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OSI Systems, Inc. (



F1Q2011 Earnings Conference Call

October 26, 2010 12 PM ET


Alan Edrick – EVP and CFO

Deepak Chopra – Chairman, President and CEO

Ajay Mehra – EVP and President, Security Division


Brian Ruttenbur – Morgan Keegan

Rick Hoss – Roth Capital Partners

Tim Quillin – Stephens Inc.

Michael Kim – Imperial Capital

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Josephine Millward – Benchmark Company



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Good day ladies and gentlemen and welcome to the first quarter 2011 OSI Systems earnings conference call. My name is Chris and I’ll be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Alan Edrick, Chief Financial Officer. Please proceed.



Thank you. Good morning and thank you for joining us today. I’m Alan Edrick, Executive Vice President and Chief Financial Officer of OSI Systems. I’m here today with Deepak Chopra, our President and CEO, Ajay Mehra, President of our Security Division, Rapiscan Systems, and Victor Sze, our General Council.

Welcome to the OSI Systems first quarter of fiscal 2011 conference call. We’d like to extend a special welcome to anyone who is a first time participant on our conference calls. Please also note that this presentation is being webcast and will remain on our website for approximately two weeks.

Before discussing our financial and operational highlights, I’d like to read the following statement. In connection with this conference call, the company wishes to take advantage of the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking statements under the act. Such forward-looking statements could include general or specific comments by company officials on this call about future company performance as well as certain responses to questions posed to company officials about future operating matters.

During today’s conference call, we may refer to both GAAP and non-GAAP financial measures of the company’s rating and financial results. For complete information regarding non-GAAP measures, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today’s press release regarding our first quarter results.

The press release has also been filed with the SEC as part of a Form 8-K. The company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from any forward-looking statements made by the company. These factors include the risk factors set forth in the company’s SEC filings. Any forward-looking statements made on this call speak only as of the date of this call, and the company undertakes no obligation to revise or to update any forward-looking statements whether as a result of new information, future results or otherwise.

Before turning the call over to Deepak, I will provide a high level overview of our financial performance during our first quarter. We will again, touch on several themes that we discussed during past conference calls.

We continue to execute on our core strategy of generating meaningful earnings growth and free cash flow. Simultaneously, we continue to invest in key sales markets and R&D programs to drive bookings. As a result of these programs, which have led to an outstanding backlog, we anticipate seeing an acceleration of sales growth, that when coupled with our demonstrated margin expansion, is expected to continue the strong earnings momentum.

Highlights for our first quarter of fiscal 2011 are as follows. First, Q1 bookings of $196 million were outstanding, shattering our previous record of $175 million. This led to a record backlog of $308 million, a 28 percent increase from the June backlog of $240 million, which in and of itself was a record.

Leading the growth was our Security Division, Rapiscan, which posted a Q1 book to bill ratio of 2.2, resulting in a new record Security backlog of $205 million. Although a small portion of the growth in backlog was driven by the push out of deliveries based upon customer requests which impacted Q1 sales, the vast majority of the growth was driven by very strong U.S. Security bookings.

We also saw growth in both our Healthcare and Opto Division backlogs, providing added visibility for sales growth over the remainder of our fiscal year.

Second, although sales declined four percent for the quarter, due in part to customer push outs as just mentioned, we reported a 36 percent increase in Q1 to diluted earnings per share excluding restructuring charges.

This quarter’s results mark the strongest Q1 EPS in the past eight years and the thirteenth quarter out of the last 14 that we generated year over year earnings growth. Continued improvement in operating efficiencies, leading to gross margin expansion, coupled with the cost containment initiatives drove the solid improvement.

Third, we reported positive free cash flow for the eleventh consecutive quarter for an aggregate of over $82 million generated over this period. For the quarter, we generated approximately $8 million in free cash flow, representing approximately $0.40 per share.

And fourth, subsequent to quarter end, we announced the completion of a new $250 million credit facility on very favorable terms. Concurrent with closing the facility, we applied a portion of our existing cash balances to pay off a term loan of approximately $25 million that was outstanding under the former facility. As a result, our debt now consists of about $4 million in real estate loans and capital leases. We believe this new five year facility positions us exceptionally well to capture growth opportunities.

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