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  "documentTitle": "OSI Systems, Inc. (OSIS)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "presentationDate": "2017-12-06 00:00:00",
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  "notes": "Includes a table of revenue by year and qualitative claims of contract fraud.",
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      "text": "The Mexico turnkey contract therefore likely generates over half of OSIS's total company EBITDA.",
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      "text": "EBITDA margin: 59%",
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      "text": "We estimate that the Mexico S2 turnkey contract generates about $65 million to $70 million of EBITDA annually, which is an EBITDA margin of approximately 55% to 59% (compared to that of the rest of the business, which would seem to generate an EBITDA margin of only about 7.5%). The Mexico turnkey contract therefore likely generates over half of OSIS’s total company EBITDA. When an investor recently asked OSIS investor relations to comment on whether the estimate of EBITDA composition is reasonably accurate, the company refused to comment.",
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      "text": "If our understanding of the overpricing is correct, it could have profound implications for OSIS’s attempt to renew the contract – possibly leading to less favorable terms or non-renewal. Based on the assumptions and analysis that follows, we estimate that OSIS’s turnkey contract in Mexico generated approximately $65 million to $70 million of EBITDA in FY2017, which would have been more than 50% of total company EBITDA. Given our estimate of the materiality of this contract, a non-renewal or a sizable downward adjustment in pricing would seemingly have a significant impact on OSIS’s financials.",
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      "kind": "paragraph",
      "text": "Below is the Mexico segment by year from FY2012-FY2017.22 We assume substantially all Mexico revenue is from the turnkey contract.",
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      "kind": "paragraph",
      "text": "The original contract in Mexico appears to have been substantially overpriced and oversold in terms of capabilities. We base these conclusions on i) an analysis showing the seemingly outsized profitability of the contract, and ii) conversations our investigators spoke with a former senior SAT official who had extensive knowledge of the contract, the machines, and their capabilities. In the former official’s view, the contract price is greatly inflated, and was based on a false promise about the machines’ capabilities that he calls “a lie”.",
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      "text": "In the former official’s view, the contract price is greatly inflated, and was based on a false promise about the machines’ capabilities that he calls “a lie”.",
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      "text": "22 FY2012-2014: FY2014 10-K, pp. F-34-F35; FY2015-2017: FY2017 10-K, pp. F43-F44.",
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      "text": "Mexico Turnkey Contract Revenue by Year (US$)",
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      "text": "Mexico – Inflated Pricing, Potentially at Risk Contract",
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