OSI Systems reported fiscal 2026 second-quarter revenue of $464 million, an 11% increase year over year and a new quarter-high for the company. Non-GAAP adjusted earnings per diluted share reached $2.58, up from $2.42 in the year-ago period, reflecting robust top-line growth despite a difficult comparison driven by large security program shipments in Mexico during the prior year. Operating cash flow was characterized as solid by CFO Alan Edrick, who noted that calendar 2026 cash generation could surpass this quarter’s performance.

Security segment revenue rose 15% to $335 million, supported by higher service revenues, expanded RF business and increased aviation product sales. Excluding $27 million in Mexico contract revenue (down from $54 million prior), Security revenue climbed 31%. Optoelectronics and Manufacturing posted a record quarter with sales up 12% to $113 million, driven by demand across medical diagnostics, semiconductor inspection and diversified end markets. In contrast, Healthcare sales were described as soft; management has intensified sales efforts and is investing in next-generation imaging solutions to reverse the downturn over time.

Gross margin stood at 33%, down year over year due to product mix pressures that more than offset service margin gains. Non-GAAP operating margin was 14%, up sequentially but down from the prior year’s elevated comparison. SG&A expenses fell 1% to $70.2 million (15.1% of sales) while R&D increased to $19.8 million (4.3% of revenue) as the company continued innovation investments. OSI ended the quarter with net leverage of 2.2x under its credit facility, bolstered by a November convertible notes issuance that raised $575 million at a 0.5% coupon and funded revolver paydown. Approximately 547,000 shares were repurchased in connection with the transaction.

For fiscal 2026, OSI Systems raised its non-GAAP diluted EPS guidance to a range of $10.30–$10.55, implying 10%–13% year-over-year growth, while keeping revenue guidance unchanged. Management expects a third-quarter revenue headwind exceeding $50 million as the year-ago Mexico comparison eases, with significantly stronger growth in the fourth quarter as backlog converts. Risks cited include timing of backlog conversion, new bookings, cash-collection variability, tariffs and potential government shutdowns. The updated guidance excludes potential impairment, restructuring or other non-recurring items.