OSI SYSTEMS INC 10-Q

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, ​ 2020 2020 ASSETS ​ ​ ​ ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 76,102 ​ $ 76,925 Accounts receivable, net ​ 269,840 ​ 253,149 Inventories ​ 241,226 ​ 255,434 Prepaid expenses and other current assets ​ 30,541 ​ 29,285 Total current assets ​ 617,709 ​ 614,793 Property and equipment, net ​ 127,936 ​ 127,705 Goodwill ​ 310,627 ​ 315,511 Intangible assets, net ​ 128,279 ​ 134,781 Other assets ​ 83,990 ​ 78,158 Total assets ​ $ 1,268,541 ​ $ 1,270,948 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ ​ ​ Bank lines of credit ​ $ 59,000 ​ $ 51,000 Current portion of long-term debt ​ 926 ​ 898 Accounts payable ​ 84,940 ​ 92,605 Accrued payroll and related expenses ​ 46,127 ​ 31,816 Advances from customers ​ 28,155 ​ 41,117 Other accrued expenses and current liabilities ​ 110,953 ​ 116,501 Total current liabilities ​ 330,101 ​ 333,937 Long-term debt ​ 267,072 ​ 269,356 Deferred income taxes ​ 5,846 ​ 3,153 Other long-term liabilities ​ 93,370 ​ 106,962 Total liabilities ​ 696,389 ​ 713,408 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 , 18,011,982 shares at June 30, 2020 and 17,912,541 shares at September 30, 2020 ​ 122,553 ​ 95,084 Retained earnings ​ 474,793 ​ 484,137 Accumulated other comprehensive loss ​ ( 25,194 ) ​ ( 21,681 ) Total stockholders’ equity ​ 572,152 ​ 557,540 Total liabilities and stockholders’ equity ​ $ 1,268,541 ​ $ 1,270,948 ​ See accompanying notes to condensed consolidated financial statements. ​ 3 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (amounts in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2019 2020 ​ Net revenues: ​ ​ ​ ​ ​ Products ​ $ 209,761 ​ $ 182,747 ​ Services ​ 81,091 ​ 72,161 ​ Total net revenues ​ 290,852 ​ 254,908 ​ Cost of goods sold: ​ ​ ​ ​ ​ ​ ​ Products ​ 146,342 ​ 124,841 ​ Services ​ 45,299 ​ 34,316 ​ Total cost of goods sold ​ 191,641 ​ 159,157 ​ Gross profit ​ 99,211 ​ 95,751 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 62,177 ​ 58,617 ​ Research and development ​ 14,246 ​ 12,082 ​ Impairment, restructuring and other charges (benefit), net ​ ( 2,099 ) ​ 8,359 ​ Total operating expenses ​ 74,324 ​ 79,058 ​ Income from operations ​ 24,887 ​ 16,693 ​ Interest and other expense, net ​ ( 4,736 ) ​ ( 4,189 ) ​ Income before income taxes ​ 20,151 ​ 12,504 ​ (Provision) benefit for income taxes ​ 592 ​ ( 3,160 ) ​ Net income ​ $ 20,743 ​ $ 9,344 ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 1.14 ​ $ 0.52 ​ Diluted ​ $ 1.10 ​ $ 0.51 ​ Shares used in per share calculation: ​ ​ ​ ​ ​ ​ ​ Basic ​ 18,259 ​ 18,051 ​ Diluted ​ 18,903 ​ 18,335 ​ ​ See accompanying notes to condensed consolidated financial statements. ​ 4 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED ) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2019 2020 Net income ​ $ 20,743 ​ $ 9,344 Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ Foreign currency translation adjustment ​ ( 3,052 ) ​ 3,454 Other ​ ​ 10 ​ ​ 59 Other comprehensive income (loss) ​ ​ ( 3,042 ) ​ ​ 3,513 Comprehensive income ​ $ 17,701 ​ $ 12,857 ​ See accompanying notes to condensed consolidated financial statements. ​ 5 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ Other ​ ​ ​ ​ Number of ​ ​ Retained Comprehensive ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Loss ​ Total Balance—June 30, 2019 18,167,020 ​ $ 168,913 ​ $ 399,541 ​ $ ( 16,727 ) ​ $ 551,727 Exercise of stock options 167,306 ​ 2,832 ​ — ​ — ​ 2,832 Vesting of RSUs 360,866 ​ — ​ — ​ — ​ — Shares issued under employee stock purchase program 34,837 ​ 2,065 ​ — ​ — ​ 2,065 Stock-based compensation expense — ​ 6,416 ​ — ​ — ​ 6,416 Repurchase of common stock ​ ( 126,051 ) ​ ​ ( 13,262 ) ​ ​ — ​ ​ — ​ ​ ( 13,262 ) Taxes paid related to net share settlement of equity awards ( 246,514 ) ​ ( 25,915 ) ​ — ​ — ​ ( 25,915 ) Net income — ​ — ​ 20,743 ​ — ​ 20,743 Other comprehensive loss — ​ — ​ — ​ ( 3,042 ) ​ ( 3,042 ) Balance—September 30, 2019 ​ 18,357,464 ​ $ 141,049 ​ $ 420,284 ​ $ ( 19,769 ) ​ $ 541,564 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ Other ​ ​ ​ ​ Number of ​ ​ Retained Comprehensive ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Loss ​ Total Balance—June 30, 2020 18,011,982 ​ $ 122,553 ​ $ 474,793 ​ $ ( 25,194 ) ​ $ 572,152 Exercise of stock options 69,195 ​ ​ 80 ​ ​ — ​ ​ — ​ ​ 80 Vesting of RSUs 286,701 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued under employee stock purchase program 32,641 ​ ​ 2,022 ​ ​ — ​ ​ — ​ ​ 2,022 Stock-based compensation expense — ​ ​ 6,109 ​ ​ — ​ ​ — ​ ​ 6,109 Repurchase of common stock ​ ( 320,136 ) ​ ​ ( 24,816 ) ​ ​ — ​ ​ — ​ ​ ( 24,816 ) Taxes paid related to net share settlement of equity awards ( 167,842 ) ​ ​ ( 10,864 ) ​ ​ — ​ ​ — ​ ​ ( 10,864 ) Net income — ​ ​ — ​ ​ 9,344 ​ ​ — ​ ​ 9,344 Other comprehensive income — ​ ​ — ​ ​ — ​ ​ 3,513 ​ ​ 3,513 Balance—September 30, 2020 ​ 17,912,541 ​ $ 95,084 ​ $ 484,137 ​ $ ( 21,681 ) ​ $ 557,540 ​ See accompanying notes to condensed consolidated financial statements. ​ 6 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2019 ​ 2020 CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ Net income ​ $ 20,743 ​ $ 9,344 Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 13,539 ​ 10,002 Stock-based compensation expense ​ 6,416 ​ 6,109 Deferred income taxes ​ ​ ( 3 ) ​ ​ 96 Amortization of debt discount and issuance costs ​ 2,308 ​ 2,400 Impairment charges ​ ​ — ​ ​ 552 Provision (benefit) for loss on accounts receivable ​ ​ ( 221 ) ​ ​ 2,916 Other ​ 160 ​ 16 Changes in operating assets and liabilities—net of business acquisitions: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 6,940 ) ​ 14,356 Inventories ​ 4,167 ​ ( 14,278 ) Prepaid expenses and other assets ​ ( 13,272 ) ​ 3,377 Accounts payable ​ 7,594 ​ 7,358 Accrued payroll and related expenses ​ ​ ( 11,675 ) ​ ​ ( 9,469 ) Advances from customers ​ 6,673 ​ 12,773 Deferred revenue ​ ​ ( 4,459 ) ​ ​ 5,355 Other ​ ( 192 ) ​ 2,925 Net cash provided by operating activities ​ 24,838 ​ 53,832 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ ( 6,026 ) ​ ( 3,780 ) Purchases of certificates of deposit ​ ​ — ​ ​ ( 1,815 ) Proceeds from maturities of certificates of deposit ​ ​ — ​ ​ 700 Acquisition of business, net of cash acquired ​ — ​ ( 3,000 ) Payments for intangible and other assets ​ ( 2,088 ) ​ ( 4,446 ) Net cash used in investing activities ​ ( 8,114 ) ​ ( 12,341 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ ​ ​ ​ Net borrowings (repayments) on bank lines of credit ​ 7,000 ​ ( 8,000 ) Proceeds from long-term debt ​ 198 ​ 156 Payments on long-term debt ​ ( 253 ) ​ ( 303 ) Proceeds from exercise of stock options and employee stock purchase plan ​ 4,897 ​ 2,102 Payments of contingent consideration ​ ​ ( 144 ) ​ ​ ( 121 ) Repurchases of common stock ​ ( 13,262 ) ​ ( 24,816 ) Taxes paid related to net share settlement of equity awards ​ ( 25,915 ) ​ ( 10,864 ) Net cash used in financing activities ​ ( 27,479 ) ​ ( 41,846 ) Effect of exchange rate changes on cash ​ ( 419 ) ​ 1,178 Net change in cash and cash equivalents ​ ( 11,174 ) ​ 823 Cash and cash equivalents—beginning of period ​ 96,316 ​ 76,102 Cash and cash equivalents—end of period ​ $ 85,142 ​ $ 76,925 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid, net during the period for: ​ ​ ​ ​ ​ ​ Interest ​ $ 2,986 ​ $ 3,015 Income taxes ​ $ 4,098 ​ $ 1,735 ​ See accompanying notes to condensed consolidated financial statements. ​ 7 Table of Contents 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, 2020 filed with the SEC. The results of operations for the three months ended September 30, 2020 are not necessarily indicative of the operating results to be expected for the full 2021 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 and costs of sales during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, profit and loss recognition, 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, 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 underlying equity component of the 1.25 % convertible senior notes due 2022 (the “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 because the principal amount of the Notes is intended to be settled in cash upon conversion. The dilutive effect of the Notes is included in the calculation below for the three months ended September 30, 2019. There was no dilutive effect of the Notes for the three months ended September 30, 2020. ​ 8 Table of Contents 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, ​ 2019 2020 Net income available to common stockholders ​ $ 20,743 ​ $ 9,344 ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding—basic ​ 18,259 ​ 18,051 Dilutive effect of equity awards ​ 628 ​ 284 Dilutive effect of the Notes ​ ​ 16 ​ ​ — Weighted average shares outstanding—diluted ​ 18,903 ​ 18,335 ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 1.14 ​ $ 0.52 Diluted earnings per share ​ $ 1.10 ​ $ 0.51 Shares excluded from diluted earnings per share due to their anti-dilutive effect ​ ​ 84 ​ ​ 87 ​ 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 $ 76.9 million at September 30, 2020. Of this amount, approximately 76 % was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in the United Kingdom, Malaysia, Canada, Singapore, India and Australia and to a lesser extent in Mexico, Germany and Albania among other countries. We have cash holdings in financial institutions that exceed insured limits for such institutions; however, we mitigate this risk by utilizing international financial institutions 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 and foreign currency forward contracts. The carrying values of financial instruments, other than long-term debt instruments, 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, as 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 September 30, 2020. ​ Fair value is the price that would be received to sell 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 measured at quoted prices in active markets for identical assets and liabilities. The Level 2 category includes assets and liabilities measured from observable inputs other than quoted market prices. The Level 3 category includes 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, 2020 September 30, 2020 ​ Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Insurance company contracts ​ $ — ​ $ 37,155 ​ $ — ​ $ 37,155 ​ $ — ​ $ 39,724 ​ $ — ​ $ 39,724 Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ $ — ​ $ — ​ $ 13,867 ​ $ 13,867 ​ $ — ​ $ — ​ $ 21,015 ​ $ 21,015 ​ ​ 9 Table of Contents Derivative Instruments and Hedging Activity ​ Our use of derivatives consists of foreign currency forward contracts. These forward contracts are utilized to partially mitigate certain balance sheet exposures and used as a net investment hedge for a foreign subsidiary to protect against potential changes resulting from short-term foreign currency fluctuations. These contracts have original maturities of up to three months. We do not use hedging instruments for speculative purposes. ​ The net investment hedge has been designated as a hedge instrument and accounted for under ASC 815 “Derivatives and Hedging” (ASC 815). Hedge effectiveness is assessed using the spot method, consistent with guidance in ASC 815 whereby the change in fair value of the forward contract is recorded in the same manner as the related currency translation adjustments, within other comprehensive income, as the hedging instrument is expected to be fully effective unless the amount hedged exceeds the net investment in the foreign operation, or the foreign operation is liquidated. We initiated the net investment hedge during the three months ended September 30, 2020 and the amount recorded in other comprehensive income was not significant for such period. ​ The net gains or losses from the foreign currency forward contracts for balance sheet exposures, which are not designated as hedge instruments, are reported in the consolidated income statement immediately. We initiated these forward contracts during the three months ended September 30, 2020 and the amounts reported in the consolidated income statement were not significant for such period. The fair value of our forward foreign exchange 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 September 30, 2020 we held foreign currency forward contracts with notional amounts totalling $ 37.5 million. Unrealized gains and losses from the forward currency forward contracts as of September 30, 2020 were not significant. There were no derivative instruments as of June 30, 2020. ​ Recently Adopted Accounting Pronouncements ​ Retirement Benefit Plans ​ In August 2018, the FASB issued authoritative guidance under Accounting Standards Update (“ASU”) 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our disclosures in the consolidated financial statements. ​ Intangibles ​ In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our consolidated financial statements. ​ Recently Issued Accounting Pronouncements Not Yet Adopted ​ In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. We are required to adopt this new guidance in the first quarter of fiscal 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements. ​ 10 Table of Contents In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. Modifications to debt agreements for a change in the reference interest rate will be accounted for by prospectively adjusting the effective interest rate. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates, however the adoption of this new guidance for modifications to contracts, if any, is not expected to have a significant impact on our consolidated financial statements. ​ In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles of ASC 740, and is intended to improve consistency and simplify GAAP by clarifying and amending existing guidance for income taxes and related topics. We are required to adopt this new guidance in the first quarter of fiscal 2022. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements. ​ 2 . Business Combinations ​ Under ASC 805, Business Combinations, the acquisition method of accounting requires us to record assets acquired less liabilities assumed in an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase consideration over the estimated fair value of the assets acquired less liabilities assumed 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 believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. We may record adjustments to the assets acquired and liabilities assumed, with corresponding adjustments to goodwill, during the one-year post-acquisition measurement period as additional information becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are reflected in reported earnings. ​ Fiscal Year 2021 Business Acquisition ​ In July 2020 we (through our Healthcare division) acquired a privately-held software development company for $ 3.0 million, plus up to $ 12.0 million in potential contingent consideration. The goodwill recognized for this business is deductible for income tax purposes. This acquisition was financed with available cash on hand. This business acquisition was not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations and certain other disclosures related to this business have not been presented. ​ 3. Balance Sheet Details ​ The following tables provide details of selected balance sheet accounts (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ September 30, Accounts receivable, net 2020 2020 Accounts receivable ​ $ 287,488 $ 273,515 Less allowance for doubtful accounts ​ ( 17,648 ) ​ ( 20,366 ) Total ​ $ 269,840 ​ $ 253,149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ September 30, Inventories 2020 2020 Raw materials ​ $ 132,797 $ 142,404 Work-in-process ​ 50,023 ​ 58,363 Finished goods ​ 58,406 ​ 54,667 Total ​ $ 241,226 ​ $ 255,434 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ September 30, Property and equipment, net ​ 2020 ​ 2020 Land $ 16,516 $ 16,523 Buildings, civil works and improvements ​ 57,709 ​ 57,796 Leasehold improvements ​ 9,052 ​ 9,158 Equipment, furniture and fixtures ​ 149,310 ​ 151,568 Computer software ​ 18,217 ​ 21,932 Computer software implementation in process ​ ​ 11,817 ​ ​ 10,131 Construction in process ​ 3,598 ​ 3,909 Total ​ 266,219 ​ 271,017 Less accumulated depreciation and amortization ​ ( 138,283 ) ​ ( 143,312 ) Property and equipment, net ​ $ 127,936 ​ $ 127,705 ​ Depreciation and amortization expense for property and equipment was $ 5.1 million and $ 5.2 million for the three months ended September 30, 2019 and 2020, respectively. ​ 4. Goodwill and Intangible Assets ​ The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2020 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ Security ​ Healthcare ​ Manufacturing ​ ​ ​ ​ Division Division Division Consolidated Balance as of June 30, 2020 ​ $ 203,627 ​ $ 39,983 ​ $ 67,017 ​ $ 310,627 Goodwill acquired or adjusted during the period ​ 498 ​ 3,244 ​ — ​ 3,742 Foreign currency translation adjustment ​ 149 ​ 113 ​ 880 ​ 1,142 Balance as of September 30, 2020 ​ $ 204,274 ​ $ 43,340 ​ $ 67,897 ​ $ 315,511 ​ Intangible assets consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ September 30, 2020 ​ ​ Weighted ​ Gross ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Carrying ​ Accumulated ​ Intangibles ​ Carrying ​ Accumulated ​ Intangibles ​ Lives Value Amortization Net Value Amortization Net Amortizable assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Software development costs 8 years ​ $ 41,332 ​ $ ( 16,295 ) ​ $ 25,037 ​ $ 44,436 ​ $ ( 16,344 ) ​ $ 28,092 Patents 19 years ​ 9,962 ​ ( 2,584 ) ​ 7,378 ​ 10,214 ​ ( 2,845 ) ​ 7,369 Developed technology 10 years ​ 55,719 ​ ( 19,556 ) ​ 36,163 ​ 60,945 ​ ( 21,167 ) ​ 39,778 Customer relationships/backlog 7 years ​ 64,128 ​ ( 32,110 ) ​ 32,018 ​ 63,550 ​ ( 33,172 ) ​ 30,378 Total amortizable assets ​ ​ ​ 171,141 ​ ( 70,545 ) ​ 100,596 ​ 179,145 ​ ( 73,528 ) ​ 105,617 Non-amortizable assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IPR&D ​ ​ ​ ​ 533 ​ ​ — ​ ​ 533 ​ ​ 533 ​ ​ — ​ ​ 533 Trademarks ​ ​ ​ 27,150 ​ — ​ 27,150 ​ 28,631 ​ — ​ 28,631 Total intangible assets ​ ​ ​ $ 198,824 ​ $ ( 70,545 ) ​ $ 128,279 ​ $ 208,309 ​ $ ( 73,528 ) ​ $ 134,781 ​ Amortization expense related to intangible assets was $ 4.9 million and $ 4.8 million for the three-month periods ended September 30, 2019 and 2020, respectively. ​ 12 Table of Contents At September 30, 2020, the estimated future amortization expense for intangible assets was as follows (in thousands): ​ ​ ​ ​ ​ 2021 (remaining 9 months) ​ $ 13,977 2022 ​ 17,804 2023 ​ 17,457 2024 ​ 16,774 2025 ​ 12,691 Thereafter ​ 26,914 Total ​ $ 105,617 ​ 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, 2019 and 2020, we capitalized software development costs in the amounts of $ 1.3 million and $ 4.1 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 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 sheet. We may also receive consideration, per the terms of a contract, from customers prior to transferring 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. We recognize these contract liabilities as sales after all revenue recognition criteria are met. ​ Contract assets and liabilities were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, September 30, ​ ​ ​ Contract Assets: ​ 2020 ​ 2020 ​ Change ​ % Change Unbilled revenue ​ $ 43,011 ​ $ 53,463 ​ $ 10,452 24 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Liabilities: ​ ​ ​ ​ Advances from customers ​ $ 28,155 ​ $ 41,117 ​ $ 12,962 ​ 46 % Deferred revenue—current ​ 32,863 ​ 37,508 ​ 4,645 ​ 14 % Deferred revenue—long-term ​ 13,214 ​ 14,029 ​ 815 ​ 6 % ​ Contract assets increased during the three months ended September 30, 2020 primarily due to satisfaction of performance obligations for cargo and vehicle inspection systems in our Security division which have not yet been billed to customers. The increase in contract liabilities was primarily due to receipt of contract deposits and additional performance obligations in our Security division. ​ Remaining Performance Obligations . Remaining performance obligations related to ASC 606 represent the aggregate 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, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 297.6 million. We expect to recognize revenue on approximately 51 % 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, 2020, we recognized revenue of $ 19.1 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 a separate performance obligation. 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. 13 Table of Contents ​ 6. Leases ​ The components of operating lease expense were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2019 2020 Operating lease cost ​ $ 2,649 ​ $ 2,533 Variable lease cost ​ 138 ​ 258 Short-term lease cost ​ 209 ​ 212 ​ ​ $ 2,996 ​ $ 3,003 ​ Supplemental disclosures related to operating leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance Sheet Category June 30, 2020 September 30, 2020 Operating lease ROU assets, net Other assets ​ $ 27,936 ​ $ 25,417 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease liabilities, current portion Other accrued expenses and current liabilities ​ $ 8,537 ​ $ 8,006 Operating lease liabilities, long-term Other long-term liabilities ​ 19,713 ​ 18,235 Total operating lease liabilities ​ ​ ​ $ 28,250 ​ $ 26,241 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term ​ ​ ​ ​ ​ 4.5 years Weighted average discount rate ​ ​ ​ ​ ​ 4.3 % ​ Supplemental cash flow information related to operating leases was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2019 2020 Cash paid for operating lease liabilities ​ $ 2,572 ​ $ 2,580 ROU assets obtained in exchange for new lease obligations ​ 1,313 ​ 122 ​ Maturities of operating lease liabilities at September 30, 2020 were as follows (in thousands): ​ ​ ​ ​ ​ ​ September 30, 2020 Less than one year ​ $ 8,919 1 – 2 years ​ 6,220 2 – 3 years ​ 4,377 3 – 4 years ​ 3,764 4 – 5 years ​ 2,399 Thereafter ​ 3,407 ​ ​ 29,086 Less: imputed interest ​ ( 2,845 ) Total lease liabilities ​ $ 26,241 ​ ​ 7. Impairment, Restructuring and Other Charges ​ We endeavor to align our global capacity and infrastructure with demand by our customers as well as fully integrate acquisitions and thereby improve operational efficiency. ​ During the quarter ended September 30, 2019, we recognized a net benefit of $ 2.1 million primarily related to reimbursements from our insurance carriers for covered legal charges, partially offset by additional legal fees related to class action litigation and government investigations. ​ 14 Table of Contents During the three months ended September 30, 2020, we commenced exit activities associated with an expired turnkey contract in Mexico whereby we incurred non-recurring charges totaling $ 6.9 million comprised of exit costs of $ 2.5 million for employee terminations, facility closure and other exit costs of $ 1.1 million, direct transaction costs of $ 2.7 million and impairment of a right-of-use asset of $ 0.6 million. We also conducted other operational efficiency activites which resulted in employee termination costs of $ 1.4 million and other costs of $ 0.1 million. The following tables summarize impairment, restructuring and other charges (benefit), net for the periods set forth below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ Security Division Division Division Corporate Total Employee termination costs (benefit) ​ $ — ​ $ — ​ $ ( 13 ) ​ $ 71 ​ $ 58 Legal recoveries, net ​ — ​ — ​ — ​ ( 2,157 ) ​ ( 2,157 ) ​ ​ $ — ​ $ — ​ $ ( 13 ) ​ $ ( 2,086 ) ​ $ ( 2,099 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Optoelectronics and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Healthcare ​ Manufacturing ​ ​ ​ ​ ​ ​ ​ Security Division Division Division Corporate Total Impairment charges ​ $ 552 ​ $ — ​ $ — ​ $ — ​ $ 552 Employee termination costs ​ ​ 3,737 ​ ​ — ​ ​ 146 ​ ​ — ​ ​ 3,883 Mexico transaction costs ​ ​ 2,692 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,692 Facility closures/consolidation ​ ​ 1,272 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,272 Legal recoveries, net ​ — ​ — ​ — ​ ( 40 ) ​ ( 40 ) Total expensed ​ $ 8,253 ​ $ — ​ $ 146 ​ $ ( 40 ) ​ $ 8,359 ​ The changes in the accrued liability for restructuring and other charges for the three-month period ended September 30, 2020 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Facility ​ ​ ​ ​ ​ ​ ​ Employee ​ Closure/ ​ ​ ​ ​ ​ ​ ​ Termination ​ Consolidation ​ Legal Costs and ​ ​ ​ ​ Costs Cost Settlements Total Balance as of June 30, 2020 ​ $ 545 ​ $ 201 ​ $ 1,882 ​ $ 2,628 Restructuring and other charges (benefit), net ​ 3,883 ​ 1,272 ​ ( 40 ) ​ 5,115 Payments, adjustments and reimbursements, net ​ ( 4,128 ) ​ ( 1,473 ) ​ ( 3 ) ​ ( 5,604 ) Balance as of September 30, 2020 ​ $ 300 ​ $ — ​ $ 1,839 ​ $ 2,139 ​ ​ 15 Table of Contents 8. Borrowings ​ Revolving Credit Facility ​ We have a revolving credit facility with an aggregate committed amount of up to $ 535 million which matures in April 2024. The credit facility includes a $ 300 million sub-limit for letters of credit. Under certain circumstances, we have the ability to increase the facility by the greater of $ 250 million or such amount as would not cause our secured leverage ratio to exceed a specified level. Borrowings under this facility bear interest at LIBOR plus a margin of 1.0 % as of September 30, 2020 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility). The LIBOR index is expected to be discontinued by the end of calendar year 2021. The terms of our credit facility allow for replacement if that occurs. Letters of credit reduce the amount available to borrow under the credit facility by their face value amount. The unused portion of the facility bears a commitment fee of 0.10 % as of September 30, 2020 (which fee can range from 0.10 % to 0.25 % based on our consolidated net leverage ratio as defined in the credit facility). Our borrowings under the credit agreement are guaranteed by certain of our U.S.-based subsidiaries and are secured by substantially all of our assets and substantially all the assets of certain of our subsidiaries. The credit facility contains various representations and warranties, affirmative, negative and financial covenants and events of default. As of September 30, 2020, there was $ 51.0 million of borrowings outstanding under the revolving credit facility and $ 75.4 million outstanding under the letters of credit sub facility. The amount available to borrow under the credit facility as of September 30, 2020 was $ 408.6 million. Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term. The principal amount of each revolving loan is due and payable in full on the maturity date. We have the right to repay each revolving loan in whole or in part from time to time without penalty. It is our practice to routinely borrow and repay several times per year under this revolving facility. Therefore, borrowings under the credit facility are included in current liabilities. As of September 30, 2020, we were in compliance with all covenants under this credit facility. ​ 1.25% Convertible Senior Notes Due 2022 ​ In February 2017, we issued $ 287.5 million of the Notes in a private offering. The Notes are governed by an indenture dated February 22, 2017. The maturity for the payment of principal is September 1, 2022. The Notes bear interest at the rate of 1.25 % and are payable in cash semiannually in arrears on each March 1 and September 1. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries, as well as any of our existing and future indebtedness that may be guaranteed by our subsidiaries to the extent of such guarantees (including the guarantees of certain of our subsidiaries under our existing revolving credit facility). ​ The Notes are convertible prior to March 1, 2022 only upon specified events and during specified periods and are, thereafter convertible, at any time, in each case at an initial conversion rate of 9.3056 per $1,000 principal amount of the Notes, which is equal to an initial conversion price of approximately $ 107.46 per share or a 38.5 % premium to our stock price at the time of the issuance. The conversion rate is subject to adjustment upon certain events. Upon conversion, the Notes may be settled, at our election, in shares of our common stock, cash or a combination of cash and shares of common stock. We have initially elected a combination settlement method to satisfy the conversion obligation, which allows us to settle the principal amount of the Notes in cash and to settle the excess conversion value, if any, in shares of common stock, as well as cash in lieu of fractional shares. ​ We may redeem the Notes if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days. If we undergo a fundamental change, as defined in the indenture for the Notes, subject to certain conditions, holders of the Notes may require us to repurchase all or part of the Notes for cash at a price equal to 100 % of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The occurrence of a fundamental change will also result in the Notes becoming immediately convertible. Since the last reported sales price of our common stock did not exceed 130 % of the conversion price for at least 20 trading days within any applicable period of 30 consecutive trading days during fiscal year 2020, the Notes are not yet convertible. ​ 16 Table of Contents Pursuant to ASC 470-20, we allocated the $ 287.5 million gross proceeds of the Notes between liability and equity components. The initial $ 242.4 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature for similar terms and priced on the same day the Notes were issued. The initial $ 45.1 million equity component represents the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes. Issuance costs of $ 7.7 million were allocated between debt ($ 6.5 million) and equity ($ 1.2 million) components with the portion allocated to the debt presented as an offset against long -term debt in the consolidated balance sheet and being amortized as interest expense over the life of the Notes using the effective interest method. The total interest expense recognized for the three months ended September 30, 2020 related to the Notes was $ 3.3 million, which consisted of $ 0.9 million of contractual interest expense, $ 2.1 million of debt discount amortization and $ 0.3 million of amortization of debt issuance costs. For the three months ended September 30, 2019, the total interest expense was $ 3.2 million, which consisted of $ 0.9 million of contractual interest expense, $ 2.0 million of debt discount amortization and $ 0.3 million of amortization of debt issuance costs. As of June 30, 2020 and September 30, 2020, the respective unamortized debt discounts were $ 19.1 million and $ 17.0 million, which are being amortized over the remaining contractual term to maturity of the Notes using an effective interest rate of 4.5 %. The unamortized debt issuance cost of $ 2.5 million and $ 2.3 million as of June 30, 2020 and September 30, 2020, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes. ​ Other Borrowings ​ Several of our foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters-of-credit. As of September 30, 2020, $ 57.4 million was outstanding under these letter-of-credit facilities. As of September 30, 2020, the total amount available under these credit facilities was $ 14.7 million. ​ Long-term debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, September 30, ​ ​ 2020 ​ 2020 1.25% convertible notes due 2022: ​ ​ ​ ​ ​ ​ Principal amount ​ $ 287,500 ​ $ 287,500 Unamortized discount ​ ​ ( 19,075 ) ​ ​ ( 16,969 ) Unamortized debt issuance costs ​ ​ ( 2,547 ) ​ ​ ( 2,253 ) ​ ​ ​ 265,878 ​ ​ 268,278 Other long-term debt ​ 2,120 ​ 1,976 ​ ​ 267,998 ​ 270,254 Less current portion of long-term debt ​ ( 926 ) ​ ( 898 ) Long-term portion of debt ​ $ 267,072 ​ $ 269,356 ​ ​ 9. Stockholders’ Equity ​ Stock-based Compensation ​ As of September 30, 2020, we maintained the Amended and Restated 2012 Incentive Award Plan (the "2012 Plan ") and the Amended and Restated 2006 Equity Participation Plan ("2006 Plan") as stock-based employee compensation plans. No further grants may be made under the 2006 Plan. The 2012 Plan and the 2006 Plan are collectively referred to as the "OSI Plans." ​ We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ 2019 2020 Cost of goods sold ​ $ 171 ​ $ 179 Selling, general and administrative ​ 6,085 ​ 5,785 Research and development ​ 160 ​ 145 Stock-based compensation expense ​ $ 6,416 ​ $ 6,109 ​ As of September 30, 2020, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $ 0.4 million for stock options and $ 27.7 million for RSUs. We expect to recognize these costs over a weighted average period of 1.8 years with respect to the stock options and 1.8 years for grants of RSUs. ​ 17 Table of Contents The following summarizes stock option activity during the three months ended September 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Weighted-Average ​ Aggregate ​ ​ Number of ​ Exercise ​ Remaining Contractual ​ Intrinsic Value ​ Options Price Term (in thousands) Outstanding at June 30, 2020 326,304 $ 44.41 ​ ​ ​ ​ Granted 526 ​ ​ 75.96 ​ ​ ​ ​ ​ Exercised ( 69,195 ) ​ ​ 27.42 ​ ​ ​ ​ ​ Expired or forfeited ( 1,009 ) ​ ​ 85.87 ​ ​ ​ ​ ​ Outstanding at September 30, 2020 256,626 ​ ​ 48.89 ​ 2.8 years ​ $ 7,814 Exercisable at September 30, 2020 ​ 228,022 ​ ​ 43.97 2.0 years ​ ​ 7,756 ​ The following summarizes RSU award activity during the three months ended September 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ Shares Fair Value Nonvested at June 30, 2020 423,590 ​ $ 88.68 Granted 303,071 ​ ​ 80.13 Vested ( 286,701 ) ​ ​ 86.38 Forfeited ( 2,270 ) ​ ​ 86.09 Nonvested at September 30, 2020 437,690 ​ $ 84.28 ​ As of September 30, 2020, there were approximately 0.5 million shares available for grant under the 2012 Plan. Under the terms of the 2012 Plan, RSUs and restricted stock granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted. RSUs and restricted stock forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited. ​ We granted 80,326 and 136,242 performance-based RSUs during the three months ended September 30, 2019 and 2020, respectively. These performance based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from zero to 280 % of the original number of shares or units awarded. ​ Stock Repurchase Program ​ In April 2020, the Board of Directors authorized a share repurchase program of up to 1,000,000 shares of common stock. In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program. This program does not expire unless our Board of Directors acts to terminate the program. The timing and actual numbers of shares purchased depends on a variety of factors, including stock price, general business and market conditions and other investment opportunities. Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion. Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them in our consolidated financial statements as a reduction in the number of shares of common stock issued and outstanding. ​ During the three months ended September 30, 2020, we repurchased 320,136 shares of our common stock. ​ Dividends ​ We have not paid any cash dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any cash dividends in the foreseeable future. Our Board of Directors will determine the payment of future cash dividends, if any. Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions. ​ 18 Table of Contents 10. Commitments and Contingencies ​ Acquisition-Related Contingent Obligations ​ Under the terms and conditions of the purchase agreements associated with certain acquisitions, we may be obligated to make additional payments based on the achievement of certain sales or profitability milestones through the acquired operations. For agreements that contain contingent consideration caps, the remaining maximum amount of such potential future payments is $ 35.1 million as of September 30, 2020. ​ We account for such contingent payments for acquisitions which occurred through the end of fiscal year 2009 as additions to the purchase price of the acquired business. We made contingent payments of $ 0.1 million relating to such acquisitions during each of the three months ended September 30, 2019 and 2020, respectively. ​ For acquisitions completed after fiscal 2009, pursuant to Financial Accounting Standard 141R, which was codified into ASC 805, the estimated fair value of these obligations is recorded as a liability at the time of the acquisition with subsequent revisions recorded in Selling, general and administrative expense in the consolidated financial statements. The estimated fair value measurements of contingent earn-out obligations are primarily based on unobservable inputs, which may include projected revenues, gross margins, operating income, and the estimated probability of achieving the earn-outs. ​ These projections and probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities. The following table provides a roll-forward from June 30, 2020 to September 30, 2020 of the contingent consideration liability, which is included in other accrued expenses and current liabilities, and other long-term liabilities in our consolidated balance sheets (in thousands): ​ ​ ​ ​ ​ Beginning fair value, June 30, 2020 ​ $ 13,867 Addition of contingent earnout obligations ​ ​ 7,304 Foreign currency translation adjustment ​ ​ 196 Changes in fair value for contingent earnout obligations ​ ( 352 ) Payments on contingent earnout obligations ​ — Ending fair value, September 30, 2020 ​ $ 21,015 ​ Advances from Customers ​ We receive advances from customers associated with certain contracts. These advances are paid in cash by customers, and we account for these as liabilities until our associated contractual obligations are complete. ​ Environmental Contingencies ​ We are subject to various environmental laws. Our practice is to conduct appropriate environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations. In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants. ​ We continue to investigate contamination of the soil and groundwater beneath the Hawthorne, California facility that resulted from unspecified on-and off-site releases occurring prior to our occupancy. We believe the releases are of a historical nature and not uncommon to the region in general. We continue to take voluntary actions, in cooperation with the local governing agency, to fully investigate the site in order to develop appropriate remedial actions. ​ We have not accrued for loss contingencies relating to the Hawthorne facility or any other environmental matters because we believe that, although unfavorable outcomes may be possible, they are not considered by our management to be probable and reasonably estimable. If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material. ​ 19 Table of Contents Indemnifications and Certain Employment-Related Contingencies ​ In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from breaches of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our directors and certain of our officers. It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. We have not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2020. ​ On December 31, 2017, we and Deepak Chopra, our Chief Executive Officer, entered into an amendment to Mr. Chopra's employment agreement that, among other things, provides for a $ 13.5 million bonus payment to Mr. Chopra on or within 45 days of January 1, 2024 contingent upon Mr. Chopra's continued employment with us through that date, subject to accelerated payout terms in the event of Mr. Chopra's death or disability. The bonus is recorded in the financial statements over the remaining term of the employment agreement and is included in other long-term liabilities. ​ Product Warranties ​ We offer our customers warranties on many of the products that we sell. These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment. Concurrent with the sale of products, we record a provision for estimated warranty expenses with a corresponding increase in cost of goods sold. We periodically adjust this provision based on historical experience and anticipated expenses. We charge actual expenses of repairs under warranty, including parts and labor, to this provision when incurred. The current obligation for warranty provision is included in other accrued expenses and current liabilities and the noncurrent portion is included in other long-term liabilities in the consolidated balance sheets. ​ The following table presents changes in warranty provisions (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ 2019 2020 Balance at beginning of period ​ $ 21,724 ​ $ 20,825 Additions and adjustments ​ ​ 2,254 ​ ​ 930 Reductions for warranty repair costs ​ ( 2,291 ) ​ ( 1,180 ) Balance at end of period ​ $ 21,687 ​ $ 20,575 ​ Legal Proceedings ​ In December 2017, a short seller released a report regarding our compliance with the FCPA. Following that report, we and certain of our executive officers have been named as defendants in several lawsuits in the District Court that were filed in December 2017 and February 2018. Each of the complaints closely tracks the allegations set forth in the short seller's report. All of the actions, which were consolidated by the District Court in March 2018 in an action captioned Arkansas Teacher Retirement System et al. v. OSI Systems, Inc. et al. , No. 17 cv 08841, allege violations of Sections 10(b) and 20(a) of the Exchange Act, relating to certain of our public statements and filings with the SEC, and seek damages and other relief based upon the allegations in the complaints. In April 2018 and March 2019, two shareholder derivative complaints were filed purportedly on behalf of the Company against certain members of our Board of Directors (as individual defendants), a former member of our Board of Directors, and a member of management. The derivative actions, which were consolidated by the District Court in November 2019 in an action captioned Kocen and Riley v. Chopra, et al. No. 18 CV 03371, allege, among other things, breach of fiduciary duties relating to the allegations contained in the above-mentioned short seller report and seek damages, restitution, injunctive relief, attorneys' and experts' fees, costs, expenses, and other unspecified relief. We believe that the actions are without merit and intend to defend them vigorously, and we expect to incur costs associated with defending against these actions. At this early stage of the litigations, the ultimate outcomes are uncertain and we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, if any, or their effect, if any, on our financial statements. ​ The SEC and the DOJ are conducting an investigation of trading in our securities and have each subpoenaed information regarding trading by executives, directors, and employees, as well as our operations and disclosures in and around the time of certain trades. With respect to these trading related matters, in fiscal year 2018, we took action with respect to a senior level employee. At this time, we are unable to predict what, if any, action may be taken by the DOJ or SEC as a result of these trading related investigations, or any penalties or remedial measures these agencies may seek. We place a high priority on compliance with our anticorruption and securities trading policies and are cooperating with each of the government investigations. 20 Table of Contents ​ We are involved in various other claims and legal proceedings arising in the ordinary course of business. In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. We have not accrued for loss contingencies relating to any such matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to our company, the impact on our business, financial condition, results of operations and cash flows could be material. ​ 11. Income Taxes ​ The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate, and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions. ​ During the three months ended September 30, 2019 and 2020, we recognized discrete tax benefits related to equity-based compensation under ASU 2016-09 of $ 6.2 million and $ 0.3 million, respectively, resulting in an effective tax rate of - 2.9 % and 25.3 %, respectively. Excluding the impact of the discrete tax items noted above, our effective tax rate for the three months ended September 30, 2020 was 27.5 % as compared to 27.9 % in the same prior-year period. ​ 12. Segment Information ​ We have determined that we operate in three identifiable industry segments: (a) security and inspection systems (Security division), (b) medical monitoring and diagnostic cardiology systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division). We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses; expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments. Both the Security and Healthcare divisions comprise primarily end-product businesses whereas the Optoelectronics and Manufacturing division primarily supplies components and subsystems to external OEM customers, as well as to the Security and Healthcare divisions. Sales between divisions are at transfer prices that approximate market values. All other accounting policies of the segments are the same as described in Note 1, Basis of Presentation. ​ 21 Table of Contents The following tables present our results of operations and identifiable assets by industry segment (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ 2019 2020 Revenues (1) —by Segment: ​ ​ ​ ​ ​ ​ Security division ​ $ 188,964 ​ $ 134,775 Healthcare division ​ ​ 40,208 ​ ​ 51,503 Optoelectronics and Manufacturing division, including intersegment revenues ​ ​ 73,638 ​ ​ 79,914 Intersegment revenues elimination ​ ​ ( 11,958 ) ​ ​ ( 11,284 ) Total ​ $ 290,852 ​ $ 254,908 ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations —by Segment: ​ ​ ​ ​ ​ ​ Security division ​ $ 20,318 ​ $ 8,906 Healthcare division ​ ​ 2,817 ​ ​ 8,984 Optoelectronics and Manufacturing division ​ ​ 8,769 ​ ​ 8,740 Corporate ​ ​ ( 7,337 ) ​ ​ ( 9,456 ) Eliminations ​ ​ 320 ​ ​ ( 481 ) Total ​ $ 24,887 ​ $ 16,693 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ September 30, ​ 2020 2020 Assets (2) —by Segment: ​ ​ ​ ​ ​ ​ Security division ​ $ 758,054 ​ $ 739,269 Healthcare division ​ 208,857 ​ 215,320 Optoelectronics and Manufacturing division ​ 232,408 ​ 248,909 Corporate ​ 109,178 ​ 107,213 Eliminations (3) ​ ( 39,956 ) ​ ( 39,763 ) Total ​ $ 1,268,541 ​ $ 1,270,948 (1) For each of the three month periods ended September 30, 2019 and September 30, 2020, no customer accounted for greater than 10 % of total net revenues. (2) One customer accounted for 13 % and 11 % of accounts receivable, net as of June 30, 2020 and September 30, 2020, respectively. (3) Eliminations in assets reflect the amount of inter-segment profits in inventory and inter-segment ROU assets under ASC 842 as of the balance sheet date. Such inter-segment profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions. ​ ​ ​ 22 Table of Contents