OSI Systems, Inc. (NASDAQ:OSIS) ended fiscal 2026 with record operating cash flow and backlog, but its fourth-quarter revenue result was materially below expectations. Revenue declined 4% to $484.1 million, approximately $45.6 million below the $529.7 million consensus estimate. Full-year revenue of $1.786 billion also finished about $39 million below the $1.825 billion floor of the company’s prior guidance. Company-defined non-GAAP diluted EPS of $3.78 was essentially in line with the $3.77 consensus estimate.
Shares closed lower following the revenue miss, Middle Eastern delivery delays, and fiscal 2027 guidance. The central question is whether the delayed sales represent a temporary shift or evidence that the record backlog will convert unevenly.
Fiscal 2026 GAAP diluted EPS increased 3% to $8.95, while company-defined non-GAAP diluted EPS rose 11% to $10.35. The non-GAAP measure excludes impairment, restructuring, and other charges, acquired-intangible amortization, a $4.359 million former-CEO retirement expense, related tax effects, and discrete tax items.
BULL CASE: DELAYED ORDERS REMAIN IN BACKLOG
Management said Middle Eastern conflicts and site-access constraints shifted approximately $50 million of planned Security deliveries beyond June 30. OSI Systems, Inc. (NASDAQ:OSIS) said the orders were deferred rather than lost and remain in backlog under revised delivery schedules.
Backlog increased to approximately $1.9 billion from $1.8 billion a year earlier. Fiscal 2027 guidance calls for revenue of $1.875 billion to $1.930 billion, representing growth of 5% to 8.1%. Company-defined non-GAAP diluted EPS is expected between $11.13 and $11.49, implying growth of 7.5% to 11%.
The other divisions add diversification. Fourth-quarter Optoelectronics and Manufacturing revenue increased approximately 5%, while its company-defined non-GAAP operating margin improved to 14.7% from 13.6%. Healthcare revenue rose about 5%, while its company-defined non-GAAP operating margin reached 10% from 0.9%. Those margins exclude impairment, restructuring, and other charges and acquired-intangible amortization.
BEAR CASE: BACKLOG IS NOT REVENUE GUIDANCE
The $1.9 billion backlog does not provide a specific conversion schedule. OSI Systems, Inc. (NASDAQ:OSIS) defines backlog as signed, quantifiable orders expected to generate revenue within five years. The company says those orders are generally firm but may occasionally be canceled, and backlog should not be treated as revenue guidance for any annual or quarterly period.
Security revenue fell 7.4% to $339.7 million during the fourth quarter despite healthy bookings. Fiscal 2027 growth is also expected to be weighted toward the second half, leaving the outlook exposed if geopolitical disruption or customer-acceptance delays continue.
Record cash generation also had a substantial working-capital component. Operating cash flow reached $275.9 million, up from $97.6 million, supported by favorable working-capital movements and a $159 million fourth-quarter collection from the company’s largest Mexican customer.
Total debt increased to approximately $1.001 billion from $649.6 million. After subtracting $359.8 million of cash, net debt was approximately $641.2 million. The increase reflected a $575 million convertible-note issuance, partly offset by repayment of $178 million of revolving-credit borrowings. OSI Systems, Inc. (NASDAQ:OSIS) also spent $123.6 million repurchasing shares during the fourth quarter.
INSIDER MONKEY’S HEDGE FUND DATA
The filings available so far reflect positions held before OSIS reported its recent results. Insider Monkey’s database showed 22 hedge funds holding OSIS at the end of March 2026, up from 16 funds three months earlier.
CONCLUSION
The case for OSI Systems, Inc. (NASDAQ:OSIS) remains constructive if the delayed Security revenue shifts rather than disappears. Earnings, margins and fiscal 2027 guidance support that view. However, the quarterly revenue miss, five-year backlog window, working-capital contribution to cash flow, and higher net debt explain why record headline metrics did not eliminate execution risk.
READ NEXT: ConocoPhillips (COP): Wall Street Sees More Upside Despite Leadership Shakeup and Here is Why Chevron (CVX) is a Favorite Among Hedge Funds
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center