OSI Systems Stock

OSI Systems, Inc., together with its subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The company sells its products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace.

The company is a global manufacturer and distributor of patient monitoring, cardiology and remote monitoring, and connected care solutions for use in hospitals, medical clinics and physician offices. The company designs, manufactures and markets patient monitoring solutions for critical, sub-acute and perioperative care areas of the hospital, wired and wireless networks and ambulatory blood pressure monitors, all aimed at providing caregivers with timely patient information. The company’s cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services.

The company sells its security and inspection solutions and healthcare products primarily to end-users, while it designs and manufactures its optoelectronic devices and value-added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers.

Growth Strategy

The key elements of the company’s strategy include improving and complementing existing medical technologies; selectively entering new markets; and acquiring new technologies and companies.

Divisions

The company operates through three operating divisions, such as Security, providing security and inspection systems and turnkey security screening solutions; Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for its Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.

Products and Technology

The company designs, develops, manufactures and sell products ranging from security and inspection systems to patient monitoring and cardiology and remote monitoring systems to discrete optoelectronic devices and value-added subsystems.

Security and Inspection Systems: The company designs, manufactures and markets security and inspection systems globally to end users primarily under the Rapiscan trade name. The company’s Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for various contraband and prohibited items including weapons, explosives, drugs, and nuclear materials. These systems are also used for the safe, accurate and efficient verification of cargo manifests for the purpose of assessing duties and monitoring the export and import of controlled materials. The company’s Security products fall into the following categories: baggage and parcel inspection; cargo and vehicle inspection; hold (checked) baggage screening; people screening; radiation monitoring; explosive and narcotics trace detection; and optical inspection systems. The company also offers turnkey security screening services, as well as related software integration platforms, operator training, and the staffing and operation of security screening checkpoints under the S2 trade name. From time to time the company form joint ventures to carry out its operations in certain geographies, including, for example, Albania.

In recent years, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, railways, seaports, cruise line terminals, sporting venues, freight forwarding operations, government and military installations and nuclear facilities. As a result of the use of security and inspection products at additional facilities, the company has diversified its portfolio of security and inspection products and its sales channels.

Many of its security and inspection systems utilize dual-energy X-ray imaging technology, in combination with software enhanced imaging methods and algorithms to facilitate the detection of contraband materials and items, such as explosives, weapons, narcotics, and bulk currency. Dual energy imaging allows some material properties to be identified. Additionally, dual-view X-ray imaging allows operators to view and examine objects from two directions simultaneously, thereby improving the operator’s ability to detect threats quickly and effectively. Some of the company’s systems also use different types or combinations of X-ray imaging in addition to dual-energy, such as multi-view and computed tomography. Algorithms that process images and related data from these systems significantly enhance the overall probability of detection of a range of threat items and materials. Typical threat items include explosives and weapons.

The company’s inspection systems range in size from compact, handheld and table-top products to large systems comprising entire buildings in which trucks, shipping containers or pallets are inspected. Many of its inspection systems are also designed to be upgradeable to respond to new customer requirements as they emerge or change.

The company’s cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various configurations, including mobile, portal, gantry, and rail systems. The company’s customers use these products to verify the contents of cars, trucks, rail cars and cargo containers and to detect the presence of contraband, including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items. Most of its cargo and vehicle inspection systems employ X-ray imaging to inspect objects and present images to an inspector, including shapes, sizes, locations and relative densities of the contents. These systems utilize transmission imaging, backscatter imaging, or both technologies in combination. The company also manufactures passive radiation monitoring devices for detecting nuclear materials utilizing their gamma and neutron signatures. Additionally, the company has developed isotope-specific identification algorithms. Many of these systems have been built to meet specific requirements of its government customers.

The company’s broad portfolio of non-intrusive inspection systems permits it to offer customers solutions that are tailored to their specific operational requirements, performance standards and budgets.

In many cases, the company has designed its systems to meet the performance specifications of relevant regulators, including authorities located in the United States, United Kingdom and European Union. This is particularly the case with respect to systems used (or approved for use) to perform screening of airline passenger carry-on items, hold (checked) baggage and air cargo.

The company’s Security division also offers trace detection systems that are designed to detect trace amounts of explosives or narcotics and people screening products, such as walk-through metal detectors for use at security checkpoints at airports, government buildings, sports arenas and other venues.

Patient Monitoring and Cardiology and Remote Monitoring. The company’s Healthcare division designs, manufactures and markets products globally to end users primarily under the Spacelabs trade name.

Spacelabs products include patient monitors for use in perioperative, critical care and emergency care environments with neonatal, pediatric and adult patients. The company’s patient monitoring systems, such as Xprezzon and Qube are supported by surveillance systems connected by wireless or hardwired networks, as well as standalone monitors that enable patient data to be transported physically from one monitor to another as the patient is moved. These systems enable hospital staff to access patient data where and when it is required. In addition, these products are designed to interact with hospital information systems.

Spacelabs SafeNSound assists hospitals in providing value-based care by streamlining workflows and improving communications. Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside. These tools help address top challenges facing hospitals today.

Spacelabs predictive analytics clinical decision support tools provide surveillance and deterioration alerting for patients in all levels of care in the hospital setting and includes FDA-cleared and regulated products featuring the Rothman Index, a proprietary patient condition score available through EMR-integrated, web-based, or mobile app interfaces.

For electrocardiograph monitoring or multiparameter monitoring of ambulatory patients, the company offers a digital telemetry system. The system operates in government protected bands, which are not used for private land mobile radio, business radio services or broadcast analog or digital television. Spacelabs Intesys Clinical Suite (ICS) provides a software suite allowing hospitals to leverage their infrastructure to capture data from the bedside, compact and telemetry monitors.

The company’s PathfinderSL and Lifescreen Pro analysis tools provide clinicians the ability to save Holter analysis time and to do detailed analysis when needed inside or outside the hospital. The company’s Eclipse Pro Holter recorders provide up to 14 days of 3-channel recording or up to 72 hours of 12 lead with pacing. The company’s Eclipse Mini Ambulatory ECG Recorder provides up to 30 days of 3-channel ECG and when paired with Lifescreen Pro clinicians can analyze millions of heart beats within minutes.The company is also a supplier of ambulatory blood pressure (ABP) monitors which are routinely used by physicians around the world and by contract research organizations. Many physicians are using ambulatory blood pressure monitoring to detect white coat hypertension, a condition in which people experience elevated blood pressure in the doctor’s office but not in their daily lives. Ambulatory blood pressure monitoring helps improve diagnostic accuracy and minimize the associated costs of treatment. Spacelabs OnTrak ambulatory blood pressure system has been validated for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings.

The company’s Sentinel 11 Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for cardiology and remote monitoring. Sentinel integrates data from Spacelabs-branded products and third-party devices into a central enterprise-wide database system that can be accessed by care providers and medical facility administrators, thereby providing enhanced workflow and efficiencies. The system’s web-based solution enables the secure transfer of data from multiple remote sites. Sentinel supports mobile and remote working, taking ECG management to the point of care for flexible use of devices and capture of data.

In addition, the capital-intensive products that the company’s Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities. Additionally, its Healthcare division manufactures multivendor compatible accessories for use with third-party devices.

Optoelectronic Devices and Manufacturing Services: Optoelectronic devices designed, manufactured and sold through its Optoelectronics and Manufacturing division generally consist of both active and passive components. Active components sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light. These products are manufactured in standard and customized configurations for specific applications and are offered either as components or as subsystems. The company’s optoelectronic products and services are provided primarily under the OSI Optoelectronics, OSI LaserDiode, OSI Laserscan, and Advanced Photonix trade names.

In addition to the manufacture of standard and OEM products, the company specializes in designing and manufacturing customized value-added subsystems for use in a wide range of products and equipment. An optoelectronic subsystem typically consists of one or more optoelectronic devices that are combined with other electronic components and packaging for use in an end product. The composition of a subsystem can range from a simple assembly of various optoelectronic devices that are incorporated into other subsystems (for example, a printed circuit board containing its optoelectronic devices) to complete end products (for example, pulse oximetry equipment).

The company develops, manufactures and sells laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the OSI Laserscan and Autosense trade names. The company offers solid-state laser products for aerospace, defense, telecommunication and medical applications under the OSI LaserDiode trade name.

The company also provides electronics design and manufacturing services in North America, the United Kingdom and in the Asia Pacific region with enhanced, Rohs compliant, printed circuit board and cable and harness assembly and box build manufacturing services utilizing automated surface mount technology lines. The company offers electronics manufacturing services to OEM customers and end users for medical, automotive, defense, aerospace, industrial and consumer applications that do not utilize optoelectronic devices. The company also manufactures LCD displays for medical, industrial and consumer electronics applications, and flex circuits for OEM customers from the prototype stage to mass production. The company’s electronics manufacturing services are provided primarily under the OSI Electronics, APlus Products, Altaflex, and PFC Flexible Circuits trade names.

Markets, Customers and Applications

Security and Inspection Products: Many security and inspection products were developed originally in response to civilian airline hijackings. Consequently, certain of the company’s security and inspection products have been and continue to be sold for use at airports. The company’s security and inspection products are also used for security and customs purposes at locations in addition to airports, such as border crossings, shipping ports, sporting venues, military and other government installations, freight forwarding facilities, high-profile locations, such as the U.K. House of Parliament, Buckingham Palace, and the Vatican and for high-profile events such as the Olympic Games, FIFA World Cup, and other sporting events. The company also provides turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening locations for its customers.

The company’s customers include, among many others, the U.S. Department of Homeland Security, U.S. Department of Defense, U.S. Department of State, U.S. Department of Commerce, and U.S. Department of Justice, as well as many premier international government agencies, including airports and other critical infrastructure agencies.

The company’s contracts with the U.S. Government are generally subject to termination for convenience at the election of the U.S. Government. For the fiscal year ended June 30, 2023, its Security division’s direct sales to the U.S. Government were approximately $235 million. Additionally, certain of its contracts with foreign governments also contain provisions allowing the government to terminate a contract for convenience. For further discussion, please refer to Item 1A. “Risk Factors.”

Patient Monitoring, Cardiology and Remote Monitoring, and Connected Care Systems: The company’s patient monitoring, cardiology and remote monitoring, and connected care systems are manufactured and distributed globally for use in critical care, emergency and perioperative areas within hospitals, as well as physicians’ offices, medical clinics and ambulatory surgery centers. The company also provides wired and wireless networks, clinical information access solutions and ambulatory blood pressure monitors.

The company sells products directly to end customers, as well as through integrated delivery networks and group purchasing organizations in the U.S., the NHS Supplies Organisation in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia.

Optoelectronic Devices and Electronics Manufacturing Services: The company’s optoelectronic devices and the electronics it manufactures are used in a broad range of products by a variety of customers in the following market segments: defense, aerospace and avionics; analytical and medical imaging; healthcare; telecommunications; homeland security; toll and traffic management; and automotive.

Marketing, Sales and Service

The company markets and sells its security and inspection products and turnkey security screening solutions globally through a direct sales and marketing staff located in North America, South America, Europe, Middle East, Australia, and Asia, in addition to an expansive global network of independent distributors. This sales organization is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers.

The company markets and sells its healthcare products globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors. The company also supports these sales and customer service efforts by providing operator in service training, comprehensive interactive eLearning for all monitoring products, software updates and upgrades and service training for customer biomedical staff and distributors. The company also provides IT specialists and clinical specialists to provide support both before and after product sale.

The company markets and sells its optoelectronic devices and value-added manufacturing services, through both its direct sales and marketing staff located in North America, Europe and Asia, and indirectly through a global network of independent sales representatives and distributors. The company’s sales staff is supported by an applications engineering group whose members are available to provide technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications.

The company considers its maintenance service operations to be an important element of its business. After the expiration of the company’s standard product warranty periods, the company are often engaged by customers, either directly or through its network of authorized service providers, to provide maintenance services for its security and inspection products. In addition, the company provides a variety of service and support options for its healthcare customers, including hospital on-site repair and maintenance service and telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at its division headquarters.

Government Regulation of Medical Devices

The patient monitoring, cardiology and remote monitoring, and connected care systems the company designs, manufactures, and markets are subject to regulation by numerous government agencies, principally the U.S. Food and Drug Administration (FDA), and by other federal, state, local and foreign authorities. These systems are also subject to various U.S. and foreign product performance and safety standards.

The company’s facilities, records and manufacturing processes are subject to periodic scheduled and unscheduled inspections by the FDA.

As a participant in the healthcare industry, the company is subject to extensive regulations protecting the privacy and security of patient health information that it receives, including the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, which was enacted as part of the American Recovery and Reinvestment Act of 2009 (collectively, ‘HIPAA’).

History

OSI Systems, Inc. was founded in 1987. The company was incorporated in 1987 in California and reincorporated in the Delaware in 2010.