What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-04 compared with 2026-01-29 · 55 added, 65 removed, 166 unchanged (42% 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 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.

This management’s discussion and analysis of financial condition as of March 31, 2026 and results of operations for the three and nine months ended March 31, 2026 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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changes in domestic and foreign government spending, budgetary, procurement, and trade policies adverse to our businesses;

the impact of the Russia-Ukraine conflict or conflicts in the Middle East, including the potential for broad economic disruption;

the impact of the Russia-Ukraine conflict or conflicts in the Middle East, including the potential for broad economic disruption and increased global tensions;

global economic uncertainty, including the impact of tariffs;

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We have three operating divisions:

(a) Security, providing security and inspection systems and turnkey security screening solutions;

(a) Security, providing security and inspection systems, turnkey security screening solutions and radio frequency equipment;

(b) Optoelectronics and Manufacturing, providing specialized electronic components for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others;

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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.

We also advance the application of radio frequency broadcast transmission and scientific and industrial equipment for a global customer base across various sectors.

Optoelectronics and Manufacturing Division .

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

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 in the Middle East 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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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, financial condition, results of operations and cash flows.

Supply and Demand for Memory and Semiconductor Components.

We have experienced tighter supply conditions and increased costs for certain memory associated and semiconductor components, reflecting a broader global imbalance between supply and demand for memory used in data center and AI related infrastructure.

While we have taken actions to mitigate these impacts, continued constraints in component availability could adversely affect our business.

Healthcare Considerations.

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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, as well as potential U.S.

government shutdowns.

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

government shutdowns, including the impact on near-term bookings and revenues of the recent Department of Homeland Security shutdown.

Russia’s Invasion of Ukraine.

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

Military Conflicts and Geopolitical Tensions in the Middle East .

Ongoing military conflicts and geopolitical tensions in the Middle East, including involving Iran, may adversely affect global markets, energy prices, supply chain reliability, transportation networks, customer demand, and investor confidence, which could materially impact demand for our products and services from our customers, timing of delivery of products and services, and our results of operations.

In light of the ongoing conflicts and heightened global instability, we expect continued uncertainty in the global security, political, budget and regulatory environment.

Initiatives to reduce governmental spending, federal budget and debt ceiling action and further changes in the U.S.

government policy positions, including trade and foreign policy, tax policy and defense policies or priorities, could materially impact defense spending broadly and our programs in particular.

Currency Exchange Rates.

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.

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.8% for the nine months ended March 31, 2026 compared to the nine months ended March 31, 2025, primarily due to the weakening of the U.S.

dollar against other foreign currencies in 2026.

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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 December 31, 2024 (Q2 Fiscal 2025) Compared to the Three Months Ended December 31, 2025 (Q2 Fiscal 2026) (amounts in millions)

Results of Operations for the Three Months Ended March 31, 2025 (Q3 Fiscal 2025) Compared to the Three Months Ended March 31, 2026 (Q3 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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Total net revenues

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 sales of aviation screening systems and radio frequency (RF) products.

Revenues for the Security division during Q3 fiscal 2026 increased year-over-year due primarily to increases in service revenues of approximately $6.1 million, offset by a slight decrease in product revenue of $1.7 million.

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 Q3 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 Q2 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales.

Revenues for the Healthcare division during Q3 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales and service of $5.0 million and $1.0 million, respectively, partially offset by an increase in cardiology product sales of $3.0 million.

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, tariffs, and logistics.

Gross profit increased approximately $4.5 million in 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.

Gross profit were comparable to the same period last year.

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

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.

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.

Our SG&A expenses for Q3 fiscal 2026 were $1.7 million lower than in the same prior-year period, primarily due to a favorable impact from foreign currency exchange rates, favorable settlement of a post-acquisition claim and lower professional fees, partially offset by an increase in bad debt expense.

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 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.

R&D expenses were higher than the same period last year primarily due to an increase in 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.

During Q3 fiscal 2026, we recognized $6.2 million in impairment, restructuring and other charges, which included $0.2 million for impairment of assets, $1.7 million for employee terminations, $2.0 million for acquisition-related costs, $1.2 million for non-recurring business unit modifications and $1.1 million for a legal settlement, primarily in our Healthcare division.

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

Interest and Other Expense, Net

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Interest and other expense, net was $8.2 million and $4.0 million for Q3 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.

The decrease was due to lower average interest rates on our borrowings due to the paydown of our revolving credit facility using proceeds from the issuance of the 0.50% 2031 Notes in November 2025 and higher interest income on increased levels of cash in Q3 fiscal 2026 compared to the same prior year period.

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 Q2 fiscal 2025 and 2026, we recognized a provision for income taxes of $11.5 million and $9.4 million, respectively.

For Q3 fiscal 2025 and 2026, we recognized a provision for income taxes was $6.9 million and $9.0 million, respectively.

The effective tax rates for Q3 fiscal 2025 and 2026 were 14.3% and 18.3%, respectively.

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)

During Q3 fiscal 2026 we recognized net discrete tax benefits of $2.6 million related to equity-based compensation under ASU 2016- 09 and uncertain tax benefits.

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.

Results of Operations for the Nine Months Ended March 31, 2025 (YTD Q3 Fiscal 2025) Compared to the Nine Months Ended March 31, 2026 (YTD Q3 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 YTD Q3 fiscal 2026 increased year-over-year due to an increase in product and service revenues of approximately $25.5 million and $53.5 million, respectively.

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

The increase in product revenues was primarily driven by growth in aviation screening systems and radio frequency 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 Q3 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.

Revenues for the Healthcare division during YTD Q3 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales and service of $11.2 million and $1.2 million, respectively, partially offset by an increase in cardiology product sales of $4.7 million.

Gross profit increased approximately $6.2 million in YTD Q3 fiscal 2026 as compared to the prior year driven by the increase in sales.

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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.

SG&A expenses for YTD Q3 fiscal 2026 were $7.6 million lower than in the same prior-year period, primarily due to decreased employee compensation, favorable settlement of a post-acquisition claim and a favorable impact from foreign currency exchange rates, partially offset by higher bad debt expense in YTD Q3 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.

R&D expenses for YTD Q3 fiscal 2026 increased $5.0 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 Q3 fiscal 2026, we recognized $11.8 million in impairment, restructuring and other charges, which included $1.2 million for impairment of assets, $2.7 million for employee terminations, $2.0 million for acquisition-related costs, $2.6 million for non-recurring business unit modifications and $1.1 million for a legal settlement in our Healthcare division, and $2.2 million of non-recurring charges in our Security division.

In YTD Q3 fiscal 2025, we recognized $3.6 million in restructuring and other charges, 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.

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Interest and other expense, net was $24.2 million and $22.1 million for YTD Q3 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.

The decrease was a result of lower average interest rates on our borrowings due to the paydown of our revolving credit facility using proceeds from the new convertible notes and higher interest income on increased levels of cash in YTD Q3 fiscal 2026 compared to the same prior year period.

This decrease was partially offset by an increase in other expense in fiscal 2026 of $4.4 million for prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO.

Income taxes.

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The effective tax rates for YTD Q3 fiscal 2025 and 2026 were 19.5% and 19.1%, 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.

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 discrete tax benefit of $4.1 for changes in prior year estimates and uncertain tax benefits.

For YTD Q3 fiscal 2026, we recognized a discrete tax benefit of $2.1 million related to equity-based compensation under ASU 2016-09 and a benefit of $3.3 million for changes in prior year estimates and uncertain tax benefits.

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 $336.7 million at December 31, 2025 compared to $106.4 million at June 30, 2025.

Cash and cash equivalents totaled $345.2 million at March 31, 2026 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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In connection with the issuance of the 2031 Notes, we repurchased 546,945 shares of our common stock for approximately $146.1 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 new $100.0 million term loan.

We also repaid $288.1 million of borrowings under our revolving credit facility.

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

As of March 31, 2026, there were no borrowings outstanding under the revolving credit facility, $106.7 million of outstanding letters of credit, and $95.0 million outstanding under the term loan.

As of March 31, 2026, the total amount available under our credit facility was $618.3 million.

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

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For YTD Q3 fiscal 2026, cash provided by operations was $93.8 million compared to $97.0 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.

The net decrease in cash flows from operating activities was due primarily to unfavorable changes in net working capital, including lower advances from customers and lower impact of changes in deferred revenue compared to the same prior-year period.

These unfavorable impacts were partially offset by favorable changes in accounts receivable, inventories, and accrued payroll and related expenses, as well as higher net income compared to the same prior-year period.

Cash Used in Investing Activities .

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Capital expenditures for YTD Q3 fiscal year 2026 were $21.3 million compared to $17.7 million in the same prior-year period.

Proceeds from the sale of property and equipment for YTD Q3 fiscal 2026 were primarily due to the sale of a facility located in Dallas, Texas.

Cash Provided by Financing Activities .

Net cash provided by financing activities was $174.1 million for YTD Q3 fiscal 2026, compared to $10.4 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.

The increase in cash flows from financing activities was primarily due to 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 our common shares for an aggregate of $146.1 million.

This is compared 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 revolving credit facility and (2) repurchases of common shares for an aggregate of $80.4 million in the same prior-year period.

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Cash Held by Foreign Subsidiaries

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

Our cash and cash equivalents totaled $345.2 million at March 31, 2026.

Of this amount, approximately 25% was held by our foreign subsidiaries and subject to repatriation tax considerations.

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.

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

Issuer Purchases of Equity Securities

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

Contractual Obligations

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.

During the nine months ended March 31, 2026, other than the replacement of the $128.1 million term loan with a $100.0 million term loan in July 2025 in connection with the expansion and extension of our credit facility 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 second quarter of fiscal year 2026.

There were no new pronouncements adopted in the third 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