What changed in this filing

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Item 1. Financial Statements

2023-10-27 compared with 2023-04-28 · 141 added, 203 removed, 402 unchanged (46% of the section changed)

4 unchanged sentences

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

September 30,

CURRENT ASSETS:

23 unchanged sentences

Common stock, $ 0.001 par value— 100,000,000 shares authorized;

issued and outstanding , 16,870,050 shares at June 30, 2022 and 16,727,121 shares at March 31, 2023

issued and outstanding , 16,755,772 shares at June 30, 2023 and 16,987,842 shares at September 30, 2023

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Net revenues:

9 unchanged sentences

Interest and other expense, net

Other income, net

Income before income taxes

7 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Nine Months Ended March 31,

Other comprehensive income (loss):

Three Months Ended September 30,

Other comprehensive loss:

Foreign currency translation adjustment, net of tax

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

Net unrealized gain on derivatives, net of tax

Other, net of tax

Other comprehensive income (loss)

Other comprehensive loss

Comprehensive income

4 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended March 31, 2022

Comprehensive

Balance—December 31, 2021

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—March 31, 2022

Three Months Ended March 31, 2023

Comprehensive

Balance—December 31, 2022

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—March 31, 2023

Nine Months Ended March 31, 2022

Three Months Ended September 30, 2022

Comprehensive

5 unchanged sentences

Repurchase of common stock

( 1,117,258 )

Taxes paid related to net share settlement of equity awards

Adoption of ASU 2020-06 for convertible notes

Other comprehensive loss

Balance—March 31, 2022

Nine Months Ended March 31, 2023

Balance—September 30, 2022

Three Months Ended September 30, 2023

Comprehensive

4 unchanged sentences

Stock-based compensation expense

Repurchase of common stock

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—March 31, 2023

Balance—September 30, 2023

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Nine Months Ended March 31,

Three Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

5 unchanged sentences

Amortization of debt discount and issuance costs

Gain on sale of property and equipment

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

4 unchanged sentences

Advances from customers

Deferred revenue

Net cash provided by operating activities

3 unchanged sentences

Purchases of certificates of deposit

Proceeds from certificates of deposit

Proceeds from maturities of certificates of deposit

Acquisition of businesses, net of cash acquired

29 unchanged sentences

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.

There have been no material changes to our significant accounting policies from those disclosed therein.

The accompanying condensed consolidated balance sheet as of June 30, 2022 was derived from the Company's audited consolidated financial statements at that date.

The results of operations for the three and nine months ended March 31, 2023 are not necessarily indicative of the operating results to be expected for the full 2023 fiscal year or any future periods.

The results of operations for the three months ended September 30, 2023 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, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill.

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.

5 unchanged sentences

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,

Three Months Ended September 30,

Net income available to common stockholders

7 unchanged sentences

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 $ 65.6 million at March 31, 2023.

Our cash and cash equivalents totaled $ 82.6 million at September 30, 2023.

Of this amount, approximately 91 % 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, India, Singapore, Malaysia and Canada, and to a lesser extent in Mexico, Indonesia, Albania and Australia.

These foreign funds were held primarily by our subsidiaries in the United Kingdom, Qatar, Singapore, India, Malaysia and Canada, and to a lesser extent in Indonesia, Australia, Germany, Mexico and Egypt among other countries.

We have cash holdings in financial institutions that exceed insured limits for such financial institutions;

we mitigate this risk, however, by utilizing international financial institutions of high credit quality.

however, we mitigate this risk by utilizing international financial institutions of high credit quality.

Fair Value of Financial Instruments

2 unchanged sentences

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, 2022 and March 31, 2023.

The fair values of our foreign currency forward contracts were not significant as of June 30, 2023 and September 30, 2023.

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.

The “Level 1” category includes assets and liabilities at quoted prices in active markets for identical assets and liabilities.

The “Level 2” category includes assets and liabilities from observable inputs other than quoted market prices.

The “Level 3” category includes assets and liabilities for which valuation techniques are unobservable and significant to the fair value measurement.

Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the “Level 3” category for valuation purposes.

1 unchanged sentence

June 30, 2023

March 31, 2023

September 30, 2023

Assets—Insurance company contracts

Assets – Interest rate swap contract

Liabilities—Convertible debt

Liabilities—Contingent consideration

Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts and an interest rate swap agreement.

Our use of derivatives consists of foreign currency forward contracts and an interest rate swap contract.

The 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.

3 unchanged sentences

We do not use hedging instruments for speculative purposes.

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations.

The amounts reported in the consolidated statements of operations for the three and nine months ended March 31, 2022 and 2023 were not significant.

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations, and the amounts reported for the three months ended September 30, 2022 and 2023 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, 2022 and March 31, 2023, we held foreign currency forward contracts with notional amounts totaling $ 22.9 million and $ 19.8 million, respectively.

Unrealized gains and losses from our foreign currency forward contracts as of March 31, 2022 and 2023 were not significant.

As of June 30, 2023 and September 30, 2023, we held foreign currency forward contracts with notional amounts totaling $ 21.6 million and $ 25.6 million, respectively.

Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2023 and September 30, 2023 were not significant.

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 the consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings.

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 in the consolidated financial statements and are reclassified as net income when the underlying hedged interest expense impacts earnings.

A qualitative and quantitative assessment over the 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, 2022 and March 31, 2023, the notional amount of the derivative instruments designated as an interest rate swap hedge was $ 0 and $ 175 million, respectively.

The fair value of the interest rate swap contract as of March 31, 2023 was $ 1.6 million and is recorded in Other assets within the condensed consolidated balance sheet.

As of June 30, 2023 and September 30, 2023, the notional amount of the derivative instruments designated as an interest rate swap hedge was $ 175 million.

The fair value of the interest rate swap contract as of as of June 30, 2023 and September 30, 2023 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,

Three Months Ended September 30,

Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded

Gain (loss) recognized in other comprehensive income (loss)

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

Recently Adopted Accounting Pronouncement

Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination

In October 2021, the FASB issued Accounting Standards Update 2021-08, an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805).

This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

We adopted the new guidance effective January 1, 2022 using the prospective approach and applied the amendments to the business combinations that occurred during the year ended June 30, 2022 and the nine months ended March 31, 2023.

The adoption of ASU 2021-08 did not have a material impact on our consolidated financial statements.

Gain recognized in other comprehensive income, net of tax

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

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, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption.

There were no new pronouncements adopted in the first quarter of fiscal year 2024.

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.

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.

3 unchanged sentences

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.

Any adjustments subsequent to the conclusion of such measurement period are reflected in reported earnings.

Upon the conclusion of the measurement period, any subsequent adjustments are included in earnings.

Fiscal Year 2024 Business Acquisition

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.

2 unchanged sentences

These acquisitions were financed with cash on hand.

Fiscal Year 2022 Business Acquisitions

In February 2022, we (through our Security division) acquired a privately held provider of intelligent inspection, sensory, and recognition solutions for approximately $ 14 million plus up to $ 25 million in potential contingent consideration.

The acquisition was financed with cash on hand and borrowings under our revolving bank line of credit.

We (through our Security division) also acquired in February 2022 a privately held sales and services company for approximately $ 1.1 million, plus an immaterial amount of potential contingent consideration.

The acquisition was financed with cash on hand.

These business acquisitions, individually and in aggregate, were not material to our consolidated financial statements.

The goodwill recognized for each of the fiscal year 2023 business acquisitions is not deductible for income tax purposes.

These business acquisitions 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.

1 unchanged sentence

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

September 30,

Accounts receivable, net

1 unchanged sentence

Less allowance for doubtful accounts

September 30,

Raw materials

1 unchanged sentence

Finished goods

September 30,

Property and equipment, net

9 unchanged sentences

Property and equipment, net

Depreciation and amortization expense for property and equipment was $ 5.4 million and $ 4.9 million for the three months ended March 31, 2022 and 2023, respectively, and $ 16.0 million and $ 14.6 million for the nine months ended March 31, 2022 and 2023, respectively.

Depreciation and amortization expense for property and equipment was $ 4.9 million in each of the three months ended September 30, 2022 and 2023.

Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2023 were as follows (in thousands)

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2023 were as follows (in thousands):

Optoelectronics

1 unchanged sentence

Balance as of June 30, 2023

Goodwill acquired or adjusted during the period

Foreign currency translation adjustment

Balance as of March 31, 2023

Balance as of September 30, 2023

Intangible assets consisted of the following (in thousands):

June 30, 2023

March 31, 2023

September 30, 2023

Amortizable assets:

6 unchanged sentences

Total intangible assets

Amortization expense related to intangible assets was $ 4.4 million and $ 4.8 million for the three months ended March 31, 2022 and 2023, respectively.

For the nine months ended March 31, 2022 and 2023, amortization expense related to intangible assets was $ 13.0 million and $ 14.2 million, respectively.

At March 31, 2023, the estimated future amortization expense for intangible assets was as follows (in thousands):

Amortization expense related to intangible assets was $ 4.7 million in each of the three months ended September 30, 2022 and 2023.

At September 30, 2023, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):

2024 (remaining 9 months)

4 unchanged sentences

Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above.

For the three months ended March 31, 2022 and 2023, we capitalized software development costs in the amounts of $ 4.0 million and $ 4.1 million, respectively.

For the nine months ended March 31, 2022 and 2023, we capitalized software development costs in the amounts of $ 11.7 million and $ 12.0 million, respectively.

For the three months ended September 30, 2022 and 2023, we capitalized software development costs in the amounts of $ 3.9 million and $ 4.0 million, respectively.

Contract Assets and Liabilities

7 unchanged sentences

We recognize these contract liabilities as sales after all revenue recognition criteria are met.

The table below shows the balance of contract assets and liabilities as of June 30, 2022 and March 31, 2023, including the change between the periods.

The table below shows the balance of contract assets and liabilities as of June 30, 2023 and September 30, 2023, including the change between the periods.

There were no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands)

September 30,

Unbilled revenue (included in accounts receivable, net)

Contract Liabilities (in thousands)

September 30,

Advances from customers

1 unchanged sentence

Deferred revenue—long-term

Contract assets increased during the nine months ended March 31, 2023 primarily due to satisfaction of performance obligations for aviation, cargo and vehicle inspection customers in our Security division which have not yet been billed.

The overall increase in contract liabilities was primarily due to receipt of upfront deposits from customers and deferred revenue from receipt of payments under service and warranty contracts primarily in our Security division.

Contract assets increased during the three months ended September 30, 2023 primarily from the timing and nature of milestones met in contracts for a number of customers in our Security Division where we met the revenue recognition criteria under ASC 606 in advance of the time when contracts give us the right to invoice customers.

Remaining Performance Obligations .

Remaining performance obligations related to ASC 606 represent the portion of the transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period.

As of March 31, 2023, the portion of the transaction price allocated to remaining performance obligations was approximately $ 329.5 million.

As of September 30, 2023, the portion of the transaction price allocated to remaining performance obligations was approximately $ 906.2 million.

We expect to recognize revenue on approximately 67 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter.

During the nine months ended March 31, 2023, we recognized revenue of $ 49.4 million from contract liabilities existing at the beginning of the period.

During the three months ended September 30, 2023, we recognized revenue of $ 29.7 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

3 unchanged sentences

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

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Operating lease cost

4 unchanged sentences

June 30, 2023

March 31, 2023

Operating lease ROU assets, net

September 30, 2023

Operating lease right of use (“ROU”) assets, net

Operating lease liabilities, current portion

6 unchanged sentences

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

Nine Months Ended March 31,

Three Months Ended September 30,

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

Maturities of operating lease liabilities at March 31, 2023 were as follows (in thousands):

March 31, 2023

Maturities of operating lease liabilities at September 30, 2023 were as follows (in thousands):

September 30, 2023

Less than one year

3 unchanged sentences

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 three months ended March 31, 2023, we recognized $ 0.9 million in restructuring and other charges, which included $ 0.5 million for employee terminations, $ 0.3 million in legal charges primarily related to government investigations, and $ 0.1 million in acquisition-related costs and facility closure costs.

During the three months ended March 31, 2022, we recognized $ 1.5 million in restructuring and other charges, which included $ 0.8 million in legal charges primarily related to class action litigation and government investigations, $ 0.4 million for employee terminations , and $ 0.3 million in acquisition related costs.

During the nine months ended March 31, 2023, we recognized $ 4.4 million in restructuring and other charges, which included $ 3.2 million in legal charges primarily related to class action litigation and government investigations, $ 1.0 million for employee terminations, and $ 0.2 million in acquisition-related costs and facility closure costs.

During the nine months ended March 31, 2022, we recognized $ 4.8 million in restructuring and other charges, which included $ 3.5 million in legal charges primarily related to class action litigation and government investigations, $ 1.0 million in employee terminations and $ 0.3 million in acquisition related costs.

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

During the three months ended September 30, 2022, we recognized $ 1.2 million in restructuring and other charges, which included $ 0.9 million in legal charges and $ 0.3 million for employee terminations.

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

Three Months Ended March 31, 2022

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs, net

Three Months Ended March 31, 2023

Three Months Ended September 30, 2022

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

1 unchanged sentence

Legal costs, net

Nine Months Ended March 31, 2022

Three Months Ended September 30, 2023

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs, net

Nine Months Ended March 31, 2023

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs, net

The accrued liability for restructuring and other charges is included in other accrued expenses and current liabilities in the condensed consolidated balance sheets.

The changes in the accrued liability for restructuring and other charges for the nine-month period ended March 31, 2023 were as follows (in thousands):

The changes in the accrued liability for restructuring and other charges for the three-month period ended September 30, 2023 were as follows (in thousands):

Consolidation

2 unchanged sentences

Payments, adjustments and reimbursements, net

Balance as of March 31, 2023

Balance as of September 30, 2023

Revolving Credit Facility

In December 2021, we entered into an amendment to the senior secured credit facility that increased the aggregate amount available to borrow from $ 535 million to $ 750 million.

The amended facility matures in December 2026 and is comprised of a $ 600 million revolving credit facility and a $ 150 million delayed draw term loan.

The amended facility matures in December 2026 and is comprised of a $ 600 million revolving credit facility and a $ 150 million term loan.

The revolving credit facility includes a $ 300 million sub-limit for letters of credit.

Under certain circumstances and subject to certain conditions, we can increase the revolving credit facility by $ 250 million plus such amount as would not cause our consolidated secured net leverage ratio to exceed a specified level.

Borrowings under the amended facility bore interest at SOFR plus a margin of 1.25 % as of March 31, 2023 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility).

Under certain circumstances and subject to certain conditions, we have the ability to increase the revolving credit 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 the amended facility bore interest at SOFR plus a margin of 1.0 % as of September 30, 2023 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility).

Letters of credit reduce the amount available to borrow under the credit facility by their face value amount.

The unused portion of the facility bore a commitment fee of 0.15 % as of March 31, 2023 (which fee can range from 0.10 % to 0.25 % based on our consolidated net leverage ratio as defined in the credit facility).

The unused portion of the facility bore a commitment fee of 0.10 % as of September 30, 2023 (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 March 31, 2023, there were $ 215 million of borrowings outstanding under the revolving credit facility, $ 61.3 million outstanding under the letters of credit sub-facility, and $ 145 million outstanding under the term loan.

As of March 31, 2023, the amount available to borrow under the revolving credit facility was $ 323.7 million.

As of September 30, 2023, there were $ 235 million of borrowings outstanding under the revolving credit facility, $ 37.7 million outstanding under the letters of credit sub-facility, and $ 141.3 million outstanding under the term loan.

As of September 30, 2023, the amount available to borrow under the revolving credit facility was $ 327.3 million.

Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term.

The principal amount of each loan is due and payable in full on the maturity date.

We have the right to repay each loan in whole or in part from time to time without penalty.

We have the right to repay each 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 the revolving facility and therefore, borrowings under the revolving credit facility are included in current liabilities.

As of March 31, 2023, we were in compliance with all financial covenants under this credit facility.

As of September 30, 2023, we were in compliance with all financial covenants under this credit facility.

In September 2022, we entered into an interest rate swap in order to mitigate the interest rate risk on a portion of the interest payments expected to be made on the borrowings outstanding under the revolving credit facility and term loan.

Refer to Note 1 for details.

1.25% Convertible Senior Notes (“Notes”) Due 2022

Interest expense related to the credit facility and term loan was $ 2.1 million and $ 6.3 million for the three months ended September 30, 2022 and 2023, respectively.

1.25% Convertible Senior Notes (“Notes”)

In February 2017, we issued $ 287.5 million of the Notes in a private offering.

The Notes were governed by an indenture dated February 22, 2017.

The maturity date for the payment of principal was September 1, 2022.

The Notes bore interest at the rate of 1.25 % and were payable in cash semiannually in arrears on each March 1 and September 1.

On September 1, 2022, we repurchased for cash and cancelled the then-remaining $ 242.3 million balance of the Notes utilizing proceeds from the senior secured credit facility.

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 was being amortized as interest expense over the life of the Notes using the effective interest method.

Total interest expense recognized for the three and nine months ended March 31, 2022 related to the Notes was $ 1.2 and $ 3.7 million, respectively, which consisted of $ 0.9 million and $ 2.7 million of contractual interest expense and $ 0.3 million and $ 1.0 million of amortization of debt issuance costs.

Total interest expense recognized for the three and nine months ended March 31, 2023 related to the Notes was nil and $ 0.7 million, respectively, which consisted of $ 0.5 million of contractual interest expense and $ 0.2 million of amortization of debt issuance costs.

On September 1, 2022, we repurchased and cancelled the remaining $ 242.3 million balance of the Notes.

Total interest expense recognized for the three months ended September 30, 2022 related to the Notes was $ 0.7 million, which consisted of $ 0.5 million of contractual interest expense and $ 0.2 million of amortization of debt issuance costs.

Other Borrowings

1 unchanged sentence

dollars, primarily for the issuance of letters of credit.

As of March 31, 2023, $ 50.1 million was outstanding under these letter-of-credit facilities.

As of March 31, 2023, the total amount available under these credit facilities was $ 27.7 million.

As of September 30, 2023, $ 56.8 million was outstanding under these letter-of-credit facilities.

As of September 30, 2023, the total amount available under these credit facilities was $ 17.6 million.

Long-term debt consisted of the following (in thousands):

1.25% convertible notes due September 1, 2022:

Principal amount

Unamortized debt issuance costs

September 30,

Other long-term debt

3 unchanged sentences

Stock-based Compensation

As of March 31, 2023, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

As of September 30, 2023, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Cost of goods sold

2 unchanged sentences

Stock-based compensation expense

As of March 31, 2023, total unrecognized compensation costs related to share-based compensation grants under the OSI Plan were estimated at $ 0.8 million for stock options and $ 20.6 million for restricted stock units (“RSUs”).

As of September 30, 2023, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.6 million for stock options and $ 19.6 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 1.8 years with respect to the stock options and 2.3 years with respect to the RSUs.

The following summarizes stock option activity during the nine months ended March 31, 2023:

The following summarizes stock option activity during the three months ended September 30, 2023:

Weighted-Average

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Expired or forfeited

Outstanding at March 31, 2023

Exercisable at March 31, 2023

The following summarizes RSU award activity during the nine months ended March 31, 2023:

Outstanding at September 30, 2023

Exercisable at September 30, 2023

The following summarizes RSU award activity during the nine months ended September 30, 2023:

Nonvested at June 30, 2023

Nonvested at March 31, 2023

As of March 31, 2023, there were approximately 0.8 million shares available for grant under the OSI Plan.

Under the terms of the OSI 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 96,620 and 110,811 performance-based RSUs during the nine months ended March 31, 2022 and 2023, respectively.

Nonvested at September 30, 2023

As of September 30, 2023, there were approximately 0.2 million shares available for grant under the OSI Plan.

Under the terms of the OSI Plan, RSUs granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted.

RSUs forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited.

We granted 109,594 and 75,988 performance-based RSUs during the three months ended September 30, 2022 and 2023, respectively.

These performance-based RSU awards are contingent on the achievement of certain performance metrics.

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If the estimated number of shares to vest is revised in the future, then stock-based compensation expense will be adjusted accordingly.

Employee Stock Purchase Plan

We have an employee stock purchase plan under which eligible employees may purchase a limited number of shares of common stock at a discount of up to 15 % of the market value of such stock at pre-determined, plan-defined dates.

During the nine months ended March 31, 2022 and 2023, employees purchased 60,605 and 59,255 shares, respectively.

As of March 31, 2023, there were 417,972 shares of our common stock available for issuance under the plan.

Stock Repurchase Program

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This program does not expire unless our Board of Directors acts to terminate the program.

The timing and actual numbers of shares purchased depend on a variety of factors, including stock price, general business and market conditions and other investment opportunities.

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.

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If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.

During the nine months ended March 31, 2022 and 2023, we repurchased 1,117,258 and 400,230 shares of our common stock, respectively.

As of March 31, 2023, there were 1,721,870 shares remaining available for repurchase under the authorized repurchase program.

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.

During the three months ended September 30, 2023, we did not repurchase shares of our common stock.

As of September 30, 2023, there were 1,721,870 shares remaining available for repurchase under the authorized repurchase program.

We have not paid any dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any dividends in the foreseeable future.

Our Board of Directors will determine the payment of future dividends, if any.

Certain of our current bank credit facilities restrict the payment of dividends and future borrowings may contain similar restrictions.

Commitments and Contingencies

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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 obligations that are capped, the remaining maximum amount of such potential future payments is $ 54.4 million as of March 31, 2023.

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 relating to such acquisitions of $ 0.3 million and $ 1.7 million, respectively, during the three and nine months ended March 31, 2022 and $ 1.2 million and $ 3.7 million, respectively, during the three and nine months ended March 31, 2023.

For acquisitions completed after fiscal 2009, pursuant to 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 earnout obligations are primarily based on unobservable inputs, which may include projected revenues, gross margins, operating income and the estimated probability of achieving the earnouts.

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, 2022 to March 31, 2023 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):

For agreements that contain contingent consideration obligations that are capped, the remaining maximum amount of such potential future payments is $ 45.0 million as of September 30, 2023.

Projections and estimated 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, 2023 to September 30, 2023 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, 2023

Addition of contingent earnout obligations

Foreign currency translation adjustment

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Payments on contingent earnout obligations

Ending fair value, March 31, 2023

Ending fair value, September 30, 2023

Environmental Contingencies

We are subject to various environmental laws.

We conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations.

We often conduct 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.

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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 March 31, 2023.

We have not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2023.

On December 31, 2017, we and Deepak Chopra, our Chief Executive Officer, entered into an amendment to Mr.

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Chopra’s death or disability.

The bonus is included in accrued payroll and related expenses at March 31, 2023 and other long-term liabilities at June 30, 2022.

The bonus is recorded in the financial statements over the remaining term of the employment agreement and is included in accrued payroll and related expenses.

Product Warranties

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The following table presents changes in warranty provisions (in thousands):

Nine Months Ended March 31,

Three Months Ended September 30,

Balance at beginning of period

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Legal Proceedings

We are involved in various claims and legal proceedings arising in the ordinary course of business.

In February 2023, one of our subsidiaries received a subpoena from the U.S.

Department of Justice (“DoJ”) relating to a federal investigation involving a former employee of an OSI Systems subsidiary.

The DoJ is currently prosecuting the former employee for embezzlement and other conduct occurring before he was hired by our subsidiary and while he was employed by another company in the United States and Mexico.

The subpoena requests documents and records relating to, among other things, the former employee and the Company's business dealings in Mexico since 2020.

We have produced documents in response to this subpoena and intend to cooperate with any further subpoenas or other requests in connection with this or any ensuing investigation.

In September 2023, an employee demanded a $4 million payment claiming that he was retaliated against for internally reporting that a Mexican government official solicited a payment in connection with a $35 million opportunity.

The opportunity has not been awarded, no payment was actually made, and we have reported the employee’s allegations to the U.S.

Department of Justice.

We have denied the employee’s claim of retaliation and intend to vigorously contest any potential lawsuit that may be filed as lacking in credibility and merit.

We are involved in various other potential or actual 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.

We have not accrued for loss contingencies relating to any non-ordinary course 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.

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As such, there can be significant volatility in interim tax provisions.

The effective tax rates for the three months ended March 31, 2022 and 2023 were 20.1 % and 23.8 %, respectively.

During the three-month period ended March 31, 2023, we recognized a net discrete tax expense of $ 0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

During the three-month period ended March 31, 2022, we recognized a net discrete tax benefit of $ 0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

The effective tax rate for the nine months ended March 31, 2022 and 2023 was 20.8 % and 22.6 %, respectively.

During the nine months ended March 31, 2023, we recognized a net discrete tax benefit of $ 0.6 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates .

During the nine months ended March 31, 2022, we recognized a net discrete tax benefit of $ 2.0 million related to equity-based compensation under ASU 2016-09.

The effective tax rates for the three months ended September 30, 2022 and 2023 were 24.4 % and 23.4 %, respectively.

During the three months ended September 30, 2022 and 2023, we recognized a net discrete tax benefit of $ 0.1 million and $ 0.4 million, respectively, related to equity-based compensation under ASU 2016-09.

Segment Information

We have determined that we operate in three identifiable industry segments:

(a) security and inspection systems (Security division), (b) medical monitoring systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division).

(a) security and inspection systems (Security division), (b) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division) and (c) medical monitoring systems (Healthcare 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.

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Sales between divisions are at transfer prices that approximate market values.

All other accounting policies for the segments are the same as described in Note 1, Basis of Presentation.

All other accounting policies of the segments are the same as described in Note 1, Basis of Presentation.

The following tables present our results of operations and identifiable assets by industry segment (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Revenues (1) —by Segment:

Security division

Healthcare division

Optoelectronics and Manufacturing division, including intersegment revenues

Healthcare division

Intersegment revenues elimination

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Security division

Healthcare division

Optoelectronics and Manufacturing division

Healthcare division

Intersegment Eliminations

September 30,

Assets (2) —by Segment:

Security division

Healthcare division

Optoelectronics and Manufacturing division

Healthcare division

Eliminations (3)

(1) For the three-month period ended March 31, 2022 and the nine-month periods ended March 31, 2022 and 2023, no customer accounted for greater than 10 % of total net revenues.

For the three-month period ended March 31, 2023, one customer accounted for 13 % of total net revenues.

(2) As of June 30, 2022 and March 31, 2023, no customer accounted for greater than 10 % of accounts receivable.

(1) For the three-month period ended September 30, 2022 and 2023, no customer accounted for greater than 10 % of total net revenues.

(2) As of June 30, 2023 and September 30, 2023, no customer accounted for greater than 10 % of accounts receivable.

(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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements