OSI Systems, Inc. (NASDAQ:OSIS) Q2 2024 Earnings Call Transcript

Lawrence Solow : Okay. And just switching gears real fast and just on Opto, you mentioned, I guess a couple of things there. Just a little more color on the sort of the flattish quarter, but it sounds like you feel like this is temporary, were there specific — you mentioned some program delays. I guess, were there a couple specific larger sort of delays that impacted the quarter and what kind of gives you the encouragement going forward? And then secondly, if you could just elaborate a little bit more, I guess you said, you’re opening up a new facility in Mexico. Is that the case?

Alan Edrick: So on the Opto side, there were no large programs to any significant magnitude that were delayed. It was just a number of programs from customers who probably overbought inventory a little bit during the pandemic times for risk mitigation and are now are right size in their inventory levels to a more optimum level and maybe some of their own programs have experienced some delays. So just a little bit of that kind of stuff that led to the relatively flat Opto sales. And as I said in sort of my remarks as well, that that could continue for another quarter or so, offsetting that to some extent going forward. We did open up a new facility in Mexico that we’re excited about. It’s gaining traction and we think it’s going to be a big contributor to us in fiscal ’25 and beyond.

Deepak Chopra: Just to add on to it. I did say that, and we’ve been saying that and we’re seeing that. In this Opto space, this China-centric manufacturing customers are very concerned about it. They want to go broaden their portfolio with vendors who can deliver away from there. We are very well placed into it in Indonesia and Malaysia and India, and now with this Mexico facility open up, it gives us a broader reach to go to our OEM customers and cater to a bigger, bigger part for them to look at us.

Operator: [Operator Instructions] Our next question comes from the line of Jeff Martin from Roth MKM.

Jeffrey Martin : Wanted to touch on the markets in general. Where you think you are in terms of those being growth markets or whether you’re gaining share, how that kind of parses out? And then specifically on security, what percentage of contracts now have CertScan? Are they all CertScan? That seems like a huge differentiator that could become kind of a self-fulfilling win rate as countries need to communicate across their systems and identify threats that can be helpful for prevention?

Deepak Chopra: A very broad question. Definitely, I can’t say CertScan is in everything, but we believe longer term, the two things that differentiate us from, in the security field from other competitors, we have a very broad product portfolio, high energy, medium energy, low energy, and we have demonstrated that we can integrate it together with the CertScan software and we can do it remote monitoring and stuff like that. All that stuff does help. But I won’t go back to say that every unit or every contract we have has CertScan built into it. We do try to push that and we have seen success and I’ve said that where initially it might not have it, but then it results into the next add-ons and stuff like that. Regarding where position?

I’m still very confident about it that I can say proudly that at least in the borders and sports security cargo, we are very, very confident that we are number one products portfolio, very good reputation, and we are very well liked by both domestic U.S. and international customers. Aviation, I don’t think so that I can probably say we are number one, but we are number two and three, and we are catching ground, but we are also in that space, very good. In the air cargo space, we have a very broad portfolio and a very large install base, and we think that’s another growth opportunity for us. And even in that space, we have started doing what is called remote monitoring for employee screening and stuff like that, where we are doing it from a remote control screen.

Jeffrey Martin: Great. And if I could just ask one more on a longer term, we look through more of a longer-term lens here. Could you help us understand where some of the bigger replacement cycles are throughout the world? I think in the U.S. you’re going to see a passenger screening replacement cycle some point in the next several years here. But what other markets there might be replacement cycles upcoming, not necessarily in the next 12 months, but maybe in the next three to five years?

Deepak Chopra : Well definitely replacement cycle for the check baggage is coming in U.S. in the next couple of years, if there’s been some delay. Passenger screening, more AI, more automation is definitely going to happen. And internationally, there’s not one specific area. Just look at it. Wherever there is passenger traffic, wherever you think that passenger traffic is going to increase, tourism or business related, all of them need the space for increasing their security. For example, one of the things everybody’s talking about it, India has a huge potential growth opportunity. They’re expanding in infrastructure. They’re making like 20, 30, 40 new airports. We are very well positioned there. So those are the kind of places where we think, but there’s no one specific area. It’s all over, Mexico, Latin America, Middle East, Asia, even Africa, everywhere there is growth potential.