What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-01-29 compared with 2025-10-30 · 108 added, 58 removed, 123 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 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.

This management’s discussion and analysis of financial condition as of December 31, 2025 and results of operations for the three and six months ended December 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, 2025 filed with the SEC.

Forward-Looking Statements

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

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

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

Increasing diplomatic and trade friction between the U.S.

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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.

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.

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Healthcare Considerations.

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.

Certain hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs.

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

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Our results of operations and cash flows could be materially affected by changes in U.S.

or foreign government legislative, regulatory or enforcement policies.

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.

or foreign government legislative, regulatory or enforcement policies, as well as potential U.S.

government shutdowns.

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.

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

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.

While we have not experienced material adverse impacts to date resulting from this conflict, 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 0.4% 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.

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.6% for the six months ended December 31, 2025 compared to the six months ended December 31, 2024, primarily due to the weakening of the U.S.

dollar against other foreign currencies in 2025.

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

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)

Results of Operations for the Three Months Ended December 31, 2024 (Q2 Fiscal 2025) Compared to the Three Months Ended December 31, 2025 (Q2 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 Security division during Q2 fiscal 2026 increased year-over-year due to increases in product and service revenues of approximately $17.7 million and $27.0 million, respectively.

The increase in product revenues was primarily driven by the acquired business further described in Note 2 to the condensed consolidated financial statements.

The increase in product revenues was primarily driven by sales of aviation screening systems and radio frequency (RF) products.

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 Q2 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 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.

Revenues for the Healthcare division during Q2 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales.

Gross profit increased approximately $4.5 million in Q2 fiscal 2026 as compared to the prior year driven by the increase in sales.

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 .

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

Operating Expenses

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Research and development

Restructuring and other charges

Impairment, restructuring and other charges, net

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 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.

On an 11% year-over-year increase in revenues, our SG&A expenses for Q2 fiscal 2026 were comparable to the same period last year.

Research and development .

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

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 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.

R&D expenses increased $1.5 million in Q2 fiscal 2026 as compared to Q2 fiscal 2025 driven by increased compensation costs to support new product development initiatives in our Security and Healthcare divisions.

Impairment, restructuring and other charges.

Impairment, 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 Q2 fiscal 2026, we recognized $2.9 million in impairment, restructuring and other charges, which included $1.0 million for impairment of assets, $0.7 million for employee terminations and $1.2 million for non-recurring business unit modifications in our Healthcare division.

During Q2 fiscal 2025, we recognized $0.2 million primarily for acquisition activity.

Interest and Other Expense, Net

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Interest and other expense, net .

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.

Interest and other expense, net was $8.6 million and $10.7 million for Q2 fiscal 2025 and 2026, respectively.

The increase was due to a charge included in other expense in Q2 fiscal 2026 of $4.4 million for prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO.

This increase was partially offset by a decrease in interest expense, net as a result of lower average interest rates on our borrowings due to new convertible notes and paydown of our revolving credit facility and higher interest income on increased levels of cash in Q2 fiscal 2026 compared to the same prior year period.

Income taxes .

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The effective tax rates for Q2 fiscal 2025 and 2026 were 23.3% and 19.5%, 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.

During Q2 fiscal 2025, we recognized a net discrete tax benefit of $0.3 million related to equity-based compensation under ASU 2016-09.

During Q2 fiscal 2026, we recognized a net discrete tax benefit of $0.8 million related to equity-based compensation under ASU 2016-09 and a benefit of $1.0 million from changes in prior year estimates.

Results of Operations for the Six Months Ended December 31, 2024 (YTD Q2 Fiscal 2025) Compared to the Six Months Ended December 31, 2025 (YTD Q2 Fiscal 2026) (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 Q2 fiscal 2026 increased year-over-year due to an increase in product and service revenues of approximately $27.3 million and $47.4 million, respectively.

The increase in product revenues was primarily driven by growth in aviation screening systems and RF products.

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 Q2 fiscal 2026 increased year-over year as a result of an increase in revenue in both our contract manufacturing business and our optoelectronics business.

Revenues for the Healthcare division during YTD Q2 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales.

Gross profit increased approximately $6.1 million in YTD Q2 fiscal 2026 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 product revenues.

Operating Expenses

Selling, general and administrative

Research and development

Impairment, restructuring and other charges, net

Total operating expenses

Selling, general and administrative .

SG&A expenses for YTD Q2 fiscal 2026 were $5.7 million lower than in the same prior-year period, primarily due to decreased employee compensation and a favorable impact of foreign currency exchange rates in YTD Q2 fiscal 2026 compared to the same prior-year period.

Research and development .

R&D expense for YTD Q2 fiscal 2026 increased $4.2 million over the same prior-year period driven by increased compensation costs to support new product development initiatives in our Security division and Healthcare division.

Impairment, restructuring and other charges.

Impairment, restructuring and other charges increased by $4.2 million over the same prior-year period.

In YTD Q2 fiscal 2026, we recognized $5.6 million in impairment, restructuring and other charges, which included $1.0 million for impairment of assets, $1.1 million for employee terminations, $1.3 million for non-recurring business unit modifications in our Healthcare division, and $2.2 million of non-recurring charges in our Security division.

In YTD Q2 fiscal 2025, we recognized $1.4 million in restructuring and other charges, which included $0.6 million in acquisition related costs, $0.2 million for facility closure costs for operational efficiency activities, and $0.6 million for employee terminations.

Interest and Other Expense, Net

Interest and other expense, net

Interest and other expense, net .

Interest and other expense, net was $16.0 million and $18.1 million for YTD Q2 fiscal 2025 and 2026, respectively.

The increase was due to a charge included in other expense in Q2 fiscal 2026 of $4.4 million for prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO.

This increase was partially offset by a decrease in interest expense, net as a result of lower average interest rates on our borrowings due to new convertible notes and paydown of our revolving credit facility and higher interest income on increased levels of cash in YTD Q2 fiscal 2026 compared to the same prior year period.

Income taxes .

For YTD Q2 fiscal 2025 and 2026, we recognized a provision for income taxes of $16.6 million and $14.5 million, respectively.

The effective tax rates for YTD Q2 fiscal 2025 and 2026 were 22.9% and 19.7%, respectively.

For YTD Q2 fiscal 2025, we recognized a discrete tax benefit of $0.8 million related to equity-based compensation under ASU 2016-09.

For YTD Q2 fiscal 2026,

we recognized a discrete tax benefit of $1.7 million related to equity-based compensation under ASU 2016-09 and a benefit of $1.0 million for changes in prior year estimates.

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 $124.4 million at September 30, 2025 compared to $106.4 million at June 30, 2025.

Cash and cash equivalents totaled $336.7 million at December 31, 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.

In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S.

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

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.

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

In November 2025, we issued an aggregate of $575.0 million principal amount of 0.5% convertible senior notes due in February 2031.

In connection with the issuance of the 2031 Notes, we repurchased 546,945 shares of our common stock for approximately $146.1 million.

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.

As of December 31, 2025, there were no borrowings outstanding under the revolving credit facility, $113.6 million of outstanding letters of credit, and $97.5 million outstanding under the term loan.

As of December 31, 2025, the total amount available under our revolving credit facility was $611.4 million.

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

Cash Provided by (Used in) Operating Activities.

Cash Provided by Operating Activities.

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.

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.

For YTD Q2 fiscal 2026, cash provided by operations was $79.3 million compared to $15.4 million in the comparable prior-year period.

The net increase in cash flows from operating activities was due primarily to favorable improvements in net working capital compared to the prior-year comparable period which were largely attributable to changes in accounts receivable, prepaid expenses and other current assets, and accounts payable, partially offset by unfavorable changes in advances from customers, other liabilities and inventory to support future growth.

Cash Used in Investing Activities .

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.

Net cash used in investing activities was $21.4 million for YTD Q2 fiscal 2026 as compared to $97.6 million in the same prior year period.

The decrease in cash used in investing activities was primarily due to cash paid for the acquisition of a business in YTD Q2 fiscal 2025 compared to a negligible amount in YTD Q2 fiscal 2026.

Capital expenditures for YTD Q2 fiscal year 2026 were $13.7 million compared to $13.2 million in the same prior-year period.

Cash Provided by Financing Activities .

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.

Net cash provided by financing activities was $172.6 million for YTD Q2 fiscal 2026, compared to $89.2 million during the same prior-year period.

The increase in cash flows from financing activities was primarily due net proceeds of $562.9 million from issuance of the 2031 Notes, partially offset by (1) net repayment of $178.0 million on our revolving credit facility and (2) the repurchase of common shares of $146.1 million.

This is compared to net proceeds of $340.5 million from issuance of the 2029 Notes, partially offset by (1) net repayment of $148.0 million on our revolving credit facility and (2) repurchases of common shares for an aggregate of $80.4 million in the same prior-year period.

In connection with the July 2025 amendment and extension of our revolving credit facility, we replaced the $128.1 million term loan with a new $100.0 million term loan.

Taxes paid related to net share settlement of equity awards were $36.3 million during YTD Q2 fiscal 2026 compared to $22.6 million in the same prior-year period.

See Note 8 to the condensed consolidated financial statements for a detailed discussion regarding issuance of the 2031 Notes, our revolving credit facility and other borrowings.

Cash Held by Foreign Subsidiaries

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

Our cash and cash equivalents totaled $336.7 million at December 31, 2025.

Of this amount, approximately 32% was held by our foreign subsidiaries and subject to repatriation tax considerations.

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.

These foreign funds were held primarily by our subsidiaries in United Kingdom, India, Singapore, Canada, and Mexico and to a lesser extent in Malaysia, Albania, and Germany, 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.

In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.

Issuer Purchases of Equity Securities

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

Issuer Purchase of Equity Securities

The following table contains information about the shares of common stock we purchased during the quarter ended December 31, 2025:

Maximum number (or

approximate dollar

Total number of

shares (or units)

Total number of

Average price

part of publicly

yet be purchased

shares (or units)

paid per share (or

announced plans or

under the plans or

October 1 to October 31, 2025

November 1 to November 30, 2025

December 1 to December 31, 2025

(1) In September 2022, when there were 1,131,301 shares remaining authorized to repurchase under the then-existing share repurchase program, the Board of Directors renewed the authorization and revised the maximum number of shares to 2,000,000 shares authorized under the stock repurchase program.

Upon repurchase, shares of common stock are restored to the status of authorized but unissued shares, and we record them as a reduction in the number of shares of common stock issued and outstanding in our consolidated financial statements.

Contractual Obligations

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.

During the six months ended December 31, 2025, other than the reduction of our term loan in July 2025 and issuance of the 2031 Notes in November 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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See Note 1 for further discussion.

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

There were no new pronouncements adopted in the second 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