A vertically integrated maker of specialized electronic systems for security, healthcare, and defense, OSI Systems runs three divisions: Rapiscan and S2 screening gear used at airports and borders, Spacelabs Healthcare patient monitors, and optoelectronic components for original equipment manufacturers. Founded in 1987 as Opto Sensors, Inc., the company's "OSI" name comes from those original initials. A fun quirk: its Rapiscan brand is a portmanteau of "rapid" and "scanner."
10-K · Fiscal year ended Jun 30, 2026 · SEC filing ↗
Gross margin fell to 33.2% as Security mix shifted away from higher-margin Mexico revenue, while operating cash flow rose to $275.9M.
The Security division's product mix shifted away from higher-margin Mexico , and fell to 33.2% from 34.3%. Revenue rose 4.3% to $1.79B and rose 2.8% to $8.95, while rose to $275.9M from $97.6M as were collected and built. The company ended the year with $998.5M in after issuing $575M in convertible notes and repurchasing $271.9M of stock.
Key takeaways
fell 1.1 points to 33.2%, the lowest annual level in the periods shown, as Security division product mix shifted away from higher-margin Mexico and toward lower-margin aviation and checkpoint systems.
Security division rose $51.8M, driven by higher service revenue from a larger installed base of cargo/vehicle and aviation/checkpoint inspection systems, while product revenue was flat as RF gains offset a $148.8M decline from Mexico customers.
rose to $275.9M from $97.6M, driven by lower , higher , and higher .
Section summaries
Business
OSI Systems is a vertically integrated maker of security, healthcare, and optoelectronics products for critical applications.
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The company operates three divisions: Security, Optoelectronics and Manufacturing, and Healthcare.
Security sells Rapiscan-brand inspection systems and S2 screening services, with FY2026 direct U.S. Government sales of about $207.3 million.
Optoelectronics and Manufacturing supplies components and electronics manufacturing services to OEMs under OSI Optoelectronics, OSI Electronics, Altaflex, and PFC Flexible Circuits.
, restructuring and other charges rose to $16.6M from $5.3M, including $5.1M in employee terminations and $4.2M in non-recurring Healthcare charges.
The company issued $575M in 0.5% due 2031, using proceeds to repay $178.0M on the and $271.9M of common stock, pushing to $998.5M.
Healthcare division fell $5.6M, extending the 's multi-year contraction, while Optoelectronics and Manufacturing revenue rose $26.7M.
What changed
The Security division question flagged in prior filings was answered: the annual level fell to 33.2% from 34.3%, below the 36%+ levels sustained before fiscal 2022, as the cargo-heavy mix and a $148.8M decline in higher-margin Mexico continued to compress profitability.
did not taper off as some prior filings had flagged as a risk; instead it rose to $275.9M from $97.6M, the highest annual level in the periods shown, driven by collection and higher .
The Healthcare division did not find a floor; fell another $5.6M, extending a multi-year contraction that prior filings had repeatedly flagged as a watch item.
more than doubled to $998.5M from $463.5M, as the company issued $575M in 2031 Notes and repurchased $271.9M of stock, a further shift toward higher after the $350M convertible notes issued in fiscal 2025.
Consolidated rose to approximately $1.9B from $1.8B a year earlier, indicating continued demand despite the margin pressure.
What to watch
Security division in Q1 and Q2 fiscal 2027, to determine whether the 33.2% annual level represents a new baseline or if mix can lift it back toward the mid-30s as the Mexico decline annualizes.
The pace and composition of new Security division , to assess whether future contract wins are tilting the mix further toward lower-margin cargo and aviation systems or back toward higher-margin products.
trajectory, given the $998.5M in from the $350M and $575M convertible notes and the $92.5M term loan, to assess whether higher average borrowings continue to pressure .
Healthcare division in fiscal 2027, to determine whether the finds a floor after another year of decline or if patient monitoring and cardiology sales continue to contract.
Healthcare sells Spacelabs-brand patient monitoring, cardiology, and connected care products, including FDA-cleared Rothman Index clinical decision support software.
Consolidated was approximately $1.9 billion as of June 30, 2026, up from $1.8 billion a year earlier.
The company employed 7,806 people as of June 30, 2026, with manufacturing concentrated in Mexico, India, Indonesia, and Malaysia.
Risk factors span product liability, government contracting, healthcare regulation, supply chain, tariffs, cyber, and debt obligations.
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Failure of security and inspection systems or turnkey screening services to detect contraband could trigger product and claims with potentially inadequate insurance coverage.
U.S. government customers can terminate or modify contracts for convenience, and competitive bid protests or lost task orders could delay or reduce .
Healthcare cost containment, payer consolidation, and evolving FDA/EU MDR regulation create pricing pressure and compliance risk for patient monitoring and cardiology products.
Tariffs, inflation, single-source suppliers, and Middle East/Russia-Ukraine geopolitical disruptions threaten margins, supply continuity, and delivery timelines.
Cyberattacks, including AI-enhanced threats, and the company-wide ERP implementation pose operational, data security, and financial reporting risks.
Convertible notes and could dilute shareholders, restrict financing flexibility, and require cash repurchases the company may be unable to fund.
From time to time, we are subject to litigation, legal proceedings, and claims arising in the ordinary course of our business or otherwise. More information regarding legal proceedings in which we are involved can be found under Note 11, “Commitments and Contingencies” of the No…
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From time to time, we are subject to litigation, legal proceedings, and claims arising in the ordinary course of our business or otherwise. More information regarding legal proceedings in which we are involved can be found under Note 11, “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements in Item 8, which is incorporated by reference into this Item 3.
Fiscal 2026 revenue rose 4.2% to $1.79B, but gross margin fell to 33.2% on Security mix shift.
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Total net revenues rose 4.2% to $1,786.0M, driven by Security (+$51.8M) and Optoelectronics/Manufacturing (+$26.7M), while Healthcare fell $5.6M.
Security growth came from higher service revenue tied to a larger installed base of cargo/vehicle and aviation/checkpoint inspection systems; product revenue was flat as RF gains offset a $148.8M decline from Mexico customers.
rose only $5.9M to $593.1M and declined to 33.2% from 34.3%, mainly due to an unfavorable Security mix shift away from higher-margin Mexico and lower margins in aviation/checkpoint systems.
, restructuring and other charges jumped to $16.6M from $5.3M, including $5.1M in employee terminations and $4.2M in non-recurring Healthcare charges.
surged to $275.9M from $97.6M, driven by lower , higher , and higher .
Cash and equivalents rose to $359.8M from $106.4M after issuing $562.9M in 2031 Notes, repaying $178.0M on the , and repurchasing $271.9M of common stock.
Quantitative and Qualitative Disclosures About Market Risk
Company faces interest rate, foreign currency, and inflation risks, using a SOFR-based swap and natural currency offsets to manage exposure.
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The company uses a $175 million notional maturing December 2026 to improve cash-flow predictability on variable -based debt.
As of June 30, 2026, includes a $92.5 million term loan at plus 1.0%–1.75%, $350 million of 2.25% 2029 Notes, and $575 million of 0.50% 2031 Notes.
Foreign currency transaction gains and losses were a net loss of $5.1 million, $12.7 million, and $1.6 million in fiscal 2024, 2025, and 2026, respectively.
A 10% appreciation of the U.S. dollar would have increased fiscal 2026 by about $19.9 million, while a 10% would have decreased it by the same amount.
The company does not enter into derivative transactions for speculative purposes and may use derivatives only to manage or reduce market risk on specific foreign-currency-denominated transactions.
Inflation is flagged as an ongoing risk to materials, manufacturing, labor, and borrowing costs, with mitigation focused on operational efficiency and cost competitiveness.
We make reference here to the Index to Consolidated Financial Statements that appears on page F-1 of this report. The Report of Independent Registered Public Accounting Firm from Grant Thornton LLP, the Consolidated Financial Statements, the Notes to Consolidated Financial State…
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We make reference here to the Index to Consolidated Financial Statements that appears on page F-1 of this report. The Report of Independent Registered Public Accounting Firm from Grant Thornton LLP, the Consolidated Financial Statements, the Notes to Consolidated Financial Statements, and Supplementary Data—Unaudited Quarterly Results listed in the Index to Consolidated Financial Statements, which appear beginning on page F-2 of this report, are incorporated by reference into this Item 8.