What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-08-21 compared with 2025-08-25 · 89 added, 59 removed, 183 unchanged (45% of the section changed)

7 unchanged sentences

We have three operating divisions, each of which is a reportable segment:

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

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

(a) Security, providing security and inspection systems, high-power RF systems and turnkey security screening solutions;

(b) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for applications in the defense and aerospace markets, among others, and for our Security and Healthcare divisions;

and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.

2 unchanged sentences

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 provide high-power RF systems for transmission, surveillance and other applications for defense, research and industrial use.

Revenues from our Security division accounted for 70% of our total consolidated revenues for fiscal 2026.

10 unchanged sentences

Fiscal 2026 Compared with Fiscal 2025.

We reported consolidated net revenue of $1,713.2 million in fiscal 2025, a 11.3% increase compared to the prior year.

Our income from operations increased to $ 217.5 million in fiscal 2025 or 15% growth from the prior year driven primarily by increased net revenue of $174.4 million which increased associated gross profit by $56.7 million, partially offset by and an increase in operating expenses of $28.3 million.

Fiscal 2026 was highlighted by continued revenue and earnings growth, and strong operating cash flow generation.

Revenues increased to approximately $1.8 billion, driven by our Security and Optoelectronics divisions, partially offset by lower Healthcare division revenues.

Cash generated from operating activities increased significantly to approximately $275.9 million, driven largely by improved working capital, including collections on large Security projects, and higher net income.

Acquisitions.

We acquired two businesses in fiscal 2025 and two businesses in fiscal 2024, as described in Note 2 to the Consolidated Financial Statements.

None of these acquisitions was considered material.

We acquired one business in fiscal 2026 and two businesses in fiscal 2025, as described in Note 2 to the Consolidated Financial Statements.

None of these acquisitions were considered significant.

Trends and Uncertainties

5 unchanged sentences

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 rate policies, and labor shortages.

Increasing diplomatic and trade friction between the U.S.

and China has also created significant uncertainty in the global economy.

These global macroeconomic factors, coupled with the volatile U.S.

political climate and political unrest internationally, 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.

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

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

Conflicts in Iran, 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.

6 unchanged sentences

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

government against certain businesses and individuals in select countries.

Tariffs, trade restrictions and retaliatory measures could result in revenue reductions or cost increases on material used in our products, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

government against certain businesses and individuals in select other countries.

Tariffs, 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, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Consistent with our strategy, we are taking measures to contain costs to reduce the impact of tariffs.

1 unchanged sentence

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.

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.

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

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.

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.

Geopolitical Environment.

The global security environment remains subject to significant uncertainty due to ongoing geopolitical tensions, military conflicts, terrorist threats, and regional instability, including recent hostilities in the Middle East.

Governments, transportation authorities, border protection agencies, and critical infrastructure operators continue to assess evolving security risks and may increase investments in security screening, inspection, and detection technologies.

As a result, demand for certain of our security inspection products and related services could be affected by changes in government spending priorities and security requirements.

At the same time, geopolitical events may influence the timing and execution of customer procurement decisions, funding approvals, contract awards, and project implementations.

The extent to which current or future conflicts may affect our business will depend on the duration, geographic scope, and economic consequences of such events, as well as governmental responses that remain difficult to predict.

Conflicts in the Middle East.

We generate a significant portion of our revenues from international markets and maintain a global supply chain supporting the design, manufacture, and servicing of our products.

Escalation of geopolitical conflicts, including military activity in the Middle East, could disrupt transportation routes, logistics networks, supplier operations, and international trade flows.

Such disruptions may result in shipment delays, longer lead times, project schedule delays, inventory management challenges, or higher operating costs.

The conflicts in the Middle East had an impact on our operating results in the fourth quarter of fiscal year 2026 through delays in timing of shipments, customer acceptance procedures, project schedules, and new orders.

Material future developments could adversely affect our ability to procure components, fulfill customer orders, deploy personnel, or complete installations in a timely manner and could have an adverse effect on our results of operations and financial condition.

Russia-Ukraine Conflict.

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 significant 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 significant 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.

6 unchanged sentences

Significant International Security Contracts.

During fiscal years 2023 and 2024, our Security division was awarded three significant international contracts valued in aggregate greater than $800 million During fiscal years 2023, 2024 and 2025, we recognized revenues generated from these contracts of approximately $17 million, $404 million and $231 million, respectively.

During fiscal years 2023 and 2024, our Security division was awarded three significant international contracts valued in aggregate greater than $800 million.

During fiscal years 2024, 2025 and 2026, we recognized revenues generated from these contracts of approximately $404 million, $231 million and $79 million, respectively.

Further revenues are expected to be recognized in fiscal year 2027 and beyond, albeit at relatively lower amounts as we have fulfilled the majority of equipment deliveries as of the end of fiscal year 2026.

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.

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

Government Policies.

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 or actual U.S.

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

Critical Accounting Policies and Estimates

19 unchanged sentences

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value.

We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items.

We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market

conditions, among other items.

If these factors become less favorable than those projected, additional inventory write-downs may be required.

13 unchanged sentences

However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable.

Subsequent to the fiscal year end, on July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law.

Key income-tax related provisions of the OBBBA relevant to our Company include the removal of mandatory capitalization of domestic research and development expenditures, permanent extension of bonus depreciation and revisions to international tax regimes.

We are evaluating the financial impact of OBBBA, which will be in effect for the fiscal year ending June 30, 2026.

The legislation will affect the timing and recognition of certain deductions, which, if implemented, could impact our effective tax rate and deferred tax balances in future periods.

The Company evaluated the provisions of the legislation and based on the Company’s analysis, the OBBBA did not have a material impact on the Company’s consolidated financial statements.

The Company will continue to monitor any future administrative guidance related to the legislation.

Business Combinations.

20 unchanged sentences

Fiscal 2026 Compared with Fiscal 2025.

Revenues for the Security division during the fiscal year ended June 30, 2025 increased on a year-over-year basis due to an increase in product and service revenues of approximately $97.0 million and $56.1 million, respectively.

The increase in product revenue was primarily driven by growth in cargo and vehicle inspection systems, trace detection systems, and checkpoint screening sales.

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

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2025 increased year-over year mainly due to an increase of $23.5 million in the contract manufacturing business.

Revenues for the Healthcare division during the fiscal year ended June 30, 2025 decreased year-over-year due primarily to a reduction in cardiology sales of $4.8 million and patient monitoring sales of $1.8 million, partially offset by increases in service revenue of $2.4 million and supplies and accessories revenue of $1.1 million.

Revenues for the Security division during the fiscal year ended June 30, 2026 increased by $51.8 million on a year-over-year basis primarily due to an increase in service revenues.

The increase in service revenues was due primarily to the increase in the installed base of products of cargo and vehicle inspection systems and aviation and checkpoint inspection systems.

Product revenues for fiscal 2026 were comparable to fiscal 2025 as an increase in revenue from RF systems and other security products were offset by a decrease in product revenues from customers in Mexico.

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2026 increased year-over-year by $26.7 million due to increases in our optoelectronics business and our contract manufacturing business of $8.2 million and $18.5 million, respectively.

Revenues for the Healthcare division during the fiscal year ended June 30, 2026 decreased by $5.6 million year-over-year due primarily to a reduction in patient monitoring sales of $9.6 million, in service revenue of $1.9 million and in supplies and accessories revenue of $1.8 million, partially offset by increases in cardiology sales of $7.7 million.

(Dollars in millions)

1 unchanged sentence

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 $56.7 million in fiscal 2025 as compared to the prior year on an 11.3% increase in net revenue.

The gross margin in fiscal year 2025 was relatively comparable to the prior year.

Gross profit increased approximately $5.9 million in fiscal 2026 as compared to the prior year on a 4.3% increase in net revenue.

The gross margin in fiscal year 2026 was lower than the prior year due to the sales mix in the Security division arising from an unfavorable shift in revenue mix.

Revenue from Security division customers in Mexico, which generated margins above the division average, declined by $148.8 million year-over-year, while revenue increased in businesses that generally carried lower margins.

Gross margin was also adversely affected by lower margins in aviation and checkpoint inspection systems.

These impacts were partially offset by higher revenue and improved profitability from RF systems.

Operating Expenses

2 unchanged sentences

Research and development

Restructuring and other charges

Impairment, restructuring and other charges

Total operating expenses

2 unchanged sentences

Fiscal 2026 Compared with Fiscal 2025.

SG&A expense for the fiscal year ended June 30, 2025 increased $21.2 million compared to the same prior-year period, primarily due to increases in compensation expense, professional fees, information technology costs and the unfavorable impact of foreign currency exchange rates, partially offset by lower bad debt expense compared to the same prior-year period.

Although SG&A expense increased in fiscal 2025 compared to fiscal 2024, as a percentage of net revenues, SG&A expense decreased from 17.5% in fiscal 2024 to 17.0% in fiscal 2025.

SG&A expense for the fiscal year ended June 30, 2026 decreased $12.5 million compared to the same prior-year period, primarily due to a favorable impact from foreign currency exchange rates and decreased employee compensation, including reduced stock-based compensation expense related to the retirement of our former CEO in fiscal year 2025, partially offset by higher bad debt expense compared to the same prior-year period.

Research and Development

3 unchanged sentences

Fiscal 2026 Compared with Fiscal 2025.

R&D expense during the fiscal year ended June 30, 2025 was $8.1 million higher than in the same prior-year period, driven primarily by compensation costs related to investments to support new product development initiatives, mainly in our Security division.

Restructuring and Other Charges

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

R&D expense during the fiscal year ended June 30, 2026 was $5.7 million higher than in the same prior-year period, driven primarily by increased compensation costs to support new product development initiatives primarily in our Security division and Healthcare division.

Impairment, restructuring and other charges

Impairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.

We have undertaken certain restructuring activities in an effort to align our global capacity and infrastructure with demand by our customers and fully integrate acquisitions, thereby improving our operational efficiency.

3 unchanged sentences

Fiscal 2026 Compared with Fiscal 2025.

During the fiscal year ended June 30, 2025, restructuring and other charges were $5.3 million and consisted of $0.7 million for facility closure costs for operational efficiency activities, $2.7 million for employee terminations, $0.6 million in acquisition related costs, and $1.3 million in legal charges.

During the fiscal year ended June 30, 2024, restructuring and other charges were $6.4 million and consisted of $3.2 million for facility closure costs for operational efficiency activities, $1.4 million for employee terminations, $1.0 million in acquisition related costs, and $0.8 million in legal charges.

During the fiscal year ended June 30, 2026, impairment, restructuring and other charges were $16.6 million and consisted of $5.1 million for employee terminations, $2.1 million in acquisition related costs, $1.2 million for impairment of assets, $0.2 million for facility closure costs for operational efficiency activities, $1.6 million in legal charges, $2.2 million for non-recurring charges in our Security division, and $4.2 million for non-recurring charges in our Healthcare division.

During the fiscal year ended June 30, 2025, impairment, restructuring and other charges were $5.3 million and consisted of $0.7 million for facility closure costs for operational efficiency activities, $2.7 million for employee terminations, $0.6 million in acquisition related costs, and $1.3 million in legal charges.

Interest and Other Expense, Net

3 unchanged sentences

For the fiscal year ended June 30, 2026, interest and other expense, net was $26.2 million as compared to $31.4 million in the prior fiscal year.

The increase in interest and other expense, net was driven primarily by higher average levels of borrowings 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.

This was partially offset by lower interest expense associated with the 2029 Notes which resulted in a decrease in overall average borrowing rate, including the benefit from the interest rate swap.

Interest expense for fiscal 2025 and 2024 included a benefit of $2.4 million and $3.6 million, respectively, from the interest rate swap.

The decrease in interest and other expense, net was a result of a decrease in interest expense from lower average interest rates on our borrowings due to issuance of convertible notes and concurrent paydown of our revolving credit facility, and higher interest income on increased levels of cash in fiscal 2026 compared to the same prior year period.

These favorable impacts were 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 and a $1.3 million reduction in benefit from the interest rate swap in fiscal 2026 compared to the prior year.

Provision for Income Taxes

6 unchanged sentences

During the fiscal years ended June 30, 2026 and 2025, we recognized a net discrete tax benefit of $5.8 million and $6.7 million, respectively.

The net discrete benefit recorded in the fiscal year ended June 30, 2026 is primarily related to equity-based compensation under ASU 2016-09, changes to prior year estimates, and changes in uncertain tax positions.

The net discrete benefit recorded in the fiscal year ended June 30, 2025 is primarily related to equity-based compensation under ASU 2016-09, favorable resolution to a foreign tax dispute, and changes in uncertain tax positions.

The net discrete benefit recorded in the fiscal year ended June 30, 2024 is primarily related to equity-based compensation under ASU 2016-09 and adjustments to prior year estimates.

Liquidity and Capital Resources

6 unchanged sentences

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

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

As of June 30, 2025, there was $128.1 million outstanding under the term loan, $178.0 million outstanding under our revolving credit facility and $82.8 million of outstanding letters of credit.

As of June 30, 2025, the total amount available under our revolving credit facility was $339.2 million.

Subsequent to June 30, 2025, in July 2025 we amended and extended the credit facility, now maturing in July 2030, and paid down the delayed draw term loan.

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 June 30, 2026, there were no borrowings under the revolving credit facility, $95.8 million outstanding under the letters of credit sub-facility, and $92.5 million outstanding under the term loan.

As of June 30, 2026, the amount available to borrow under the credit facility was $629.2 million.

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

Cash Provided by (Used in) 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 fiscal 2025, cash provided by operations was $97.6 million compared to cash used in operations of $87.5 million in the prior fiscal year.

The positive change in cash flows from operating activities was due primarily to improvements in collection of accounts receivable and utilization of inventories associated with the revenue growth in our Security division, partially offset by other changes in net working capital compared with the same period last year, as well as the impact of higher net income in fiscal 2025 compared with the prior fiscal year.

Cash Provided by Operating Activities.

Cash flows from operating activities can fluctuate significantly from period to period due to changes in net income, adjusted for non-cash items, and working capital.

During fiscal 2026, cash provided by operations was $275.9 million compared to cash provided by operations of $97.6 million in the prior fiscal year.

The net increase in cash flows from operating activities was due primarily to favorable changes in net working capital, largely from lower accounts receivable, an increase in deferred revenue and other liabilities, as well as higher net income compared to the same prior-year period.

These favorable changes were partially offset by unfavorable fluctuations in accounts payable, advances from customers, inventory and prepaid expenses and other assets.

Cash Used in Investing Activities.

Net cash used in investing activities was $68.3 million during fiscal 2026 as compared to $117.9 million used during the prior year.

During fiscal 2025, we used cash of $76.7 million for the acquisition of businesses as compared to $9.0 million in the prior fiscal year.

Net capital expenditures in fiscal 2025 were $23.8 million compared to $22.1 million in the prior fiscal year.

Expenditures for intangible and other assets in fiscal 2025 were $17.7 million compared to $17.3 million in the prior fiscal year.

In addition, we received proceeds from maturities of certificates of deposit of $0.1 million in fiscal 2025 compared to $10.3 million in the same prior-year period.

The decrease in cash used in investing activities was primarily due to lower cash paid for the acquisition of businesses, which was $26.3 million during fiscal 2026 compared to $76.7 million in the prior fiscal year.

This favorable impact was partially offset by increased capital expenditures of $30.6 million in fiscal 2026 compared to $23.8 million in the prior fiscal year.

In addition, we received proceeds from the sale of property and equipment of $6.5 million in fiscal 2026 compared to $0.3 million in the same prior-year period.

Cash Provided by Financing Activities.

Net cash provided by financing activities was $46.7 million during fiscal 2026, compared to $30.8 million during the prior fiscal year.

The changes in cash flows from financing activities primarily relate to proceeds from issuance of $350.0 million in senior convertible notes, net of issuance costs of $9.5 million, partially offset by (i) net repayments on bank lines of credit of 214.2 million in fiscal 2025 compared to net borrowings of $162.0 million in the prior fiscal year;

and (iii) share repurchases totaling $80.4 million in fiscal 2025 compared to no share repurchases in the prior fiscal year.

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 common shares of $271.9 million.

This is compared to net proceeds in fiscal 2025 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.

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

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

Material Cash Requirements

Our material cash requirements include the following contractual and other obligations.

Outstanding borrowings on lines of credit and other current and long-term debt totaled $649.6 million at June 30, 2025, an increase of $128.0 million from $521.6 million at June 30, 2024.

Outstanding debt totaled $1,001.0 million at June 30, 2026, an increase of $351.4 million from $649.6 million at June 30, 2025.

This increase was due primarily to proceeds from the 2031 Notes, partially offset by repayment of outstanding revolver borrowings and net reduction in the term loan associated with our credit facility.

Contractual debt maturities of $2.5 million will be payable within the next 12 months.

As of June 30, 2026, we were in compliance with all financial covenants under our various borrowing agreements.

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

See Note 8 to the consolidated financial statements for further discussion, including future contractual maturities and potential cash settlement upon conversion or redemption of the 2029 Notes and 2031 Notes.

We anticipate that cash generated from our operations, existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months.

6 unchanged sentences

Of this amount, approximately 23% 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, Canada, Singapore, and Malaysia, and to a lesser extent in Australia, Albania, Indonesia, Uruguay and Germany, among other countries.

These foreign funds were held primarily by our subsidiaries in India, United Kingdom, Singapore, Canada, and Malaysia.

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.

5 unchanged sentences

As of June 30, 2026, 78,731 shares remained available for repurchase.

On August 20, 2026, we announced that our Board of Directors has approved an additional 1,000,000 shares for repurchase under our stock repurchase program, increasing the total remaining authorization to 1,078,731 shares.

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.

2 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis