OSI SYSTEMS INC [OSIS] Filings

10-Q 1 osis-20240930x10q.htm 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-23125

OSI SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware		33-0238801
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12525 Chadron Avenue

Hawthorne, California 90250

(Address of principal executive offices) (Zip Code)

(310) 978-0516

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		OSIS		The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 21, 2024, there were 16,710,749 shares of the registrant’s common stock outstanding.

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OSI SYSTEMS, INC.

INDEX

		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2024 and September 30, 2024	3
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2023 and 2024	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2023 and 2024	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2023 and 2024	6
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2023 and 2024	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4 —	Controls and Procedures	29

PART II — OTHER INFORMATION		30
Item 1 —	Legal Proceedings	30
Item 1A —	Risk Factors	30
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3 —	Defaults Upon Senior Securities	30
Item 4 —	Mine Safety Disclosures	30
Item 5 —	Other Information	30
Item 6 —	Exhibits	31
Signatures		32

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except share amounts and par value)


	June 30,		September 30,
	2024		2024
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	95,353	$	85,053
Accounts receivable, net		648,155		687,610
Inventories		397,939		456,030
Prepaid expenses and other current assets		74,077		81,310
Total current assets		1,215,524		1,310,003
Property and equipment, net		113,967		124,613
Goodwill		351,480		381,444
Intangible assets, net		139,529		183,222
Other assets		115,508		114,232
Total assets	$	1,936,008	$	2,113,514
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	384,000	$	259,000
Current portion of long-term debt		8,167		8,217
Accounts payable		191,149		191,932
Accrued payroll and related expenses		46,732		41,048
Advances from customers		53,431		63,996
Other accrued expenses and current liabilities		131,158		148,343
Total current liabilities		814,637		712,536
Long-term debt, net		129,383		468,084
Other long-term liabilities		128,505		146,399
Total liabilities		1,072,525		1,327,019
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value—10,000,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 17,055,497 shares at June 30, 2024 and 16,710,749 shares at September 30, 2024		24,289		17
Retained earnings		861,230		810,553
Accumulated other comprehensive loss		(22,036)		(24,075)
Total stockholders’ equity		863,483		786,495
Total liabilities and stockholders’ equity	$	1,936,008	$	2,113,514

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)


	Three Months Ended September 30,
	2023		2024
Net revenues:
Products	$	199,709	$	255,808
Services		79,501		88,199
Total net revenues		279,210		344,007
Cost of goods sold:
Products		136,983		170,422
Services		43,482		52,083
Total cost of goods sold		180,465		222,505
Gross profit		98,745		121,502
Operating expenses:
Selling, general and administrative		59,798		72,223
Research and development		15,922		17,773
Restructuring and other charges, net		466		1,178
Total operating expenses		76,186		91,174
Income from operations		22,559		30,328
Interest and other expense, net		(5,748)		(7,359)
Income before income taxes		16,811		22,969
Provision for income taxes		(3,932)		(5,033)
Net income	$	12,879	$	17,936
Earnings per share:
Basic	$	0.77	$	1.07
Diluted	$	0.75	$	1.05
Shares used in per share calculation:
Basic		16,825		16,742
Diluted		17,175		17,055

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)


	Three Months Ended September 30,
	2023		2024
Net income	$	12,879	$	17,936
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax		(3,172)		1,181
Net unrealized gain (loss) on derivatives, net of tax		1,147		(3,220)
Other, net of tax		137		—
Other comprehensive loss		(1,888)		(2,039)
Comprehensive income	$	10,991	$	15,897

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)


	Three Months Ended September 30, 2023
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2023	16,755,772	$	9,835	$	735,957	$	(19,627)	$	726,165
Exercise of stock options	4,752		420		—		—		420
Vesting of RSUs	363,820		—		—		—		—
Shares issued under employee stock purchase plan	29,813		2,031		—		—		2,031
Stock-based compensation expense	—		7,089		—		—		7,089
Taxes paid related to net share settlement of equity awards	(166,315)		(19,358)		(2,881)		—		(22,239)
Net income	—		—		12,879		—		12,879
Other comprehensive loss	—		—		—		(1,888)		(1,888)
Balance—September 30, 2023	16,987,842	$	17	$	745,955	$	(21,515)	$	724,457


	Three Months Ended September 30, 2024
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2024	17,055,497	$	24,289	$	861,230	$	(22,036)	$	863,483
Exercise of stock options	957		70		—		—		70
Vesting of RSUs	297,418		—		—		—		—
Shares issued under employee stock purchase plan	31,143		2,329		—		—		2,329
Stock-based compensation expense	—		6,422		—		—		6,422
Repurchase of common stock	(531,314)		(28,919)		(51,524)		—		(80,443)
Taxes paid related to net share settlement of equity awards	(142,952)		(4,174)		(17,089)		—		(21,263)
Net income	—		—		17,936		—		17,936
Other comprehensive loss	—		—		—		(2,039)		(2,039)
Balance—September 30, 2024	16,710,749	$	17	$	810,553	$	(24,075)	$	786,495

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Three Months Ended September 30,
	2023		2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	12,879	$	17,936
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from acquisitions:
Depreciation and amortization		9,568		11,450
Stock-based compensation expense		7,089		6,422
Recovery of losses on accounts receivable		(433)		(427)
Deferred income taxes		208		(851)
Amortization of debt discount and issuance costs		—		354
Other		42		(21)
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		55,868		(30,187)
Inventories		(82,035)		(54,458)
Prepaid expenses and other assets		(7,605)		(23,325)
Accounts payable		25,851		(4,952)
Accrued payroll and related expenses		(6,606)		(7,811)
Advances from customers		10,770		10,267
Deferred revenue		(7,142)		11,485
Other		(1,310)		26,958
Net cash provided by (used in) operating activities		17,144		(37,160)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(5,239)		(7,705)
Proceeds from sale of property and equipment		44		85
Purchases of certificates of deposit		(2,068)		—
Proceeds from maturities of certificates of deposit		1,839		—
Acquisition of business, net of cash acquired		—		(75,500)
Payments for intangible and other assets		(4,154)		(4,372)
Net cash used in investing activities		(9,578)		(87,492)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on bank lines of credit		20,000		(125,000)
Proceeds from long-term debt		394		340,475
Payments on long-term debt		(2,073)		(2,078)
Proceeds from exercise of stock options and employee stock purchase plan		2,451		2,399
Payment of contingent consideration		(383)		(331)
Repurchase of common stock		—		(80,443)
Taxes paid related to net share settlement of equity awards		(22,239)		(21,263)
Net cash provided by (used in) financing activities		(1,850)		113,759
Effect of exchange rate changes on cash		125		593
Net increase (decrease) in cash and cash equivalents		5,841		(10,300)
Cash and cash equivalents—beginning of period		76,750		95,353
Cash and cash equivalents—end of period	$	82,591	$	85,053
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	5,455	$	5,231
Income taxes	$	6,795	$	13,540

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC. The results of operations for the three months ended September 30, 2024 are not necessarily indicative of the operating results to be expected for the full 2025 fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales, costs of sales and expenses during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs, contingent consideration, allowance for doubtful accounts, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Due to the inherent uncertainty involved in making estimates, our actual amounts reported in future periods could differ materially from estimated amounts.

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 2.25% convertible senior notes due 2029 (the “2029 Notes”) discussed in Note 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price of $191.98 because the principal amount of the 2029 Notes will be settled in cash upon conversion. There was no dilutive effect of the 2029 Notes for the three months ended September 30, 2024.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended September 30,
	2023		2024
Net income available to common stockholders	$	12,879	$	17,936
Weighted average shares outstanding—basic		16,825		16,742
Dilutive effect of equity awards		350		313
Weighted average shares outstanding—diluted		17,175		17,055
Basic earnings per share	$	0.77	$	1.07
Diluted earnings per share	$	0.75	$	1.05
Shares excluded from diluted earnings per share due to their anti-dilutive effect		8		22

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Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.

Our cash and cash equivalents totaled $85.1 million at September 30, 2024. Of this amount, approximately 81% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in India, the United Kingdom, Singapore, Canada and Malaysia and to a lesser extent in Mexico, Egypt, Indonesia Albania and Australia, among other countries. We have cash holdings in financial institutions that exceed insured limits for such financial institutions; however, we mitigate this risk by utilizing international financial institutions which we believe to be of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments, an interest rate swap contract and foreign currency forward contracts. The carrying values of financial instruments, other than long-term debt instruments and our interest rate swap contract, are representative of their fair values due to their short-term maturities. The carrying values of our long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us. The fair values of our foreign currency forward contracts were not significant as of June 30, 2024 and September 30, 2024.

Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The “Level 1” category includes assets and liabilities at quoted prices in active markets for identical assets and liabilities. The “Level 2” category includes assets and liabilities from observable inputs other than quoted market prices. The “Level 3” category includes assets and liabilities for which valuation techniques are unobservable and significant to the fair value measurement. Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the “Level 3” category for valuation purposes.

The fair values of our financial assets and liabilities are categorized as follows (in thousands):


	June 30, 2024								September 30, 2024
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets—Insurance company contracts	$	—	$	49,679	$	—	$	49,679	$	—	$	52,430	$	—	$	52,430
Assets – Interest rate swap contract	$	—	$	4,735	$	—	$	4,735	$	—	$	676	$	—	$	676
Liabilities—Convertible debt	$	—	$	—	$	—	$	—	$	—	$	363,552	$	—	$	363,552
Liabilities—Contingent consideration	$	—	$	—	$	15,375	$	15,375	$	—	$	—	$	24,246	$	24,246

Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts and an interest rate swap agreement. Our foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations. These contracts have original maturities of up to three months. We also manage our risk to changes in interest rates using derivative instruments. We use fixed interest rate swaps to effectively convert a portion of the variable interest rate payments to fixed interest rate payments. We do not use hedging instruments for speculative purposes.

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations, and the amounts reported for the three months ended September 30, 2023 and 2024 were not significant. The fair value of our foreign currency forward contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of June 30, 2024 and September 30, 2024, we held foreign currency forward contracts with notional amounts totaling $96.4 million and $101.7 million, respectively. Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2024 and September 30, 2024 were not significant.

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Our interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to our variable, Secured Overnight Financing Rate (“SOFR”) based debt. The interest rate swap matures in December 2026. The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of other comprehensive income (loss) in our consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings. A qualitative and quantitative assessment of the interest rate swap hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

As of June 30, 2024 and September 30, 2024, the notional amount of the derivative instruments designated as an interest rate swap hedge was $175 million. The fair value of the interest rate swap contract as of as of June 30, 2024 and September 30, 2024 is recorded in Other assets within the consolidated balance sheet.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:


	Three Months Ended September 30,
	2023		2024
Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	(5,748)	$	(7,359)
Gain (loss) recognized in other comprehensive income (loss), net of tax		1,147		(3,220)
Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net		872		900

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption. There were no new pronouncements adopted in the first quarter of fiscal year 2025.

In November 2023, the FASB issued Accounting Standards Update 2023-07, “Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires disclosures of significant expenses by segment and interim disclosure of items that were previously required on an annual basis. ASU 2023-07 is to be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. We are evaluating the potential impact of ASU 2023-07 on disclosures in our Consolidated Financial Statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid to or received from federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. We are evaluating the potential impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements.

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2. Business Combinations

Under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition method of accounting requires us to record assets acquired less liabilities assumed from an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price over the estimated fair value of the net assets acquired should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions which are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period for fair value, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available, we may record adjustments to the preliminary assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are included in earnings.

Fiscal Year 2025 Business Acquisition

In September 2024, we (through our Security division) acquired 100% of the shares of common stock of a privately held provider of critical military, space and surveillance solutions for approximately $76.0 million, plus up to $24.0 million in potential contingent consideration. We paid $75.5 million in cash at the closing of the transaction and recorded a holdback liability of $0.5 million which is expected to be paid before the end of the current fiscal year. The cash paid for this acquisition was financed with borrowings from our credit facility. The acquisition date fair value of the contingent consideration was $9.7 million, therefore, when combined with the amount of cash paid at close and the holdback amount, total purchase consideration was $85.7 million which has been allocated to the preliminary fair value of assets acquired and liabilities assumed. The preliminary acquisition date fair value of total assets acquired was $115.0 million which comprised accounts receivable of $29.8 million, inventory and other current assets of $5.9 million, property and equipment of $7.0 million, goodwill of $28.4 million and other intangible assets of $43.9 million. The goodwill recognized for this business acquisition is not deductible for income tax purposes. Other intangible assets include amortizable intangible assets of $35.9 million with amortization periods of 7 to 10 years and an indefinite-lived intangible asset of $8.0 million. The preliminary acquisition date fair value of total liabilities assumed was $29.3 million, which includes a deferred tax liability of $8.4 million that was recognized primarily due to the acquisition of other intangible assets. The preliminary valuation of the assets acquired, liabilities assumed and contingent consideration in the acquisition is subject to revision. If additional information becomes available, we may further revise the preliminary purchase price allocation as soon as practical, but no later than one year from the acquisition date. Revenue from this acquired business was $4.0 million from the acquisition date through September 30, 2024.

Fiscal Year 2024 Business Acquisition

In December 2023, we (through our Optoelectronics and Manufacturing division) acquired a privately held contract manufacturer for approximately $6.3 million. The acquisition was financed with cash on hand. The goodwill recognized for this business acquisition is deductible for income tax purposes.

In October 2023, we (through our Security division) acquired a privately held provider of radiation detection technology for approximately $2.8 million, plus up to $3.6 million in potential contingent consideration. The acquisition was financed with cash on hand. The goodwill recognized for this business acquisition is not deductible for income tax purposes.

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3. Balance Sheet Details

The following tables set forth details of selected balance sheet accounts (in thousands):


	June 30,		September 30,
Accounts receivable, net	2024		2024
Accounts receivable	$	667,227	$	706,844
Less allowance for doubtful accounts		(19,072)		(19,234)
Total	$	648,155	$	687,610


	June 30,		September 30,
Inventories	2024		2024
Raw materials	$	238,086	$	242,738
Work-in-process		66,910		86,425
Finished goods		92,943		126,867
Total	$	397,939	$	456,030


	June 30,		September 30,
Property and equipment, net	2024		2024
Land	$	15,494	$	16,125
Buildings, civil works and improvements		48,552		53,166
Leasehold improvements		13,573		15,462
Equipment and tooling		146,819		150,072
Furniture and fixtures		3,348		3,409
Computer equipment		22,597		23,870
Computer software		29,195		29,710
Computer software implementation in process		6,514		6,015
Construction in process		6,986		10,153
Total		293,078		307,982
Less accumulated depreciation and amortization		(179,111)		(183,369)
Property and equipment, net	$	113,967	$	124,613

Depreciation and amortization expense for property and equipment was $4.9 million and $6.7 million , respectively, for the three months ended September 30, 2023 and 2024.

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2024 were as follows (in thousands):


			Optoelectronics
			and
	Security		Manufacturing		Healthcare
	Division		Division		Division		Consolidated
Balance as of June 30, 2024	$	232,215	$	70,807	$	48,458	$	351,480
Goodwill acquired during the period (see Note 2)		28,372		—		—		28,372
Foreign currency translation adjustment		223		1,201		168		1,592
Balance as of September 30, 2024	$	260,810	$	72,008	$	48,626	$	381,444

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Intangible assets consisted of the following (in thousands):


	June 30, 2024						September 30, 2024
	Gross						Gross
	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	$	79,228	$	(10,646)	$	68,582	$	83,339	$	(11,353)	$	71,986
Patents		9,116		(3,861)		5,255		9,265		(3,975)		5,290
Developed technology		70,186		(45,740)		24,446		97,284		(47,801)		49,483
Customer relationships		51,113		(41,421)		9,692		42,901		(26,051)		16,850
Total amortizable assets		209,643		(101,668)		107,975		232,789		(89,180)		143,609
Non-amortizable assets:
Trademarks		31,554		—		31,554		39,613		—		39,613
Total intangible assets	$	241,197	$	(101,668)	$	139,529	$	272,402	$	(89,180)	$	183,222

During the three months ended September 30, 2024 intangible assets of $43.9 million were included in the business acquisition described in Note 2.

Amortization expense related to intangible assets was $4.7 and $4.8 million for the three months ended September 30, 2023 and 2024, respectively.

At September 30, 2024, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):

Fiscal Year


2025 (remaining 9 months)	$	15,814
2026		17,965
2027		16,356
2028		15,532
2029		13,533
Thereafter		64,409
Total	$	143,609

Software development costs for software products incurred before establishing technological feasibility are charged to operations. Software development costs incurred after establishing technological feasibility are capitalized on a product-by-product basis until the product is available for general release to customers at which time amortization begins. Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product bear to the total current and anticipated future revenues for that product. In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above. For the three months ended September 30, 2023 and 2024, we capitalized software development costs in the amounts of $4.0 million and $4.2 million, respectively.

5. Contract Assets and Liabilities

We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheets. We may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability in either Other accrued expenses and current liabilities or Other long-term liabilities. We recognize these contract liabilities as sales after all revenue recognition criteria are met.

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The table below shows the balance of contract assets and liabilities as of June 30, 2024 and September 30, 2024, including the change between the periods. There were no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands)


	June 30,		September 30,
	2024		2024		Change		% Change
Unbilled revenue (included in accounts receivable, net)	$	338,944	$	346,589	$	7,645	2	%

Contract Liabilities (in thousands)


	June 30,		September 30,
	2024		2024		Change		% Change
Advances from customers	$	53,431	$	63,996	$	10,565	20	%
Deferred revenue—current		46,855		56,880		10,025	21	%
Deferred revenue—long-term		22,809		23,750		941	4	%

Contract Assets. Contract assets increased by approximately $7.6 million due to $27.9 million from the business acquisition described in Note 2, partially offset by decreases in unbilled revenue primarily from the achievement of certain milestones in our Security division which gives us the right to invoice customers.

Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the portion of the transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period. As of September 30, 2024, the portion of the transaction price allocated to remaining performance obligations was approximately $805.2 million. We expect to recognize revenue on approximately of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter. During the three months ended September 30, 2024, we recognized revenue of $32.5 million from contract liabilities existing at the beginning of the period.

Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as separate performance obligations. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.

6. Leases

The components of operating lease expense were as follows (in thousands):


	Three Months Ended September 30,
	2023		2024
Operating lease cost	$	2,805	$	2,813
Variable lease cost		265		194
Short-term lease cost		325		497
	$	3,395	$	3,504

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Supplemental disclosures related to operating leases were as follows (in thousands):


	Balance Sheet Category	June 30, 2024		September 30, 2024
Operating lease right of use (“ROU”) assets, net	Other assets	$	30,040	$	28,994

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	9,706	$	9,745
Operating lease liabilities, long-term	Other long-term liabilities		21,127		20,042
Total operating lease liabilities		$	30,833	$	29,787

Weighted average remaining lease term					3.6 years
Weighted average discount rate					4.6	%

Supplemental cash flow information related to operating leases was as follows (in thousands):


	Three Months Ended September 30,
	2023		2024
Cash paid for operating lease liabilities	$	2,994	$	2,895
ROU assets obtained in exchange for new lease obligations		1,791		252

Maturities of operating lease liabilities at September 30, 2024 were as follows (in thousands):


	September 30, 2024
Less than one year	$	10,840
1 – 2 years		9,407
2 – 3 years		6,821
3 – 4 years		2,533
4 – 5 years		1,272
Thereafter		1,432
		32,305
Less: imputed interest		(2,518)
Total lease liabilities	$	29,787

7. Restructuring and Other Charges

We endeavor to align our global capacity and infrastructure with demand by our customers and to effectively integrate acquisitions and thereby improve our operational efficiency.

During the three months ended September 30, 2024, we recognized $1.2 million in restructuring and other charges, which included $0.6 million for employee terminations, $0.2 million for facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.

During the three months ended September 30, 2023, we recognized $0.5 million in restructuring and other charges, which included $0.1 million in legal charges, $0.1 million for employee terminations, $0.1 million for facility closure costs for operational efficiency activities, and $0.2 million in acquisition related costs.

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The following tables summarize restructuring and other charges for the periods set forth below (in thousands):


	Three Months Ended September 30, 2023
			Optoelectronics and
			Manufacturing		Healthcare
	Security Division		Division		Division		Corporate		Total
Acquisition-related costs	$	208	$	—	$	—	$	—	$	208
Employee termination costs		13