CBP awards and expressed hope the company could maintain or increase that share.
On aviation, he said OSI is larger and has higher market share in ports, borders, and critical infrastructure than in airports, but still holds a strong position in aviation screening. He described an upcoming U.S. checked-baggage replacement cycle that could span about five years and begin later in the decade. Edrick said this cycle could be incremental for OSI because the company did not have a checked baggage product when the original U.S. systems were installed, but later developed what he described as the industry’s first checked baggage machine specifically for security applications.
Internationally, Edrick said demand remains robust across both ports/borders and aviation. He highlighted the Middle East as “very fertile territory,” along with strength in Latin America and parts of Asia (excluding China), and said the company also does business across the European Union. He also noted that geopolitical conflict can create medium- and long-term opportunities for security businesses, though he acknowledged such events are “not necessarily always great” in broader terms.
Services: higher-margin growth and a “security as a service” model
Edrick emphasized the importance of services to OSI’s margin profile, saying service revenue posted strong double-digit growth in each quarter of calendar 2025. He said service margins are generally at least 10 percentage points higher than product margins, and that a growing service mix can support operating or EBITDA margin expansion.
He outlined four service areas:
Field service/maintenance: Post-warranty renewal contracts that can extend over a 7–10 year installed base, which Edrick characterized as high adoption and strong margin.
Turnkey / “security as a service”: OSI retains ownership of equipment on its balance sheet, staffs operations with OSI employees, and charges customers fees per scan or per site per month under long-term contracts (ranging from six to 15 years). Edrick said this has been primarily international to date.
CertScan® software: Developed out of the turnkey offering and now being offered as a standalone SaaS product. Edrick said the company is beta testing in the U.S. with “some real orders” and has also received “significant orders” outside the U.S., though he said it is still early.
Training revenue: An area OSI is expanding through increased training initiatives.
On risk in turnkey operations, Edrick said OSI is careful not to take on unnecessary exposure. He said government personnel typically sit alongside OSI staff and make final decisions on whether vehicles pass through, with OSI providing recommendations. He said the company has not seen particular liability associated with this model.
Addressing why higher service mix has not yet translated into more visible blended margin expansion, Edrick pointed to tough comparisons tied to large Mexico security contracts totaling about $800 million. He said repetitive production for those contracts created efficiencies and elevated product margins. As Mexico product revenues have been replaced with other product work at somewhat lower margins, growing service revenue has helped offset the change. Edrick said the final quarter of more challenging product-margin comparisons tied to Mexico is the March quarter, and he expects an opportunity for operating margin expansion beginning in the June quarter and into the next fiscal year.
RF solutions and “Golden Dome” positioning
Edrick discussed OSI’s acquisition roughly 18 months ago of an RF (radio frequency) solutions company, which he said has performed “incredibly well” with significant revenue growth and bookings. He said OSI combined the acquired company’s technologies with OSI’s broader sales channel and balance sheet, driving momentum. He cited a 3.3 book-to-bill ratio in the September quarter for that business and said bookings remained strong in the December quarter.
He also said OSI is part of a $151 billion IDIQ contract vehicle related to “Golden Dome,” and believes it is well positioned with over-the-horizon radar products. He noted the programs are classified and said the company cannot provide details, but added that OSI anticipates “nice orders” and has increased manufacturing capacity, beginning a move into new facilities in November 2025 and planning to complete the move during calendar 2026.
When asked about go-to-market, Edrick said OSI has both direct discussions with the U.S. government and engagement with prime contractors. He also said the RF business includes both U.S. Department of Defense and international demand, and that certain international sales have been direct (not through Foreign Military Sales), with profitability “in line with” overall security margins.
Cash flow outlook, Mexico collections, and capital allocation
On free cash flow, Edrick said collections tied to Mexico—particularly a large contract with Mexico’s defense ministry group SEDENA—have been slower than desired but that OSI remains confident it will collect all amounts owed, citing a decades-long history of Mexico paying “every single dollar or peso” owed, albeit not always on time. He said both billed and unbilled receivables are substantial, with unbilled receivables converting into billed receivables, and he expects free cash flow over the next 12 months to have the opportunity to be “simply outstanding.”
On capital intensity, Edrick said OSI is relatively light on capital expenditures year over year. He noted CapEx can rise in a “good way” when the company expands turnkey/security-as-a-service programs because the equipment is placed on OSI’s balance sheet.
For capital deployment, Edrick listed three primary uses:
M&A (particularly in security and optoelectronics), while emphasizing the company is not compelled to acquire due to strong organic growth and remains disciplined on valuation.
Share repurchases, noting the company bought back “significant stock” in November and expects to continue repurchases over time.
Debt paydown with excess cash.
He said OSI’s net leverage is “just over 2x” and described that as modest. For the right strategic acquisition with a clear path to deleveraging, he said the company would consider leverage up to 3.5x or more, referencing its prior acquisition of American Science and Engineering, where leverage rose to the mid-3x range before returning toward current levels within two years.
In optoelectronics, Edrick said the business has grown 11%–12% in the first two quarters of the fiscal year, with some operating margin expansion year over year and strong free cash flow. He also highlighted the segment’s role in vertical integration, supplying key components into OSI’s security and healthcare products. In healthcare, he said a new segment president joined about a year ago and has retooled the team, with the company planning a multi-phase launch of a next-generation patient monitoring platform beginning toward the end of calendar 2026. Edrick said healthcare is under 10% of revenue and a smaller portion of profits, but has the highest contribution margins on incremental revenue.
About OSI Systems (NASDAQ:OSIS)
OSI Systems, Inc (NASDAQ: OSIS) is a publicly traded technology company founded in 1987 and headquartered in Hawthorne, California. The company designs, develops and manufactures advanced security and inspection systems, optoelectronic devices and medical imaging equipment. Over its history, OSI Systems has grown its product offerings through internal research and development as well as strategic acquisitions, expanding its capabilities in mission-critical sensing and inspection technologies.
OSI Systems operates three primary business segments.