OSI Systems, Inc. (OSIS)
Q4 2010 Earnings Call
August 25, 2010 12:00 PM ET
Alan Edrick – Executive Vice President and CFO
Deepak Chopra – President and CEO
Ajay Mehra – President, Security Division, Rapiscan Systems
Victor Sze – General Counsel
Brian Ruttenbur – Morgan Keegan
Rick Hoss – Roth Capital Partners
Tim Quillin – Stephens Inc.
Michael Kim – Imperial Capital
Josephine Millward – The Benchmark Company
Previous Statements by OSIS
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Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2010 OSI Systems Earnings Conference Call. My name is Michelle, and I will be your operator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of today’s conference. (Operator Instructions)
As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today, Mr. Alan Edrick, CFO. Please proceed.
Good morning and thank you for joining us. I’m Alan Edrick, Executive Vice President and CFO 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 Counsel.
Welcome to the OSI Systems fourth quarter of fiscal 2010 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 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 operating 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 fourth quarter results.
The press release has also been furnished to 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 fourth 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 are investing in key sales markets and R&D programs to drive the topline. As a result of these programs, amongst other factors, we anticipate seeing an acceleration of sales growth that when coupled with our demonstrated margin expansion is expected to continue our strong earnings momentum.
Highlights for our fourth quarter of fiscal 2010 are as follows. First, we returned to strong double-digit year-over-year Q4 sales growth of 19%. Leading the way was our Security Division, which posted record quarterly revenue of $76 million, representing 29% growth, the strongest quarterly growth since the second quarter of fiscal 2008. Our Healthcare Division also rebounded strongly, recording 15% sales growth, while our Opto Division finished the year on a high note, as well as sales increased 6%.
Second, we reported a solid bottom line as our operating margin expansion led to a 62% increase in Q4 diluted earnings per share, excluding restructuring and other charges. For the full year, we reported normalized EPS growth of 53% or $1.39 per share, which exceeded our previous guidance primarily due to the strength of our Q4 sales in Healthcare. The key to the annual earnings growth has been the successful and sustained implementation of our global cost improvement initiatives coupled with demonstrated operating efficiencies.
Third, with outstanding bookings of $175 million in Q4, we ended the quarter with a record backlog providing good visibility into fiscal 2011 sales.
And fourth, we reported positive free cash flow for the 10th consecutive quarter. During Q4, we generated $6.6 million of free cash flow while for the full fiscal year generated a record of $34.1 million of free cash flow or approximately $1.85 per diluted share. As a result, we moved from a net debt position to a solid net cash position as of the end of June 2010.
In summary, we are pleased with the financial performance as nearly all metrics improved significantly. As the economy rebounds, we believe we are well positioned for significant topline growth and operating margin expansion.
I will provide additional financial details and will discuss our fiscal 2011 guidance later on this call, but first, let me turn the call over to Deepak.