What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-25 compared with 2024-08-29 · 58 added, 77 removed, 184 unchanged (42% of the section changed)

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Security Division.

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

Through our Security division, we provide security screening products, multi-platform software solutions, 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 70% of our total consolidated revenues for fiscal 2025.

As a result of terrorist attacks and smuggling operations against the U.S.

and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, sports and entertainment venues, government and military installations, railways, and nuclear facilities.

We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to pursue security and inspection opportunities as they arise throughout the world.

In recent years, U.S.

government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies, including those responsible for national security spending.

Additionally, there continues to be volatility in international markets that has impacted international security spending.

We believe that the diversified product portfolio and international customer mix of our Security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments.

However, future budgetary reductions may be implemented as both the U.S.

Government and other international government customers manage fiscal challenges including those stemming from government spending that occurred during the COVID-19 pandemic;

such reductions could have a material, adverse effect on our business, financial condition and results of operations.

Optoelectronics and Manufacturing Division.

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Revenues from our Healthcare division accounted for 10% of our total consolidated revenues for fiscal 2025.

The healthcare markets in which we operate are highly competitive.

We believe that our customers choose among competing products on the basis of product performance, functionality, price, value and service.

In addition, many factors, including public policy spending priorities, available resources, and product and economic cycles, have a significant impact on the capital spending policies of our customers.

Impasses in national, regional, or local government budgeting decisions could lead to substantial delays or reductions in governmental spending.

Many of our products have lengthy sales and purchase order cycles or are subject to competitive bidding or public tender processes.

As a result, customers may delay or accelerate system purchases in conjunction with timing of their capital budget timelines or be unable to complete such purchases at all.

Consolidated Results

Discussion and analysis of our financial condition and results of operations for fiscal 2022 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2023.

Discussion and analysis of our financial condition and results of operations for fiscal 2023 (compared with fiscal 2024) have been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2024.

Fiscal 2025 Compared with Fiscal 2024.

We reported consolidated sales of $1,538.8 million in fiscal 2024, a 20.4% increase compared to the prior year.

Our income from operations increased to $189.1 million in fiscal 2024 or 39.8% growth from the prior year driven primarily by increased sales of $260.3 million which increased associated gross profit by $99.9 million, partially offset by and an increase in operating expenses of $46.2 million.

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

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

Acquisitions.

We acquired two businesses in fiscal 2024 and four businesses in fiscal 2023, as described in Note 2 to the Consolidated Financial Statements.

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

None of these acquisitions was considered material.

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government against certain businesses and individuals in select countries.

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

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

To date, our strategies have helped minimize our exposure to these conditions.

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

Healthcare Considerations.

As described, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic.

Certain hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, higher interest rates make access to credit more expensive, and fiscal stimulus programs enacted during the COVID - 19 pandemic wind down.

Certain hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs and higher interest rates make access to credit more expensive.

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

Government Policies.

Our results of operations and cash flows could be materially affected by changes in U.S.

or foreign government legislative, regulatory or enforcement policies.

Russia’s Invasion of Ukraine.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

Russia-Ukraine and Israel-Hamas Conflicts.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict as well as the Israel-Hamas conflict have increased global economic and political uncertainty.

This has the potential to indirectly disrupt our supply chain and access to certain resources.

While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.

The conflict also has increased the threat of malicious cyber activity from nation states and other actors.

While we have not experienced significant adverse impacts to date resulting from these conflicts, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.

The conflicts also have increased the threat of malicious cyber-activity from other countries and other actors.

Currency Exchange Rates.

On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 1.6% for the year ended June 30, 2024 compared to the year ended June 30, 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 0.4% for the year ended June 30, 2025 compared to the year ended June 30, 2024, primarily due to the weakening of the U.S.

dollar against other foreign currencies in fiscal 2025.

Any further strengthening of the U.S.

Any strengthening of the U.S.

dollar against foreign currencies would adversely impact our sales in future periods, and any weakening of the U.S.

dollar against foreign currencies would positively impact our sales in future periods.

Coronavirus Pandemic.

The coronavirus disease 2019 (“COVID-19”) pandemic dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility.

The COVID-19 pandemic caused, and may continue to cause, significant economic disruptions and impacted, and may continue to impact, our operations and the operations of our suppliers, logistics providers and customers as a result of supply chain disruptions and delays, as well as labor challenges.

During the early stages of the pandemic, our Healthcare division experienced increased demand for certain products as a result of COVID-19.

In our Security division, throughout the pandemic, receipt of certain orders was delayed, most notably with respect to our aviation and cargo products, and our revenues were adversely impacted as a result of the pandemic.

Significant International Security Contracts.

During fiscal years 2023 and 2024, our Security division was awarded three significant international contracts valued in aggregate greater than $800 million with expected revenues to be recognized over multiple years.

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

Further revenues are expected to be recognized in fiscal year 2026 and beyond, albeit at relatively lower amounts as we have fulfilled the majority of equipment deliveries as of the end of fiscal year 2025.

Critical Accounting Policies and Estimates

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If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation.

The majority of our inventories are valued using the average costing method with select subsidiaries using the standard costing method.

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

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

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

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

Income Taxes.

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Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties.

Significant judgment is required in determining our tax expense and in evaluating our tax positions including uncertainties.

We review our tax positions quarterly and adjust the balances as new information becomes available.

We recognize liabilities for uncertain tax positions that reflect our best estimate of the amount ultimately expected to be paid, including, where appropriate, related interest and penalties.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

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

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

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

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

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

Business Combinations.

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

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

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

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

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2024 decreased year-over year mainly due to a decline of $11.9 million in the optoelectronics business.

The contract manufacturing business partially offset the decline with an increase of $8.4 million in revenue.

The slowdown in the optoelectronics business was primarily driven by the push-out of orders and deliveries from customers who were adjusting their inventory levels

Revenues for the Healthcare division during the fiscal year ended June 30, 2024 decreased year-over-year due primarily to a reduction in patient monitoring sales of $24.2 million, partially offset by increases in service revenue of $3.7 million, cardiology sales of $0.3 million and supplies and accessories revenue of $1.1 million.

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

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

(Dollars in millions)

Fiscal 2025 Compared with Fiscal 2024.

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 $100.0 million in fiscal 2024 as compared to the prior year on a 20.4% increase in sales.

The gross margin increased from 33.7% to 34.5% driven by economies of scale on increased sales, especially in the Security division, and a favorable overall mix of sales.

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

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

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

Operating Expenses

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Research and development

Impairment, restructuring and other charges

Restructuring and other charges

Total operating expenses

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Fiscal 2025 Compared with Fiscal 2024.

SG&A expense for the fiscal year ended June 30, 2024 was $41.4 million higher than in the same prior-year period, primarily due to increases in compensation expense, provision for losses on accounts receivable, and an unfavorable impact of foreign currency exchange rates compared to the same prior-year period.

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

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

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Fiscal 2025 Compared with Fiscal 2024.

R&D expense during the fiscal year ended June 30, 2024 was $5.9 million higher than in the same prior-year period, driven primarily by compensation costs related to investments to support new product development initiatives, mainly in our Security division compared to the same prior-year period.

Impairment, Restructuring and Other Charges

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

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

Restructuring and Other Charges

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

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

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

During the fiscal year ended June 30, 2023, restructuring and other charges were $7.6 million and consisted of $3.9 million for legal charges, net of insurance reimbursements, $1.7 million for employee terminations, $1.5 million for other facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.

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

Interest and Other Expense, Net

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Fiscal 2025 Compared with Fiscal 2024.

For the fiscal year ended June 30, 2024, interest and other expense, net was $27.8 million as compared to $20.0 million in the comparable prior-year period.

This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility.

We also executed an interest rate swap in fiscal 2023 which resulted in a benefit of $1.3 million and $3.6 million in fiscal 2023 and 2024, respectively.

For the fiscal year ended June 30, 2025, interest and other expense, net was $31.4 million as compared to $27.8 million in the prior fiscal year.

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

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

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

Provision for Income Taxes

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The effective tax rate for the fiscal years ended June 30, 2025 and 2024 was 19.6% and 20.5%, respectively.

During the fiscal years ended June 30, 2024 and 2023, we recognized a net discrete tax benefit of $4.7 million and $2.8 million, respectively, primarily related to equity-based compensation under ASU 2016-09, adjustments to prior year estimates, and changes in uncertain tax positions.

During the fiscal years ended June 30, 2025 and 2024, we recognized a net discrete tax benefit of $6.7 million and $4.7 million, respectively.

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

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

Liquidity and Capital Resources

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

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations, existing cash borrowing arrangements and access to capital markets.

Cash and cash equivalents totaled $106.4 million at June 30, 2025, compared to $95.4 million at June 30, 2024.

During fiscal 2024, cash used in operations was $87.5 million.

As a result, we borrowed $169.0 million under our credit facility to fund working capital requirements as well as the following:

$39.4 million invested in capital expenditures and acquisition of intangible assets, $9.0 million for the acquisition of two businesses and $23.3 million for taxes paid related to the net share settlement of equity awards.

During fiscal 2025, we generated positive cash flow from operating activities and issued senior convertible notes which were primarily used to repay borrowings on our credit facility, repurchase shares of common stock, fund investing activities and pay taxes related to net share settlements of equity awards as discussed further below.

If we continue to net settle equity awards, we will continue to use additional cash to pay our tax withholding obligations in connection with such settlements.

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

As further described in Note 8 to the consolidated financial statements, subsequent to June 30, 2024 we issued $350 million in senior convertible notes which have a coupon interest rate of 2.25% maturing in August 2029.

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.

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

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

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

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

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 fiscal 2024, we used cash from operations of $87.5 million compared to cash provided by operations of $94.8 million in the prior fiscal year.

The net change in cash flows from operating activities was due primarily to a net increase in accounts receivable and inventories associated with the revenue growth in the Security division, partially offset by other changes in net working capital compared with the same period last year as well as impact of higher net income in fiscal 2024 compared with the prior fiscal year.

During fiscal 2025, cash provided by operations was $97.6 million compared to cash used in operations of $87.5 million in the prior fiscal year.

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

Cash Used in Investing Activities.

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

Cash Provided by (Used in) Financing Activities.

Net cash provided by financing activities was $144.3 million during fiscal 2024, compared to net cash used of $37.2 million during the prior fiscal year.

The changes in cash flows from financing activities primarily relate to (i) net borrowings on bank lines of credit and long-term debt of $162.0 million in fiscal 2024 compared to $5.9 million in the prior fiscal year;

(ii) $23.3 million used for taxes paid related to the net share settlement of equity awards in fiscal 2024 compared to $12.0 million in the prior fiscal year;

and (iii) there were no share repurchases in fiscal 2024 compared to $34.7 million in the prior fiscal year.

Cash Provided by Financing Activities.

Net cash provided by financing activities was $30.8 million during fiscal 2025, compared to $144.3 million during the prior fiscal year.

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

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

Material Cash Requirements

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

Outstanding lines of credit and current and long-term debt totaled $521.6 million at June 30, 2024, an increase of $162.0 million from $359.6 million at June 30, 2023.

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

As of June 30, 2025, we were in compliance with all financial covenants under our various borrowing agreements.

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

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

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

However, our future capital requirements will depend on many factors, including future business acquisitions, capital expenditures, litigation, stock repurchases and levels of research and development spending, among other factors.

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

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

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

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.

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

During fiscal 2024, we did not repurchase shares of our common stock.

During fiscal 2025, we repurchased 531,314 shares of our common stock.

As of June 30, 2025, 1,190,556 shares remained available for repurchase.

Subsequent to June 30, 2024, in connection with the issuance of $350 million in convertible senior notes in July 2024, we repurchased 531,314 shares of common stock for an aggregate purchase price of $80 million.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis