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OSI Systems Inc. Reports Operating Results (10-Q)

October 27, 2010 | About:
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10qk

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OSI Systems Inc. (OSIS) filed Quarterly Report for the period ended 2010-09-30.

Osi Systems Inc. has a market cap of $639.1 million; its shares were traded at around $34.99 with a P/E ratio of 25.2 and P/S ratio of 1.1. OSIS is in the portfolios of John Buckingham of Al Frank Asset Management, Inc., Kenneth Fisher of Fisher Asset Management, LLC, George Soros of Soros Fund Management LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

For the three months ended September 30, 2010, we reported an operating profit of $5.4 million, as compared to $4.2 million for the comparable prior year period. We realized this $1.2 million year over year increase in operating profit despite a 4% decrease in total revenue. This improved profitability was driven primarily by a $2.4 million improvement in gross profit as a result of product mix and operational efficiencies. The gross profit improvement was partially offset by a $1.2 million increase in research and development (R&D) expenses in support of new product introductions.

Revenues for the Security division for the three months ended September 30, 2010, increased $3.8 million, or 8%, to $51.1 million, from $47.3 million for the comparable prior year period. The increase was attributable to: (i) a $2.8 million or 8% increase in equipment sales mainly driven by a $8.1 million increase in people screening equipment as a result of wider adoption of body scanners partially offset by a $4.6 million decrease in sales of cargo and vehicle inspection systems; and (ii) a $1.0 million or 8% increase in service revenue. .

Working Capital. The increase in working capital is primarily due to: (i) increases in inventory of $21.0 million, primarily in our Security division, to support anticipated growth in shipments, (ii) decreases in accrued payroll and employee benefits of $8.1 million, (iii) a decrease in current portion of long term debt of $4.1 million, (iv) a $3.6 million increase in cash and cash equivalents and (v) decreases in advances from customers of $2.5 million, primarily in our Security division. These decreases were partially offset by a $32.8 million reduction in accounts receivables, reflecting strong collections and the seasonality of sales.

Cash Used in Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period, as net income, tax timing differences, and other items can significantly impact cash flows. Net cash provided by operations for the three months ended September 30, 2010, was $9.6 million, a $0.9 million reduction as compared to the $10.5 million generated in the comparable prior year period. The reduction was primarily due to the changes in working capital management in the current-year period versus the prior year period resulting in: (i) a $28.1 million increase in the change in inventory, reflecting the building of inventory primarily in our Security division to support growth as well as due to improvements realized in the prior fiscal year due to inventory reduction initiatives, (ii) a $8.3 million decrease in cash received as advances from customers and (iii) a $5.5 million decrease in the change in accrued payroll and related expenses. These unfavorable changes in cash flow were partially offset by the following favorable changes in working capital management: (i) $35.6 million increase in cash from accounts receivables reflecting the high level of sales in the forth quarter of fiscal 2010 and strong receivables collections and (ii) a $1.6 million reduction in the change in prepaid expenses and other current assets. In addition, the unfavorable changes in cash flow provided by operating activities was partially offset by an increase in our net income of $2.2 million, after giving consideration to various adjustments to net income for non-operating cash items, including depreciation and amortization, stock-based compensation, deferred taxes and provision for losses on accounts receivable, among others, for both periods.

Cash Used in Investing Activities. Net cash used in investing activities was $4.7 million for the three months ended September 30, 2010, a decrease of $0.5 million as compared to $5.2 million used for the three months ended September 30, 2009. In the three months ended September 30, 2010, we used cash of $2.0 million for acquisitions of businesses, net of cash acquired, as compared to $3.2 million

Cash Provided by Financing Activities. Net cash used in financing activities was $2.0 million for the three months ended September 30, 2010, compared to net cash used in financing activities of $6.3 million for the three months ended September 30, 2009. During the three months ended September 30, 2010, we paid down our debt and capital leases by $6.8 million. In the prior year period, we paid down our revolving lines of credit by $1.8 million and our term debt by $6.1 million. In addition, we received proceeds of $4.8 million from the exercise of stock options and our employee stock purchase plan in the three months ended September 30, 2010 and $1.6 million for the comparable prior year period.

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