OSI Systems Reports Third Quarter Fiscal 2019 Financial Results

OSI Systems, Inc. (the “Company” or “OSI Systems”) (NASDAQ: OSIS) today
announced financial results for the three and nine months ended March
31, 2019.

Deepak Chopra, OSI Systems’ Chairman and Chief Executive Officer,
stated, “We are pleased to report excellent third quarter revenues,
earnings and cash flow. This quarter was marked by strength in each of
our three divisions, positioning the Company for a strong fiscal 2019.”

The Company reported revenues of $304.3 million for the third quarter of
fiscal 2019, an increase of 14% from the $267.3 million reported for the
third quarter of fiscal 2018. Net income for the third quarter of fiscal
2019 was $19.6 million, or $1.05 per diluted share, compared to net
income of $2.6 million, or $0.13 per diluted share, for the third
quarter of fiscal 2018. Non-GAAP net income for the third quarter of
fiscal 2019 was $21.8 million, or $1.17 per diluted share, compared to
non-GAAP net income for the third quarter of fiscal 2018 of $16.5
million, or $0.86 per diluted share.

For the nine months ended March 31, 2019, revenues increased 9% to
$873.7 million, compared to $802.0 million for the same period in the
prior year. Net income for this period was $48.1 million, or $2.58 per
diluted share, compared with net loss of $34.2 million, or ($1.82) per
diluted share, for the same period a year ago. Non-GAAP net income for
the nine months ended March 31, 2019 was $59.1 million, or $3.17 per
diluted share, compared with non-GAAP net income of $51.2 million, or
$2.63 per diluted share, for the comparable prior-year period.

The Company’s backlog was $936 million as of March 31, 2019. Operating
cash flow during the quarter ended March 31, 2019 was $46.9 million, and
capital expenditures were $8.3 million, compared to $31.1 million and
$4.4 million, respectively, for the comparable prior year period.

Mr. Chopra commented, “Our Security division delivered record third
quarter revenues of $193 million, or a 14% increase compared with the
prior-year period. This led to strong profits and year-over-year
operating margin expansion. This increase in sales was driven by
outstanding growth in cargo scanning equipment sales.”

“As we noted last quarter, we are building positive momentum in the
Healthcare division. Led by the performance in the United States, our
Healthcare division revenues increased 12% year-over-year with
significant improvement in operating income. With our enhanced focus and
leadership, we believe we are well positioned for further operating
margin expansion,” Mr. Chopra continued.

Mr. Chopra concluded, “Our Optoelectronics and Manufacturing division
continued to perform well, delivering 7% year-over-year sales growth and
a strong operating margin.”

The Company’s effective tax rate for the three and nine months ended
March 31, 2019 was 26.0% and 24.2%, respectively. Excluding the benefit
of certain discrete tax items, the Company’s tax rate for the three and
nine months ended March 31, 2019 was 28.6% and 28.4%, respectively. The
Company’s reported tax rate was 18.1% and 210.0% for the three and nine
months ended March 31, 2018. Excluding a $56 million charge recorded in
the second quarter of fiscal 2018 resulting from the enactment of the
Tax Cuts and Jobs Act (the “Tax Act”) in December 2017 and certain
discrete tax items, the Company’s effective tax rate was 28.2% for the
three and nine months ended March 31, 2018.

Fiscal Year 2019 Outlook

The Company is raising its fiscal 2019 sales guidance from the previous
range of $1.150 billion – $1.185 billion to a range of $1.165 billion –
$1.190 billion. In addition, the Company is increasing its non-GAAP
earnings guidance from the previous range of $3.93 – $4.10 to a range of
$4.10 – $4.30 per diluted share for fiscal 2019. Actual sales and
non-GAAP diluted earnings per share could vary from this guidance due to
factors discussed under “Forward-Looking Statements” and other factors.

The Company’s fiscal 2019 diluted earnings per share guidance is
provided on a non-GAAP basis only. The Company does not provide a
reconciliation of guidance for non-GAAP diluted EPS to GAAP diluted EPS
(the most directly comparable GAAP measure) on a forward-looking basis
because the Company is unable to provide a meaningful or accurate
compilation of reconciling items and certain information is not
available. This is due to the inherent difficulty and complexity in
accurately forecasting the timing and amounts of various items that
would be excluded from GAAP diluted EPS, including, for example,
acquisition costs and other non-recurring items that have not yet
occurred, are out of the Company’s control, or cannot be reasonably
predicted. For the same reasons, the Company is unable to address the
probable significance of unavailable information which may be material
and therefore could result in GAAP diluted EPS, the corresponding GAAP
financial measure, being materially less than projected non-GAAP diluted
EPS.

Presentation of Non-GAAP Financial Measures

This earnings release includes a presentation of non-GAAP net income,
non-GAAP diluted earnings per share, non-GAAP operating income (loss) by
segment and non-GAAP operating margin, all of which are non-GAAP
financial measures. The presentation of these non-GAAP figures for the
three and nine month periods ended March 31, 2018 and 2019 is provided
to allow for the comparison of the underlying performance of the
Company, net of impairment, restructuring and other charges (including
certain legal costs), amortization of intangible assets acquired through
business acquisitions and non-cash interest expense related to
convertible debt, and their associated tax effects, and the impact of
discrete income tax items including charges resulting from the
implementation of the Tax Act. Management believes that these non-GAAP
financial measures provide (i) enhanced insight into the ongoing
operations of the Company, (ii) meaningful supplemental information
regarding the Company’s financial results (excluding amounts management
does not view as reflective of ongoing operating results) for purposes
of planning, forecasting, and assessing the performance of the Company’s
businesses, (iii) a meaningful comparison of financial results of the
current period against results of past periods, and (iv) financial
results that are comparable to those of peer companies. Non-GAAP
financial measures should not be assessed in isolation or as a
substitute for measures of financial performance prepared in accordance
with GAAP. These non-GAAP measures may not be the same as measures used
by other companies due to possible differences in methods and in the
items or events for which adjustments are made.

Reconciliations of GAAP to non-GAAP financial information are provided
in the accompanying tables. The financial results calculated in
accordance with GAAP and reconciliations from those financial results
should be carefully evaluated.

Conference Call Information

The Company will host a conference call and simultaneous webcast
beginning at 1:30pm PT (4:30pm ET) today to discuss its results for the
third quarter of fiscal 2019. To listen, please visit the Investor
Relations section of the OSI Systems website, http://investors.osi-systems.com/index.cfm
and follow the link that will be posted on the front page. A replay of
the webcast will be available shortly after the conclusion of the
conference call until May 14, 2019. The replay can either be accessed
through the Company’s website, www.osi-systems.com,
or by telephonic replay by calling 1-855-859-2056 and entering the
conference call identification number ‘9587236’ when prompted for the
replay code.

About OSI Systems

OSI Systems is a vertically integrated designer and manufacturer of
specialized electronic systems and components for critical applications
in the homeland security, healthcare, defense and aerospace industries.
The Company combines more than 40 years of electronics engineering and
manufacturing experience with offices and production facilities in more
than a dozen countries to implement a strategy of expansion into
selective end-product markets. For more information on OSI Systems or
its subsidiary companies, visit www.osi-systems.com.
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Forward-Looking Statements

This press release 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. Forward-looking statements
relate to the Company’s current expectations, beliefs, and projections
concerning matters that are not historical facts. Forward-looking
statements are not guarantees of future performance and involve
uncertainties, risks, assumptions, and contingencies, many of which are
outside the Company’s control and which may cause actual results to
differ materially from those described in or implied by any
forward-looking statement. Forward-looking statements include, but are
not limited to, information provided regarding expected revenues,
earnings, growth, and operational performance in fiscal 2019. The
Company 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; delays in revenue recognition related to
the timing of customer acceptance; unanticipated impacts of
sequestration and other U.S. Government budget control provisions;
changes in domestic and foreign government spending and budgetary,
procurement and trade policies adverse to the Company’s businesses;
global economic uncertainty; unfavorable currency exchange rate
fluctuations; effect of changes in tax legislation, including the
Tax Act; market acceptance of the Company’s new and existing
technologies, products, and services; the Company’s ability to win new
business and convert orders received to sales within the fiscal year;
enforcement actions in respect of any noncompliance with laws and
regulations, including export control and environmental regulations and
the matters that are the subject of some or all of the Company’s ongoing
investigations and compliance reviews; contract and regulatory
compliance matters, and actions, if brought, resulting in judgments,
settlements, fines, injunctions, debarment, or penalties; and other
risks and uncertainties, including, but not limited to, those detailed
herein and from time to time in the Company’s Securities and Exchange
Commission filings, which could have a material and adverse impact on
the Company’s business, financial condition, and results of operations.
For additional information on these and other factors that could cause
the Company’s future results to differ materially from those in any
forward-looking statements, see the section titled “Risk Factors” in the
Company’s most recently filed Annual Report on Form 10-K and other risks
described therein and in documents subsequently filed by the Company
from time to time with the Securities and Exchange Commission. Undue
reliance should not be placed on forward-looking statements, which are
based on currently available information and speak only as of the date
on which they are made. The Company assumes no obligation to
update any forward-looking statement made in this press release that
becomes untrue because of subsequent events, new information, or
otherwise, except to the extent it is required to do so under federal
securities laws.

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