10-Q 1 osis-20240331x10q.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 March 31, 2024

OR

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

Graphic

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 April 23, 2024, there were 17,048,704 shares of the registrant’s common stock outstanding.

OSI SYSTEMS, INC.

INDEX

PAGE

PART I — FINANCIAL INFORMATION

3

Item 1 —

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets at June 30, 2023 and March 31, 2024

3

Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2023 and 2024

4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2023 and 2024

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2023 and 2024

6

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and 2024

8

Notes to Condensed Consolidated Financial Statements

9

Item 2 —

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3 —

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4 —

Controls and Procedures

31

PART II — OTHER INFORMATION

32

Item 1 —

Legal Proceedings

32

Item 1A —

Risk Factors

32

Item 2 —

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3 —

Defaults Upon Senior Securities

32

Item 4 —

Mine Safety Disclosures

32

Item 5 —

Other Information

32

Item 6 —

Exhibits

35

Signatures

36

2

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, 

March 31, 

    

2023

    

2024

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

76,750

$

101,443

Accounts receivable, net

 

380,845

503,828

Inventories

 

338,008

442,797

Prepaid expenses and other current assets

 

44,300

71,182

Total current assets

 

839,903

1,119,250

Property and equipment, net

 

108,933

110,399

Goodwill

 

349,505

352,119

Intangible assets, net

 

140,857

142,056

Other assets

 

116,488

107,251

Total assets

$

1,555,686

$

1,831,075

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Bank lines of credit

$

215,000

$

349,000

Current portion of long-term debt

 

8,076

8,212

Accounts payable

 

139,011

172,115

Accrued payroll and related expenses

 

51,243

43,554

Advances from customers

 

21,250

65,888

Other accrued expenses and current liabilities

 

137,114

122,913

Total current liabilities

 

571,694

761,682

Long-term debt

 

136,491

131,214

Deferred income taxes

 

6,571

7,293

Other long-term liabilities

 

114,765

117,473

Total liabilities

 

829,521

1,017,662

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, 16,755,772 shares at June 30, 2023 and 17,048,704 shares at March 31, 2024

 

9,835

16,667

Retained earnings

 

735,957

816,551

Accumulated other comprehensive loss

 

(19,627)

(19,805)

Total stockholders’ equity

 

726,165

813,413

Total liabilities and stockholders’ equity

$

1,555,686

$

1,831,075

See accompanying notes to condensed consolidated financial statements.

3

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

Three Months Ended March 31, 

Nine Months Ended March 31, 

    

2023

    

2024

    

2023

    

2024

Net revenues:

Products

$

223,724

$

327,360

$

637,563

$

817,248

Services

 

79,165

78,046

 

228,994

 

240,603

Total net revenues

 

302,889

405,406

 

866,557

 

1,057,851

Cost of goods sold:

Products

 

156,534

223,570

 

458,197

 

547,938

Services

 

42,569

45,741

 

120,870

 

133,772

Total cost of goods sold

 

199,103

269,311

 

579,067

 

681,710

Gross profit

 

103,786

136,095

 

287,490

 

376,141

Operating expenses:

Selling, general and administrative

 

53,707

66,584

 

161,148

 

197,986

Research and development

 

14,852

17,144

 

43,848

 

49,416

Restructuring and other charges, net

 

890

1,004

 

4,366

 

2,496

Total operating expenses

 

69,449

84,732

 

209,362

 

249,898

Income from operations

 

34,337

51,363

 

78,128

 

126,243

Interest and other expense, net

 

(5,727)

(7,407)

 

(14,339)

 

(19,689)

Income before income taxes

 

28,610

43,956

 

63,789

 

106,554

Provision for income taxes

 

(6,802)

(9,913)

 

(14,392)

 

(23,079)

Net income

$

21,808

$

34,043

$

49,397

$

83,475

Earnings per share:

Basic

$

1.30

$

2.00

$

2.93

$

4.92

Diluted

$

1.27

$

1.95

$

2.88

$

4.82

Shares used in per share calculation:

Basic

 

16,809

17,042

 

16,858

 

16,954

Diluted

 

17,184

17,425

 

17,151

 

17,301

See accompanying notes to condensed consolidated financial statements.

4

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

    

Three Months Ended March 31, 

Nine Months Ended March 31, 

    

2023

    

2024

    

2023

    

2024

Net income

$

21,808

$

34,043

$

49,397

$

83,475

Other comprehensive income (loss):

Foreign currency translation adjustment, net of tax

 

1,569

(2,300)

 

(3,309)

 

(77)

Net unrealized gain (loss) on investments and derivatives, net of tax

(1,430)

1,731

1,098

(512)

Other, net of tax

332

137

997

411

Other comprehensive income (loss)

471

(432)

(1,214)

(178)

Comprehensive income

$

22,279

$

33,611

$

48,183

$

83,297

See accompanying notes to condensed consolidated financial statements.

5

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)

Three Months Ended March 31, 2023

Accumulated

Common Stock

Other

    

Number of

    

    

Retained

    

Comprehensive

    

    

Shares

    

Amount

    

Earnings

    

Loss

    

Total

Balance—December 31, 2022

 

16,819,609

$

2,530

$

672,371

$

(27,147)

$

647,754

Exercise of stock options

 

11,848

891

891

Vesting of RSUs

 

5,510

Shares issued under employee stock purchase program

30,652

2,072

2,072

Stock-based compensation expense

 

7,112

7,112

Repurchase of common stock

(138,469)

(12,362)

(603)

(12,965)

Taxes paid related to net share settlement of equity awards

 

(2,029)

(226)

(226)

Net income

 

21,808

21,808

Other comprehensive income

 

471

471

Balance—March 31, 2023

16,727,121

$

17

$

693,576

$

(26,676)

$

666,917

Three Months Ended March 31, 2024

Accumulated

Common Stock

Other

    

Number of

    

    

Retained

    

Comprehensive

    

    

Shares

    

Amount

    

Earnings

    

Loss

    

Total

Balance—December 31, 2023

 

17,011,639

$

7,308

$

782,508

$

(19,373)

$

770,443

Exercise of stock options

 

2,278

203

203

Vesting of RSUs

 

4,428

Shares issued under employee stock purchase program

31,968

2,296

2,296

Stock-based compensation expense

 

7,069

7,069

Taxes paid related to net share settlement of equity awards

 

(1,609)

(209)

(209)

Net income

 

34,043

34,043

Other comprehensive loss

 

(432)

(432)

Balance—March 31, 2024

17,048,704

$

16,667

$

816,551

$

(19,805)

$

813,413

6

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)

Nine Months Ended March 31, 2023

Accumulated

Common Stock

Other

    

Number of

    

    

Retained

    

Comprehensive

    

    

Shares

    

Amount

    

Earnings

    

Loss

    

Total

Balance—June 30, 2022

 

16,870,050

$

17

$

663,869

$

(25,462)

$

638,424

Exercise of stock options

 

19,614

1,330

1,330

Vesting of RSUs

 

312,038

Shares issued under employee stock purchase program

 

59,255

4,041

4,041

Stock-based compensation expense

 

21,528

21,528

Repurchase of common stock

(400,230)

(17,067)

(17,682)

(34,749)

Taxes paid related to net share settlement of equity awards

 

(133,606)

(9,832)

(2,008)

(11,840)

Net income

 

49,397

49,397

Other comprehensive loss

 

(1,214)

(1,214)

Balance—March 31, 2023

16,727,121

$

17

$

693,576

$

(26,676)

$

666,917

Nine Months Ended March 31, 2024

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

16,767

1,387

1,387

Vesting of RSUs

389,042

Shares issued under employee stock purchase program

61,781

4,327

4,327

Stock-based compensation expense

21,486

21,486

Taxes paid related to net share settlement of equity awards

(174,658)

(20,368)

(2,881)

(23,249)

Net income

83,475

83,475

Other comprehensive loss

(178)

(178)

Balance—March 31, 2024

 

17,048,704

$

16,667

$

816,551

$

(19,805)

$

813,413

7

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

Nine Months Ended March 31, 

    

2023

    

2024

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

$

49,397

$

83,475

Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from acquisitions:

Depreciation and amortization

 

28,819

30,485

Stock-based compensation expense

 

21,528

21,486

Provision for (recovery of) losses on accounts receivable

(4,890)

2,059

Deferred income taxes

942

(524)

Amortization of debt discount and issuance costs

 

196

Other

 

(46)

10

Changes in operating assets and liabilities—net of business acquisitions:

Accounts receivable

 

13,248

(118,989)

Inventories

 

(37,860)

(101,446)

Prepaid expenses and other assets

 

(4,924)

(41,503)

Accounts payable

 

2,134

32,933

Accrued payroll and related expenses

2,151

(8,155)

Advances from customers

 

13,963

43,805

Deferred revenue

11,101

3,105

Other

 

(23,081)

(5,199)

Net cash provided by (used in) operating activities

 

72,678

(58,458)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

 

(12,691)

(13,604)

Proceeds from sale of property and equipment

309

293

Purchases of certificates of deposit

(4,940)

Proceeds from maturities of certificates of deposit

3,827

10,329

Acquisition of businesses, net of cash acquired

 

(4,616)

(9,046)

Payments for intangible and other assets

 

(12,275)

(12,906)

Net cash used in investing activities

 

(30,386)

(24,934)

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings on bank lines of credit

 

155,000

134,000

Proceeds from long-term debt

 

100,654

1,110

Payments on long-term debt

 

(247,818)

(6,248)

Proceeds from exercise of stock options and employee stock purchase plan

 

5,371

5,714

Payments of contingent consideration

(3,668)

(602)

Repurchases of common stock

 

(34,749)

Taxes paid related to net share settlement of equity awards

 

(11,840)

(23,249)

Net cash (used in) provided by financing activities

 

(37,050)

110,725

Effect of exchange rate changes on cash

 

(3,822)

(2,640)

Net change in cash and cash equivalents

 

1,420

24,693

Cash and cash equivalents—beginning of period

 

64,202

76,750

Cash and cash equivalents—end of period

$

65,622

$

101,443

Supplemental disclosure of cash flow information:

Cash paid, net during the period for:

Interest

$

14,648

$

18,868

Income taxes

$

15,769

$

33,703

See accompanying notes to condensed consolidated financial statements.

8

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 information and footnotes required by GAAP for audited annual financial statements. In management’s opinion, 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, 2023 filed with the SEC. The results of operations for the three and nine months ended March 31, 2024 are not necessarily indicative of the operating results to be expected for the full 2024 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 these estimates.

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

    

Three Months Ended March 31, 

    

Nine Months Ended March 31, 

2023

    

2024

    

2023

    

2024

Net income available to common stockholders

$

21,808

$

34,043

$

49,397

$

83,475

Weighted average shares outstanding—basic

 

16,809

17,042

 

16,858

 

16,954

Dilutive effect of equity awards

 

375

383

 

293

 

347

Weighted average shares outstanding—diluted

 

17,184

17,425

 

17,151

 

17,301

Basic earnings per share

$

1.30

$

2.00

$

2.93

$

4.92

Diluted earnings per share

$

1.27

$

1.95

$

2.88

$

4.82

Shares excluded from diluted earnings per share due to their anti-dilutive effect

60

22

75

11

9

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 $101.4 million at March 31, 2024. Of this amount, approximately 78% 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, Malaysia, Singapore, Australia, and Canada and to a lesser extent in Mexico, Albania, Indonesia and Germany, 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, 2023 and March 31, 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 comprises assets and liabilities measured at quoted prices in active markets for identical assets and liabilities. The “Level 2” category comprises assets and liabilities measured from observable inputs other than quoted market prices. The “Level 3” category comprises assets and liabilities for which valuation inputs 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, 2023

    

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

    

Total

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets—Insurance company contracts

$

$

47,181

$

$

47,181

$

$

48,982

$

$

48,982

Assets – Interest rate swap contract

$

$

5,369

$

$

5,369

$

$

4,660

$

$

4,660

Liabilities—Contingent consideration

$

$

$

21,181

$

21,181

$

$

$

18,888

$

18,888

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 our consolidated statements of operations. The amounts reported in the consolidated statements of operations for the three and nine months ended March 31, 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, 2023 and March 31, 2024, we held foreign currency forward contracts with notional amounts totaling $21.6 million and $57.3 million, respectively. Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2023 and March 31, 2024 were not significant.

10

The 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, 2023 and March 31, 2024, the notional amount of the interest rate swap hedge derivative instrument was $175 million. The fair value of the interest rate swap contract as of June 30, 2023 and March 31, 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 March 31, 

    

Nine Months Ended March 31, 

2023

    

2024

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

$

(5,727)

$

(7,407)

$

(14,339)

$

(19,689)

Gain (loss) recognized in other comprehensive income (loss), net of tax

$

(1,430)

$

(1,732)

$

1,098

$

512

Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net

$

543

$

897

$

587

$

2,681

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed below, management believes that the impact of recently issued standards, which are not yet effective for the Company, will not have a material impact on our Consolidated Financial Statements upon adoption. There were no new pronouncements adopted in the third quarter of fiscal year 2024.

In November 2023, the Financial Accounting Standards Board (“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 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 or received to 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 impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements.

11

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, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available for preliminary estimates, 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 2024 Business Acquisitions

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.

Fiscal Year 2023 Business Acquisitions

In April 2023, we (through our Optoelectronics and Manufacturing division) acquired a privately held provider of engineering and contract manufacturing solutions for approximately $2.5 million, plus up to $2.5 million in potential contingent consideration. The acquisition was financed with cash on hand.

In February 2023, we (through our Healthcare division) acquired a privately held provider of software and solutions for approximately $2.1 million plus up to $5.0 million in potential contingent consideration. The acquisition was financed with cash on hand.

Through our Security division, we acquired (i) in December 2022 certain assets of a provider of baggage and parcel inspection systems for approximately $1.6 million and (ii) in August 2022 a privately held provider of training software and solutions for approximately $1.9 million plus an immaterial amount of potential contingent consideration. These acquisitions were financed with cash on hand.

The goodwill we recognized for each of the fiscal year 2023 business acquisitions is not deductible for income tax purposes. The acquisitions we completed in fiscal 2023 and 2024, individually and in the aggregate, were not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations and other disclosures related to these businesses have not been presented.

12

3. Balance Sheet Details

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

June 30, 

March 31, 

Accounts receivable, net

    

2023

    

2024

Accounts receivable

$

395,218

$

519,476

Less allowance for doubtful accounts

 

(14,373)

 

(15,648)

Total

$

380,845

$

503,828

June 30, 

March 31, 

Inventories

    

2023

    

2024

Raw materials

$

233,217

$

257,846

Work-in-process

 

56,329

 

88,323

Finished goods

 

48,462

 

96,628

Total

$

338,008

$

442,797

June 30, 

March 31, 

Property and equipment, net

    

2023

    

2024

Land

$

15,691

$

15,524

Buildings, civil works and improvements

 

49,166

 

48,648

Leasehold improvements

 

13,553

 

13,642

Equipment and tooling

 

135,703

 

142,962

Furniture and fixtures

 

3,632

 

3,397

Computer equipment

 

24,119

 

22,367

Computer software

 

26,981

 

30,532

Computer software implementation in process

9,705

6,212

Construction in process

 

4,108

 

6,137

Total

 

282,658

 

289,421

Less accumulated depreciation and amortization

 

(173,725)

 

(179,022)

Property and equipment, net

$

108,933

$

110,399

Depreciation and amortization expense for property and equipment was $4.9 million and $5.1 million for the three months ended March 31, 2023 and 2024, respectively, and $14.6 million for each of the nine months ended March 31, 2023 and 2024.

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2024 were as follows (in thousands):

Optoelectronics

And

Security

Manufacturing

Healthcare

    

Division

    

Division

    

Division

    

Consolidated

Balance as of June 30, 2023

$

230,662

$

70,388

$

48,455

$

349,505

Goodwill acquired

 

2,072

 

828

 

 

2,900

Foreign currency translation adjustment

 

25

(310)

(1)

(