Osi Systems Inc 10-Q for FY2020 Q3

Osi Systems Inc (OSIS)

10-Q 2020-05-01 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Osi Systems Inc filed this 10-Q on May 1, 2020, covering the quarter ended March 31, 2020 (FY2020 Q3).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $292.88M; down 3.7% from $304.28M a year earlier
Diluted EPS: $1.06; up 1.0% from $1.05 a year earlier

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Delaware		33-0238801
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	OSIS	The NASDAQ Global Select Market

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐


		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2019 and March 31, 2020	3
	Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2019 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2019 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2019 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2019 and 2020	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4 —	Controls and Procedures	33

PART II — OTHER INFORMATION		34
Item 1 —	Legal Proceedings	34
Item 1A —	Risk Factors	34
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3 —	Defaults Upon Senior Securities	35
Item 4 —	Mine Safety Disclosures	35
Item 5 —	Other Information	35
Item 6 —	Exhibits	36
Signatures		37


	June 30,		March 31,
	2019		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	96,316	$	101,026
Accounts receivable, net		238,440		257,505
Inventories		273,711		241,317
Prepaid expenses and other current assets		32,432		38,522
Total current assets		640,899		638,370
Property and equipment, net		127,385		128,518
Goodwill		307,108		308,639
Intangible assets, net		132,954		129,471
Other assets		56,518		81,596
Total assets	$	1,264,864	$	1,286,594

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	88,000	$	95,000
Current portion of long-term debt		804		903
Accounts payable		93,500		103,797
Accrued payroll and related expenses		43,521		37,577
Advances from customers		43,227		32,968
Other accrued expenses and current liabilities		112,956		105,717
Total current liabilities		382,008		375,962
Long-term debt		257,752		264,777
Deferred income taxes		7,979		6,881
Other long-term liabilities		65,398		86,698
Total liabilities		713,137		734,318
Commitments and contingencies (Note 9)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value—10,000,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 18,167,020 shares at June 30, 2019 and 18,010,625 shares at March 31, 2020		168,913		116,872
Retained earnings		399,541		460,828
Accumulated other comprehensive loss		(16,727)		(25,424)
Total stockholders’ equity		551,727		552,276
Total liabilities and stockholders’ equity	$	1,264,864	$	1,286,594


	Three Months Ended March 31,				Nine Months Ended March 31,
	2019		2020		2019		2020
Net revenues:
Products	$	224,778	$	213,257	$	632,660	$	646,790
Services		79,506		79,626		241,078		242,287
Total net revenues		304,284		292,883		873,738		889,077
Cost of goods sold:
Products		147,939		141,069		423,441		436,120
Services		45,029		42,707		132,724		133,866
Total cost of goods sold		192,968		183,776		556,165		569,986
Gross profit		111,316		109,107		317,573		319,091
Operating expenses:
Selling, general and administrative		67,278		65,576		196,082		191,655
Research and development		13,695		15,358		40,253		44,485
Impairment, restructuring and other charges (benefit), net		(1,777)		4,548		1,154		1,520
Total operating expenses		79,196		85,482		237,489		237,660
Income from operations		32,120		23,625		80,084		81,431
Interest and other expense, net		(5,595)		(4,706)		(16,546)		(14,286)
Income before income taxes		26,525		18,919		63,538		67,145
(Provision) benefit for income taxes		(6,899)		639		(15,403)		(5,858)
Net income	$	19,626	$	19,558	$	48,135	$	61,287
Earnings per share:
Basic	$	1.09	$	1.08	$	2.66	$	3.36
Diluted	$	1.05	$	1.06	$	2.58	$	3.28
Shares used in per share calculation:
Basic		18,079		18,182		18,085		18,251
Diluted		18,671		18,513		18,678		18,693


	Three Months Ended March 31, 2019
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—December 31, 2018	18,020,907	$	151,926	$	363,254	$	(18,984)	$	496,196
Exercise of stock options	58,613		1,196		—		—		1,196
Vesting of RSUs	1,219		—		—		—		—
Shares issued under employee stock purchase program	36,020		2,160		—		—		2,160
Stock-based compensation expense	—		5,888		—		—		5,888
Taxes paid related to net share settlement of equity awards	(15,918)		(786)		—		—		(786)
Net income	—		—		19,626		—		19,626
Other comprehensive income	—		—		—		1,528		1,528
Balance—March 31, 2019	18,100,841	$	160,384	$	382,880	$	(17,456)	$	525,808


	Three Months Ended March 31, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—December 31, 2019	18,267,574	$	133,566	$	441,270	$	(17,120)	$	557,716
Exercise of stock options	1,041		80		—		—		80
Vesting of RSUs	1,671		—		—		—		—
Shares issued under employee stock purchase program	36,758		2,221		—		—		2,221
Stock-based compensation expense	—		5,837		—		—		5,837
Repurchase of common stock	(295,833)		(24,781)		—		—		(24,781)
Taxes paid related to net share settlement of equity awards	(586)		(51)		—		—		(51)
Net income	—		—		19,558		—		19,558
Other comprehensive loss	—		—		—		(8,304)		(8,304)
Balance—March 31, 2020	18,010,625	$	116,872	$	460,828	$	(25,424)	$	552,276


	Nine Months Ended March 31, 2019
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2018	18,032,374	$	169,475	$	334,745	$	(14,784)	$	489,436
Exercise of stock options	108,008		1,985		—		—		1,985
Vesting of RSUs	357,924		—		—		—		—
Shares issued under employee stock purchase program	75,313		4,180		—		—		4,180
Stock-based compensation expense	—		19,514		—		—		19,514
Repurchase of common stock	(288,316)		(21,029)		—		—		(21,029)
Taxes paid related to net share settlement of equity awards	(184,462)		(13,741)		—		—		(13,741)
Net income	—		—		48,135		—		48,135
Other comprehensive loss	—		—		—		(2,672)		(2,672)
Balance—March 31, 2019	18,100,841	$	160,384	$	382,880	$	(17,456)	$	525,808


	Nine Months Ended March 31, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2019	18,167,020	$	168,913	$	399,541	$	(16,727)	$	551,727
Exercise of stock options	201,003		4,112		—		—		4,112
Vesting of RSUs	388,756		—		—		—		—
Shares issued under employee stock purchase program	71,595		4,286		—		—		4,286
Stock-based compensation expense	—		18,097		—		—		18,097
Repurchase of common stock	(562,707)		(51,775)		—		—		(51,775)
Taxes paid related to net share settlement of equity awards	(255,042)		(26,761)		—		—		(26,761)
Net income	—		—		61,287		—		61,287
Other comprehensive loss	—		—		—		(8,697)		(8,697)
Balance—March 31, 2020	18,010,625	$	116,872	$	460,828	$	(25,424)	$	552,276


	June 30, 2019								March 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Insurance company contracts	$	—	$	35,899	$	—	$	35,899	$	—	$	32,441	$	—	$	32,441
Liabilities:
Contingent consideration	$	—	$	—	$	16,577	$	16,577	$	—	$	—	$	13,206	$	13,206


	June 30,		March 31,
Contract Assets:	2019		2020		Change		% Change
Unbilled revenue	$	19,287	$	34,706	$	15,419	80	%


Contract Liabilities:
Advances from customers	$	43,227	$	32,968	$	(10,259)	(24)	%
Deferred revenue—current		33,641		30,745		(2,896)	(9)	%
Deferred revenue—long-term		9,506		14,511		5,005	53	%


	Three Months Ended		Nine Months Ended
	March 31, 2020		March 31, 2020
Operating lease cost	$	2,525	$	7,771
Variable lease cost		237		551
Short-term lease cost		350		745
	$	3,112	$	9,067


	Balance Sheet Category	March 31, 2020
Operating lease ROU assets, net	Other assets	$	26,397

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	8,118
Operating lease liabilities, long-term	Other long-term liabilities		18,648
Total operating lease liabilities		$	26,766

Weighted average remaining lease term			4.4 years
Weighted average discount rate			4.3%


	March 31, 2020
Less than one year	$	9,036
1 – 2 years		6,808
2 – 3 years		4,318
3 – 4 years		3,562
4 – 5 years		2,529
Thereafter		3,143
		29,396
Less: Imputed interest		(2,630)
Total lease liabilities	$	26,766


	June 30, 2019
Less than one year	$	9,802
1 – 2 years		8,082
2 – 3 years		5,473
3 – 4 years		3,397
4 – 5 years		2,954
Thereafter		4,583
Total lease liabilities	$	34,291


	June 30,		March 31,
Accounts receivable, net	2019		2020
Accounts receivable	$	253,504	$	274,364
Less allowance for doubtful accounts		(15,064)		(16,859)
Total	$	238,440	$	257,505

	June 30,		March 31,
Inventories	2019		2020
Raw materials	$	143,697	$	133,720
Work-in-process		67,897		59,070
Finished goods		62,117		48,527
Total	$	273,711	$	241,317


	June 30,		March 31,
Property and equipment, net	2019		2020
Land	$	16,564	$	16,513
Buildings, civil works and improvements		55,391		55,574
Leasehold improvements		8,311		8,628
Equipment and tooling		128,428		128,638
Furniture and fixtures		3,190		3,154
Computer equipment		18,733		18,525
Computer software		20,146		19,953
Computer software implementation in process		8,563		11,019
Construction in process		5,760		6,307
Total		265,086		268,311
Less accumulated depreciation and amortization		(137,701)		(139,793)
Property and equipment, net	$	127,385	$	128,518


	Balance at		Effect of Adoption		Balance at
Balance Sheet	June 30, 2019		of ASC 842		July 1, 2019
Assets
Other assets	$	56,518	$	30,066	$	86,584
Liabilities
Other accrued expenses and current liabilities	$	112,956	$	8,324	$	121,280
Other long-term liabilities		65,398		21,742		87,140


					Optoelectronics
					and
	Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated
Balance as of June 30, 2019	$	200,079	$	40,064	$	66,965	$	307,108
Goodwill acquired or adjusted during the period		2,213		—		1,033		3,246
Foreign currency translation adjustment		(517)		(55)		(1,143)		(1,715)
Balance as of March 31, 2020	$	201,775	$	40,009	$	66,855	$	308,639


		June 30, 2019						March 31, 2020
	Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8 years	$	29,393	$	(12,747)	$	16,646	$	37,129	$	(15,553)	$	21,576
Patents	19 years		8,688		(1,927)		6,761		9,681		(2,481)		7,200
Developed technology	10 years		53,460		(14,050)		39,410		54,804		(18,135)		36,669
Customer relationships/backlog	7 years		63,101		(22,132)		40,969		63,244		(28,144)		35,100
Total amortizable assets			154,642		(50,856)		103,786		164,858		(64,313)		100,545
Non-amortizable assets:
IPR&D			2,290		—		2,290		2,200		—		2,200
Trademarks			26,878		—		26,878		26,726		—		26,726
Total intangible assets		$	183,810	$	(50,856)	$	132,954	$	193,784	$	(64,313)	$	129,471


2020 (remaining 3 months)	$	4,639
2021		18,294
2022		15,581
2023		14,286
2024		13,543
Thereafter, including assets that have not yet begun to be amortized		34,202
Total	$	100,545


	Three Months Ended March 31, 2019
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Legal costs (recoveries), net	$	—	$	—	$	—	$	(1,777)	$	(1,777)


					Facility
			Employee		Closure/
	Acquisition-		Termination		Consolidation		Legal Costs and
	related Costs		Costs		Cost		Settlements		Total
Balance as of June 30, 2019	$	—	$	432	$	—	$	6,331	$	6,763
Restructuring and other charges (benefit), net		303		1,596		30		(3,667)		(1,738)
(Payments), adjustments and reimbursements, net		(303)		(2,022)		(30)		1,204		(1,151)
Balance as of March 31, 2020	$	—	$	6	$	—	$	3,868	$	3,874


		Weighted Average		Weighted-Average	Aggregate
	Number of	Exercise		Remaining Contractual	Intrinsic Value
	Options	Price		Term	(in thousands)
Outstanding at June 30, 2019	515,884	$	33.74
Granted	13,263		101.31
Exercised	(201,003)		20.45
Expired or forfeited	(1,092)		85.37
Outstanding at March 31, 2020	327,052		44.47	2.7 years	$	8,867
Exercisable at March 31, 2020	295,525		39.85	2.0 years		8,867


		Weighted-
		Average
	Shares	Fair Value
Nonvested at June 30, 2019	521,140	$	73.97
Granted	300,998		88.26
Vested	(388,756)		68.60
Forfeited	(13,907)		83.24
Nonvested at March 31, 2020	419,475		88.89


Beginning fair value, June 30, 2019	$	16,577
Addition of contingent earnout obligations		1,560
Foreign currency translation adjustment		(183)
Changes in fair value for contingent earnout obligations		(946)
Payments on contingent earnout obligations		(3,802)
Ending fair value, March 31, 2020	$	13,206


	Q3		% of		Q3		% of
	2019		Net Revenues		2020		Net Revenues		$ Change		% Change
Security	$	193.5	64	%	$	187.1	64	%	$	(6.4)	(3)	%
Healthcare		48.9	16			45.7	16			(3.2)	(7)
Optoelectronics and Manufacturing		61.9	20			60.1	20			(1.8)	(3)
Total net revenues	$	304.3	100	%	$	292.9	100	%	$	(11.4)	(4)	%


	YTD Q3		% of		YTD Q3		% of
	2019		Net Revenues		2020		Net Revenues		$ Change		% Change
Security	$	552.1	63	%	$	578.5	65	%	$	26.4	5	%
Healthcare		138.7	16			127.9	14			(10.8)	(8)
Optoelectronics and Manufacturing		182.9	21			182.7	21			(0.2)	—
Total net revenues	$	873.7	100	%	$	889.1	100	%	$	15.4	2	%


					Maximum number (or
					approximate dollar
					value) of
				Total number of	shares (or
				shares (or units)	units)
				purchased as	that may
	Total number of	Average price		part of publicly	yet be purchased
	shares (or units)	paid per share (or		announced plans or	under the plans or
	Purchased	unit)		programs	programs (1)
January 1 to January 31, 2020	28,303	$	89.71	28,303	267,530
February 1 to February 29, 2020	146,808		88.27	146,808	120,722
March 1 to March 31, 2020	120,722		76.90	120,722	—
	295,833			295,833

Exhibit Number		Description
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)


	OSI SYSTEMS, INC.

	By:	/s/ Deepak Chopra
		Deepak Chopra
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Alan Edrick
		Alan Edrick
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

	/s/ Deepak Chopra
	Deepak Chopra
	Chief Executive Officer
	(Principal Executive Officer)

	/s/ Alan Edrick
	Alan Edrick
	Chief Financial Officer
	(Principal Financial and Accounting Officer)