What changed in this filing

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Item 1. Financial Statements

2024-04-30 compared with 2024-01-26 · 146 added, 135 removed, 458 unchanged (38% of the section changed)

29 unchanged sentences

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

issued and outstanding , 16,755,772 shares at June 30, 2023 and 17,011,639 shares at December 31, 2023

issued and outstanding , 16,755,772 shares at June 30, 2023 and 17,048,704 shares at March 31, 2024

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Net revenues:

18 unchanged sentences

(amounts in thousands)

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Other comprehensive income (loss):

9 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

Comprehensive

Balance—September 30, 2022

Balance—December 31, 2022

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

2 unchanged sentences

Other comprehensive income

Balance—December 31, 2022

Three Months Ended December 31, 2023

Balance—March 31, 2023

Three Months Ended March 31, 2024

Comprehensive

Balance—September 30, 2023

Balance—December 31, 2023

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—December 31, 2023

Other comprehensive loss

Balance—March 31, 2024

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands, except share data)

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

Comprehensive

7 unchanged sentences

Other comprehensive loss

Balance—December 31, 2022

Six Months Ended December 31, 2023

Balance—March 31, 2023

Nine Months Ended March 31, 2024

Comprehensive

5 unchanged sentences

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—December 31, 2023

Other comprehensive loss

Balance—March 31, 2024

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Six Months Ended December 31,

Nine Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

46 unchanged sentences

Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements.

Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented.

Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by GAAP for audited annual financial statements.

In management’s opinion, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented.

These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the SEC.

The results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of the operating results to be expected for the full 2024 fiscal year or any future periods.

The results of operations for the three and nine months ended March 31, 2024 are not necessarily indicative of the operating results to be expected for the full 2024 fiscal year or any future periods.

Use of Estimates

8 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Net income available to common stockholders

7 unchanged sentences

We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.

Our cash and cash equivalents totaled $ 127.3 million at December 31, 2023.

Our cash and cash equivalents totaled $ 101.4 million at March 31, 2024.

Of this amount, approximately 78 % was held by our foreign subsidiaries and subject to repatriation tax considerations.

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

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

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

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

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

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments, an interest rate swap contract and foreign currency forward contracts.

The carrying values of financial instruments, other than long-term debt instruments and the interest rate swap contract, are representative of their fair values due to their short-term maturities.

The carrying values of financial instruments, other than long-term debt instruments and our interest rate swap contract, are representative of their fair values due to their short-term maturities.

The carrying values of our long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us.

The fair values of our foreign currency forward contracts were not significant as of June 30, 2023 and December 31, 2023.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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

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

The fair values of our foreign currency forward contracts were not significant as of June 30, 2023 and March 31, 2024.

Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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

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

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

1 unchanged sentence

June 30, 2023

December 31, 2023

March 31, 2024

Assets—Insurance company contracts

3 unchanged sentences

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

The foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations.

Our foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations.

These contracts have original maturities of up to three months.

3 unchanged sentences

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

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

The amounts reported in the consolidated statements of operations for the three and nine months ended March 31, 2023 and 2024 were not significant.

The fair value of our foreign currency forward contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term.

Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities.

As of June 30, 2023 and December 31, 2023, we held foreign currency forward contracts with notional amounts totaling $ 21.6 million and $ 84.5 million, respectively.

Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2023 and December 31, 2023 were not significant.

As of June 30, 2023 and March 31, 2024, we held foreign currency forward contracts with notional amounts totaling $ 21.6 million and $ 57.3 million, respectively.

Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2023 and March 31, 2024 were not significant.

The interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to our variable, Secured Overnight Financing Rate (“SOFR”) based debt.

1 unchanged sentence

The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of other comprehensive income (loss) in our consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings.

A qualitative and quantitative assessment over the hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

As of June 30, 2023 and December 31, 2023, the notional amount of the derivative instruments designated as an interest rate swap hedge was $ 175 million.

The fair value of the interest rate swap contract as of as of June 30, 2023 and December 31, 2023 is recorded in Other assets within the consolidated balance sheet.

A qualitative and quantitative assessment of the interest rate swap hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

As of June 30, 2023 and March 31, 2024, the notional amount of the interest rate swap hedge derivative instrument was $ 175 million.

The fair value of the interest rate swap contract as of June 30, 2023 and March 31, 2024 is recorded in Other assets within the consolidated balance sheet.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

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

Gain (loss) recognized in other comprehensive income (loss), net of tax

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

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

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates.

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

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

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

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

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2023-07, “Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which requires disclosures of significant expenses by segment and interim disclosure of items that were previously required on an annual basis.

ASU 2023-07 is to be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted.

We are evaluating the impact of ASU 2023-07 on disclosures in our Consolidated Financial Statements.

In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid.

ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others.

Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction.

ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold.

ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted.

We are evaluating the impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements.

Business Combinations

6 unchanged sentences

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

Fiscal Year 2024 Business Acquisition

Fiscal Year 2024 Business Acquisitions

In December 2023, we (through our Optoelectronics and Manufacturing division) acquired a privately held contract manufacturer for approximately $ 6.3 million.

11 unchanged sentences

These acquisitions were financed with cash on hand.

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

These business acquisitions in fiscal 2023 and 2024, individually and in the aggregate, were not material to our consolidated financial statements.

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

The acquisitions we completed in fiscal 2023 and 2024, individually and in the aggregate, were not material to our consolidated financial statements.

Accordingly, pro-forma historical results of operations and other disclosures related to these businesses have not been presented.

18 unchanged sentences

Property and equipment, net

Depreciation and amortization expense for property and equipment was $ 4.8 million and $ 4.6 million for the three months ended December 31, 2022 and 2023, respectively, and $ 9.7 million and $ 9.5 million for the six months ended December 31, 2022 and 2023, respectively.

Depreciation and amortization expense for property and equipment was $ 4.9 million and $ 5.1 million for the three months ended March 31, 2023 and 2024, respectively, and $ 14.6 million for each of the nine months ended March 31, 2023 and 2024.

Goodwill and Intangible Assets

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

The changes in the carrying value of goodwill by segment for the nine-month period ended March 31, 2024 were as follows (in thousands):

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of December 31, 2023

Balance as of March 31, 2024

Intangible assets consisted of the following (in thousands):

June 30, 2023

December 31, 2023

March 31, 2024

Amortizable assets:

6 unchanged sentences

Total intangible assets

Amortization expense related to intangible assets was $ 4.8 million and $ 5.7 million for the three months ended December 31, 2022 and 2023, respectively.

For the six months ended December 31, 2022 and 2023, amortization expense related to intangible assets was $ 9.4 million and $ 10.4 million, respectively.

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

Amortization expense related to intangible assets was $ 4.8 million and $ 5.5 million for the three months ended March 31, 2023 and 2024, respectively.

For the nine months ended March 31, 2023 and 2024, amortization expense related to intangible assets was $ 14.2 million and $ 15.9 million, respectively.

At March 31, 2024, the estimated future amortization expense for intangible assets was as follows (in thousands):

2024 (remaining 3 months)

1 unchanged sentence

Software development costs incurred after establishing technological feasibility are capitalized on a product-by-product basis until the product is available for general release to customers at which time amortization begins.

Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product compared to the total current and anticipated future revenues for that product.

Annual amortization, charged to cost of goods sold, is the amount computed using the ratio of current revenues for a product compared to the total current and anticipated future revenues for that product.

In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product.

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

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

For the six months ended December 31, 2022 and 2023, we capitalized software development costs in the amounts of $ 7.9 million and $ 8.0 million, respectively.

For the three months ended March 31, 2023 and 2024, we capitalized software development costs in the amounts of $ 4.1 million and $ 4.3 million, respectively.

For the nine months ended March 31, 2023 and 2024, we capitalized software development costs in the amounts of $ 12.0 million and $ 12.3 million, respectively.

Contract Assets and Liabilities

4 unchanged sentences

We record customer deposits as contract liabilities.

Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed.

Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of a contract and before services have been performed.

In such instances, we record a deferred revenue liability in either Other accrued expenses and current liabilities or Other long-term liabilities.

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

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

The table below shows the balance of contract assets and liabilities as of June 30, 2023 and March 31, 2024, including the change between the periods.

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

5 unchanged sentences

Deferred revenue—long-term

Contract assets increased during the three months ended December 31, 2023 primarily from the timing and nature of milestones met in contracts for a number of customers in our Security division where we met the revenue recognition criteria under ASC 606 in advance of the time when contracts give us the right to invoice customers.

Contract assets increased during the nine months ended March 31, 2024, primarily from the timing and nature of milestones met in contracts for a number of customers in our Security division where we met the revenue recognition criteria under ASC 606 in advance of the time when contracts give us the right to invoice customers.

The net increase in contract liabilities was primarily due to activity in our Security division for deposits received on contracts, partially offset by recognition of revenue on service contracts included in deferred revenue.

Remaining Performance Obligations .

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

As of December 31, 2023, the portion of the transaction price allocated to remaining performance obligations was approximately $ 928.2 million.

As of March 31, 2024, the portion of the transaction price allocated to remaining performance obligations was approximately $ 925.1 million.

We expect to recognize revenue on approximately 57 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter.

During the six months ended December 31, 2023, we recognized revenue of $ 44.3 million from contract liabilities existing at the beginning of the period.

During the nine months ended March 31, 2024, we recognized revenue of $ 53.6 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation.

Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year.

In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activity as a fulfillment activity rather than as a separate performance obligation.

Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization is longer than one year.

We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Operating lease cost

4 unchanged sentences

June 30, 2023

December 31, 2023

March 31, 2024

Operating lease ROU assets, net

7 unchanged sentences

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

Six Months Ended December 31,

Nine Months Ended March 31,

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

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

December 31, 2023

Maturities of operating lease liabilities at March 31, 2024 were as follows (in thousands):

March 31, 2024

Less than one year

3 unchanged sentences

We endeavor to align our global capacity and infrastructure with demand by our customers as well as fully integrate acquisitions and thereby improve operational efficiency.

During the three months ended December 31, 2023, we recognized $ 1.0 million in restructuring and other charges, which included $ 0.2 million in acquisition related costs, $ 0.3 million in legal charges, $ 0.3 million for facility closure costs for operational efficiency activities, and $ 0.2 million for employee terminations.

During the six months ended December 31, 2023, we recognized $ 1.5 million in restructuring and other charges, which included $ 0.4 million in acquisition related costs, $ 0.4 million in legal charges, $ 0.3 million for facility closure costs for operational efficiency activities, and $ 0.3 million for employee terminations.

During the three months ended December 31, 2022, we recognized $ 2.3 million in restructuring and other charges, which included $ 1.9 million in legal charges primarily related to government investigations and $ 0.2 million for employee terminations.

During the six months ended December 31, 2022, we recognized $ 3.5 million in restructuring and other charges, which included $ 2.9 million in legal charges primarily related to government investigations and $ 0.5 million for employee terminations.

During the three months ended March 31, 2024, we recognized $ 1.0 million in restructuring and other charges, which primarily included $ 0.5 million for facility closure costs for operational efficiency activities, and $ 0.5 million for employee terminations.

During the nine months ended March 31, 2024, we recognized $ 2.5 million in restructuring and other charges, which included $ 0.8 million for facility closure costs for operational efficiency activities , $ 0.8 million for employee terminations, $ 0.4 million in acquisition related costs, and $ 0.4 million in legal charges.

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

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

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

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

Optoelectronics and

3 unchanged sentences

Employee termination costs

Facility closures/consolidation

Legal costs, net

Three Months Ended December 31, 2023

Three Months Ended March 31, 2024

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

1 unchanged sentence

Legal costs, net

Acquisition-related costs

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

Optoelectronics and

3 unchanged sentences

Employee termination costs

Facility closures/consolidation

Legal costs, net

Six Months Ended December 31, 2023

Nine Months Ended March 31, 2024

Optoelectronics and

1 unchanged sentence

Security Division

Acquisition-related costs

Employee termination costs

1 unchanged sentence

Legal costs, net

Acquisition-related costs

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

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

The changes in the accrued liability for restructuring and other charges for the nine-month period ended March 31, 2024 were as follows (in thousands):

Consolidation

2 unchanged sentences

Payments, adjustments and reimbursements, net

Balance as of December 31, 2023

Balance as of March 31, 2024

Revolving Credit Facility

Our senior secured credit facility comprises a term loan and a $ 600 million revolving credit facility which matures in December 2026.

Our senior secured credit facility comprises a term loan and a $ 600 million revolving credit facility which mature in December 2026.

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

Under certain circumstances and subject to certain conditions, we have the ability to increase the revolving credit facility by the greater of $ 250 million or such amount as would not cause our secured leverage ratio to exceed a specified level.

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

Under certain circumstances and subject to certain conditions, we have the ability to increase the revolving credit facility by an amount equal to the greater of $ 250 million or such amount as would not cause our secured leverage ratio to exceed a specified level.

Borrowings under the facility bear interest at SOFR plus a margin of 1.0 % as of March 31, 2024 (which margin can range from 1.0 % to 1.75 % based on our consolidated net leverage ratio as defined in the credit facility).

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

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

The unused portion of the facility bears a commitment fee of 0.10 % as of March 31, 2024 (which fee can range from 0.10 % to 0.25 % based on our consolidated net leverage ratio as defined in the credit facility).

Our borrowings under the credit agreement are guaranteed by certain of our U.S.-based subsidiaries and are secured by substantially all of our assets and substantially all the assets of certain of our subsidiaries.

The credit facility contains various representations and warranties, affirmative, negative and financial covenants and events of default.

As of December 31, 2023, there were $ 316.0 million of borrowings outstanding under the revolving credit facility, $ 54.0 million outstanding under the letters of credit sub-facility, and $ 139.4 million outstanding under the term loan.

As of December 31, 2023, the amount available to borrow under the revolving credit facility was $ 230.0 million.

As of March 31, 2024, there were $ 349.0 million of borrowings outstanding under the revolving credit facility, $ 74.7 million outstanding under the letters of credit sub-facility, and $ 137.5 million outstanding under the term loan.

As of March 31, 2024, the amount available to borrow under the revolving credit facility was $ 176.3 million.

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

2 unchanged sentences

It is our practice to routinely borrow and repay several times per year under the revolving facility and therefore, borrowings under the revolving credit facility are included in current liabilities.

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

As of March 31, 2024, we were in compliance with all financial covenants under this credit facility.

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

Refer to Note 1 for details.

Interest expense related to the credit facility and term loan was $ 5.0 million and $ 7.0 million for the three months ended December 31, 2022 and 2023, respectively, and $ 7.1 million and $ 13.3 million for the six months ended December 31, 2022 and 2023, respectively.

Interest expense related to the credit facility and term loan was $ 5.9 million and $ 8.1 million for the three months ended March 31, 2023 and 2024, respectively, and $ 12.9 million and $ 21.5 million for the nine months ended March 31, 2023 and 2024, respectively.

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

1 unchanged sentence

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

Total interest expense recognized for the three and six months ended December 31, 2022 related to the Notes was nil and $ 0.7 million, respectively, which consisted of $ 0.5 million of contractual interest expense and $ 0.2 million of amortization of debt issuance costs.

Total interest expense recognized, through the cancellation date, during the nine months ended March 31, 2023 related to the Notes was $ 0.7 million, which consisted of $ 0.5 million of contractual interest expense and $ 0.2 million of amortization of debt issuance costs.

Other Borrowings

1 unchanged sentence

dollars, primarily for the issuance of letters of credit.

As of December 31, 2023, $ 57.5 million was outstanding under these letter-of-credit facilities.

As of December 31, 2023, the total amount available under these credit facilities was $ 19.0 million.

As of March 31, 2024, $ 54.5 million was outstanding under these letter-of-credit facilities.

As of March 31, 2024, the total amount available under these credit facilities was $ 21.4 million.

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

4 unchanged sentences

Stock-based Compensation

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

As of March 31, 2024, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Cost of goods sold

2 unchanged sentences

Stock-based compensation expense

As of December 31, 2023, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 1.2 million for stock options and $ 23.8 million for restricted stock units (“RSUs”).

As of March 31, 2024, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 1.0 million for stock options and $ 15.6 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 2.2 years with respect to the stock options and 2.2 years with respect to the RSUs.

The following summarizes stock option activity during the six months ended December 31, 2023:

The following summarizes stock option activity during the nine months ended March 31, 2024:

Weighted-Average

4 unchanged sentences

Expired or forfeited

Outstanding at December 31, 2023

Exercisable at December 31, 2023

The following summarizes RSU award activity during the six months ended December 31, 2023:

Outstanding at March 31, 2024

Exercisable at March 31, 2024

The following summarizes RSU award activity during the nine months ended March 31, 2024:

Nonvested at June 30, 2023

Nonvested at December 31, 2023

Nonvested at March 31, 2024

In December 2023, our shareholders approved an amendment to the OSI Plan, which increased the shares available under the OSI Plan by 2.4 million shares.

As of December 31, 2023, there were approximately 2.5 million shares available for grant under the OSI Plan.

As of March 31, 2024, there were approximately 2.5 million shares available for grant under the OSI Plan.

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

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

We granted 110,811 and 75,988 performance-based RSUs during the six months ended December 31, 2022 and 2023, respectively.

We granted 110,811 and 75,988 performance-based RSUs during the nine months ended March 31, 2023 and 2024, respectively.

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

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

During the six months ended December 31, 2023, we did not repurchase shares of our common stock.

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

During the nine months ended March 31, 2024, we did not repurchase shares of our common stock.

As of March 31, 2024, there were 1,721,870 shares remaining available for repurchase under the authorized repurchase program.

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

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Under the terms and conditions of the purchase agreements associated with certain acquisitions, we may be obligated to make additional payments based on the achievement of certain sales or profitability milestones through the acquired operations.

For agreements that contain contingent consideration obligations that are capped, the remaining maximum amount of such potential future payments is $ 48.7 million as of December 31, 2023.

For agreements that contain contingent consideration obligations that are capped, the remaining maximum amount of such potential future payments is $ 48.6 million as of March 31, 2024.

Projections and estimated probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities.

The following table provides a roll-forward from June 30, 2023 to December 31, 2023 of the contingent consideration liability, which is included in other accrued expenses and current liabilities and other long-term liabilities in our consolidated balance sheets (in thousands):

The following table provides a roll-forward from June 30, 2023 to March 31, 2024 of the contingent consideration liability, which is included in other accrued expenses and current liabilities and other long-term liabilities in our consolidated balance sheets (in thousands):

Beginning fair value, June 30, 2023

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Payments on contingent earnout obligations

Ending fair value, December 31, 2023

Ending fair value, March 31, 2024

Environmental Contingencies

We are subject to various environmental laws.

investigation, potential areas of environmental concern related to past and present activities or from nearby operations.

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

In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants.

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In addition, we have entered into indemnification agreements with our directors and certain of our officers.

It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

We have not recorded any liability for costs related to contingent indemnification obligations as of December 31, 2023.

It is not possible to determine the maximum potential liability amount under these indemnification agreements due to, among other things, the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

We have not recorded any liability for costs related to contingent indemnification obligations as of March 31, 2024.

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

Chopra’s employment agreement that, among other things, provides for a $ 13.5 million bonus payment to Mr.

Chopra on or within 45 days of January 1, 2024 contingent upon Mr.

Chopra’s continued employment with us through that date, subject to accelerated payout terms in the event of Mr.

Chopra’s death or disability.

The accrued bonus of $ 13.5 million is included in accrued payroll and related expenses and is payable during the three-month period ending March 31, 2024.

Chopra’s employment agreement that, among other things, provided for a $ 13.5 million bonus payment to Mr.

Chopra on or within 45 days of January 1, 2024.

This amount was included in accrued payroll and related expenses as of December 31, 2023 and was paid in full in February 2024.

Product Warranties

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

Six Months Ended December 31,

Nine Months Ended March 31,

Balance at beginning of period

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

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

In February 2024, we received a follow-up subpoena requesting the same categories of documents but extending the relevant time period through to the date of the second subpoena.

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

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

In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

ordinary course matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable.

We have not accrued for loss contingencies relating to any non-ordinary course matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable.

If one or more of these matters are resolved in a manner adverse to our company, the impact on our business, financial condition, results of operations and cash flows could be material.

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

The effective tax rates for the three months ended December 31, 2022 and 2023 were 19.5 % and 20.2 %, respectively.

During the three months ended December 31, 2022, we recognized a net discrete tax benefit of $ 0.4 million related to equity-based compensation under ASU 2016-09 and a benefit of $ 0.4 million for changes in prior year tax estimates.

During the three months ended December 31, 2023, we recognized a net discrete tax benefit of $ 0.2 million related to equity-based compensation under ASU 2016-09 and a benefit of $ 2.3 million from changes in prior year tax estimates.

The effective tax rates for the six months ended December 31, 2022 and 2023 were 21.6 % and 21.0 %, respectively.

During the six months ended December 31, 2022, we recognized net discrete tax benefit of $ 0.5 million related to equity-based compensation under ASU 2016-09 and a benefit of $ 0.4 million from changes in prior year tax estimates.

During the six months ended December 31, 2023, we recognized a net discrete tax benefit of $ 0.6 million related to equity-based compensation under ASU 2016-09 and a benefit of $ 2.3 million from changes in prior year tax estimates.

The effective tax rates for the three months ended March 31, 2023 and 2024 were 23.8 % and 22.6 %, respectively.

During the three months ended March 31, 2024, we recognized a net discrete tax benefit of $ 0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

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

The effective tax rates for the nine months ended March 31, 2023 and 2024 were 22.6 % and 21.7 %, respectively.

During the nine months ended March 31, 2024, we recognized net discrete tax benefits of $ 0.8 million related to equity-based compensation under ASU 2016-09 and $ 2.3 million for changes in prior year tax estimates.

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

Segment Information

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Three Months Ended

Six Months Ended

Nine Months Ended

Revenues (1) —by Segment:

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Eliminations (3)

(1) For the three and six month periods ended December 31, 2022, no customer accounted for greater than 10 % of total net revenues.

For the three and six month periods ended December 31, 2023, one customer in the Security division accounted for 18 % and 14 %, respectively, of total net revenues.

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

As of December 31, 2023, one customer in the Security division accounted for 12 % of accounts receivable.

(1) For the three months ended March 31, 2023, one Security division customer accounted for 13 % of net revenues while no customers represented over 10 % of net revenues for the nine months ended March 31, 2023.

For the three months ended March 31, 2024, one Security division customer accounted for 26 % of net revenues.

For the nine months ended March 31, 2024, two Security division customers accounted for 13 % and 12 % of net revenues, respectively.

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

As of March 31, 2024, two customers in the Security division accounted for 27 % and 14 %, respectively, of accounts receivable, net.

(3) Eliminations in assets reflect the amount of inter-segment profits in inventory and inter-segment ROU assets under ASC 842 as of the balance sheet date.

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

What changed 10-Q

Item 1. Financial Statements