What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-30 compared with 2025-05-02 · 64 added, 93 removed, 117 unchanged (57% of the section changed)

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together with our wholly-owned subsidiaries.

This management’s discussion and analysis of financial condition as of March 31, 2025 and results of operations for the three and nine months ended March 31, 2025 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC.

This management’s discussion and analysis of financial condition as of September 30, 2025 and results of operations for the three months ended September 30, 2025 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the SEC.

Forward-Looking Statements

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delays in customer programs;

government shutdown;

delays in revenue recognition related to the timing of customer acceptance;

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unfavorable currency exchange rate fluctuations;

effect of changes in tax legislation;

unfavorable interest rate fluctuations;

effect of changes in tax legislation, guidance and interpretations;

market acceptance of our new and existing technologies, products and services;

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contract and regulatory compliance matters, and actions, which if brought, could result in judgments, settlements, fines, injunctions, debarment or penalties;

as well as other risks and uncertainties, including but not limited to those factors described in our other SEC filings.

and other risks and uncertainties, including but not limited to those factors described in our other SEC filings.

All forward-looking statements contained in this report are qualified in their entirety by this section.

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These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband.

Revenues from our Security division accounted for 66% and 69% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, respectively.

Revenues from our Security division accounted for 65% and 66% of our total consolidated revenues for the three months ended September 30, 2024 and 2025, respectively.

Optoelectronics and Manufacturing Division .

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We also provide our optoelectronic devices and electronics manufacturing services to OEM customers and to our own Security and Healthcare divisions.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 22% and 21% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, respectively.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 24% and 23% of our total consolidated revenues for the three months ended September 30, 2024 and 2025, respectively.

Healthcare Division .

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Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient’s bedside, in another area of the hospital or even outside the hospital.

Revenues from our Healthcare division accounted for 12% and 10% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, respectively.

Revenues from our Healthcare division accounted for 11% of our total consolidated revenues for each of the three months ended September 30, 2024 and 2025.

Trends and Uncertainties

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Our products and services are sold in numerous countries worldwide, with a large percentage of our sales generated outside the United States.

We are exposed to and impacted by global macroeconomic factors, U.S.

Therefore, we are exposed to and impacted by global macroeconomic factors, U.S.

and foreign government policies and foreign exchange fluctuations.

There is uncertainty surrounding macroeconomic factors in the U.S.

and globally characterized by supply chain disruptions, inflationary pressure, and labor shortages.

and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, and labor shortages.

Increasing diplomatic and trade friction between the U.S.

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These global macroeconomic factors, coupled with political unrest internationally and the volatile U.S.

political climate, resulting from the recent U.S.

presidential election and congressional seat changes, have increased economic uncertainty and impacted demand for certain of our products and services.

political climate, have created uncertainty and impacted demand for certain of our products and services.

Conflicts in Gaza and nearby regions have created political and economic uncertainty in the Middle East.

Also, the continued conflict between Russia and Ukraine and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations.

We do not know how long this uncertainty will continue.

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This uncertainty is exacerbated by sanctions imposed by the U.S.

government against certain businesses and individuals in select countries.

Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.

has recently imposed tariffs on global imports and certain foreign countries have increased tariffs as a result.

Based on these recently announced and implemented global tariffs, and assuming such tariffs remain in place, this is expected to result in additional costs for us.

While the ultimate impact of changes to tariffs will depend on various factors, including the timing, amount, scope, and nature of any tariffs that are implemented, we are evaluating measures to mitigate the impact of tariffs.

government against certain businesses and individuals in select other countries.

Tariffs and trade restrictions and retaliatory measures by such other countries could result in revenue reductions for the Company or cost increases on material used in our products.

We are taking measures to contain costs to reduce the impact of tariffs and to date, such measures have helped reduce our exposure to these conditions.

Healthcare Considerations.

Our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic.

Certain hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs and higher interest rates make access to credit more expensive.

Continuation of these macroeconomic conditions would likely have an adverse impact on hospitals’ spend on capital equipment and thereby could have a material adverse effect on our business, results of operations and financial condition.

To the extent macroeconomic conditions remain challenging, it is likely that hospitals’ spend on capital equipment will be adversely impacted.

Government Policies.

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or foreign government legislative, regulatory or enforcement policies.

Russia’s Invasion of Ukraine.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

Federal Government Shutdown.

In October 2025, the U.S.

federal government entered a partial shutdown due to a lapse in appropriations.

As of the date of this filing, the shutdown remains ongoing and has resulted in the suspension or delay of certain government operations and services, including those of certain federal agencies with which we interact.

A prolonged shutdown could delay the issuance of government contracts or the processing of existing contracts, particularly in our Security division, issuances of export licenses, shipments, deliveries and payments of invoices.

We are actively monitoring the situation and assessing potential impacts on our operations, financial condition, and results of operations.

At this time, we are unable to predict the duration of the shutdown or its full impact on our business.

Russia-Ukraine and Israel-Hamas Conflicts.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict as well as the Israel-Hamas conflict have increased global economic and political uncertainty.

This has the potential to indirectly disrupt our supply chain and access to certain resources.

While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.

The conflict also has increased the threat of malicious cyber activity from nation states and other actors.

While we have not experienced material adverse impacts to date resulting from these conflicts, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.

The conflicts also have increased the threat of malicious cyber-activity from other countries and other actors.

Currency Exchange Rates.

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.7% for the nine months ended March 31, 2025 compared to the nine months ended March 31, 2024, primarily due to the weakening of the U.S.

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.4% for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to the weakening of the U.S.

dollar against other foreign currencies in 2025.

Any strengthening of the U.S.

dollar against foreign currencies would adversely impact our sales for the remainder of the fiscal year, and any further weakening of the U.S.

dollar against foreign currencies would adversely impact our sales for the remainder of the fiscal year, and any weakening of the U.S.

dollar against foreign currencies would positively impact our sales for the remainder of the fiscal year.

Results of Operations for the Three Months Ended March 31, 2024 (Q3 Fiscal 2024) Compared to the Three Months Ended March 31, 2025 (Q3 Fiscal 2025) (amounts in millions)

Results of Operations for the Three Months Ended September 30, 2024 (Q1 Fiscal 2025) Compared to the Three Months Ended September 30, 2025 (Q1 Fiscal 2026) (amounts in millions)

The table below and the discussion that follows are based upon the way in which we analyze our business.

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Revenues for the Optoelectronics and Manufacturing division during Q1 fiscal 2026 increased year-over-year as a result of an increase in revenues in our contract manufacturing business.

Revenues for the Healthcare division during Q3 fiscal 2025 increased year-over-year primarily due to an increase in patient monitoring sales.

Revenues for the Healthcare division during Q1 fiscal 2026 increased year-over-year primarily due to an increase in patient monitoring and cardiology product sales.

Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics.

Gross profit increased approximately $1.7 million in Q1 fiscal 2026 as compared to the prior year driven by the increase in sales.

The gross margin in Q3 fiscal year 2025 was comparable to Q3 fiscal year 2024 .

Gross profit as a percentage of net revenues decreased primarily due to the product revenue mix in our Security division partially offset by an increase in service revenues which typically carry a higher gross margin than product sales .

Operating Expenses

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Research and development

Restructuring and other charges, net

Restructuring and other charges

Total operating expenses

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Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, foreign currency translation, and depreciation and amortization expense.

SG&A expense increased in Q3 fiscal 2025 compared to the same prior-year period primarily due to employee compensation, professional fees and information technology costs.

SG&A expense for Q1 fiscal 2026 was $5.2 million lower than in the same prior-year period primarily due to favorable foreign currency exchange rates offset by an increase in employee compensation and provision for losses on accounts receivable.

Research and development .

Research and development (“R&D”) expenses include research related to new product development and product enhancements.

R&D expenses increased $1.5 million in Q3 fiscal 2025 as compared to Q3 fiscal 2024 driven by increased compensation costs to support new product development initiatives primarily in our Security division.

Restructuring and other charges Restructuring and other charges generally consist of costs relating to reductions in our workforce, facilities consolidation, costs related to acquisition activity, and other non-recurring charges.

During Q3 fiscal 2025, restructuring and other charges were $2.3 million, which included $1.8 million in employee terminations, and $0.5 million for facility closure costs.

During Q3 fiscal 2024, restructuring and other charges primarily consisted of $0.5 million for facility closure costs for operational efficiency activities, and $0.5 million for employee terminations.

Interest and Other Expense, Net

Interest and other expense, net

Interest and other expense, net.

For Q3 fiscal 2025, interest and other expense, net was $8.2 million as compared to $7.4 million in the same prior-year period.

This increase was driven by higher average levels of borrowings primarily to support the increase in working capital associated with the growth in revenues, business acquisition activity, and for the repurchase of approximately $80 million of shares of common stock in July 2024.

Interest expense in Q3 fiscal 2025 and Q3 fiscal 2024 includes a benefit from the interest rate swap of $0.4 million and $0.9 million, respectively.

Income taxes .

The effective tax rate for a particular period varies depending on a number of factors, including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections (v) tax holidays granted to certain of our international subsidiaries and (vi) discrete tax items.

For Q3 fiscal 2025 and 2024, the provision for income taxes was $6.9 million and $9.9 million, respectively.

The effective tax rates for Q3 fiscal 2025 and 2024 were 14.3% and 22.6%, respectively.

During Q3 fiscal 2025 we recognized net discrete tax benefits of $4.5 million related to equity-based compensation under ASU 2016- 09 and changes in prior year tax estimates and uncertain tax benefits.

During Q3 fiscal 2024 we recognized net discrete tax benefits of $0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

Results of Operations for the Nine Months Ended March 31, 2024 (YTD Q3 Fiscal 2024) Compared to the Nine Months Ended March 31, 2025 (YTD Q3 Fiscal 2025) (amounts in millions)

The table below and the discussion that follows are based upon the way in which we analyze our business.

See Note 12 to the condensed consolidated financial statements for additional information about our business segments.

Optoelectronics and Manufacturing

Total net revenues

Revenues for the Security division during YTD Q3 fiscal 2025 increased year-over-year due to an increase in product and service revenues of approximately $94.0 million and $34.6 million, respectively.

The increase in product revenues was primarily driven by growth in cargo and vehicle inspection systems, checkpoint screening systems, trace detection systems, and the acquired business further described in Note 2 to the condensed consolidated financial statements.

The increase in service revenue was due primarily to an increase in the installed base of products.

Revenues for the Optoelectronics and Manufacturing division during YTD Q3 fiscal 2025 increased year-over year as a result of an increase in revenue in our contract manufacturing business.

Revenues for the Healthcare division during YTD Q3 fiscal 2025 increased year-over-year due to an increase in patient monitoring sales and related service revenue.

Gross profit increased approximately $42.8 million in YTD Q3 fiscal 2025 as compared to the prior year driven by the increase in sales.

The gross margin decreased as compared to the prior year comparable period as the prior year period had a favorable mix of Security division revenues, resulting in a higher gross margin.

Operating Expenses

Selling, general and administrative

Research and development

Restructuring and other charges, net

Total operating expenses

Selling, general and administrative .

SG&A expense for YTD Q3 fiscal 2025 was $18.2 million higher than in the same prior-year period, primarily due to increased employee compensation and unfavorable impact of foreign currency exchange rates in YTD Q3 fiscal 2025 compared to the same prior-year period.

Research and development.

R&D expenses for YTD Q3 fiscal 2025 increased $5.2 million over the same prior-year period driven by increased compensation costs to support new product development initiatives primarily in our Security division.

R&D expenses increased $2.6 million in Q1 fiscal 2026 as compared to Q1 fiscal 2025 driven by increased compensation costs to support new product development initiatives primarily in our Security and Healthcare divisions.

Restructuring and other charges.

Restructuring and other charges for YTD Q3 fiscal 2025 were $3.6 million, which included $0.6 million in acquisition related costs, $0.8 million for facility closure costs for operational efficiency activities, and $2.3 million for employee terminations.

Restructuring and other charges generally consist of costs relating to reductions in our workforce, facilities consolidation, costs related to acquisition activity, and other non-recurring charges.

During Q1 fiscal 2026, we recognized $2.7 million in restructuring and other charges, which included $2.4 million primarily for other non-recurring charges in the Security and Healthcare divisions and $0.3 million for employee terminations.

During Q1 fiscal 2025, we recognized $1.2 million in restructuring and other charges, which included $0.6 million in employee terminations, $0.2 million for facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.

Interest and Other Expense, Net

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Interest and other expense, net .

The increase in interest and other expense, net was driven by higher average levels of borrowings primarily to support the increase in working capital associated with the growth in revenues, business acquisition activity, and for the repurchase of approximately $80 million of shares of common stock in July 2024.

Interest expense for YTD Q3 fiscal 2025 and 2024 included a benefit of $2.0 million and $2.7 million, respectively, from the interest rate swap.

Interest and other expense, net was $7.4 million for each of Q1 fiscal 2026 and 2025.

While we generated interest expense savings from lower average levels of borrowings and lower average interest rates in Q1 fiscal 2026 compared to the same prior year period, these savings were offset by a lower benefit from the interest rate swap in Q1 fiscal 2026 compared to the same prior year period.

Income taxes .

For YTD Q3 fiscal 2025 and 2024, the provision for income taxes was $23.4 million and $23.1 million, respectively.

The effective tax rates for YTD Q3 fiscal 2025 and 2024 were 19.5% and 21.7%, respectively.

For YTD Q3 fiscal 2025, we recognized a discrete tax benefit of $1.3 million related to equity-based compensation under ASU 2016-09 and a benefit of $4.0 million from changes in prior year tax estimates and uncertain tax benefits.

For YTD Q3 fiscal 2024, we recognized a discrete tax benefit of $0.8 million related to equity-based compensation under ASU 2016-09 and a benefit of $2.3 million from changes in prior year tax estimates.

For Q1 fiscal 2026 and 2025, we recognized a provision for income taxes of $5.1 million and $5.0 million, respectively.

The effective tax rates for Q1 fiscal 2026 and 2025 were 19.9% and 21.9%, respectively.

During Q1 fiscal 2026 and 2025, we recognized a net discrete tax benefit of $0.9 million and $0.5 million, respectively, related to equity-based compensation under ASU 2016-09.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facilities.

Cash and cash equivalents totaled $95.8 million at March 31, 2025, an increase of $0.4 million, or 0.5%, from $95.4 million at June 30, 2024.

Cash and cash equivalents totaled $124.4 million at September 30, 2025 compared to $106.4 million at June 30, 2025.

We currently anticipate that our available funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and the foreseeable future beyond that.

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subsidiaries, and our credit facilities will be sufficient to satisfy our obligations in the U.S.

In July 2024, we issued an aggregate of $350.0 million principal amount of 2.25% convertible senior notes due in August 2029.

In connection with the issuance of the 2029 Notes, we repurchased 531,314 shares of our common stock for approximately $80 million.

Our credit facility comprises a term loan and a $600 million revolving credit facility, which includes a $300 million sub-facility for letters of credit.

As of March 31, 2025, there was $130.0 million outstanding under the term loan, $156.0 million outstanding under our revolving credit facility and $75.1 million of outstanding letters of credit.

As of March 31, 2025, the total amount available under our revolving credit facility was $368.9 million.

In July 2025 we amended and extended our revolving credit facility to mature in July 2030, to increase the limit from $600 million to $725 million and replaced the $128.1 million term loan with a $100.0 million term loan.

The sub-limit for letters of credit was increased from $300 million to $350 million, which includes up to $300 million for borrowings in certain foreign currencies.

As of September 30, 2025, there was $98.8 million outstanding under the term loan, $252.1 million outstanding under our revolving credit facility and $95.4 million of outstanding letters of credit.

As of September 30, 2025, the total amount available under our revolving credit facility was $377.5 million.

See Note 8 to the consolidated financial statements for further discussion.

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Cash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows.

For YTD Q3 fiscal 2025, cash provided by operations was $97.0 million compared to cash used in operations of $58.5 million in the comparable prior-year period.

The net change in cash flows from operating activities was due primarily to favorable changes in net working capital compared to the prior-year period and higher net income for YTD Q3 fiscal 2025 over the comparable prior-year period.

During Q1 fiscal 2026, we generated cash flow from operations of $17.1 million compared to cash used in operations of $37.2 million in the comparable prior-year period.

The net change in cash flows from operating activities was due primarily to higher net income in Q1 fiscal 2026 compared to the same period last year, a net decrease in accounts receivable and net increases in accounts payable and advances from customers, partially offset by a net increase in inventories and other changes in net working capital.

Cash Used in Investing Activities .

Net cash used in investing activities was $106.4 million for YTD Q3 fiscal 2025 as compared to $24.9 million in the same prior year period.

We used $75.5 million for a business acquisition in September 2024, compared to $9.0 million in the first nine months of fiscal year 2024.

Capital expenditures for YTD Q3 fiscal year 2025 were $17.7 million compared to $13.6 million in the same prior-year period.

Expenditures for intangible and other assets for YTD Q3 fiscal year 2025 were $13.5 million compared to $12.9 million in the same prior-year period.

Net cash used in investing activities was $10.9 million for Q1 fiscal 2026 as compared to $87.5 million in the same prior-year period.

The decrease in cash used in investing activities was primarily due to the acquisition of a business in Q1 fiscal 2025 compared to none in Q1 fiscal 2026.

Capital expenditures in Q1 fiscal 2026 were $7.0 million compared to $7.7 million in the same prior-year period.

Cash Provided by Financing Activities .

Net cash provided by financing activities was $10.4 million for YTD Q3 fiscal 2025, compared to $110.7 million during the same prior-year period.

The decrease in cash flows from financing activities was primarily due to net proceeds of $340.6 million from issuance of the 2029 Notes, partially offset by (1) net repayment of $228.0 million on our credit facility and (2) repurchase of shares of common stock of $80.4 million.

Taxes paid related to net share settlement of equity awards were $22.6 million during YTD Q3 fiscal 2025 compared to $23.2 million in the same prior-year period.

Net cash provided by financing activities was $12.2 million during Q1 fiscal 2026, compared to $113.8 million during the same prior-year period.

The decrease in cash flows from financing activities was primarily due to lower net proceeds from bank borrowings and long-term debt which included proceeds from issuance of the 2029 Notes in the prior year period.

There were no repurchases of common shares during Q1 fiscal 2026 compared to repurchases of common shares for an aggregate of $80.4 million in the same prior period.

Taxes paid related to net share settlement of equity awards was $34.4 million during Q1 fiscal 2026 compared to $21.3 million in the same prior-year period.

See Note 8 to the condensed consolidated financial statements for a detailed discussion regarding our revolving credit facility and other borrowings.

Cash Held by Foreign Subsidiaries

Our cash and cash equivalents totaled $95.8 million at March 31, 2025.

Our cash and cash equivalents totaled $124.4 million at September 30, 2025.

Of this amount, approximately 64% was held by our foreign subsidiaries and subject to repatriation tax considerations.

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

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

We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S.

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Issuer Purchases of Equity Securities

We did not repurchase any shares of common stock during the third quarter of fiscal year 2025.

We did not repurchase any shares of common stock during the first quarter of fiscal year 2026.

Contractual Obligations

During the nine months ended March 31, 2025, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

During the first quarter of fiscal year 2026, other than the reduction of our term loan in July 2025, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

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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.

As discussed in Note 1, we are currently evaluating the potential impact on financial statement disclosures upon future adoption of ASU 2023 - 07 and ASU 2023 - 09.

There were no new pronouncements adopted in the third quarter of fiscal year 2025.

See Note 1 for further discussion.

There were no new pronouncements adopted in the first quarter of fiscal year 2026.

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 2. Management’s Discussion and Analysis