What changed in this filing

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Item 1. Financial Statements

2025-01-24 compared with 2024-10-25 · 181 added, 133 removed, 449 unchanged (41% of the section changed)

4 unchanged sentences

(amounts in thousands, except share amounts and par value)

September 30,

CURRENT ASSETS:

22 unchanged sentences

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

issued and outstanding, 17,055,497 shares at June 30, 2024 and 16,710,749 shares at September 30, 2024

issued and outstanding, 17,055,497 shares at June 30, 2024 and 16,745,805 shares at December 31, 2024

Retained earnings

7 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Net revenues:

18 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Other comprehensive income (loss):

2 unchanged sentences

Other, net of tax

Other comprehensive loss

Other comprehensive income (loss)

Comprehensive income

4 unchanged sentences

(amounts in thousands, except share data)

Three Months Ended September 30, 2023

Three Months Ended December 31, 2023

Comprehensive

Balance—June 30, 2023

Balance—September 30, 2023

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase plan

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Other comprehensive income

Balance—December 31, 2023

Three Months Ended December 31, 2024

Comprehensive

Balance—September 30, 2024

Three Months Ended September 30, 2024

Exercise of stock options

Vesting of RSUs

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive loss

Balance—December 31, 2024

OSI SYSTEMS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)

Six Months Ended December 31, 2023

Comprehensive

4 unchanged sentences

Stock-based compensation expense

Taxes paid related to net share settlement of equity awards

Other comprehensive income

Balance—December 31, 2023

Six Months Ended December 31, 2024

Comprehensive

Balance—June 30, 2024

Exercise of stock options

Vesting of RSUs

Shares issued under employee stock purchase program

Stock-based compensation expense

Repurchase of common stock

1 unchanged sentence

Other comprehensive loss

Balance—September 30, 2024

Balance—December 31, 2024

OSI SYSTEMS, INC.

2 unchanged sentences

(amounts in thousands)

Three Months Ended September 30,

Six Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Stock-based compensation expense

Recovery of losses on accounts receivable

Provision for (recovery of) losses on accounts receivable

Deferred income taxes

7 unchanged sentences

Deferred revenue

Other liabilities

Net cash provided by (used in) operating activities

2 unchanged sentences

Proceeds from sale of property and equipment

Purchases of certificates of deposit

Proceeds from maturities of certificates of deposit

10 unchanged sentences

Taxes paid related to net share settlement of equity awards

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents—beginning of period

15 unchanged sentences

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, 2024 filed with the SEC.

The results of operations for the three months ended September 30, 2024 are not necessarily indicative of the operating results to be expected for the full 2025 fiscal year or any future periods.

The results of operations for the three and six months ended December 31, 2024 are not necessarily indicative of the operating results to be expected for the full 2025 fiscal year or any future periods.

Use of Estimates

8 unchanged sentences

The underlying equity component of the 2.25 % convertible senior notes due 2029 (the “2029 Notes”) discussed in Note 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price of $ 191.98 because the principal amount of the 2029 Notes will be settled in cash upon conversion.

There was no dilutive effect of the 2029 Notes for the three months ended September 30, 2024.

There was no dilutive effect of the 2029 Notes for the three and six months ended December 31, 2024.

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 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 $ 85.1 million at September 30, 2024.

Our cash and cash equivalents totaled $ 101.6 million at December 31, 2024.

Of this amount, approximately 77 % was held by our foreign subsidiaries and subject to repatriation tax considerations.

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

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

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

2 unchanged sentences

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 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, 2024 and September 30, 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 includes assets and liabilities at quoted prices in active markets for identical assets and liabilities.

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

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

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 our long-term debt instruments, other than the 2029 Notes, 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 value of the 2029 Notes are based on observable inputs described below under Level 2.

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

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.

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, 2024

September 30, 2024

December 31, 2024

Assets—Insurance company contracts

9 unchanged sentences

We do not use hedging instruments for speculative purposes.

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations, and the amounts reported for the three months ended September 30, 2023 and 2024 were not significant.

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, 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, 2024 and September 30, 2024, we held foreign currency forward contracts with notional amounts totaling $ 96.4 million and $ 101.7 million, respectively.

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

As of June 30, 2024 and December 31, 2024, we held foreign currency forward contracts with notional amounts totaling $ 96.4 million and $ 79.4 million, respectively.

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

Our 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.

2 unchanged sentences

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, 2024 and September 30, 2024, 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, 2024 and September 30, 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 September 30,

As of June 30, 2024 and December 31, 2024, 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, 2024 and December 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 (in thousands):

Three Months Ended December 31,

Six Months Ended December 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

4 unchanged sentences

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 first quarter of fiscal year 2025.

There were no new pronouncements adopted in the first six months of fiscal year 2025.

In November 2023, the 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 potential impact of ASU 2023-07 on disclosures in our Consolidated Financial Statements.

We are evaluating the potential impact of ASU 2023-07 on disclosures in our Consolidated Financial Statements which is effective beginning with our Form 10-K for fiscal year 2025 and interim periods beginning with the first quarter of fiscal year 2026.

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.

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.

1 unchanged sentence

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 potential impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements.

We are evaluating the potential impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements which is effective beginning with our Form 10-K for fiscal year 2026.

Business Combinations

7 unchanged sentences

Fiscal Year 2025 Business Acquisition

In September 2024, we (through our Security division) acquired 100 % of the shares of common stock of a privately held provider of critical military, space and surveillance solutions for approximately $ 76.0 million, plus up to $ 24.0 million in potential contingent consideration.

We paid $ 75.5 million in cash at the closing of the transaction and recorded a holdback liability of $ 0.5 million which is expected to be paid before the end of the current fiscal year.

In September 2024, we (through our Security division) acquired 100 % of the shares of common stock of a privately held provider of critical military, space and surveillance solutions to expand our customer base and offer additional products and services for existing customers, for approximately $ 76.0 million, plus up to $ 24.0 million in potential contingent consideration.

We paid $ 75.5 million in cash at the closing of the transaction and recorded a holdback liability of $ 0.5 million which is expected to be released in November 2030.

The cash paid for this acquisition was financed with borrowings from our credit facility.

The acquisition date fair value of the contingent consideration was $ 9.7 million, therefore, when combined with the amount of cash paid at close and the holdback amount, total purchase consideration was $ 85.7 million which has been allocated to the preliminary fair value of assets acquired and liabilities assumed.

The preliminary acquisition date fair value of total assets acquired was $ 115.0 million which comprised accounts receivable of $ 29.8 million, inventory and other current assets of $ 5.9 million, property and equipment of $ 7.0 million, goodwill of $ 28.4 million and other intangible assets of $ 43.9 million.

The preliminary acquisition date fair value of total assets acquired, including measurement period adjustments, was $ 114.0 million which comprised accounts receivable of $ 26.6 million, inventory and other current assets of $ 4.7 million, property and equipment of $ 7.0 million, goodwill of $ 31.7 million, other intangible assets of $ 43.9 million and other noncurrent assets of $ 0.1 million.

Goodwill includes the value of the assembled workforce, new customers and other future economic benefits which do not qualify for separate recognition.

The goodwill recognized for this business acquisition is not deductible for income tax purposes.

Other intangible assets include amortizable intangible assets of $ 35.9 million with amortization periods of 7 to 10 years and an indefinite-lived intangible asset of $ 8.0 million.

The preliminary acquisition date fair value of total liabilities assumed was $ 29.3 million, which includes a deferred tax liability of $ 8.4 million that was recognized primarily due to the acquisition of other intangible assets.

The preliminary acquisition date fair value of total liabilities assumed, including measurement period adjustments, was $ 28.3 million, which includes a deferred tax liability of $ 7.5 million that was recognized primarily due to the acquisition of other intangible assets.

The preliminary valuation of the assets acquired, liabilities assumed and contingent consideration in the acquisition is subject to revision.

During the three months ended December 31, 2024, we recorded measurement period adjustments which increased goodwill by $ 3.3 million due to a decrease in net working capital of $ 4.2 million, net of deferred income taxes of $ 0.9 million.

The measurement period adjustments did not have an impact on the consolidated statement of operations.

If additional information becomes available, we may further revise the preliminary purchase price allocation as soon as practical, but no later than one year from the acquisition date.

Revenue from this acquired business was $ 4.0 million from the acquisition date through September 30, 2024.

Fiscal Year 2024 Business Acquisition

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

Revenue from this acquired business was $ 21.7 million from the acquisition date through December 31, 2024.

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 in cash.

The acquisition was financed with cash on hand.

The goodwill recognized for this business acquisition is deductible for income tax purposes.

In October 2023, we (through our Security division) acquired a privately held provider of radiation detection technology for approximately $ 2.8 million, plus up to $ 3.6 million in potential contingent consideration.

In October 2023, we (through our Security division) acquired a privately held provider of radiation detection technology for approximately $ 2.8 million in cash, plus up to $ 3.6 million in potential contingent consideration.

The acquisition was financed with cash on hand.

2 unchanged sentences

The following tables set forth details of selected balance sheet accounts (in thousands):

September 30,

Accounts receivable, net

1 unchanged sentence

Less allowance for doubtful accounts

September 30,

Raw materials

1 unchanged sentence

Finished goods

September 30,

Property and equipment, net

9 unchanged sentences

Property and equipment, net

Depreciation and amortization expense for property and equipment was $ 4.9 million and $ 6.7 million , respectively, for the three months ended September 30, 2023 and 2024.

Depreciation and amortization expense for property and equipment was $ 4.6 million and $ 5.0 million for the three months ended December 31, 2023 and 2024, respectively, and $ 9.5 million and $ 11.7 million for the six months ended December 31, 2023 and 2024, respectively.

Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2024 were as follows (in thousands):

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

Optoelectronics

3 unchanged sentences

Foreign currency translation adjustment

Balance as of September 30, 2024

Balance as of December 31, 2024

Intangible assets consisted of the following (in thousands):

June 30, 2024

September 30, 2024

December 31, 2024

Amortizable assets:

5 unchanged sentences

Total intangible assets

During the three months ended September 30, 2024 intangible assets of $ 43.9 million were included in the business acquisition described in Note 2.

Amortization expense related to intangible assets was $ 4.7 and $ 4.8 million for the three months ended September 30, 2023 and 2024, respectively.

At September 30, 2024, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):

Amortization expense related to intangible assets was $ 5.7 million and $ 5.6 million for the three months ended December 31, 2023 and 2024, respectively.

Amortization expense related to intangible assets was $ 10.4 million for each of the six-month periods ended December 31, 2023 and 2024.

During the six months ended December 31, 2024, intangible assets of $ 43.9 million were from the business acquisition described in Note 2.

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

2025 (remaining 6 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 bear 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 the developed product divided by total current and anticipated future revenues for that developed 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 the three months ended September 30, 2023 and 2024, we capitalized software development costs in the amounts of $ 4.0 million and $ 4.2 million, respectively.

For the three months ended December 31, 2023 and 2024, we capitalized software development costs in the amounts of $ 4.0 million and $ 4.6 million, respectively.

For the six months ended December 31, 2023 and 2024, we capitalized software development costs in the amounts of $ 8.0 million and $ 8.8 million, respectively.

Contract Assets and Liabilities

1 unchanged sentence

We recognize revenue and corresponding accounts receivable according to ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheets.

We may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer.

3 unchanged sentences

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, 2024 and September 30, 2024, including the change between the periods.

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

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

Contract Assets (in thousands)

September 30,

Unbilled revenue (included in accounts receivable, net)

Contract Liabilities (in thousands)

September 30,

Advances from customers

2 unchanged sentences

Contract Assets.

Contract assets increased by approximately $ 7.6 million due to $ 27.9 million from the business acquisition described in Note 2, partially offset by decreases in unbilled revenue primarily from the achievement of certain milestones in our Security division which gives us the right to invoice customers.

Contract assets decreased by $ 59.8 million due to decreases in unbilled revenue of $ 85.2 million primarily from the achievement of certain milestones in our Security division which gives us the right to invoice customers, partially offset by an increase of $ 25.4 million from the business acquisition described in Note 2.

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 September 30, 2024, the portion of the transaction price allocated to remaining performance obligations was approximately $ 805.2 million.

As of December 31, 2024, the portion of the transaction price allocated to remaining performance obligations was approximately $ 776.1 million.

We expect to recognize revenue on approximately 61 % of the remaining performance obligations over the next 12 months , and the remainder is expected to be recognized thereafter.

During the three months ended September 30, 2024, we recognized revenue of $ 32.5 million from contract liabilities existing at the beginning of the period.

During the six months ended December 31, 2024, we recognized revenue of $ 51.5 million from contract liabilities existing at the beginning of the period.

Practical Expedients.

3 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Operating lease cost

4 unchanged sentences

June 30, 2024

September 30, 2024

Operating lease right of use (“ROU”) assets, net

December 31, 2024

Operating lease ROU assets, net

Operating lease liabilities, current portion

6 unchanged sentences

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

Three Months Ended September 30,

Six Months Ended December 31,

Cash paid for operating lease liabilities

ROU assets obtained in exchange for new lease obligations

Maturities of operating lease liabilities at September 30, 2024 were as follows (in thousands):

September 30, 2024

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

December 31, 2024

Less than one year

2 unchanged sentences

Restructuring and Other Charges

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

During the three months ended September 30, 2024, we recognized $ 1.2 million in restructuring and other charges, which included $ 0.6 million for employee terminations, $ 0.2 million for facility closure costs for operational efficiency activities, and $ 0.4 million in acquisition related costs.

During the three months ended September 30, 2023, we recognized $ 0.5 million in restructuring and other charges, which included $ 0.1 million in legal charges, $ 0.1 million for employee terminations, $ 0.1 million for facility closure costs for operational efficiency activities, and $ 0.2 million in acquisition related costs.

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

Three Months Ended September 30, 2023

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

During the three months ended December 31, 2024, we recognized $ 0.2 million in restructuring and other charges primarily for acquisition-related costs.

During the six months ended December 31, 2024, we recognized $ 1.4 million in restructuring and other charges, which included $ 0.6 million in acquisition related costs, $ 0.2 million for facility closure costs for operational efficiency activities, and $ 0.6 million for employee terminations.

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 improvements, 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 improvements, and $ 0.3 million for employee terminations.

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

Three Months Ended December 31, 2023

Optoelectronics and

5 unchanged sentences

Legal costs, net

Three Months Ended September 30, 2024

Three Months Ended December 31, 2024

Optoelectronics and

3 unchanged sentences

Employee termination costs

Legal costs, net

Six Months Ended December 31, 2023

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

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 three-month period ended September 30, 2024 were as follows (in thousands):

Legal costs, net

Six Months Ended December 31, 2024

Optoelectronics and

Manufacturing

Security Division

Acquisition-related costs

Employee termination costs

Facility closures/consolidation

Legal costs, net

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

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

Consolidation

1 unchanged sentence

Restructuring and other charges, net

Payments, adjustments and reimbursements, net

Balance as of September 30, 2024

Payments and adjustments, net

Balance as of December 31, 2024

Revolving Credit Facility

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

Our senior secured credit facility comprises a term loan and a $ 600 million revolving credit facility which matures 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 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 bore interest at SOFR plus a margin of 1.25 % as of September 30, 2024 (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 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 1.5 % as of December 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 bore a commitment fee of 0.15 % as of September 30, 2024 (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 0.20 % as of December 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 September 30, 2024, there were $ 259.0 million of borrowings outstanding under the revolving credit facility, $ 77.1 million outstanding under the letters of credit sub-facility, and $ 133.8 million outstanding under the term loan.

As of September 30, 2024, the amount available to borrow under the revolving credit facility was $ 263.9 million.

As of December 31, 2024, there were $ 236 million of borrowings outstanding under the revolving credit facility, $ 78.6 million outstanding under the letters of credit sub-facility, and $ 131.9 million outstanding under the term loan.

As of December 31, 2024, the amount available to borrow under the revolving credit facility was $ 285.4 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 September 30, 2024, we were in compliance with all financial covenants under this credit facility.

As of December 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.

2.25% Convertible Senior Notes Due 2029

2.25% Convertible Senior Notes Due 2029 (“2029 Notes”)

In July 2024, we issued an aggregate of $ 350.0 million principal amount of 2.25 % convertible senior notes due in August 2029 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, at an issuance price equal to 97.5 % of the principal amount.

The 2029 Notes were issued pursuant to and are governed by an indenture dated July 19, 2024 The proceeds from the issuance of the 2029 Notes were $ 340.4 million, net of the issuance discount and debt issuance costs.

The 2029 Notes were issued pursuant to and are governed by an indenture dated July 19, 2024.

The proceeds from the issuance of the 2029 Notes were $ 340.4 million, net of the issuance discount and debt issuance costs.

The 2029 Notes are unsecured obligations which bear regular interest at 2.25 % per annum payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2025.

12 unchanged sentences

We accounted for the issuance of the 2029 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

The following table is a summary of the 2029 Notes as of September 30, 2024 (in thousands):

September 30,

The following table is a summary of the 2029 Notes as of December 31, 2024 (in thousands):

Principal amount

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Fair value (Level 2)

The 2029 Notes were not eligible for conversion as of September 30, 2024.

The 2029 Notes were not eligible for conversion as of December 31, 2024.

No sinking fund is provided for the 2029 Notes, which means that we are not required to redeem or retire them periodically.

As of September 30, 2024 we were in compliance with applicable covenants under the indenture governing the 2029 Notes.

For the three months ended September 30, 2024, total interest expense for the 2029 Notes was $ 1.9 million, which consisted of $ 1.6 million of contractual interest expense and $ 0.3 million of amortization of debt discount and issuance costs.

As of December 31, 2024 we were in compliance with applicable financial covenants under the indenture governing the 2029 Notes.

For the three months ended December 31, 2024, total interest expense for the 2029 Notes was $ 2.4 million, which consisted of $ 2.0 million of contractual interest expense and $ 0.4 million of amortization of debt discount and issuance costs.

For the six months ended December 31, 2024, total interest expense for the 2029 Notes was $ 4.3 million, which consisted of $ 3.5 million of contractual interest expense and $ 0.8 million of amortization of debt discount and issuance costs.

The unamortized debt issuance cost is amortized on the effective interest method over the life of the 2029 Notes.

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dollars, primarily for the issuance of letters of credit.

As of September 30, 2024, $ 55.9 million was outstanding under these letter-of-credit facilities.

As of September 30, 2024, the total amount available under these credit facilities was $ 30.3 million.

As of December 31, 2024, $ 68.0 million was outstanding under these letter-of-credit facilities.

As of December 31, 2024, the total amount available under these credit facilities was $ 22.8 million.

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

September 30,

2029 Notes, net

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Long-term portion of debt

Future principal payments of long-term debt by fiscal year as of September 30, 2024 are as follows (in thousands):

Future principal payments of long-term debt by fiscal year as of December 31, 2024 are as follows (in thousands):

2025 (6 months remaining)

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Stock-based Compensation

As of September 30, 2024, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

As of December 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 September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Cost of goods sold

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Stock-based compensation expense

As of September 30, 2024, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 0.7 million for stock options and $ 18.4 million for restricted stock units (“RSUs”).

As of December 31, 2024, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $ 1.4 million for stock options and $ 20.6 million for restricted stock units (“RSUs”).

We expect to recognize these costs over a weighted average period of 2.4 years with respect to the stock options and 2.3 years with respect to the RSUs.

The following summarizes stock option activity during the three months ended September 30, 2024:

The following summarizes stock option activity during the six months ended December 31, 2024:

Weighted-Average

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Expired or forfeited

Outstanding at September 30, 2024

Exercisable at September 30, 2024

The following summarizes RSU award activity during the three months ended September 30, 2024:

Outstanding at December 31, 2024

Exercisable at December 31, 2024

The following summarizes RSU award activity during the six months ended December 31, 2024:

Nonvested at June 30, 2024

Nonvested at September 30, 2024

As of September 30, 2024, there were approximately 2.1 million shares available for grant under the OSI Plan.

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

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

We granted 75,988 and 54,563 performance-based RSUs during the three months ended September 30, 2023 and 2024, respectively.

Nonvested at December 31, 2024

As of December 31, 2024, there were approximately 1.6 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 75,988 and 80,682 performance-based RSUs during the six months ended December 31, 2023 and 2024, respectively.

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

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This program does not expire unless our Board of Directors acts to terminate the program.

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.

The timing and actual numbers of shares purchased depend on a variety of factors, including stock price, general business and market conditions and other investment opportunities.

Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion.

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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 three months ended September 30, 2024, we repurchased 531,314 shares of common stock for an aggregate purchase price of approximately $ 80 million.

As of September 30, 2024, there were 1,190,556 shares remaining available for repurchase under the authorized repurchase program.

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

Our Board of Directors will determine the payment of future dividends, if any.

Certain of our current bank credit facilities restrict the payment of dividends and future borrowings may contain similar restrictions.

During the six months ended December 31, 2024, we repurchased 531,314 shares of common stock for an aggregate purchase price of approximately $ 80 million.

As of December 31, 2024, there were 1,190,556 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.

Our Board of Directors will determine the payment of future cash dividends, if any.

Certain of our current bank credit facilities restrict the payment of cash dividends and future borrowings may contain similar restrictions.

Commitments and Contingencies

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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 $ 56.8 million as of September 30, 2024.

The potential future payments for two agreements with uncapped contingent consideration through fiscal year 2028 are not expected to be significant.

For agreements that contain contingent consideration obligations that are capped, the remaining maximum amount of such potential future payments is $ 56.5 million as of December 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, 2024 to September 30, 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):

The following table provides a roll-forward from June 30, 2024 to December 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, 2024

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Payments on contingent earnout obligations

Ending fair value, September 30, 2024

Ending fair value, December 31, 2024

Environmental Contingencies

We are subject to various environmental laws.

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.

We conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on 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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If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material.

Indemnifications and Certain Employment-Related Contingencies

Indemnifications

In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters.

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It is not possible to determine the maximum potential amount under these indemnification agreements due to, among other factors, 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 September 30, 2024.

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

Product Warranties

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

Three Months Ended September 30,

Six Months Ended December 31,

Balance at beginning of period

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

The effective tax rates for the three months ended September 30, 2023 and 2024 were 23.4 % and 21.9 %, respectively.

During the three months ended September 30, 2023 and 2024, we recognized a net discrete tax benefit of $ 0.4 million and $ 0.5 million, respectively, related to equity-based compensation under ASU 2016-09.

The effective tax rates for the six months ended December 31, 2023 and 2024 were 21.0 % and 22.9 %, respectively.

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.

During the six months ended December 31, 2024 we recognized a net discrete tax benefit of $ 0.8 million, related to equity-based compensation under ASU 2016-09.

Segment Information

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Three Months Ended

September 30,

Six Months Ended

Revenues (1), (2) —by Segment:

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Intersegment eliminations

September 30,

Assets (3) —by Segment:

3 unchanged sentences

Eliminations (4)

(1) For the three months ended September 30, 2023, no customer accounted for greater than 10 % of total net revenues.

For the three months ended September 30, 2024, one Security division customer accounted for 14 % of net revenues.

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

(2) For the three and six-month periods ended December 31, 2024, one customer in the Security division accounted for 10 % and 12 %, respectively, of consolidated net revenues.

(3) As of June 30, 2024, two customers in the Security division accounted for 39 % and 10 %, respectively, of accounts receivable, net.

As of September 30, 2024, two customers in the Security division accounted for 37 % and 12 %, respectively, of accounts receivable, net.

As of December 31, 2024, two customers in the Security division accounted for 37 % and 13 %, respectively, of accounts receivable, net.

(4) 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.

1 unchanged sentence

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