OSI Systems, Inc. F3Q10 (Qtr End 03/31/10) Earnings Call Transcript

OSI Systems, Inc. F3Q10 (Qtr End 03/31/10) Earnings Call Transcript
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OSI Systems, Inc. (OSIS)

Q3 2010 Earnings Call

April 26, 2010 12:00 pm ET

Executives

Deepak Chopra – CEO

Alan Edrick – EVP & CFO

Ajay Mehra - President Security Division, Rapiscan Systems

Analysts

Tim Quillin - Stephens Incorporated

Brian Ruttenbur - Morgan Keegan

Rick Hoss - Roth Capital Partners

Josephine Millward – Benchmark

Michael Kim – Imperial Capital

Unspecified Analyst

Presentation

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Good day ladies and gentlemen and welcome to the third quarter 2010 OSI Systems earnings conference call. (Operator's Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Alan Edrick; please proceed, sir.

Alan

Edrick

Good morning, and thank you for joining us. 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 Counsel.

Welcome to the OSI Systems third quarter 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 web-cast 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 our 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 third quarter results.

The press release has also been filed with the SEC as part of our 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 obligations 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 third 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 through margin expansion, as we simultaneously invest in key sales markets and R&D initiatives, we anticipate seeing an acceleration of sales growth.

Highlights for our third quarter of fiscal 2010 are as follows. First, we returned to year over year sales growth, albeit very modest growth, following a period of declining sales primarily associated with the recent recession. Leading the way was our security division, which posted a 23% sales increase.

This strong growth was tempered by a continuing challenging environment in our healthcare business and the expected third quarter reduction in our opto sales. Second, we continued to leverage our improved cost structure leading to a 50% increase in diluted earnings per share excluding restructuring and other charges representing strong earnings growth in 11 out of the past 12 quarters.

Third, we reported positive free cash flow for the ninth consecutive quarter. For the quarter we generated approximately $11 million in free cash flow or $0.59 per diluted share. As a result we are now in a net cash position with total cash of $46 million and debt totaling $38 million.

Fourth, earlier in Q3 we announced a major contract win with the Puerto Rico Ports Authority. As mentioned in our previous conference call this represents an important new avenue for growth for our security division and services. We expect that this 10 year contract will generate a significant stream of revenue that will likely lead to operating and margin expansion in fiscal 2011.

Revenues related to this deal are not included in our backlog. In summary we are pleased with the strong earnings and cash flow performance. As the economy rebounds we believe we are well positioned for significant top line growth and operating margin expansion.

I will provide additional Q3 and year to date financial details and will discuss our fiscal 2010 guidance, but first let me turn the call over to Deepak.

Deepak Chopra

Thank you Alan, and again good morning and welcome to the OSI Systems earnings conference call for the third quarter of fiscal 2010.

We continued to deliver positive results for our shareholders, despite the continued challenging economic environment. As Alan pointed out our financial performance was again very strong in our Q3, highlighted by strong earnings growth and cash flow.

Going forward as sales growth accelerates we are well positioned for margin expansion primarily a result of the initiatives we have implemented to reduce our cost structure and improve our overall operating efficiencies.

I’d like to spend some time focusing on our business segments, security division, Rapiscan, our security division continues to perform well. Revenues increased 23% in Q3, a new record for the division, and our operating profit more than doubled demonstrating the leverage in our model.

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