What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-01-24 compared with 2024-10-25 · 81 added, 64 removed, 128 unchanged (53% of the section changed)

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together with our wholly-owned subsidiaries.

This management’s discussion and analysis of financial condition as of September 30, 2024 and results of operations for the three months ended September 30, 2024 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC.

This management’s discussion and analysis of financial condition as of December 31, 2024 and results of operations for the three and six months ended December 31, 2024 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC.

Forward-Looking Statements

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Security Division .

Security and inspection products are used in airports and at a wide range of other facilities such as border crossings, seaports, freight forwarding operations (to screen cargo before it is loaded onto airplanes and ships), government and military installations, sports and concert venues, correctional facilities, and other locations where the interdiction of criminal activities is paramount.

Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the

country, hijacking airplanes, and obtaining and transporting explosives, weapons and their components, and to prevent human trafficking, among other serious crimes.

These initiatives, such as the Customs-Trade Partnership Against Terrorism, the U.S.

Transportation Security Administration’s Air Cargo Screening Mandate and the U.S.

Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments around the world.

Revenues from our Security division accounted for 59% and 65% of our total consolidated revenues for the three months ended September 30, 2023 and 2024, respectively.

Through our Security division, we provide security screening products and services globally, as well as turnkey security screening solutions and high-powered radio frequency solutions.

These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband.

Revenues from our Security division accounted for 64% and 67% of our total consolidated revenues for the six months ended December 31, 2023 and 2024, respectively.

Optoelectronics and Manufacturing Division .

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We also provide our optoelectronic devices and electronics manufacturing services to OEM customers and to our own Security and Healthcare divisions.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 28% and 24% of our total consolidated revenues for the three months ended September 30, 2023 and 2024, respectively.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 24% and 22% of our total consolidated revenues for the six months ended December 31, 2023 and 2024, respectively.

Healthcare Division.

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Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient’s bedside, in another area of the hospital or even outside the hospital.

Revenues from our Healthcare division accounted for 13% and 11% of our total consolidated revenues for the three months ended September 30, 2023 and 2024, respectively.

Revenues from our Healthcare division accounted for 12% and 11% of our total consolidated revenues for the six months ended December 31, 2023 and 2024, respectively.

Trends and Uncertainties

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

political climate, including uncertainty regarding the upcoming U.S.

presidential election, have created uncertainty and impacted demand for certain of our products and services.

political climate, resulting from the recent U.S.

presidential election and congressional seat changes, have increased economic uncertainty and could impact demand for certain of our products and services.

Conflicts in Gaza and nearby regions have created political and economic uncertainty in the Middle East.

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Currency Exchange Rates.

On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 0.7% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the strengthening of the U.S.

On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 0.8% for the six months ended December 31, 2024 compared to the six months ended December 31, 2023, primarily due to the strengthening of the U.S.

dollar against other foreign currencies in 2024.

Any further strengthening of the U.S.

dollar against foreign currencies would adversely impact our sales for the remainder of the fiscal year, and any weakening of the U.S.

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

Results of Operations for the Three Months Ended September 30, 2023 (Q1 Fiscal 2024) Compared to the Three Months Ended September 30, 2024 (Q1 Fiscal 2025) (amounts in millions)

Any strengthening of the U.S.

dollar against foreign currencies would adversely impact our sales for the remainder of the year, and any further weakening of the U.S.

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

Results of Operations for the Three Months Ended December 31, 2023 (Q2 Fiscal 2024) Compared to the Three Months Ended December 31, 2024 (Q2 Fiscal 2025) (amounts in millions)

The table below and the discussion that follows are based upon the way in which we analyze our business.

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Revenues for the Security division during Q2 fiscal 2025 increased year-over-year due to increases in product and service revenues of approximately $36.8 million and $3.2 million, respectively.

The increase in product revenues was primarily driven by growth in cargo and vehicle inspection systems, trace detections systems, checkpoint screening sales, and the acquired business further described in Note 2 to the condensed consolidated financial statements.

The increase in product revenues was primarily driven by growth in checkpoint screening systems, trace detections systems, and the acquired business further described in Note 2 to the condensed consolidated financial statements.

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

Revenues for the Optoelectronics and Manufacturing division during Q1 fiscal 2025 increased year-over-year as a result of an increase in revenues in our contract manufacturing business of approximately $7.4 million, offset by a decrease in revenues in our optoelectronics business of approximately $1.6 million.

Revenues for the Healthcare division during Q1 fiscal 2025 decreased year-over-year due to lower product sales of $2.2 million, partially offset by an increase in service revenues of $1.5 million.

Revenues for the Optoelectronics and Manufacturing division during Q2 fiscal 2025 increased year-over-year as a result of an increase in revenues in our contract manufacturing business.

Revenues for the Healthcare division during Q2 fiscal 2025 increased year-over-year primarily due to an increase in patient monitoring sales of $3.6 million partially offset by a decrease in cardiology sales of $0.5 million.

Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics.

Gross profit increased approximately $5.8 million in Q2 fiscal 2025 as compared to the prior year driven by the increase in sales.

Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues.

The gross margin in Q2 fiscal year 2025 decreased as compared to Q2 fiscal year 2024 as the prior year comparable quarter had a very favorable mix of Security division revenues, resulting in a higher gross margin.

Operating Expenses

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Research and development

Impairment, restructuring and other charges, net

Restructuring and other charges, net

Total operating expenses

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Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, foreign currency translation, and depreciation and amortization expense.

SG&A expense for Q1 fiscal 2025 was $12.4 million higher than in the same prior-year period primarily due to unfavorable foreign currency exchange rates and an increase in employee compensation in Q1 fiscal 2025 to support the growth of the Company as compared to the same prior-year period.

SG&A expense for Q2 fiscal 2025 was comparable to the same prior-year period.

Research and development.

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

During Q1 fiscal 2025, restructuring and other charges consisted of $0.4 million for acquisition activity and $0.8 million related to employee terminations, and legal and other costs.

During Q1 fiscal 2024, restructuring and other charges consisted of $0.2 million for acquisition activity and $0.3 million related to employee terminations, and legal and other costs.

During Q2 fiscal 2025, restructuring and other charges were $0.2 million primarily for acquisition activity.

During Q2 fiscal 2024, restructuring and other charges were $1.0 million, 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.

Interest and Other Expense, Net

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For Q2 fiscal 2025, interest and other expense, net was $8.6 million as compared to $6.5 million in the same prior-year period.

This increase was driven by higher average levels of borrowings primarily to support the increase in working capital associated with the growth in revenues and for the repurchase of approximately $80 million of common stock in July 2024.

This increase was driven by higher average levels of borrowings primarily to support the increase in working capital associated with the growth in revenues, business acquisition activity, and for the repurchase of approximately $80 million of common stock in July 2024.

Interest expense in Q2 fiscal 2025 and Q2 fiscal 2024 includes a benefit from the interest rate swap of $0.6 million and $0.9 million, respectively.

Income taxes .

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The effective tax rates for Q2 fiscal 2025 and 2024 were 23.3% and 20.2%, respectively.

During Q1 fiscal 2025 and 2024, we recognized a net discrete tax benefit of $0.5 million and $0.4 million, respectively, related to equity-based compensation under ASU 2016-09.

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

During Q2 fiscal 2024, 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 estimates.

Results of Operations for the Six Months Ended December 31, 2023 (YTD Q2 Fiscal 2024) Compared to the Six Months Ended December 31, 2024 (YTD Q2 Fiscal 2025) (amounts in millions)

The table below and the discussion that follows are based upon the way in which we analyze our business.

See Note 12 to the condensed consolidated financial statements for additional information about our business segments.

Optoelectronics and Manufacturing

Total net revenues

Revenues for the Security division during YTD Q2 fiscal 2025 increased year-over-year due to an increase in product and service revenues of approximately $88.8 million and $10.9 million, respectively.

The increase in product revenues was primarily driven by growth in cargo and vehicle inspection systems, checkpoint screening systems, trace detections systems, and the acquired business further described in Note 2 to the condensed consolidated financial statements.

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

Revenues for the Optoelectronics and Manufacturing division during YTD Q2 fiscal 2025 increased year-over year as a result of an increase in revenue in our contract manufacturing business of approximately $11.2 million, partially offset by a decrease in revenue of approximately $1.8 million in our optoelectronics business.

Revenues for the Healthcare division during YTD Q2 fiscal 2025 increased year-over-year due to an increase in patient monitoring sales of $2.3 million, service revenue of $0.8 million and accessories revenue of $0.7 million, partially offset by a reduction in cardiology sales of $1.5 million.

Gross profit increased approximately $28.7 million in YTD Q2 fiscal 2025 as compared to the prior year driven by the increase in sales.

The gross margin decreased as compared to the prior year comparable period as the prior year period had a very favorable mix of Security division revenues, resulting in a higher gross margin.

Operating Expenses

Selling, general and administrative

Research and development

Restructuring and other charges, net

Total operating expenses

Selling, general and administrative .

SG&A expense for YTD Q2 fiscal 2025 was $11.5 million higher than in the same prior-year period, primarily due to increased employee compensation, changes in fair value of certain contingent earnout liabilities, and unfavorable impact of foreign currency exchange rates in YTD Q2 fiscal 2025 compared to the same prior-year period.

Research and development.

R&D expense for YTD Q2 fiscal 2025 increased $3.7 million over the same prior-year period driven by increased compensation costs to support new product development initiatives primarily in our Security division.

Restructuring and other charges.

Restructuring and other charges were comparable in YTD Q2 fiscal 2025 as in the same prior-year period.

Interest and Other Expense, Net

Interest and other expense, net

Interest and other expense, net .

The increase in interest and other expense, net was driven by higher average levels of borrowings primarily to support the increase in working capital associated with the growth in revenues, business acquisition activity, and for the repurchase of approximately $80 million of common stock in July 2024.

Interest expense for YTD Q2 fiscal 2025 and 2024 included a benefit of $1.5 million and $1.8 million, respectively, from the interest rate swap.

Income taxes.

The effective tax rate for a particular period varies depending on a number of factors, including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections (v) tax holidays granted to certain of our international subsidiaries and (vi) discrete tax items.

For YTD Q2 fiscal 2025 and 2024, we recognized a provision for income taxes of $16.6 million and $13.2 million, respectively.

The effective tax rates for YTD Q2 fiscal 2025 and 2024 were 22.9% and 21.0%, respectively.

For YTD Q2 fiscal 2024, we recognized a 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.

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

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facilities.

Cash and cash equivalents totaled $85.1 million at September 30, 2024, a decrease of $10.3 million, or 11%, from $95.4 million at June 30, 2024.

Cash and cash equivalents totaled $101.6 million at December 31, 2024, an increase of $6.2 million, or 7%, from $95.4 million at June 30, 2024.

We currently anticipate that our available funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and the foreseeable future beyond that.

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

In July 2024, we issued an aggregate of $350.0 million principal amount of 2.25% convertible senior notes due in August 2029 In connection with the issuance of the 2029 Notes, we repurchased 531,314 shares of our common stock for approximately $80 million.

In July 2024, we issued an aggregate of $350.0 million principal amount of 2.25% convertible senior notes due in August 2029.

In connection with the issuance of the 2029 Notes, we repurchased 531,314 shares of our common stock for approximately $80 million.

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

As of September 30, 2024, there was $133.8 million outstanding under the term loan, $259.0 million outstanding under our revolving credit facility and $77.1 million of outstanding letters of credit.

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

As of December 31, 2024, there was $131.9 million outstanding under the term loan, $236.0 million outstanding under our revolving credit facility and $78.6 million of outstanding letters of credit.

As of December 31, 2024, the total amount available under our revolving credit facility was $285.4 million.

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

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Cash flows from operating activities can fluctuate significantly from period to period, as net income, adjusted for non-cash items, and working capital fluctuations impact cash flows.

During Q1 fiscal 2025, we used cash from operations of $37.2 million compared to cash provided by operations of $17.1 million in the comparable prior-year period.

The net change in cash flows from operating activities was due primarily to a net increase in accounts receivable, inventories and other current assets in the Security division, partially offset by other changes in net working capital.

For YTD Q2 fiscal 2025, cash provided by operations was $15.4 million compared to cash used in operations of $6.4 million in the comparable prior-year period.

The net change in cash flows from operating activities was due primarily to favorable changes in net working capital and higher net income for YTD Q2 fiscal 2025 over the comparable prior-year period.

Cash Used in Investing Activities .

Net cash used in investing activities was $87.5 million for Q1 fiscal 2025 as compared to $9.6 million in the same prior-year period.

We used $75.5 million for a business acquisition during the three-month period ended September 30, 2024.

Capital expenditures in the three-month period ended September 30, 2024 were $7.7 million compared to $5.2 million in the same prior-year period.

Expenditures for intangible and other assets in the three-month period ended September 30, 2024 were $4.4 million compared to $4.2 million in the same prior-year period.

Cash Used in Financing Activities .

Net cash provided by financing activities was $113.8 million during Q1 fiscal 2025, compared to $1.9 million used during the same prior-year period.

The change in cash flows from financing activities was primarily due to net proceeds of $340.4 million from the 2029 Notes, partially offset by (1) net repayment of $125.0 million on our credit facility and (2) repurchase of common shares of $80.4 million.

Taxes paid related to net share settlement of equity awards was $21.3 million during Q1 fiscal 2025 compared to $22.2 million in the same prior-year period.

Net cash used in investing activities was $97.6 million for YTD Q2 fiscal 2025 as compared to $21.8 million in the same prior year period.

We used $75.5 million for a business acquisition in September 2024, compared to $9.0 million in the first half of fiscal year 2024.

Capital expenditures for YTD Q2 fiscal year 2025 were $13.2 million compared to $8.7 million in the same prior-year period.

Expenditures for intangible and other assets for YTD Q2 fiscal year 2025 were $9.1 million compared to $8.4 million in the same prior-year period.

Cash Provided by Financing Activities .

Net cash provided by financing activities was $89.2 million for YTD Q2 fiscal 2025, compared to $77.1 million during the same prior-year period.

The change in cash flows from financing activities was primarily due to net proceeds of $340.5 million from the 2029 Notes, partially offset by (1) net repayment of $148.0 million on our credit facility and (2) repurchase of common stock of $80.4 million.

Taxes paid related to net share settlement of equity awards were $22.6 million during YTD Q2 fiscal 2025 compared to $23.0 million in the same prior-year period.

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

Cash Held by Foreign Subsidiaries

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 the, India, UK, 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 intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S.

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

Issuer Purchases of Equity Securities

The following table contains information about the shares of common stock we purchased during the quarter ended September 30, 2024:

Maximum number (or

approximate dollar

Total number of

shares (or units)

Total number of

Average price

part of publicly

yet be purchased

shares (or units)

paid per share (or

announced plans or

under the plans or

July 1 to July 31, 2024

August 1 to August 31, 2024

September 1 to September 30, 2024

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

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

Issuer Purchase of Equity Securities

We did not repurchase any shares of common stock during the second quarter of fiscal year 2025.

Contractual Obligations

During the first quarter of fiscal year 2025, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

During the six months ended December 31, 2024, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

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As discussed in Note 1, we are currently evaluating the potential impact on financial statement disclosures upon future adoption of ASU 2023 - 07 and ASU 2023 - 09.

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

There were no new pronouncements adopted in the second quarter of fiscal year 2025.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis