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 has three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Optoelectronics and Manufa...
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 has three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Optoelectronics and Manufacturing, providing specialized electronic components for the company’s Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others; and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.
Industry Overview
The company sells its security and inspection solutions and healthcare products primarily to end-users, while the company designs and manufactures its optoelectronic devices and value-added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers.
Security Division. A variety of technologies are used globally in non-intrusive security and inspection systems, including transmission and backscatter X-ray interrogation, 3-D computed tomography, radiation monitoring, metal detection, millimeter wave imaging, chemical trace detection, and optical inspection. The market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug and human trafficking, gun violence, and by new government mandates and appropriations for security and inspection products both in the United States and internationally.
Security and inspection products are used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations (to screen cargo before it is loaded onto airplanes and ships), government and military installations, sports and concert venues, correctional facilities, and other locations where the interdiction of criminal activities is paramount. The U.S. Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airplanes, and obtaining and transporting explosives, weapons and their components, and to prevent human trafficking. Among other serious crimes. These initiatives, such as the Customs-Trade Partnership Against Terrorism, the U.S. Transportation Security Administration’s Air Cargo Screening Mandate and the U.S. Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments across the world.
Government sponsored initiatives in one nation often stimulate corresponding security programs by others in part because such initiatives frequently require that other nations bolster their security strategies, including acquiring or improving their security and inspection equipment and screening operations, in order to participate in international aviation and to facilitate cross-border trade activities. The international market for non-intrusive inspection equipment and related services also continues to expand as nations choose to procure and operate equipment to meet their own security objectives, including to bolster security operations at their own borders and for their own transportation networks, facilities and at other venues.
The U.S. Transportation Security Administration and other international air transportation security regulators around the world require the screening of passengers, carry-on bags and air cargo. Several of the company’s screening system models have been approved by the U.S. Transportation Security Administration, as well as by various international regulatory bodies, for this purpose and are procured and used by government agencies, airlines, airports, freight forwarders, transportation companies and other businesses to fulfill their compliance requirements. These and other regulations promulgated by international organizations have resulted in an ongoing global demand for airline, cargo, port and border security and inspection technologies.
Optoelectronics and Manufacturing Division. Continued advances in technology have broadened the optoelectronics market by enabling the use of optoelectronic devices in a greater number of applications. In addition, the company sees a trend among OEMs to outsource the design and manufacture of optoelectronic devices, as well as value-added subsystems to fully-integrated, independent manufacturers, like the company, that may have greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.
The company’s optoelectronic devices are used in a wide variety of applications for diversified markets including aerospace and defense, automotive, medical imaging and diagnostics, biochemistry analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security. Medical applications for the company’s devices include diagnostic and imaging products, patient monitoring equipment, and glucose monitors. Aerospace and defense applications for the company’s devices include satellite navigation sensors, laser guided munitions systems, range finders, weapons simulation systems, and other applications that require the conversion of optical signals into electrical signals. Homeland security applications for the company’s devices include X-ray based and other detection systems. The company’s optoelectronic devices and value-added subsystems are also used in a wide variety of measurement control, monitoring and industrial applications and are key components in telecommunications technologies. The company also offers electronics manufacturing services to broader markets, as well as to the company’s optoelectronics customers and to its Security and Healthcare divisions. The company offers full turnkey solutions, as well as printed circuit board assembly, cable and harness assembly, liquid crystal displays and box build manufacturing services, in which the company providea product design and development, supply chain management, and production manufacturing services. Additionally, the company’s flexible circuit businesses offer design expertise, fabrication capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets.
Healthcare Division. Healthcare has been, and will continue to be, a growing economic sector throughout much of the world. Developing countries in Latin America and the Asia-Pacific region are expected to continue to build healthcare infrastructure to serve expanding middle class populations. In developed areas, especially the United States, Europe, and mature Asian countries, aging populations and extended life expectancy are projected to fuel growth in healthcare for the foreseeable future.
While the healthcare industry will continue to grow throughout much of the world, many factors are forcing healthcare providers to do more with less. These factors include inflationary pressures, labor shortages and unfavorable shifts in payor mix. The COVID-19 pandemic strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected changes. The company’s customers expect clinical value, economic value, and clinical decision support. Positioning the company’s healthcare products to demonstrate the competitive value in total cost of ownership is increasingly important in this environment. At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an emerging demand for patient data acquisition and distribution. The company’s Healthcare division designs, manufactures and markets devices and software that respond to these factors, helping hospitals reduce costs, make better-informed clinical decisions, and more fully utilize resources.
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.
Growth Strategy
The key elements of the company’s growth strategy include capitalizing on global reach; capitalizing on vertical integration; capitalizing on the market for security and inspection systems; improving and complementing existing medical technologies; selectively entering new markets; and acquiring new technologies and companies.
Products and Technology
The company designs, develops, manufactures and sells 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.
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, sports and entertain 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 the company’s sales channels.
Many of the company’s 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 the company’s 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 the company’s 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 manufacture 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 the company’s government customers.
The company’s broad portfolio of non-intrusive inspection systems permits the company to offer customers solutions that are tailored to their specific operational requirements, performance standards and budgets.
In many cases, the company has designed the company’s 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.
Optoelectronic Devices and Manufacturing Services. Optoelectronic devices designed, manufactured and sold through the company’s 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 also specialize 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 the company’s optoelectronic devices) to complete end products (for example, pulse oximetry equipment).
The company develop, manufacture and sell 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 offer solid-state laser products for aerospace, defense, telecommunication and medical applications under the ‘OSI LaserDiode’ trade name.
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The company also provide electronics design and manufacturing services in North America, the United Kingdom and in the Asia Pacific region of, printed circuit board and cable and harness assemblies and complete products. The company’s factories are equipped with automated surface mount technology lines and other cutting edge automated manufacturing equipment. The company offer these services to OEM customers and end users for medical, automotive, defense, aerospace, industrial and consumer applications that are not primarily integrating optoelectronic devices. The company also manufacture and design custom LCD displays for medical, industrial and consumer electronics applications, and also design and fabricate 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.
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 Healthcare’ trade name.
Spacelabs products include patient monitors for use in perioperative, critical care, step down and emergency care environments with neonatal, pediatric and adult patients. The company’s patient monitoring systems include bedside monitors such as the Xprezzon and Qube as well as telemetry solutions. These bedside monitors and telemetry devices are networked via wired or wireless networks and data is distributed to centralized surveillance solutions (Xhibit Central Station) and integrated into hospital information systems via products such as Intesys Clinical Suite (ICS). These solutions enable caretakers to monitor critical physiological parameters and to respond to patient conditions by accessing patient data where and when it is required.
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. These tools help to drive care improvement initiatives hospitals are funding today.
For remote clinical monitoring, through an subsidiary, the company provide monitoring technicians who remotely monitor telemetry patients at customer hospitals to provide secondary and supplemental monitoring.
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® 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.
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, the company’s Healthcare division manufactures multivendor compatible accessories for use with third-party devices.
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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, sports and entertainment venues, military and other government installations, freight forwarding facilities, high-profile locations such as 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 provide turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening locations for the company’s 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 the ministries and departments of many international governments, including transportation and border control authorities 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, 2024, the company’s Security division’s direct sales to the U.S. Government were approximately $91.4 million. Additionally, certain of the company’s 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.’
Optoelectronic Devices and Electronics Manufacturing Services. The company’s optoelectronic devices and the electronics the company manufacture 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.
Patient Monitoring, Cardiology and Remote Monitoring, and Connected Care Solutions. The company’s patient monitoring, cardiology and remote monitoring, and connected care solutions are manufactured and distributed globally for use throughout the hospital, in areas such as critical care, emergency, perioperative and step down units. The company’s solutions are also utilized in physicians’ offices, medical clinics and ambulatory surgery centers. The company also provide clinical monitoring solutions in select geographies for telemetry units.
The company sell products directly to end customers, as well as through integrated delivery networks and group purchasing organizations in the U.S., the NHS Supplies Organization in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia.
Marketing, Sales and Service
The company market and sell the company’s 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 market and sell the company’s healthcare solutions 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 support these sales and customer service efforts by providing operator in service training, comprehensive interactive eLearning for all products, software updates and upgrades and service training for customer biomedical staff and distributors. The company provide this support via the company’s international team of technical and clinical specialists.
The company market and sell the company’s optoelectronic devices and manufacturing services, through both the company’s 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 consider the company’s maintenance service operations to be an important element of the company’s business. After the expiration of the company’s standard product warranty periods, the company is often engaged by customers, either directly or through the company’s network of authorized service providers, to provide maintenance services for the company’s security and inspection products. In addition, the company provide a variety of service and support options for the company’s 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 the company’s division headquarters. The company believe that the company’s international maintenance service capabilities allow the company to be competitive in selling the company’s security and inspection systems as well as the company’s patient monitoring, cardiology and remote monitoring, and connected care systems.
Manufacturing and Materials
The company currently manufacture the company’s security and inspection systems domestically in California, Kentucky, Massachusetts, and Tennessee, and internationally in Germany, Malaysia and the United Kingdom. The company currently manufacture the company’s patient monitoring and cardiology and remote monitoring systems in Washington state. The company outsource manufacturing of certain of the company’s supplies and accessories. The company currently manufacture the company’s optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, Mexico, India, Indonesia, Malaysia, and the United Kingdom. Most of the company’s high-volume, labor-intensive manufacturing activities are performed at the company’s facilities in Mexico, India, Indonesia and Malaysia. The company’s ability to manufacture products and provide follow-on service from offices located in these regions allows the company to remain in close proximity to the company’s customers, which is an important component of the company’s global strategy.
The company’s global manufacturing organization has expertise in optoelectronic, microelectronic and integrated electronics for industrial and automation, medical, aerospace and defense industry applications. The company’s manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, LCD and TFT displays, box-build manufacturing, and flex and rigid - flex circuitry on a complete turnkey basis. To support the company’s manufacturing operations, the company outsource certain requirements, including sheet metal fabrication and molding of plastic components.
Trademarks and Trade Names and Patents
Trademarks and Trade Names. The company has used, registered and applied to register certain trademarks and service marks to distinguish the company’s products, technologies and services from those of the company’s competitors in the United States and in foreign countries. The company monitor and, when necessary, enforce the company’s trademark, service mark and trade name rights in the United States and abroad.
Patents. The company possess rights to a number of U.S. and foreign patents relating to various aspects of the company’s security and inspection products, healthcare products and optoelectronic devices and subsystems. The company’s current patents will expire at various times between 2024 and 2042.
Government Regulation of Medical Devices
The patient monitoring, cardiology and remote monitoring, and connected care systems the company design, manufacture, and market 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.
In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict the company’s business practices. These laws include, without limitation, data privacy and security laws, anti-kickback and false claims laws, and transparency laws regarding payments or other items of value provided to healthcare providers.
As a participant in the healthcare industry, the company is subject to extensive regulations protecting the privacy and security of patient health information that the company receive, 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’).
The company’s manufacturing facilities in Hawthorne, California; Snoqualmie, Washington; Johor Bahru, Malaysia; Batam, Indonesia; and Hyderabad, India are all certified to the International Organization for Standardization’s ISO 13485 standard for quality management. The company’s Hawthorne, California and Snoqualmie, Washington facilities are also certified to the requirements of Annex II, section 3 of the Directive 93/42/EEC on Medical Devices, which allows them to self-certify that manufactured products can bear the CE marking. Further, the implementation of the Restriction of Hazardous Substance Directive (‘ROHS’) requires that certain products, including medical devices, shipped into the EU eliminate targeted ROHS substances.
History
OSI Systems, Inc. was founded in 1987. The company was incorporated in 1987 in California and reincorporated in the Delaware in 2010.
