We are short OSI Systems (“OSI”, “OSIS”, “the Company”), which sells electronic security, screening, and inspection systems. OSI has long been a stagnant business – from 2019 to 2024, revenues grew at an anemic 0.9% CAGR – excluding Mexico. Yet in 2024, OSI reported Mexico revenues grew from $23 million to a whopping

$423 million, accounting for 154% of total growth. We believe this growth is largely an illusion.

OSI’s Mexican business is largely tied to the Company’s March 2023 contract with Mexico’s Ministry of Defense (“SEDENA”) to install 120+ vehicle and cargo screening systems at 21 border crossings. OSI described progress on the contract as “outstanding” as “we continue to successfully execute.” OSI’s reported financials suggest the same, as we estimate the Company has already recognized 81% of SEDENA product/installation revenues, implying that OSI has already largely shipped, installed, and begun commissioning the vast majority of systems.

Yet our research – including an extensive review of import authorization records, investigator visits to border crossings, satellite imagery, interviews of former employees, and analysis of local press – suggests that OSI has fallen wildly behind on its obligations, owing to shipping, installation, and potential product-level issues. We believe that in turn, OSI has grossly mischaracterized its financial position by pulling forward $162 million in revenues in order to paper over the contract’s underlying disarray.

• Our review of publicly available records filed with Mexico’s Department of Energy (“SENER”) suggests that OSI has obtained import authorizations for just 77 of 124 systems (66%) contracted to SEDENA.

• Over the past 2 months, we dispatched investigators to the Mexican customs offices where OSI is meant to be installing screening systems. Our investigators found a mere 51 systems (44%) across these sites – many in various states of disrepair – and just 33 (28%) fully-operating systems in total. An overwhelming 73 of 124 systems (59%) appeared to be missing entirely.

• OSI’s SEDENA nightmare has been widely documented in local press, yet U.S. investors appear entirely in the dark. In January 2025, reporters alleged, “most of the equipment has not been delivered” and “much of the equipment that was purchased is still in the process of being installed…” In February 2025, reporters added that, “the equipment was put into operation, but that it did not work and ended up stored, a condition that it remains in, to this day.”

OSI’s financials reveal SEDENA receivables of $260 million, or 76% of cumulative revenues. Unbilled receivables – revenues recognized in advance of OSI even billing customers – have also ballooned to a glaring $279 million. OSI management claims this is “normal course” for large contracts and merely a “a timing issue” as if the checks are in the We don’t think it’s all that complicated. OSI isn’t getting paid for its reported revenues because the Company should have never recorded these revenues, because it hasn’t done the work.

• From 2006 to 2022, OSI was audited by Moss In 2022, Moss Adams flagged revenue recognition as a critical audit matter. In 2023, OSI replaced Moss Adams with Grant Thornton, who then also deemed Security segment contracts a critical audit matter in the Company’s 2023 annual report.

We believe that OSI now faces fallout as the SEDENA revenue “cookie jar” runs low. Moreover, former employees suggest that OSI has already utilized its 20% contract “buffer,” after which continued contract non- compliance is accompanied by “significant” financial penalties. OSI has promised investors that cash flow will inflect positively, but has continually backed away from these promises. We believe cash flow will continue to remain dismal amid both potential financial penalties and continued SEDENA non-compliance.

Second, we believe that OSI has once again come under intense DoJ scrutiny which the Company has downplayed through deliberately vague and misleading disclosures. We believe the DoJ is actively investigating not just one, but two separate cases of potential FCPA violations in which OSI is suspected of bribing foreign officials and/or bad actors to obtain major contracts. Fallout could be devastating.

• In February 2023, OSI received a DoJ subpoena which the Company downplayed as “part of a DoJ case against a former employee…occurring before he was hired.” That employee – George Edward Walther- Meade – had been indicted and imprisoned in February 2023 on charges of embezzlement, wire fraud, and money laundering that allegedly occurred through his employment at OSI competitor, Leidos.

• OSI hired Walther-Meade in December 2021, just three weeks after he was fired from

• In October 2022 – while employed at OSI – Walther-Meade sued Leidos, alleging the company “claimed ignorance” of his activities in Mexico, including his “familial relationship with certain Mexican contractors” and his “providing benefits to government leaders or agents of Mexico” to secure contracts.

Local press reports that Walther-Meade orchestrated the Company’s SEDENA contract. Moreover, OSI competitor Nuctech and a consortium of Mexican firms alleged bidding irregularities, adding that OSI failed to disclose Walther-Meade’s ongoing criminal investigation – and later indictment – at the time of the SEDENA Walther-Meade remained employed at OSI to March 2023, per his LinkedIn.

• In November 2023, Walther-Meade died by suicide while awaiting trial. Yet DoJ interest has only intensified. In February 2024, OSI received a second DoJ subpoena requesting documents pertaining to “the Company’s business dealings in Mexico since 2020,” suggesting that the DoJ has now expanded its probe into OSI’s Mexico operations.

Moreover, in September 2024, OSI received yet another DoJ subpoena which the Company described only as “requesting records relating to certain entities in Honduras.” Yet OSI has zero disclosed subsidiaries in Honduras and has never mentioned Honduras in its public filings or conference calls.

We believe that the DoJ probe pertains to potential FCPA violations in connection with OSI’s turnkey security screening contract at the Santo Tomas port in Guatemala. This port has been widely understood as under the effective control of Swiss businessman and former fugitive Jürg Widmer Probst. Aptly nicknamed “the King of Ports”, Probst and his affiliates have maintained control of Santo Tomas and other major ports through a network of shadowy entities in Panama, Guatemala, and Honduras.¹

Our research details not only these Honduran entities, but the laundry list of corruption allegations levied against Probst and his associates, including bribes to former Guatemalan President Otto Pérez Molina and VP Roxana Baldetti, both of whom were then found guilty of corruption. In 2016, Guatemalan prosecutors and the CICIG indicted Probst for “cohecho activo” – active bribery – and cited EMPORNAC contracts in particular. Guatemalan officials said of Probst that “anyone who wanted a foothold in the maritime sector” had to establish that foothold through Probst.

We further uncovered Probst’s indirect ties to the notorious Sinaloa cartel. In particular, Probst’s entities and associates are tied directly to former Guatemalan presidential candidate Mario Estrada Orellana, who in April 2019 was sentenced to 15 years in prison for a scheme to solicit Sinaloa cartel money to finance his election, in exchange for “assisting the cartel in using Guatemalan ports and airports to export tons of cocaine into the U.S.”

We think OSI ought to fully disclose the nature of the DoJ’s apparent investigations into both Mexico and “entities in Honduras” given the hefty settlements that often accompany alleged FCPA violations. Recent examples include Petrobras ($850 million), Albemarle ($218 million), SAP ($320 million), and Raytheon ($950 million). Given OSI’s apparent alleged ties to corrupt networks and cartel-affiliated entities, we believe the company remains a prime target for DOJ scrutiny – particularly under a Trump administration.

In May 2024, long-time Chairman and CEO Deepak Chopra announced his retirement by year-end 2024. In the same month, he set up a new 10b5-1 stock sale plan. In the past 2 years, Chopra has sold $39.4 million in stock, and insiders have collectively sold $70.0 million. We are short OSI and think shares are headed lower.

Introduction to OSI Systems

OSI Systems, Inc. describes itself as a vertically integrated designer and manufacturer of electronic security, screening, and inspection systems. The Company reports in three segments: Security (68% of 2024 revenues and an even greater portion of operating profits²), Optoelectronics and Manufacturing (21% of 2024 revenues), and Healthcare (11% of 2024 revenues).

The Security segment sells metal detectors, x-ray machines, and other screening and inspection systems used in environments such as airports, seaports, and border crossings. These systems are sold under the brand names of Rapiscan, American Science and Engineering (“AS&E”), and S2 Global, as shown below.

OSI sells its systems in two ways: traditional and turnkey. In a traditional sale, OSI sells and installs each system for ~$2 million to $9 million, depending on jurisdiction, size of the order, and civil works requirements, and then signs an accompanying maintenance and service agreement. OSI isn’t a recurring revenue business, however – management estimates only 30% of revenues are “recurring” while 70% of revenues are “one-time” product/installation revenues.³ In turnkey projects, the Company owns and operates the systems, while equipment is retained on balance sheet.

Historically, OSI has been a low- to no-growth business. From 2019 through 2024, the Company spent $117 million on 16 acquisitions, yet Company-wide revenues grew a cumulative 0.4% over 5 years – until Mexico, that is.⁴ In 2024, OSI reported 20% overall revenue growth (+$260 million), with Mexico revenues skyrocketing from

$23 million to $423 million on two key contract wins, representing 154% of overall growth.

• On January 17, 2023, OSI announced award of “over $200 million” for cargo and vehicle inspection systems – including both mobile and fixed systems – to an international customer, revealed to be to Mexico’s Navy, known as SEMAR. OSI disclosed that the Company began recognizing revenues on this contract in fiscal Q4 2023 (ended June 30, 2023).

• On March 20, 2023, OSI announced an award of over $600 million from Mexico’s Ministry of Defense (“SEDENA”) for cargo an vehicle inspection systems and related services, along several Mexican customs border OSI disclosed that the Company began recognizing revenues on this contract in fiscal Q2 2024 (ended December 31, 2023).

OSI Has Already Recognized 81% of Total SEDENA Product/Installation Revenues, Implying Shipments and Installations Have Been Largely Completed

We believe OSI has dramatically misrepresented its progress with SEDENA both in its written and financial statements. The following summarizes our views, based upon Company disclosures, management commentary, interviews with former employees, and local media reports. For the sake of brevity, readers can find our full calculations and supporting evidence in Appendix A.

• OSI’s $612 million contract consists of $424 million in product/installation revenues, net of VAT and maintenance/services.⁵
• OSI has already recognized $343 million in SEDENA revenues, or 81% of this ⁶

• OSI recognizes revenue upon milestones including system shipment (25% of total), throughout installation (another 50% of total), and upon commissioning (final 25% of total).⁷
• OSI’s contract with SEDENA calls for the installation and commissioning of 120 to 150 ⁸

Taking these together, we’d thus expect that OSI has already shipped and installed the vast majority – if not all – of the systems due to SEDENA, and is simply waiting upon final customer acceptance in order to recognize the remaining revenues and collect payment.

Indeed, OSI management has continually characterized its progress on the SEDENA contract as “outstanding.”

“These contracts have been great. We’re just starting to scale them up right now. So it’s providing tremendous visibility.” – CFO Edrick, Morgan Stanley TMT Conference, March 4, 2024

“Our team is actually doing an outstanding job on that [SEDENA]… So as we start getting those annual recurring revenues from service post warranty, then that will be nicely margin-accretive to us as well. But it’s been a very nice contract for us.” – CFO Edrick, Q3 2024 earnings call, April 25, 2024

“During Q4, we continued to successfully execute on our major program with Mexico’s Department of National Defense, known as SEDENA, which is expected to generate more than $500 million in total revenue over the length of the contract.” – Former CEO Chopra, Q4 2024 earnings call, August 22, 2024

Moreover, OSI’s SEDENA revenues largely haven’t translated to cash. As of Q2 2025, we estimate SEDENA receivables of $260 million, or 76% of cumulative SEDENA revenues. Further, unbilled receivables have exploded from less than $100 million to $279 million – not only is OSI not collecting, but not even billing customers for a meaningful portion of reported revenues.⁹ As such, free cash flow has turned deeply negative.

OSI management has waved away ballooning receivables by claiming this dynamic is “normal course for large government contracts” and “just timing related” due to “certain project milestones, which are highly influenced by the customers’ timeline and sign off.” ¹⁰ This is a departure from the Company’s earlier claims, however.

• On the Company’s Q3 2023 earnings call in April 2023, CFO Edrick claimed that cash flow would be “very rich” as OSI “begins to deliver the product”, clearly implying that OSI is paid by customers upon delivery rather than subsequent to commissioning.
• On the Company’s Q1 2024 earnings call in October 2023, Edrick claimed that “We do expect to generate nice free cash flow this year, but the real strength in the free cash flow will begin in the subsequent fiscal year…” In reality, OSI would go on to generate negative $127 million in free cash flow in fiscal 2024.

OSI has left the SEDENA contract entirely unaddressed, despite the Company’s own statements suggesting underlying delays. Our research lays them bare.

We Believe OSI Pulled Forward Revenues to Mask Underlying SEDENA Complications. We Found Many Non-Operating Systems, Others Missing Entirely

We believe that OSI has improperly pulled forward revenues from SEDENA well in advance of product shipments, installations, and commissioning. Our view is based on our conversations with former employees, review of import licenses, investigators’ visits to border crossings, satellite imagery, and local press.

OSI Has Received Import Authorization for Just 62% of SEDENA Systems

OSI’s scanning systems are produced in the U.S. and U.K., and utilize ionizing radiation which requires the Company to obtain import licenses from Mexico’s Secretariat of Energy (“SENER”) prior to importation. Once obtained, these licenses are filed in Mexico’s public transparency database, and disclose the exact make, model, and quantity of each system that the Company is requesting to import.

For example, see that in October 2023, Rapiscan obtained a license to import ten (10) CarView InLane (i.e., light vehicle) screening systems, which would remain valid until April 5, 2024.

Recall that the SEDENA contract calls for approximately 54 truck/cargo systems and 70 light vehicle systems, or 124 systems in total. We reviewed all licenses that Rapiscan obtained since the March 2023 contract began.¹¹ Our review found licenses for just 51 CarView InLane systems and 26 Z-Portal systems, or just 77 of the 124 (62%) systems due to SEDENA.¹²

Thus, even if OSI were recognizing 100% of product/installation revenues upon system shipment, it remains unclear to us how the Company could possibly have recognized such lofty SEDENA revenues.

• OSI claims that the Company only begins to recognize revenues upon shipment and continues to recognize revenues upon certain other milestones, which former employees told us includes installation and commissioning.

• Yet the Company appears to have already recognized 80% of SEDENA product/installation revenues, without even having obtained the right to ship 38% of its systems into the country.¹³ Critically, this authorization doesn’t guarantee shipment, it only allows it – we have no guarantee that all 77 of these systems were shipped.

• Finally, consider that the Company itself told us that SEDENA systems held ASPs in a range of $3 to $4 million. Thus, even if 100% of each of the 77 authorized imports were fully recognized, this implies revenues of just $308 million – again well below the $343 million implied from OSI’s claims don’t add up, even under the most generous assumptions.

We Dispatched Investigators to the Border. They Found Less than HALF of Systems Delivered, Just 27% of Systems Commissioned, 59% of Systems Missing Entirely

From late January to March 2025, we dispatched investigators to the border crossings where OSI’s systems are meant to be installed. Investigators found just 51 systems (41% of total) had been deployed, and just 33 systems (28% of total) appeared to be fully commissioned/operational.¹⁴

We provide several examples of our border findings in the pages that follow. For the sake of brevity, interested readers can find more information regarding each of the crossings in Appendix A.

• Investigators visited Mexicali in late January 2025 and found three (3) light vehicle systems that appeared to be at least partially installed. Yet traffic was directed around the scanners towards a manual screening process. Our review of satellite imagery from February 2024 shows the ground prepared for the systems.

Source: Culper Investigator Visit, Google Earth as of February 2024

• At crossings in Reynosa, including both the Hidalgo-Reynosa and Anzalduas Bridges, investigators found seven (7) light vehicle systems and two (2) cargo systems, yet none of the systems were commissioned – they were instead blocked off with ropes, caution tape, or barriers, while cables were unplugged and equipment was loose on the ground.

• At Ciudad Camargo, investigators found that a scanning lane appeared to be partially constructed, similar to other crossings, yet upon a closer approach, the actual Rapiscan system was missing from the lane entirely. Note that in our own analysis of scanner counts, we – in what we view as being incredibly generous to OSI – count this as an installed, but not yet operating scanner.¹⁵

• At Piedras Negras, investigators found two (2) light vehicle systems, yet each appeared to be under construction, as evident by scaffolding and vehicle traffic directed instead to manual inspections.

• At Miguel Aleman, investigators noted the presence of (1) light vehicle system and one (1) truck/cargo system, but the systems were coned off and traffic was directed again to a manual screening process.

• Investigators found a similar situation at Nuevo Laredo, where three (3) light vehicle systems were at least partially constructed, but traffic was directed around the systems to a manual screening process.

• At Matamoros, investigators found four (4) systems, consisting of two (2) light vehicle and two (2) cargo systems. The light vehicle systems were coned off, however. Investigators also noted unplugged cables, suggesting that the systems were non-operational.

OSI’s SEDENA Problems Widely Reported by Mexican Press, But U.S. Investors Kept in the Dark

OSI’s delays in shipping, installing, and commissioning systems for SEDENA have been widely documented by Mexican media outlets. Yet the issue remains entirely unaddressed by OSI management, who instead tell U.S. investors that cash collection problems are “normal course” and that “we continue to successfully execute.”

In August 2023, leading Mexican newspaper EL Universal reported supply chain delays caused by legal proceedings as OSI competitor Nuctech systems challenged the contract award. Reporters added that Rapiscan had reportedly already agreed to extend the contract to up to 29 months.

“In reality, what could end up ruining the multi-million dollar contract for the American company Rapiscan, which was publicly supported by Ambassador Ken Salazar, is the failure to meet delivery and installation times… Sources close to Rapiscan say that the company has already ‘agreed’ with Sedena to extend the terms of the contract, to deliver the x-ray arches in a period that could reach up to 29 months; the problem is that, although the law provides for an extension of the term, the maximum limit allowed is an increase of up to 20% of the original time… if it gives in to the request of the supplier firm, the problem would be passed on to the next administration…”

We spoke with a former Rapiscan employee who corroborated to us that Mexico allows for a “buffer” of 20% of either contract cost or time, but OSI had likely already exceeded this 20% allowance, and would thus accrue penalties if the contract faced further delays.

“All contracts have a 20% allowance either in value or in time. They give you 20% additional time without penalties. Or if you’re above budget they’ll go higher, it’s allowed in the law. I believe Rapiscan has used that already… If they need to alter the contract further, they would pay penalties.”

– Former Rapiscan Employee, February 2025

Tellingly, OSI added an entirely new risk disclosure to its Form 10-K in 2023, adding – despite having operated in Mexico for 20+ years – that “there are inherent risks associated with our operations in Mexico” including “significant penalties in the event of our late delivery or non-performance” and potential termination of the program altogether.

In January 2025, reporters at Sonora Presente published an update that “most of the equipment has not been delivered” and “much of the equipment that was purchased is still in the process of being installed…”¹⁶

Source: Sonora Presente, January 8, 2025

Finally on February 17, 2025 – less than a month ago – journalist Roberto Rock added to the conversation, citing unconfirmed reports that while systems were put into operation, they “did not work and ended up stored” – aligning with our findings of barricaded, roped off, coned off, or otherwise non-operating systems.

“[We] were unable to determine whether the equipment presumably purchased with such significant expenditures was actually installed. Unconfirmed reports claim that the equipment was put into operation, but that it did not work and ended up stored, a condition that it remains in, to this day.”

16 OSI’s reported pledge to install the machines “in the year prior to the end of López Obrador’s administration…” aligns with what we were told from former OSI employees regarding installation timing (i.e., 11 to 18 months post-signing), implying a February to September 2024 completion date. Former President Lopez Obrador was succeeded by Sheinbaum on October 1, 2024.

Financial Implications: OSI’s Financials are Unreliable, Penalties and Playing “Catch Up” Could Continue to Haunt Cash Flows

We think that OSI’s financial statements should not be relied upon, the Company is potentially racking up penalties by the day as the SEDENA contract remains behind schedule, the SEDENA “cookie jar” has run low, and cash flows will remain dismal as OSI completes the work for which it has already recognized revenues.

Based on our review of import authorizations, site visits, and conversations with former employees, we estimate that OSI ought to have recognized a maximum of $181 million from SEDENA, implying that OSI has pulled forward $162 million in revenues.

From 2006 to 2023, OSI employed Moss Adams LLP as auditor. In 2022, Moss Adams flagged revenue recognition as a critical audit matter.

In January 2023, OSI replaced Moss Adams with Grant Thornton, who then also deemed Security segment contracts a critical audit matter in the Company’s 2023 Form 10-K:

Investors now rely on OSI’s assurances that cash flow is just around the corner, underpinned by the view that OSI merely needs to collect on completed work. For example, one sell-side analyst values the Company based on their expectations of a “latent cash flow surge” while another analyst calls for deleveraging “principally by collecting cash on its Mexico work.” We believe, however, that OSI’s cash generation will continue to remain poor, as problems are not just contained to collections, but in completing the contract. ¹⁷

To that end, we find it telling that OSI has continued to walk back its cash flow claims.

• On the Company’s Q1 2025 earnings call, Edrick claimed that “operating cash flow could be quite significant in the second half of fiscal ’25 and potentially even stronger in fiscal ’26.” It was on this call that Edrick also departed from his earlier implications that OSI is paid on delivery, and instead claimed that OSI is paid “subsequent to certain project milestones.”

• Yet on the Company’s most recent Q2 2025 call in January, Edrick removed the claim that OSI would generate “even stronger” cash flows in 2026, and stated only that “We continue to anticipate operating cash flow could be significant in the second half of fiscal ’25.”

OSI Appears to be Under an Active DoJ Investigation in Mexico. We Believe the DoJ is Interested in Potential FCPA (i.e., Bribery) Violations

To add insult to injury, OSI appears to have recently become subject to an active DoJ investigation into its activities in Mexico. In February 2023, OSI received a DoJ subpoena, which the Company initially downplayed as “part of a DoJ case against a former employee…occurring before he was hired.”

The employee referenced is George Edward Walther-Meade, who joined OSI in December 2021 – just three weeks after he was fired from top OSI competitor, Leidos.

Source: LinkedIn

In October 2022, Walther-Meade filed suit against Leidos on ten counts, including wrongful termination and breach of implied contract. In the complaint, Walther-Meade effectively alleges that Leidos fired him as a scapegoat for potentially nefarious activities. The complaint alleges that Leidos hired Walther-Meade to procure business in Mexico, then “claimed ignorance” of Walther-Meade’s activities in Mexico, including his “familial relationship with certain Mexican contractors…” and his “providing benefits to government leaders or agents of Mexico for purposes of procuring the International Contract…”

Source: Walther-Meade v. Leidos, Inc. Complaint

In February 2023, Walther-Meade was indicted and imprisoned on charges of embezzlement, wire fraud, and money laundering. The DoJ alleged that while at Leidos, Walther-Meade created and submitted fake invoices for work that was never performed, then used the invoice proceeds for “aesthetic dental services” and jewelry.

Source: United States of America vs. George Walther-Meade

We find it concerning that OSI would hire and continue to employ Walther-Meade under these circumstances. Further, OSI’s Mexican Navy contract was reportedly orchestrated by Walther-Meade.

As alluded to by local press above, OSI competitor Nuctech and a consortium of Mexican firms disputed the original contract award, alleging “serious anomalies presented in the bidding process and in the corresponding ruling.” Critically, the group alleged that OSI had not properly disclosed that Walther-Meade, who had reportedly orchestrated the deal, was under criminal investigation, then subject to criminal proceedings. A judge eventually refused to suspend the contract.

In November 2023, Walther-Meade committed suicide as he awaited trial. One might expect the DoJ matter to end with Walther-Meade’s death, but it hasn’t – it’s only escalated.

In OSI’s Form 10-Q filed April 30, 2024, the Company updated earlier disclosures to add that the Company received a second subpoena in February 2024 – three months after Walther-Meade’s death. This second subpoena requested “the same categories of documents” which included documents pertaining to “the Company’s business dealings in Mexico” but “extending the relevant time period through to the date of the second subpoena.” Given the timing of both Walther-Meade’s employment at OSI and his death, we believe the only logical explanation is that the DOJ has expanded its investigation into OSI’s dealings in Mexico, and is likely now taking a critical eye to potential FCPA violations surrounding the SEDENA contract.

Newly Disclosed September 2024 Subpoena Suggests DoJ Now ALSO Investigating OSI’s Turnkey Contract at Santo Tomas Port. We Suspect Further FCPA Problems

We believe that OSI is also now party to an active DOJ investigation into the Company’s turnkey contract for security screening at the Santo Tomas port in Guatemala.

OSI disclosed in its Q1 2025 Form 10-Q filed in October 2024 that in September 2024, the Company received a DOJ subpoena, “requesting records relating to certain entities in Honduras.” Yet OSI has zero disclosed subsidiaries in Honduras, nor has the Company ever mentioned Honduras in its public filings or conference calls. Thus, it seems to us either that: OSI is harboring undisclosed Honduran subsidiaries, or that OSI has dealings with third-party entities in Honduras that have now caught the interest of the DoJ. Our research suggests the latter.

We believe the investigation pertains to dealings between OSI and affiliates of former fugitive Jürg Widmer Probst, nicknamed “El Rey de Los Puertos” (“the King of the Ports”) for his history of alleged corruption across the shipping and transportation industries. Our research details how Probst appears to maintain significant influence over the Santo Tomas port, where OSI was awarded a turnkey screening contract in 2019.¹⁸ We believe OSI is likely party to an investigation of potential FCPA (i.e., bribery) violations in connection with its Santo Tomas Port contract.

We challenge OSI to disclose the names of the “entities in Honduras.” Investors deserve full disclosure.

The Santo Tomas Port Deal: 10-Year Turnkey Contract Awarded by EMPORNAC

In January 2019, OSI announced a 10-year, fee-per-scan turnkey security screening contract at the Port of Santo Tomas de Castilla in Guatemala. OSI has not disclosed this contract’s contribution to revenues or profits, but the Company does disclose $62 million in revenues from “other Americas” in 2024, and further that turnkey contract margins are “nicely north of overall corporate average.”¹⁹ OSI management also confirmed the attractiveness of turnkey contracts, telling us that, “we would absolutely do turnkeys every time based on the unit economics.”

The Santo Tomas deal was awarded to OSI subsidiary S2 Global by EMPORNAC, the Guatemalan state-owned enterprise overseeing the port.

Source: Guatemala State Contracting

Allegations of a Rigged Bidding Process Were Filed Long Before OSI’s DoJ Subpoena

Publicly filed complaints (“non-conformities”) filed upon the award – and long before OSI’s September 2024 DoJ subpoena – alleged that the process was effectively rigged in OSI’s favor.

• Several nonconformities (here, here, here, and here) alleged that EMPORNAC’s requirement of US certification automatically ruled out local competitors, in direct violation of Guatemalan law. Another nonconformity claimed that there was “very short time for foreign companies to register or identify potential provider of specific services to the object of the tender” which limited the competition to exactly one operator: OSI’s Rapiscan.
• Another nonconformity filed by Bofica S.A. claimed that Bofica had already been awarded the contract through a prior award from the Ministry of Public Finance.

• Another nonconformity echoed the USA certification requirement complaints and added that OSI’s bid was more expensive than the only other competing bid, as shown below.

We Believe the DoJ’s Honduras Probe Centers on OSI’s Ties to Jurg Widmer Probst, Notorious for Alleged Corruption

While EMPORNAC offers contracts and concessions for varying port duties, it is well understood that Guatemala’s two ports – Santo Tomas (on the Atlantic) and Puerto Quetzal (on the Pacific) – have been dominated for two decades by Swiss businessman Jurg Widmer Probst. Probst’s dominance, in turn, has been allegedly a function of widespread corruption – including at the highest level – with alleged kickbacks to former Guatemalan President Otto Pérez Molina and VP Roxana Baldetti, both of whom were then found guilty of corruption.

We believe Probst and his cronies maintain continued control of the Santo Tomas port not only via entities in Guatemala, but also in Honduras. These include Pahame, EA Holdings SA, Swisstec Honduras SA de Capital Variable, and Intergrupo (collectively “Interport”).

We believe the DoJ’s scrutiny of OSI’s apparent dealings with “entities in Honduras” points to the Probst network – a deeply troubling connection given OSI’s apparent ongoing DoJ investigation in Mexico, the multiple non-conformities alleged of the Santo Tomas contract award, and Probst’s extensive history of alleged corruption.

We Suspect DOJ’s Interest in “Entities In Honduras” Link Directly to Probst

We uncovered multiple Probst-linked entities in Honduras, including EA Holdings, Swisstec Honduras, and Intergrupo.

EA Holdings says its services are especially, but not limited to, “maritime services, including towing and vessel assistance, port services, including mooring, rental and operation of machinery and port equipment…” EA’s partners / listed representatives include Probst, both Carlos and Luis Garcia Pilon – brothers themselves, and brothers-in-law of Probst – and Manuel Roberto Sisniega.

• We see a similar pattern at Intergrupo SA and at Swisstec Honduras. Intergrupo lists its services as including “shipping agency services, maritime services, including towing and ship assistance…” Its partners include Probst, Carlos Antonio and Luis Ernesto Garcia Pilon, and Sisniega.

Source: Honduras Registry

• Swisstec lists its services as including “any service in sea ports: import and rental of machinery, stewardship, shipping agency, cargo ” Swisstec lists both Probst and Luis Ernesto Garcia Pilon.

Source: Honduras Registry

This cadre of partners has a long history of allegedly problematic dealings and relationships. Probst’s dealings span 20+ years and detailing the full scope of allegations that have been made against Probst is far beyond the scope of this report. Yet we do attempt to summarize some recent highlights.

• In 2016, Guatemalan prosecutors, in tandem with the UN’s CICIG, revealed the “Caso Coopatacion del Estado” – Guatemala’s largest-ever crackdown on state-level corruption. Numerous charges detailed how a network of bad actors siphoned state funds and bribed their way into contracts. As part of this case, Probst was indicted for “cohecho activo” – active bribery – citing EMPORNAC contracts in particular. Guatemalan officials would later say of Probst that “anyone who wanted a foothold in the maritime sector” had to do establish that foothold through his network. Probst fled to Switzerland where he avoided prosecution for 7 years.

• In early 2017, the Dutch financial crimes unit (“FIOD”) raided the Damen Shipyards in connection with a bribery investigation. Dutch media reported that the raid “possibly relates to corruption in Honduras” and further linked Probst to Dutch firms in South America.

• In May 2019, Probst was sued in California for allegedly attempting to launder money through a Vapiano franchise – a Florida and DC-based restaurant chain. Yet when he was denied a franchise license, Probst allegedly sabotaged the group by organizing employee strikes and interfering with management. The suit described him as follows.

Source: May 2019 Complaint

• In 2023, a rural judge in Guatemala lifted Probst’s longstanding arrest warrant. Guatemalan prosecutors promptly appealed. In September 2023, a new judge ruled that there was insufficient evidence to proceed to trial. Guatemala’s special prosecutor again announced plans to appeal, and the case remains in limbo, as best we can tell.

• Media reports suggest that Probst and Garcia Pilon – also a member of various Probst-linked firms – were previously “befriended” by attorney Juan Pablo Carrasco de Groote, who allegedly enabled bribes to Guatemalan government officials “in order to win $400 million worth of road construction contracts between 2013 and 2015.”

• For his part, Manuel Roberto Sisniega, previously established Aerocomercial S.A., which listed a registered address in a shopping mall and a sole representative – José Ángel Reyes Morales. Aerocomercial S.A. owned the helicopter used by former Guatemalan Presidential Candidate Mario Estrada In April 2019, Orellana was arrested and sentenced to 15 years in prison for a scheme to “solicit Sinaloa Cartel money to finance a corrupt scheme to elect [him] president of Guatemala” in exchange for promising “to assist the cartel in using Guatemalan ports and airports to export tons of cocaine into the U.S.”

• Sisniega also served as General Counsel for Tigo Guatemala. In June 2021, the CICIG accused former Vice President of Guatemala Baldetti of accepting bribes from Tigo in exchange for allowing Tigo to effectively corner the telecom market. In April 2022, Tigo received a DOJ subpoena requesting information regarding its business in Guatemala and with Guatemalan government officials. In October 2022, the former Economics Minister of Guatemala pled guilty to transferring bribes from Tigo to certain Guatemalan officials. He was sentenced to one year in prison. In May 2023, Tigo received a second subpoena, and the investigation appears to be ongoing according to latest disclosures.
• Luis Ernesto Garcia Pilon is also listed as a director and President of Interport’s Panama holding company. Carlos Antonio Garcia Pilon is listed as legal representative for Caribe Gru and Servicios Bayside, both Guatemalan firms within Probst’s network. Guatemalan records also indicate that Luis Ernesto Garcia Pilon is a representative of Guatemala’s Interport Group SA.

• Luis Ernesto Garcia Pilon is also Director of Comercializadora Pahame, where 2023 press reports claim Pahame “currently controls Puerto Santo Tomás de Castilla.”

EMPORNAC, Pahame and Santo Tomas: Undeniable Entanglements

Probst maintains no official affiliation with Pahame, historically insisting that Pahame and Probst are independent. Yet our research suggests EMPORNAC and Pahame are intimately linked with one another and with Probst, raising concerns about their independence and of OSI’s potential dealings with both groups.

• In 2020, EMPORNAC’s former Audit Director left to join Pahame

• In 2021, Pahame referred to itself as EMPORNAC’s “most important customer” responsible for 40% of cargo shipped into the port.

• According to a Facebook post, Herbert Wanger is “Port Manager of Pahame.” Yet on Wanger’s LinkedIn profile, he lists both Pahame and Interport.

• Interport’s administrative assistant, Mailyn Lopez, has only posted twice on LinkedIn. Both were re-posts from Pahame.
• Finally, Pahame Business Manager, Roberto Moscoso Celada, states on his own LinkedIn profile that he works for Interport.

• In 2023, an investigative journal found that the sole administrator of a Guatemalan entity named Kaize was also a lawyer of Interport, but the entity’s address traced back to Pahame. The journal claimed that Pahame is “part of the Interport Group.”

Potential FCPA Reckoning Holds 9-Figure Precedents

We think OSI ought to fully disclose the nature of the DoJ’s apparent investigations into both Mexico and

“entities in Honduras” given the hefty settlements that often accompany alleged FCPA violations.

• In September 2018, Petrobras settled FCPA charges for more than $850 million. The charges alleged that Petrobras “facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and ..”

• In September 2023, Albemarle settled FCPA charges with the DoJ for $218 million, and another $103 million to the SEC, for alleged “bribes to obtain sales of refinery catalysts to public-sector oil refineries in Vietnam, India, and Indonesia and to private-sector oil refineries in India.”

• In January 2024, SAP settled DoJ FCPA charges for $220 million, with another $100 million SEC settlement, after being charged with alleged “bribery schemes in South Africa, Malawi, Kenya, Tanzania, Ghana, Indonesia, and Azerbaijan.”

• In October 2024, Raytheon settled FCPA and ITAR charges with both the DoJ and SEC for $950 million. Charges alleged “a systematic and deliberate conspiracy that knowingly and willfully violated U.S. fraud and export laws” by “engaging in a scheme to bribe a government official in Qatar.”

Insiders Sold Millions Both Outside of Sale Plans, and Lower than Today’s Prices

OSI’s long-time Chairman and CEO Deepak Chopra now looks to be distancing himself from the Company.

• On May 3, 2024, OSI announced that Chopra would retire as CEO by the end of calendar
• On May 15, 2024, Chopra sold $5.6 million in stock at an average price of $139.75, below today’s

• On May 29, 2024, Chopra established a 10b5-1 sale His prior plan was adopted in March 2023.

• Since then, Chopra has sold $19.9 million in OSIS shares both inside and outside of that plan.

In total, insiders have sold $83.7 million in stock over the past 3 years, and $40.8 million in the past year alone. We’re following their lead.

Appendix A: SEDENA Contract Supporting Calculations

According to Mexican media reports, OSI’s SEDENA border contract calls for the installation of 124 to 146 scanners, inclusive of fifty-four (54) Z-Portal (i.e., cargo/truck) systems and seventy (70) CarView InLane (i.e., light vehicle) systems across 21 border crossings.²⁰ Though the original contract appears to be under seal, we asked OSI management to confirm a system count. They refused to answer directly, but corroborated the media reports.

OSI Management: “I can’t get into the number of units for security reasons. But cargo systems tend to be in the multi-million dollar range, from $2 to $7 million dollars…”

Culper Research: “We read that it’s somewhere between 120 and 150 units. Is that roughly accurate?”

OSI Management: “Probably, that’s the number to have in mind. If you just work it backwards from $3 to

$4 million ticket per product, yeah, you’ll get there… It’s not just a couple dozen.”²¹

Of $612 million in total contract value, OSI has guided investors to consider 16% for VAT, or net contract value of $514 million, which includes revenues from both the sale and installation of the units themselves (i.e., “production/installation”) and the subsequent maintenance and service of those units. Based on conversations with former OSI employees and the sell-side, we estimate maintenance and services are 15% to 20% of the net contract value.²² As such, we estimate that OSI ought to recognize a total of $424 million in product/installation revenues throughout the entire life of the SEDENA contract.

OSI also discloses contributions from its 10% customers, on both a quarterly and annual basis. Using these disclosures, we derive SEDENA has contributed $343 million in revenues through Q2 2025 (ending December 31, 2024), or 81% of the total product/installation revenues expected over the entire life of the contract.²³

OSI recognizes revenue based “upon shipment or delivery when control of the product transfers to the customer…” and can include “multiple performance obligations such as civil works to prepare a site for equipment installation…” such as that which is included in the Company’s SEDENA contract.²⁴ Our conversations with multiple former OSI employees suggest that the Company recognizes approximately 25% of product/installation revenues upon shipment of the product, another 50% throughout installation of the product, and the final 25% upon commissioning or customer acceptance.

“Each milestone has its own percentage. Shipped, installed, and commissioned. You can expect that when they hit the ground and it’s installed, you could get to 70% realized.” – Former OSI Executive/Director #1

“…down payment in advance up to 20% of the total contract. When they deliver the fully accepted system, probably [an incremental] 50-60%, then the end is whenever all the services are coming alongside… In order to recognize full revenue, they have to get full acceptance of those systems.” – Former OSI Executive/Director #2

“There’s a payment schedule. It depends, but typically 25% at the time of order. 25% upon delivery, then 50% balance, net 30 on the date of substantial completion.” – Former OSI Executive/Director #3

Appendix B: 21 Border Crossing Locations

Appendix C: OSIS Inventory Days