Financial Data and Key Metrics Changes - The company reported a revenue increase of 11% year-over-year, reaching a record $464 million for Q2 [4][6] - Non-GAAP adjusted EPS for Q2 was $2.58, marking a significant increase [4] - Operating cash flow improved to $62 million, with expectations for stronger cash flow in calendar 2026 [4][18] - Gross margin for Q2 was 33%, down from the previous year due to a less favorable revenue mix [14] Business Line Data and Key Metrics Changes - Security division revenues increased by 15% year-over-year to $335 million, driven by higher service revenues and RF business growth [13] - Optoelectronics and Manufacturing division achieved a 12% revenue increase to $113 million, setting a new Q2 record [14] - Healthcare division faced challenges, with sales remaining soft, but the company is focused on long-term value creation [10][11] Market Data and Key Metrics Changes - The overall backlog remained stable at $1.8 billion, with expectations for strong demand in the coming months [24] - The company is seeing increased international demand, particularly in the Middle East and the U.S. [66] Company Strategy and Development Direction - The company is committed to innovation, with increased R&D spending to enhance product offerings, particularly in the Security division [15] - Expansion of RF operational footprint in Texas to increase production capacity and operational efficiency [9] - The company is focused on long-term growth opportunities, particularly in the Security and Optoelectronics sectors [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a strong second half of fiscal 2026, despite challenges in the Healthcare division [11][22] - The anticipated revenue headwind from Mexico contracts is expected to be most significant in Q3, with a rebound in Q4 [20][40] - Management highlighted the importance of government contracts and international orders for future growth [25][66] Other Important Information - The company raised its fiscal 2026 non-GAAP EPS guidance to a range of $10.30-$10.55, reflecting a year-over-year growth of 10%-13% [20] - The company completed a convertible notes transaction, raising $575 million to enhance liquidity and financial flexibility [19] Q&A Session Summary Question: Orders activity in Security was softer than expected - Management acknowledged that some orders were delayed due to the government shutdown but remain optimistic about the pipeline [24] Question: Details on the IDIQ contract with Golden Dome - Management indicated that while timing is uncertain, they are well-positioned for future orders related to this significant contract [25][26] Question: Interest expense outlook - Management expects a decrease in interest expense from Q2 to Q3 due to the paydown of the revolver [27] Question: Cash flow expectations - Management anticipates strong free cash flow driven by the normalization of receivables from Mexico [34] Question: Margin outlook and service revenue growth - Management expects service revenue growth to outpace product revenue growth, leading to potential margin expansion [36][37] Question: Pipeline for aviation market - Management confirmed a strong pipeline in the aviation market, with ongoing opportunities despite some delays [44] Question: International demand for Security products - Management noted increased interest from various regions, particularly the Middle East and the U.S. [66] Question: Impact of funding issues on revenue outlook - Management stated that current funding issues are not expected to significantly impact revenue or cash outlook [67]

Financial Performance - The company reported Q2 revenues of $464 million, an increase of 11% year-over-year, setting a Q2 record [4][6] - Non-GAAP adjusted EPS reached a record of $2.58, reflecting strong earnings growth [4] - Operating cash flow was solid at $62 million, with expectations for even stronger cash flow in calendar 2026 [4][18] Business Segment Performance - The security division generated revenues of $335 million, up 15% year-over-year, driven by higher service revenues and RF business integration [13][14] - Optoelectronics and Manufacturing division revenues increased 12% year-over-year to $113 million, achieving a new Q2 record [14] - The Healthcare division faced challenges, with sales remaining soft, but the company is focused on long-term value creation through intensified sales efforts [10][11] Market Dynamics - The security division's bookings were lower than expected due to delays from the U.S. government shutdown and international customer pushouts, but the pipeline remains strong [7][24] - The RF business is expanding with a $30 million international order for naval operations and participation in the Golden Dome missile defense initiative, which has a ceiling value of $151 billion [8][9] - The optoelectronics division is benefiting from OEMs diversifying supply chains away from China, with strong demand across various industries [10] Strategic Direction - The company is committed to innovation, as reflected in increased R&D spending, which rose to $19.8 million, or 4.3% of revenues [15] - The company is raising its fiscal 2026 non-GAAP EPS guidance to a range of $10.30-$10.55, indicating 10%-13% year-over-year growth [20] - The focus remains on operational excellence and long-term value creation for shareholders, with plans to invest in key strategic areas [22] Management Commentary - Management expressed confidence in a strong second half of fiscal 2026, supported by a healthy backlog and anticipated cash inflows from Mexico receivables [6][18] - The company acknowledged the impact of the government shutdown on order timing but remains optimistic about future growth opportunities [32][34] - Management highlighted the importance of service revenue growth, which is expected to outpace product revenue growth, contributing to margin expansion [36][37] Other Important Information - The company completed a convertible notes transaction raising $575 million, enhancing liquidity and financial flexibility [19] - The balance sheet remains solid, with net leverage at approximately 2.2 [19] Q&A Session Question: Orders activity in security was softer than expected - Management acknowledged that orders were lower due to delays but emphasized that these opportunities are still alive in the pipeline [24] Question: Details on the IDIQ contract with Golden Dome - Management indicated that while timing is uncertain, they feel well-positioned for future orders related to this significant contract [25][26] Question: Interest expense outlook - Management expects a decrease in interest expense from Q2 to Q3 due to the paydown of the revolver [27] Question: Cash flow expectations - Management anticipates strong free cash flow over the next 12 months, with potential for additional share buybacks [28] Question: Impact of government shutdown on RFP timing - Management noted that the shutdown has pushed some timelines to the right, but they expect some cash flow in the first half of the year [32] Question: Opportunities in the radio frequency business - Management expressed confidence in growth prospects for the RF business, particularly related to the Golden Dome initiative [56] Question: Pipeline for major events like FIFA World Cup and Olympics - Management highlighted their strong position and experience in handling major events, indicating a robust pipeline for upcoming opportunities [60]

Financial Performance - The company reported Q2 revenues of $464 million, an increase of 11% year-over-year, setting a Q2 record [4][13] - Non-GAAP adjusted EPS reached a record of $2.58, reflecting strong earnings growth [4] - Operating cash flow was solid at $62 million, with expectations for even stronger cash flow in calendar 2026 [4][19] Business Segment Performance - The security division achieved revenues of $335 million, up 15% year-over-year, driven by higher service revenues and RF business growth [13][14] - Optoelectronics and Manufacturing division revenues increased 12% year-over-year to $113 million, marking a new Q2 record [14][10] - The Healthcare division faced challenges, with sales being soft in Q2, but the company is focused on long-term value creation through intensified sales efforts and new product development [11][12] Market Performance - The security division's bookings were lower than expected due to delays from the U.S. government shutdown and international customer pushouts, but the pipeline remains strong [7][26] - The RF business is expanding with new contracts, including a $30 million order for naval operations and participation in the Golden Dome missile defense initiative [9][10] - The optoelectronics division is benefiting from OEMs diversifying supply chains away from China, with strong demand across various industries [11] Company Strategy and Industry Competition - The company is committed to innovation, as reflected in increased R&D spending, which rose to $19.8 million in Q2 [16][17] - The expansion of manufacturing facilities in Texas aims to enhance production capacity and operational efficiency in the RF sector [10] - The company is well-positioned in the security market, with a broad range of offerings and a healthy backlog, providing confidence for future growth [6][10] Management Commentary on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2026, anticipating strong cash flow and operational excellence [24][23] - The company raised its fiscal 2026 non-GAAP EPS guidance to a range of $10.30-$10.55, reflecting expected growth despite challenges from reduced revenues related to Mexico contracts [21][22] - Management acknowledged the impact of the government shutdown on order timing but remains confident in the pipeline and future opportunities [35][36] Other Important Information - The company completed a convertible notes transaction, raising $575 million, which enhances liquidity and financial flexibility [20] - The balance sheet remains solid, with net leverage at approximately 2.2 [20] Q&A Session Summary Question: Orders activity in security was softer than expected - Management noted that orders were pushed due to the government shutdown, but the pipeline remains strong and they expect a robust next six months [26] Question: Details on the Golden Dome contract - Management indicated that while timing is uncertain, they feel well-positioned for future orders related to the Golden Dome initiative [27][28] Question: Interest expense outlook - Management anticipates a decrease in interest expense from Q2 to Q3 due to the paydown of the revolver [29] Question: Potential for additional share purchases - Management confirmed that stock buybacks remain an option, with a sizable buyback already executed in Q2 [31] Question: Impact of government shutdown on RFP timing - Management stated that while some funds are flowing in, most significant impacts will be felt later in calendar 2026 [34] Question: Mexico DSO and cash flow expectations - Management expects significant free cash flow conversion as Mexico receivables normalize, driving down DSO [36] Question: Service revenue growth potential - Management is optimistic about service revenue growth outpacing product revenue growth, leading to margin expansion [38][39] Question: Revenue guidance for the back half of the year - Management indicated that Q4 is expected to be significantly stronger than Q3 due to the timing of Mexico revenues [42][43] Question: Aviation market pipeline - Management confirmed that the aviation market remains strong, with a healthy pipeline despite some delays [45][46] Question: International demand for security products - Management noted strong international demand, particularly in the Middle East, with various countries increasing focus on security [67] Question: Funding impact on revenue outlook - Management stated that near-term funding issues are not expected to significantly impact revenue or cash outlook [68]

Financial Performance - Total net revenues for the six months ended December 31, 2025, increased to $848.68 million, up from $763.83 million in the same period of 2024, representing an increase of 11.1%[11] - Gross profit for the six months ended December 31, 2025, was $274.81 million, compared to $268.65 million for the same period in 2024, reflecting a growth of 2.4%[11] - Net income for the six months ended December 31, 2025, rose to $59.26 million, compared to $55.76 million in the prior year, marking an increase of 6.7%[11] - The company reported a diluted earnings per share of $3.39 for the six months ended December 31, 2025, up from $3.27 in the same period of 2024, an increase of 3.7%[11] - Basic earnings per share for the six months ended December 31, 2025, was $3.52, up from $3.33 in 2024, reflecting a growth of 5.7%[22] - The company reported a segment income from operations of $97,472 for the six months ended December 31, 2025[100] Cash and Liquidity - Cash and cash equivalents decreased to $106.41 million as of June 30, 2025, down from $336.72 million at December 31, 2024[10] - Net cash provided by operating activities for the six months ended December 31, 2025, was $79.337 million, significantly higher than $15.388 million in 2024[18] - Cash and cash equivalents at the end of the period totaled $336.722 million, with approximately 32% held by foreign subsidiaries[24] - Net cash provided by financing activities was $172.6 million for YTD Q2 fiscal 2026, compared to $89.2 million in the same prior-year period, driven by net proceeds of $562.9 million from the issuance of 2031 Notes[146] - Cash used in investing activities was $21.4 million for YTD Q2 fiscal 2026, a decrease from $97.6 million in the same prior-year period, mainly due to a prior-year business acquisition[145] Expenses and Liabilities - Total current liabilities increased to $696.94 million as of June 30, 2025, compared to $535.36 million at December 31, 2024, indicating a rise of 30.1%[10] - Operating expenses for the six months ended December 31, 2025, were $182.95 million, slightly up from $180.37 million in the same period of 2024, an increase of 1.4%[11] - Total interest and other expense for the six months ended December 31, 2025, was $(18,111) thousand, compared to $(15,978) thousand for the same period in 2024, reflecting a 7.1% increase[31] - The company recognized $5.6 million in impairment, restructuring, and other charges during the six months ended December 31, 2025, including $1.0 million for asset impairment and $1.1 million for employee terminations[55] Research and Development - Research and development expenses for the six months ended December 31, 2025, were $40.19 million, compared to $36.03 million in the same period of 2024, reflecting an increase of 11.9%[11] - Research and development expenses for the three months ended December 31, 2025, totaled $19,759, reflecting the company's commitment to innovation[97] - Research and development expenses rose by $1.5 million to $19.8 million in Q2 fiscal 2026, reflecting increased compensation costs for new product development initiatives[125] Acquisitions and Assets - The company acquired a provider of military and surveillance solutions for approximately $76 million, with total purchase consideration of $85.7 million allocated to assets acquired[38] - The acquisition date fair value of total assets acquired was $113.9 million, including $30.7 million in goodwill and $47.3 million in other intangible assets[38] - Goodwill as of December 31, 2025, was $385,747 thousand, down from $387,393 thousand as of June 30, 2025, reflecting a decrease of 0.4%[42] - Total intangible assets increased from $261,829 thousand as of June 30, 2025, to $268,083 thousand as of December 31, 2025[43] Shareholder Activities - The company repurchased 546,945 shares of common stock for a total price of $146.1 million, with 643,611 shares remaining available for repurchase under the authorized program[80] - Stock-based compensation expense for the six months ended December 31, 2025, was $13.250 million, down from $14.931 million in 2024[75] - As of December 31, 2025, total unrecognized compensation cost related to share-based compensation grants was estimated at $20.4 million[75] Taxation - The effective tax rates for the six months ended December 31, 2024 and 2025 were 22.9% and 19.7%, respectively, with net discrete tax benefits recognized of $1.7 million in 2025[92] - The effective tax rate decreased from 23.3% in Q2 fiscal 2025 to 19.5% in Q2 fiscal 2026, with a provision for income taxes of $9.4 million[128] Market and Economic Factors - The company faces uncertainties related to global economic factors, including inflation, interest rates, and geopolitical tensions, which may impact future performance[113] - The company is evaluating the financial impact of the One Big Beautiful Bill Act, which may affect its effective tax rate and deferred tax balances in future periods[93] Segment Performance - Security division revenues rose by 15.4% year-over-year to $334.7 million, with product revenues increasing by approximately $17.7 million and service revenues by $27.0 million[120] - Security division revenues for the six months ended December 31, 2025, increased by 14.5% to $589.0 million, driven by growth in both product and service revenues[130] - The company reported total revenues of $419.82 million for the three months ended December 31, 2024, with external customer revenue from the Security division at $289.99 million[95]

Financial Performance - Record Q2 revenues of $464 million, representing an 11% year-over-year growth[7] - Non-GAAP diluted earnings per share for Q2 reached a record $2.58, up 7% from the previous year[4] - Operating cash flow for Q2 was $62 million, reflecting strong operational performance[7] - The company raised its fiscal 2026 non-GAAP diluted earnings per share guidance to a range of $10.30 - $10.55, indicating a 10% - 13% year-over-year growth[8] - GAAP revenues for the three months ended December 31, 2024, were $419,820 million, while for the same period in 2025, revenues increased to $464,057 million, a growth of approximately 10.5%[20] - Total revenues for the six months ended December 31, 2024, were $763.827 million, with an operating income of $88.285 million, representing 11.6% of revenues[22] - For the same period in 2025, revenues increased to $848.680 million, with operating income of $91.868 million, accounting for 10.8% of revenues[22] - Non-GAAP net income for the six months ended December 31, 2024, was $62.521 million, with an EPS of $3.67[22] - In 2025, non-GAAP net income rose to $69.930 million, resulting in an EPS of $4.00[22] Segment Performance - The Security division reported a 15% increase in Q2 revenues year-over-year, with a focus on expanding recurring services revenue[5] - The Optoelectronics and Manufacturing division achieved 12% revenue growth in Q2, highlighting operational efficiency and customer demand[5] - The Security segment's GAAP revenues increased from $289,987 million in 2024 to $334,705 million in 2025, a growth of approximately 15.4%[20] - The Optoelectronics & Manufacturing segment's GAAP revenues increased from $100,743 million in 2024 to $112,552 million in 2025, a growth of about 11.5%[20] - The Healthcare segment's GAAP revenues decreased from $44,854 million in 2024 to $36,534 million in 2025, a decline of approximately 18.6%[20] - The Security segment generated revenues of $514.301 million in 2024, with an operating income of $82.909 million, which is 16.1% of revenues[22] - The Optoelectronics & Manufacturing segment reported revenues of $198.538 million in 2024, with an operating income of $22.891 million, representing 11.5% of revenues[22] - The Healthcare segment had revenues of $81.956 million in 2024, with an operating income of $2.522 million, accounting for 3.1% of revenues[22] Financial Position - The company's backlog stood at $1.8 billion as of December 31, 2025[4] - Total assets decreased from $2,522,241 million to $2,241,257 million, a decline of approximately 11.1%[18] - Total current assets decreased from $1,686,845 million to $1,422,861 million, a decline of about 15.6%[18] - Total liabilities increased from $1,676,751 million to $1,290,173 million, a decrease of approximately 23.1%[18] - Total stockholders' equity increased from $845,490 million to $951,084 million, an increase of about 12.5%[18] Operational Efficiency - Operating income as a percentage of revenues decreased from 13.8% in 2024 to 12.7% in 2025[20] - Non-GAAP operating income for the three months ended December 31, 2024, was $62,870 million, while in 2025, it increased to $65,147 million, reflecting a growth of about 3.6%[20] - Non-GAAP operating income for the Security segment was $90.096 million, or 17.5% of revenues, in 2024[22] - Non-GAAP operating income for the Optoelectronics & Manufacturing segment was $24.608 million, representing 12.4% of revenues in 2024[22] Strategic Initiatives - The company is well-positioned to capitalize on increasing industry demand and pursue strategic initiatives across key markets[3] - In November 2025, the company issued $575 million of convertible senior notes due in 2031 at an interest rate of 0.50%[5] - The company maintained its previous revenue guidance while increasing its earnings per share outlook[8] - The company incurred impairment, restructuring, and other charges of $1.393 million in 2024, which was 0.2% of revenues[22]

Core Viewpoint - Investors are evaluating TDK Corp. (TTDKY) and OSI Systems (OSIS) for potential value opportunities, with TDKY currently appearing as the superior option based on valuation metrics [1][6]. Valuation Metrics - Both TDKY and OSIS hold a Zacks Rank of 2 (Buy), indicating positive earnings estimate revisions and an improving earnings outlook for both companies [3]. - TDKY has a forward P/E ratio of 18.79, while OSIS has a higher forward P/E of 27.52, suggesting TDKY may be undervalued compared to OSIS [5]. - The PEG ratio for TDKY is 1.07, indicating a favorable valuation when considering expected earnings growth, whereas OSIS has a PEG ratio of 2.38, which is less favorable [5]. - TDKY's P/B ratio stands at 1.9, significantly lower than OSIS's P/B ratio of 5.14, further supporting TDKY's position as a better value option [6]. - TDKY has a Value grade of A, while OSIS has a Value grade of C, highlighting the relative undervaluation of TDKY [6].

Core Viewpoint - OSI Systems, Inc. has received a repeat order worth approximately $12 million from a leading healthcare OEM for optical sensors used in medical devices [1] Group 1: Company Developments - The order is from the Optoelectronics and Manufacturing division of OSI Systems [1] - Ajay Mehra, President and CEO of OSI Systems, expressed satisfaction with the repeat order from a long-standing customer [1]

Core Viewpoint - OSI Systems (OSIS) shares experienced a 4.9% increase, attributed to notable trading volume and strong revenue growth across its divisions, particularly in Security, Optoelectronics, and Healthcare [1]. Group 1: Company Performance - OSI Systems is expected to report quarterly earnings of $2.52 per share, reflecting a year-over-year increase of 4.1% [2]. - Revenue projections for OSI are set at $451.8 million, which indicates a 7.6% growth compared to the same quarter last year [2]. - The consensus EPS estimate for OSI has remained unchanged over the last 30 days, suggesting stability in earnings expectations [3]. Group 2: Industry Context - OSI operates within the Zacks Electronics - Miscellaneous Components industry, where another company, Fabrinet (FN), also saw a 4.9% increase in its stock price, closing at $479.17 [3]. - Fabrinet's consensus EPS estimate is $3.26, representing a year-over-year change of 24.9%, with its rank being 3 (Hold) [4].

Core Viewpoint - OSI Systems (OSIS) has received an upgrade to a Zacks Rank 2 (Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on the consensus measure of EPS estimates from sell-side analysts, reflecting the company's changing earnings picture [1][2]. - Changes in future earnings potential, as indicated by earnings estimate revisions, are strongly correlated with near-term stock price movements [4][6]. - Rising earnings estimates for OSI indicate an improvement in the company's underlying business, which is expected to drive the stock price higher [5][10]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have generated an average annual return of +25% since 1988 [7][9]. - The upgrade of OSI to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting a strong potential for market-beating returns in the near term [10]. Earnings Estimate Revisions for OSI - For the fiscal year ending June 2026, OSI is expected to earn $10.42 per share, unchanged from the previous year, but the Zacks Consensus Estimate has increased by 1.9% over the past three months [8].

Core Insights - OSI Systems, Inc. has announced a $20 million order from an international customer for a radiological threat detection solution [1] - The solution will support the deployment of a radiation monitoring network designed to detect radioactive threats over a wide area [1] - The integrated network is expected to operate continuously for effective monitoring [1]