Key Highlights

  • Net revenues rose 4.9% to $403.5 million from $384.6 million.
  • Net income was $24.6 million, or $1.51 per diluted share, versus $20.6 million, or $1.18.
  • Optoelectronics and Manufacturing Revenue grew 16.4% to $104.3 million.
  • Healthcare revenue declined 13.8% to $35.1 million.
  • Gross Margin was 30.7%, down from 32.0% a year earlier.

Revenue climbs 4.9% on contract manufacturing and security services

OSI Systems (NASDAQ:OSIS) is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications, selling into homeland security, healthcare, defense and aerospace markets. It reported results for the first quarter of fiscal 2027, the three months ended September 30, 2026, in its quarterly filing.

Net revenues were $403.5 million, up $18.9 million, or 4.9%, from $384.6 million. Security, the largest division, grew 3.9% to $264.1 million, with product revenues up about $3.6 million and service revenues up about $6.2 million. The company cited higher RF system and checkpoint screening revenues, partly offset by lower cargo and vehicle inspection revenues.

Optoelectronics and Manufacturing leads while Healthcare slips

Optoelectronics and Manufacturing was the fastest grower, rising 16.4% to $104.3 million, with about $5.5 million more from optoelectronics and $9.2 million more from contract manufacturing. The division now represents 25.8% of revenue, up from 23.3%.

Healthcare moved the other way, falling 13.8% to $35.1 million from $40.7 million. The company attributed the drop mainly to lower patient monitoring revenues, principally in the United States, reflecting the timing of customer orders.

Gross margin narrows to 30.7% on mix

Gross profit was $123.8 million, barely above $123.2 million a year earlier, so the margin slipped to 30.7% from 32.0%. The company pointed to lower Healthcare revenues, which generally carry higher margins, unfavorable mix within Security, and growth in lower-margin contract manufacturing.

Operating expenses were flat at $90.2 million, and income from operations was $33.6 million, up from $33.1 million. Lower net interest and other expense of $3.3 million, against $7.4 million, reflected higher Investment income and lower Credit Facility interest, lifting Net Income to $24.6 million.

Fewer shares amplify per-share growth

Net income rose about 19.5% on a calculated basis, while diluted EPS climbed from $1.18 to $1.51, a gain of roughly 28% on a calculated basis. The gap reflects a lower share count, with diluted shares at 16.3 million against 17.5 million a year earlier.

The company repurchased 305,559 shares in the quarter, and 773,172 shares remained available under its program at September 30, 2026, after the Board added one million shares in August 2026.

Middle East delays and the Balance Sheet shape the next quarters

The company said conflicts in the Middle East continued to affect certain customer projects, delaying shipments, installations, acceptance procedures and the timing of some orders. It said these delays had not produced cancellations, and the related orders remain in Backlog with revised delivery schedules.

Operating cash flow was $37.1 million, compared with $17.1 million a year earlier. Cash and cash equivalents were $236.3 million, down from $359.8 million at June 30, 2026, and short-term investments were $65.7 million. There were no borrowings under the $725.0 million revolving credit facility, $90.0 million was outstanding on the term loan, and $637.4 million was available to borrow. The company also has convertible senior notes outstanding, a 2.25% series due in 2029 and a 0.50% series due in 2031.

Readers will likely watch whether Healthcare orders recover, whether Security mix improves gross margin, and how the Middle East delays resolve.