OSI Systems posts record cash flow and a record backlog, then loses more than a tenth of its value. The problem was the top line and the fiscal 2027 outlook, not the earnings line.

by Sofia Lindqvist · August 21, 2026

Markets Writer, The SmallCap Signal

OSI Systems (Nasdaq: OSIS) closed out its fiscal year with records in earnings per share, operating cash flow and backlog, and investors sold it anyway. The maker of security screening systems, optoelectronic components and patient monitoring equipment released fiscal 2026 fourth-quarter results on Thursday, Aug. 20, and held its results call at 1:30 p.m. Pacific time — 4:30 p.m. in New York, after the regular session had closed. The reaction on Friday was severe.

The gap between the headline numbers and the reaction sits almost entirely in revenue. Quarterly revenue of $484.1 million was down 4% from $505.0 million a year earlier, according to the company's release. StockStory, writing on Aug. 20, put the analyst consensus at $529 million, making the quarter roughly an 8.5% revenue miss; StockStory does not identify which data provider compiled the estimates it uses. Non-GAAP diluted earnings per share of $3.78 were in line with the $3.77 StockStory cited as consensus, and up 17% from $3.24 a year earlier; GAAP diluted EPS was $3.27, up 8% from $3.03. The two measures are not interchangeable, and the 51-cent gap between them is the quarter's adjustments.

Management's explanation is timing rather than demand. Ajay Mehra, OSI's president and chief executive, said in the release that fiscal 2026 was "a strong year for the Company, capped by record fourth quarter non-GAAP earnings per share and record operating cash flow, despite the impact of revenue headwinds from the Middle East conflicts which shifted the timing of certain planned deliveries." On the Security division specifically, Mehra said that "While revenues were impacted by disruptions from the Middle East conflicts, underlying demand for our products and services remain encouraging," adding that "These delays do not reflect order cancellations and remain in our backlog with updated delivery schedules."

That claim is at least partly testable against the backlog line, and the backlog did grow. OSI reported backlog of $1.9 billion at fiscal year end, up from $1.8 billion a year earlier. Full-year revenue was $1.786 billion, up 4% from $1.713 billion. Full-year GAAP diluted EPS came to $8.95 against $8.71, growth the company puts at 3%, while non-GAAP diluted EPS rose 11% to $10.35 from $9.36. The two measures diverge sharply over the year: the GAAP and non-GAAP growth rates differ by eight percentage points.

Cash generation was the standout. Operating cash flow was $182.1 million in the quarter, against $0.6 million in the year-ago quarter, and $275.9 million for the full year versus $97.6 million. Cash and cash equivalents ended the year at $359.8 million, up from $106.4 million, and the company said borrowings under its bank lines fell to zero from $178 million.

OSI also bought back stock aggressively into the print. The release discloses repurchases of 564,880 shares for $123.6 million during the fourth quarter. The company does not state an average repurchase price; dividing one figure by the other — this desk's own arithmetic — implies roughly $219 a share, close to where the stock finished Thursday and well above where it traded on Friday morning. The release gives no fourth-quarter-to-date or post-quarter repurchase figure, and the company has not disclosed whether it bought back shares after the quarter ended.

By segment, full-year revenue was $1.248 billion in Security, $450.8 million in Optoelectronics and Manufacturing and $162.7 million in Healthcare. Those three lines sum to more than the reported total because the release nets out $75.5 million of intersegment revenue for the year, and $18.2 million for the quarter. Mehra said the Optoelectronics and Manufacturing division saw revenues up about 5% year over year in the quarter "on broad-based demand across several key end markets," and that Healthcare delivered revenues up approximately 5% with "an adjusted operating margin of 10% compared with 1% in the prior-year quarter." Healthcare remains the smallest of the three divisions by a wide margin.

The guidance is where the disappointment compounds. OSI introduced fiscal 2027 revenue guidance of $1.875 billion to $1.930 billion, implying growth of 5.0% to 8.1%, and non-GAAP diluted EPS guidance of $11.13 to $11.49, implying growth of 7.5% to 11.0%. The adjusted EPS midpoint works out to $11.31, which StockStory described as missing analyst estimates by 1.1%; it put the $1.90 billion revenue midpoint 2% below estimates. A midpoint that is slightly short is not by itself a disaster, but it removes the offset a company usually needs after an 8.5% revenue miss.

The share reaction was immediate. OSI closed Thursday at $218.09, according to StockAnalysis.com price history. Benzinga listed the stock at $187.00 in Friday premarket trading, down 14.2%, in a roundup published at 8:02 a.m. ET. By 9:53 a.m. ET, according to data displayed on stockanalysis.com, shares were at $195.08, down $23.01 or 10.55% from Thursday's close, with a session range to that point of $186.50 to $198.84. Friday's session had not closed at the time of writing, and no closing price for Aug. 21 was available. StockStory's own headline figure — a fall of 11.6% to $196.03 — does not reconcile against a $218.09 close, since $196.03 is about 10.1% below it and an 11.6% fall would be about $192.79; this article uses neither number.

The move takes the stock to the bottom of its one-year range. Stockanalysis.com showed a 52-week range of $193.48 to $311.72 and a market capitalization of about $3.22 billion on roughly 16.48 million shares outstanding — an unusually small share count that makes OSI's per-share figures large and its price moves in dollar terms dramatic. From the top of that range, the stock is down by well over a third.

For a mid-cap that sells cargo and baggage inspection systems to governments and airport operators, geopolitical disruption cuts in two directions: conflict tends to raise long-run demand for screening infrastructure while making it harder to physically deliver and install equipment in the affected regions. OSI's own framing is that the second effect hit the June quarter and that the first is intact, evidenced by bookings and backlog. That framing is a forecast, not a fact, and fiscal 2027 will test it. The concentration of the delayed work in a conflict-exposed region is itself the risk: the release ties the revenue shortfall to those markets, and it gives no dated schedule for when the deferred deliveries convert.

Mehra closed his prepared comment on the year by saying that as the company enters fiscal 2027, "our opportunity pipeline, disciplined operating execution and continued focus on cash generation position us well to advance key strategic initiatives and drive long-term value." The first checkpoint comes when OSI reports its fiscal 2027 first quarter — the release does not say when that will be — and the open question is whether the delayed Middle East deliveries convert to revenue on the updated schedules management describes, or slip again.