What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-02 compared with 2025-01-24 · 49 added, 48 removed, 161 unchanged (38% of the section changed)

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together with our wholly-owned subsidiaries.

This management’s discussion and analysis of financial condition as of December 31, 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.

This management’s discussion and analysis of financial condition as of March 31, 2025 and results of operations for the three and nine months ended March 31, 2025 should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC.

Forward-Looking Statements

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

global economic uncertainty;

global economic uncertainty, including the impact of tariffs;

material delays and cancellations of orders or deliveries thereon, supply chain disruptions, plant closures, or other adverse impacts on our ability to execute business plans;

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Security Division .

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.

Through our Security division, we provide security screening products and services globally, as well as turnkey security screening 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.

Revenues from our Security division accounted for 66% and 69% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, 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 24% and 22% of our total consolidated revenues for the six months ended December 31, 2023 and 2024, respectively.

Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 22% and 21% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, 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 12% and 11% of our total consolidated revenues for the six months ended December 31, 2023 and 2024, respectively.

Revenues from our Healthcare division accounted for 12% and 10% of our total consolidated revenues for the nine months ended March 31, 2024 and 2025, respectively.

Trends and Uncertainties

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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.

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

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

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Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.

has recently imposed tariffs on global imports and certain foreign countries have increased tariffs as a result.

Based on these recently announced and implemented global tariffs, and assuming such tariffs remain in place, this is expected to result in additional costs for us.

While the ultimate impact of changes to tariffs will depend on various factors, including the timing, amount, scope, and nature of any tariffs that are implemented, we are evaluating measures to mitigate the impact of tariffs.

Healthcare Considerations.

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Currency Exchange Rates.

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.

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.7% for the nine months ended March 31, 2025 compared to the nine months ended March 31, 2024, primarily due to the weakening of the U.S.

dollar against other foreign currencies in 2024.

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)

dollar against foreign currencies would adversely impact our sales for the remainder of the fiscal year, and any further 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 March 31, 2024 (Q3 Fiscal 2024) Compared to the Three Months Ended March 31, 2025 (Q3 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 Q3 fiscal 2025 increased year-over-year due to increases in product and service revenues of approximately $5.2 million and $23.7 million, respectively.

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 product revenues was primarily driven by 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 Q3 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.

Revenues for the Healthcare division during Q3 fiscal 2025 increased year-over-year primarily due to an increase in patient monitoring sales.

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 $14.2 million in Q3 fiscal 2025 as compared to the prior year driven by the increase in sales.

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.

The gross margin in Q3 fiscal year 2025 was comparable to Q3 fiscal year 2024 .

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 Q2 fiscal 2025 was comparable to the same prior-year period.

SG&A expense increased in Q3 fiscal 2025 compared to the same prior-year period primarily due to employee compensation, professional fees and information technology costs.

Research and development.

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R&D expenses increased $1.5 million in Q3 fiscal 2025 as compared to Q3 fiscal 2024 driven by increased compensation costs to support new product development initiatives primarily in our Security division.

Restructuring and other charges.

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

During Q2 fiscal 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.

Restructuring and other charges 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 Q3 fiscal 2025, restructuring and other charges were $2.3 million, which included $1.8 million in employee terminations, and $0.5 million for facility closure costs.

During Q3 fiscal 2024, restructuring and other charges primarily consisted of $0.5 million for facility closure costs for operational efficiency activities, and $0.5 million for employee terminations.

Interest and Other Expense, Net

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For Q3 fiscal 2025, interest and other expense, net was $8.2 million as compared to $7.4 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, business acquisition activity, and for the repurchase of approximately $80 million of common stock in July 2024.

Interest expense in Q3 fiscal 2025 and Q3 fiscal 2024 includes a benefit from the interest rate swap of $0.4 million and $0.9 million, respectively.

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

For Q2 fiscal 2025 and 2024, we recognized a provision for income taxes of $11.5 million and $9.2 million, respectively.

For Q3 fiscal 2025 and 2024, the provision for income taxes was $6.9 million and $9.9 million, respectively.

The effective tax rates for Q3 fiscal 2025 and 2024 were 14.3% and 22.6%, respectively.

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

During Q2 fiscal 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)

During Q3 fiscal 2025 we recognized net discrete tax benefits of $4.5 million related to equity-based compensation under ASU 2016- 09 and changes in prior year tax estimates and uncertain tax benefits.

During Q3 fiscal 2024 we recognized net discrete tax benefits of $0.2 million related to equity-based compensation under ASU 2016-09 and changes in prior year tax estimates.

Results of Operations for the Nine Months Ended March 31, 2024 (YTD Q3 Fiscal 2024) Compared to the Nine Months Ended March 31, 2025 (YTD Q3 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 YTD Q3 fiscal 2025 increased year-over-year due to an increase in product and service revenues of approximately $94.0 million and $34.6 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 product revenues was primarily driven by growth in cargo and vehicle inspection systems, checkpoint screening systems, trace detection 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.

Revenues for the Optoelectronics and Manufacturing division during YTD Q3 fiscal 2025 increased year-over year as a result of an increase in revenue in our contract manufacturing business.

Revenues for the Healthcare division during YTD Q3 fiscal 2025 increased year-over-year due to an increase in patient monitoring sales and related service revenue.

Gross profit increased approximately $42.8 million in YTD Q3 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.

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

Operating Expenses

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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.

SG&A expense for YTD Q3 fiscal 2025 was $18.2 million higher than in the same prior-year period, primarily due to increased employee compensation and unfavorable impact of foreign currency exchange rates in YTD Q3 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.

R&D expenses for YTD Q3 fiscal 2025 increased $5.2 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.

Restructuring and other charges for YTD Q3 fiscal 2025 were $3.6 million, which included $0.6 million in acquisition related costs, $0.8 million for facility closure costs for operational efficiency activities, and $2.3 million for employee terminations.

Interest and Other Expense, Net

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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 Q3 fiscal 2025 and 2024 included a benefit of $2.0 million and $2.7 million, respectively, from the interest rate swap.

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

For YTD Q3 fiscal 2025 and 2024, the provision for income taxes was $23.4 million and $23.1 million, respectively.

The effective tax rates for YTD Q3 fiscal 2025 and 2024 were 19.5% and 21.7%, 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.

For YTD Q3 fiscal 2025, we recognized a discrete tax benefit of $1.3 million related to equity-based compensation under ASU 2016-09 and a benefit of $4.0 million from changes in prior year tax estimates and uncertain tax benefits.

For YTD Q3 fiscal 2024, we recognized a discrete tax benefit of $0.8 million related to equity-based compensation under ASU 2016-09 and a benefit of $2.3 million from changes in prior year tax estimates.

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

Cash and cash equivalents totaled $95.8 million at March 31, 2025, an increase of $0.4 million, or 0.5%, 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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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 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.

As of March 31, 2025, there was $130.0 million outstanding under the term loan, $156.0 million outstanding under our revolving credit facility and $75.1 million of outstanding letters of credit.

As of March 31, 2025, the total amount available under our revolving credit facility was $368.9 million.

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

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For YTD Q3 fiscal 2025, cash provided by operations was $97.0 million compared to cash used in operations of $58.5 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.

The net change in cash flows from operating activities was due primarily to favorable changes in net working capital compared to the prior-year period and higher net income for YTD Q3 fiscal 2025 over the comparable prior-year period.

Cash Used in Investing Activities .

Net cash used in investing activities was $106.4 million for YTD Q3 fiscal 2025 as compared to $24.9 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.

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

Capital expenditures for YTD Q3 fiscal year 2025 were $17.7 million compared to $13.6 million in the same prior-year period.

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Net cash provided by financing activities was $10.4 million for YTD Q3 fiscal 2025, compared to $110.7 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.

The decrease in cash flows from financing activities was primarily due to net proceeds of $340.6 million from issuance of the 2029 Notes, partially offset by (1) net repayment of $228.0 million on our credit facility and (2) repurchase of shares of common stock of $80.4 million.

Taxes paid related to net share settlement of equity awards were $22.6 million during YTD Q3 fiscal 2025 compared to $23.2 million in the same prior-year period.

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Cash Held by Foreign Subsidiaries

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

Our cash and cash equivalents totaled $95.8 million at March 31, 2025.

Of this amount, approximately 83% 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, and to a lesser extent in Malaysia, Singapore, and Canada, among other countries.

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

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

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

Issuer Purchase of Equity Securities

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

Issuer Purchases of Equity Securities

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

Contractual Obligations

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.

During the nine months ended March 31, 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.

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 second quarter of fiscal year 2025.

There were no new pronouncements adopted in the third 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