UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-23125

OSI SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0238801
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12525 Chadron Avenue

Hawthorne, California 90250

(Address of principal executive offices) (Zip Code)

(310) 978-0516

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	OSIS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of ~~April 22,~~October 25, 2021, there were ~~17,980,207~~17,942,081 shares of the registrant’s common stock outstanding.

Table of Contents

OSI SYSTEMS, INC.

INDEX


		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, ~~2020~~2021 and ~~March 31,~~September 30, 2021	3
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2021	87
	Notes to Condensed Consolidated Financial Statements	98
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2522
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	3227
Item 4 —	Controls and Procedures	3227

PART II — OTHER INFORMATION		3329
Item 1 —	Legal Proceedings	3329
Item 1A —	Risk Factors	3329
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	3329
Item 3 —	Defaults Upon Senior Securities	3329
Item 4 —	Mine Safety Disclosures	3329
Item 5 —	Other Information	3329
Item 6 —	Exhibits	3430
Signatures		3531

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


	June 30,		March 31,
	2020		2021		June 30, 2021		September 30, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	76,102	$	92,465	$	80,613	$	54,663
Accounts receivable, net		269,840		258,594		290,653		292,004
Inventories		241,226		283,523		294,208		320,673
Prepaid expenses and other current assets		30,541		26,828		43,930		62,870
Total current assets		617,709		661,410		709,404		730,210
Property and equipment, net		127,936		125,477		118,004		116,814
Goodwill		310,627		319,211		320,304		319,345
Intangible assets, net		128,279		130,058		127,608		127,262
Other assets		83,990		89,804		109,047		117,008
Total assets	$	1,268,541	$	1,325,960	$	1,384,367	$	1,410,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	59,000	$	0	$	—	$	26,000
Current portion of long-term debt		926		925		846		286,954
Accounts payable		84,940		122,719		141,263		140,544
Accrued payroll and related expenses		46,127		40,860		50,816		36,998
Advances from customers		28,155		48,132		38,463		34,564
Other accrued expenses and current liabilities		110,953		113,433		113,379		131,728
Total current liabilities		330,101		326,069		344,767		656,788
Long-term debt		267,072		273,997		276,421		692
Deferred income taxes		5,846		1,507		7,157		4,685
Other long-term liabilities		93,370		108,494		116,202		125,162
Total liabilities		696,389		710,067		744,547		787,327
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value— 10,000,000 shares authorized; 0 shares issued or outstanding		—		—		—		—
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 18,011,982 shares at June 30, 2020 and 17,980,207 shares at March 31, 2021		122,553		110,744
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 17,854,110 shares at June 30, 2021 and 17,941,393 shares at September 30, 2021						105,724		53,377
Retained earnings		474,793		522,948		548,842		586,850
Accumulated other comprehensive loss		(25,194)		(17,799)		(14,746)		(16,915)
Total stockholders’ equity		572,152		615,893		639,820		623,312
Total liabilities and stockholders’ equity	$	1,268,541	$	1,325,960	$	1,384,367	$	1,410,639

See accompanying notes to condensed consolidated financial statements.

Table of Contents

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021		2020		2021
Net revenues:
Products	$	213,257	$	217,124	$	646,790	$	608,238	$	182,747	$	207,212
Services		79,626		66,663		242,287		206,466		72,161		72,045
Total net revenues		292,883		283,787		889,077		814,704		254,908		279,257
Cost of goods sold:
Products		141,069		144,958		436,120		409,692		124,841		142,906
Services		42,707		34,810		133,866		103,161		34,316		37,021
Total cost of goods sold		183,776		179,768		569,986		512,853		159,157		179,927
Gross profit		109,107		104,019		319,091		301,851		95,751		99,330
Operating expenses:
Selling, general and administrative		65,576		57,906		191,655		172,624		58,617		57,323
Research and development		15,358		13,932		44,485		39,798		12,082		14,817
Impairment, restructuring and other charges (benefit), net		4,548		(285)		1,520		7,912
Impairment, restructuring and other charges, net										8,359		2,510
Total operating expenses		85,482		71,553		237,660		220,334		79,058		74,650
Income from operations		23,625		32,466		81,431		81,517		16,693		24,680
Interest and other expense, net		(4,706)		(4,167)		(14,286)		(12,589)		(4,189)		(2,016)
Income before income taxes		18,919		28,299		67,145		68,928		12,504		22,664
(Provision) benefit for income taxes		639		(9,526)		(5,858)		(20,773)
Provision for income taxes										(3,160)		(3,612)
Net income	$	19,558	$	18,773	$	61,287	$	48,155	$	9,344	$	19,052
Earnings per share:
Basic	$	1.08	$	1.04	$	3.36	$	2.68	$	0.52	$	1.06
Diluted	$	1.06	$	1.03	$	3.28	$	2.63	$	0.51	$	1.04
Shares used in per share calculation:
Basic		18,182		17,969		18,251		17,981		18,051		17,947
Diluted		18,513		18,298		18,693		18,278		18,335		18,306

See accompanying notes to condensed consolidated financial statements.

Table of Contents

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021		2020		2021
Net income	$	19,558	$	18,773	$	61,287	$	48,155	$	9,344	$	19,052
Other comprehensive income (loss):
Foreign currency translation adjustment		(8,314)		(503)		(8,726)		7,219		3,454		(2,302)
Other		10		59		29		176		59		133
Other comprehensive income (loss)		(8,304)		(444)		(8,697)		7,395		3,513		(2,169)
Comprehensive income	$	11,254	$	18,329	$	52,590	$	55,550	$	12,857	$	16,883

See accompanying notes to condensed consolidated financial statements.

Table of Contents

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)


	Three Months Ended March 31, 2020									Three Months Ended September 30, 2020
						Accumulated									Accumulated
	Common Stock					Other				Common Stock					Other
	Number of			Retained		Comprehensive				Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total		Shares	Amount		Earnings		Loss		Total
Balance—December 31, 2019	18,267,574	$	133,566	$	441,270	$	(17,120)	$	557,716
Balance—June 30, 2020										18,011,982	$	122,553	$	474,793	$	(25,194)	$	572,152
Exercise of stock options	1,041		80		—		—		80	69,195		80		—		—		80
Vesting of RSUs	1,671		—		—		—		—	286,701		—		—		—		—
Shares issued under employee stock purchase program	36,758		2,221		—		—		2,221	32,641		2,022		—		—		2,022
Stock-based compensation expense	—		5,837		—		—		5,837	—		6,109		—		—		6,109
Repurchase of common stock	(295,833)		(24,781)		—		—		(24,781)	(320,136)		(24,816)		—		—		(24,816)
Taxes paid related to net share settlement of equity awards	(586)		(51)		—		—		(51)	(167,842)		(10,864)		—		—		(10,864)
Net income	—		—		19,558		—		19,558	—		—		9,344		—		9,344
Other comprehensive loss	—		—		—		(8,304)		(8,304)
Balance—March 31, 2020	18,010,625	$	116,872	$	460,828	$	(25,424)	$	552,276
Other comprehensive income										—		—		—		3,513		3,513
Balance—September 30, 2020										17,912,541	$	95,084	$	484,137	$	(21,681)	$	557,540

Three Months Ended March 31, 2021

Accumulated

Common Stock

Other


Number of



Retained

Comprehensive


Shares

Amount

Earnings

Loss

Total
Balance—December 31, 2020

17,933,256

$
100,816

$
504,175

$
(17,355)

$
587,636
Exercise of stock options

9,703

624

—

—

624
Vesting of RSUs

6,519

—

—

—

—
Shares issued under employee stock purchase program

35,539

2,193

—

—

2,193
Stock-based compensation expense

—

7,565

—

—

7,565
Repurchase of common stock

(2,452)

(235)

—

—

(235)
Taxes paid related to net share settlement of equity awards

(2,358)

(219)

—

—

(219)
Net income

—

—

18,773

—

18,773
Other comprehensive loss

—

—

—

(444)

(444)
Balance—March 31, 2021

17,980,207

$
110,744

$
522,948

$
(17,799)

$
615,893


	Three Months Ended September 30, 2021
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2021	17,854,110	$	105,724	$	548,842	$	(14,746)	$	639,820
Exercise of stock options	162,393		155		—		—		155
Vesting of RSUs	310,077		—		—		—		—
Shares issued under employee stock purchase program	27,960		1,990		—		—		1,990
Stock-based compensation expense	—		7,113		—		—		7,113
Repurchase of common stock	(168,506)		(16,231)		—		—		(16,231)
Taxes paid related to net share settlement of equity awards	(244,641)		(18,611)		—		—		(18,611)
Adoption of ASU 2020-06 for convertible notes	—		(26,763)		18,956		—		(7,807)
Net income	—		—		19,052		—		19,052
Other comprehensive loss	—		—		—		(2,169)		(2,169)
Balance—September 30, 2021	17,941,393	$	53,377	$	586,850	$	(16,915)	$	623,312

Table of Contents

Nine Months Ended March 31, 2020

Accumulated

Common Stock

Other


Number of



Retained

Comprehensive


Shares

Amount

Earnings

Loss

Total
Balance—June 30, 2019

18,167,020

$
168,913

$
399,541

$
(16,727)

$
551,727
Exercise of stock options

201,003

4,112

—

—

4,112
Vesting of RSUs

388,756

—

—

—

—
Shares issued under employee stock purchase program

71,595

4,286

—

—

4,286
Stock-based compensation expense

—

18,097

—

—

18,097
Repurchase of common stock

(562,707)

(51,775)

—

—

(51,775)
Taxes paid related to net share settlement of equity awards

(255,042)

(26,761)

—

—

(26,761)
Net income

—

—

61,287

—

61,287
Other comprehensive loss

—

—

—

(8,697)

(8,697)
Balance—March 31, 2020

18,010,625

$
116,872

$
460,828

$
(25,424)

$
552,276

Nine Months Ended March 31, 2021

Accumulated

Common Stock

Other


Number of



Retained

Comprehensive


Shares

Amount

Earnings

Loss

Total
Balance—June 30, 2020

18,011,982

$
122,553

$
474,793

$
(25,194)

$
572,152
Exercise of stock options

87,235

1,187

—

—

1,187
Vesting of RSUs

310,939

—

—

—

—
Shares issued under employee stock purchase program

68,180

4,215

—

—

4,215
Stock-based compensation expense

—

19,386

—

—

19,386
Repurchase of common stock

(322,588)

(25,051)

—

—

(25,051)
Taxes paid related to net share settlement of equity awards

(175,541)

(11,546)

—

—

(11,546)
Net income

—

—

48,155

—

48,155
Other comprehensive income

—

—

—

7,395

7,395
Balance—March 31, 2021

17,980,207

$
110,744

$
522,948

$
(17,799)

$
615,893

~~Table of Contents~~

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

Nine Months Ended March 31,

2020

2021
CASH FLOWS FROM OPERATING ACTIVITIES





Net income

$
61,287

$
48,155
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions:

Depreciation and amortization

37,807

31,433
Stock-based compensation expense

18,097

19,386
Provision for losses on accounts receivable

2,641

6,176
Deferred income taxes

(50)

(1,364)
Amortization of debt discount and issuance costs

6,984

7,277
Impairment charges

3,258

552
Other

137

(217)
Changes in operating assets and liabilities—net of business acquisitions:

Accounts receivable

(23,945)

6,714
Inventories

28,871

(43,162)
Prepaid expenses and other assets

(18,127)

(4,263)
Accounts payable

10,243

37,113
Accrued payroll and related expenses

(5,655)

363
Advances from customers

(9,846)

19,468
Other

(6,149)

3,422
Net cash provided by operating activities

105,553

131,053
CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

(16,062)

(11,155)
Purchases of certificates of deposit

—

(4,820)
Proceeds from maturities of certificates of deposit

—

2,690
Acquisition of business, net of cash acquired

(3,521)

(3,000)
Payments for intangible and other assets

(8,764)

(9,878)
Net cash used in investing activities

(28,347)

(26,163)
CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings (repayments) on bank lines of credit

7,000

(59,000)
Proceeds from long-term debt

592

413
Payments on long-term debt

(723)

(778)
Proceeds from exercise of stock options and employee stock purchase plan

8,398

5,402
Payments of contingent consideration

(5,265)

(854)
Repurchases of common stock

(51,775)

(25,051)
Taxes paid related to net share settlement of equity awards

(26,761)

(11,546)
Net cash used in financing activities

(68,534)

(91,414)
Effect of exchange rate changes on cash

(3,962)

2,887
Net change in cash and cash equivalents

4,710

16,363
Cash and cash equivalents—beginning of period

96,316

76,102
Cash and cash equivalents—end of period

$
101,026

$
92,465
Supplemental disclosure of cash flow information:

Cash paid, net during the period for:

Interest

$
6,773

$
5,721
Income taxes

$
16,141

$
8,074


	Three Months Ended September 30,
	2020		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,344	$	19,052
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from acquisitions:
Depreciation and amortization		10,002		9,697
Stock-based compensation expense		6,109		7,113
Provision (recoveries) for losses on accounts receivable		2,916		(1,365)
Deferred income taxes		96		82
Amortization of debt discount and issuance costs		2,400		348
Impairment charges		552		—
Other		16		68
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		14,356		(850)
Inventories		(14,278)		(27,764)
Prepaid expenses and other assets		3,377		(17,611)
Accounts payable		7,358		(408)
Accrued payroll and related expenses		(9,469)		(13,579)
Advances from customers		12,773		(3,813)
Deferred revenue		5,355		6,280
Other		2,925		11,731
Net cash provided by (used in) operating activities		53,832		(11,019)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(3,780)		(3,474)
Purchases of certificates of deposit		(1,815)		(106)
Proceeds from maturities of certificates of deposit		700		—
Acquisition of business, net of cash acquired		(3,000)		—
Payments for intangible and other assets		(4,446)		(4,254)
Net cash used in investing activities		(12,341)		(7,834)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on bank lines of credit		(8,000)		26,000
Proceeds from long-term debt		156		82
Payments on long-term debt		(303)		(286)
Proceeds from exercise of stock options and employee stock purchase plan		2,102		2,145
Payments of contingent consideration		(121)		(304)
Repurchases of common stock		(24,816)		(16,231)
Taxes paid related to net share settlement of equity awards		(10,864)		(18,611)
Net cash used in financing activities		(41,846)		(7,205)
Effect of exchange rate changes on cash		1,178		108
Net change in cash and cash equivalents		823		(25,950)
Cash and cash equivalents—beginning of period		76,102		80,613
Cash and cash equivalents—end of period	$	76,925	$	54,663
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	3,015	$	2,400
Income taxes	$	1,735	$	4,800

See accompanying notes to condensed consolidated financial statements.

Table of Contents

OSI SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. 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, ~~2020~~2021 filed with the SEC. The results of operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the operating results to be expected for the full ~~2021~~2022 fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and costs of sales during the reporting period. The most significant of these estimates and assumptions for our company relate to contract revenue, ~~profit and loss recognition,~~ fair values of assets acquired and liabilities assumed in business combinations, values for inventories reported at lower of cost or net realizable value, stock-based compensation expense, income taxes, accrued warranty costs, legal contingencies and recoveries, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Due to the inherent uncertainty involved in making estimates, our actual amounts reported in future periods could differ materially from these estimates.

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 1.25% convertible senior notes due 2022 (the “Notes”) discussed in Note 87 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 $107.46 because the principal amount of the Notes is intended to be settled in cash upon conversion. There was 0 dilutive effect of the Notes for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and 2021.

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,
	2020		2021
Net income available to common stockholders	$	9,344	$	19,052
Weighted average shares outstanding—basic		18,051		17,947
Dilutive effect of equity awards		284		359
Weighted average shares outstanding—diluted		18,335		18,306
Basic earnings per share	$	0.52	$	1.06
Diluted earnings per share	$	0.51	$	1.04
Shares excluded from diluted earnings per share due to their anti-dilutive effect		87		20

Table of Contents

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

Three Months Ended March 31,

Nine Months Ended March 31,


2020

2021

2020

2021
Net income available to common stockholders

$
19,558

$
18,773

$
61,287

$
48,155

Weighted average shares outstanding—basic

18,182

17,969

18,251

17,981
Dilutive effect of equity awards

331

329

442

297
Weighted average shares outstanding—diluted

18,513

18,298

18,693

18,278

Basic earnings per share

$
1.08

$
1.04

$
3.36

$
2.68
Diluted earnings per share

$
1.06

$
1.03

$
3.28

$
2.63
Shares excluded from diluted earnings per share due to their anti-dilutive effect

145

51

100

64

Cash and Cash Equivalents

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 ~~$92.5~~$54.7 million at ~~March 31,~~September 30, 2021. Of this amount, approximately ~~58%~~83% 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, Malaysia, ~~Canada,~~ Singapore and ~~India~~Canada, and to a lesser extent in ~~Puerto Rico~~Australia, Albania and ~~Albania~~Germany among other countries. We have cash holdings in financial institutions that exceed insured limits for such financial institutions; however, we mitigate this risk by utilizing international financial institutions of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments and foreign currency forward contracts. The carrying values of financial instruments, other than ~~long-term~~long term debt instruments, 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 asbecause 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 ~~March 31,~~September 30, 2021.

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 109 to the condensed consolidated financial statements, are in the Level 3 category for valuation purposes.

The fair values of our financial assets and liabilities are categorized as follows (in thousands):

June 30, 2020

March 31, 2021


Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total
Assets :

Insurance company contracts

$
—

$
37,155

$
—

$
37,155

$
—

$
45,015

$
—

$
45,015
Liabilities:

Contingent consideration

$
—

$
—

$
13,867

$
13,867

$
—

$
—

$
19,337

$
19,337


	June 30, 2021								September 30, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets—Insurance company contracts	$	—	$	47,113	$	—	$	47,113	$	—	$	48,416	$	—	$	48,416
Liabilities—Contingent consideration	$	—	$	—	$	19,431	$	19,431	$	—	$	—	$	16,954	$	16,954

Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts. These forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations. These contracts have original maturities of up to three months. We do not use hedging instruments for speculative purposes.

~~Table of Contents~~

The net investment hedge has been designated as a hedge instrument and accounted for under Accounting Standards Codification ("ASC”) 815 ~~“Derivatives~~Derivatives and ~~Hedging”~~Hedging. Hedge effectiveness is assessed using the spot method, consistent with guidance in ASC 815 whereby the change in fair value of the forward contract is recorded in the same manner as the related currency translation adjustments, within other comprehensive income, as the hedging instrument is expected to be fully effective unless the amount hedged exceeds the net investment in the foreign operation, or the foreign operation is liquidated. ~~We settled the net investment hedge in the second quarter of fiscal 2021, and the amount recorded in other comprehensive loss was not significant.~~ There were no0 net investment hedges outstanding as of ~~March 31,~~September 30, 2021.

The net gains or losses from the foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated income statement. We initiated these forward contracts in the first quarter of fiscal ~~2021 and the~~2021. The amounts reported in the consolidated income statement for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 were not significant. The fair value of our forward foreign exchange 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 ~~March 31,~~June 30, 2021 and September 30, 2021, we held foreign currency forward contracts with notional amounts totaling ~~$23.5 million.~~$26.1 million and $22.4 million, respectively. Unrealized gains and losses from the forward currency forward contracts as of ~~March 31,~~September 30, 2021 were not significant. ~~There were no derivative instruments as of June 30, 2020.~~

~~Recently Adopted Accounting Pronouncements~~

In August 2018, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance under Accounting Standards Update (“ASU”) 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our disclosures in the consolidated financial statements.

In August 2018, the FASB issued authoritative guidance under ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. We adopted this new guidance in the first quarter of fiscal 2021, and it did not have a significant impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. Modifications to debt agreements for a change in the reference interest rate will be accounted for by prospectively adjusting the effective interest rate. The new standard was effective upon issuance and did not have a significant impact on our consolidated financial statements. ASU 2020-04 generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates; however the adoption of this new guidance for future modifications to contracts, if any, is not expected to have a significant impact on our consolidated financial statements.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. We are required to adopt this new guidance in the first quarter of fiscal 2023. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements.

119

Table of Contents

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions to the general principles of ASC 740 and is intended to improve consistency and simplify GAAP by clarifying and amending existing guidance for income taxes and related topics. We are required to adopt this new guidance in the first quarter of fiscal 2022. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We are currently evaluating the potential impact of adoption of this guidance on our consolidated financial statements.

2. Business Combinations

Under ASC 805, Business Combinations, the acquisition method of accounting requires us to record assets acquired less liabilities assumed in an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase consideration over the estimated fair value of the assets acquired less liabilities assumed should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. We may record adjustments to the assets acquired and liabilities assumed, with corresponding adjustments to goodwill, during the one-year post-acquisition measurement period as additional information becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are reflected in reported earnings.

~~Fiscal Year 2021 Business Acquisition~~Recently Adopted Accounting Pronouncements

Convertible Debt

In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments typically will be closer to the coupon interest rate. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year. We early adopted the new guidance on July ~~2020, we (through our Healthcare division) acquired~~1, 2021 using the modified retrospective approach and recorded a ~~privately-held software development company for $3.0~~$19 million ~~plus up~~increase to ~~$12.0~~retained earnings and a reduction of $27 million in ~~potential contingent consideration.~~common stock as if there had been no equity component. Additionally, we recorded an increase to the convertible notes balance by approximately $10 million. Interest expense recognized subsequent to adoption on July 1, 2021 will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.

Income Taxes

In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles of ASC 740 and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance. The ~~goodwill recognized for~~ASU applies to all entities that pay income taxes under GAAP. We adopted this ~~business is deductible for income tax purposes. This acquisition was financed with available cash~~accounting pronouncement on ~~hand. This business acquisition was~~July 1, 2021 using the modified prospective approach. The adoption of ASU 2019-12 did not have a material toimpact on our consolidated financial statements. ~~Accordingly, pro-forma historical results of operations and certain other disclosures related to this business have not been presented.~~

1210

Table of Contents

3.2. Balance Sheet Details

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


	June 30,		March 31,		June 30,		September 30,
Accounts receivable, net	2020		2021		2021		2021
Accounts receivable	$	287,488	$	281,970	$	315,926	$	315,864
Less allowance for doubtful accounts		(17,648)		(23,376)		(25,273)		(23,860)
Total	$	269,840	$	258,594	$	290,653	$	292,004


	June 30,		March 31,		June 30,		September 30,
Inventories	2020		2021		2021		2021
Raw materials	$	132,797	$	144,043	$	160,313	$	179,445
Work-in-process		50,023		68,853		59,594		59,773
Finished goods		58,406		70,627		74,301		81,455
Total	$	241,226	$	283,523	$	294,208	$	320,673



	June 30,		March 31,		June 30,		September 30,
Property and equipment, net	2020		2021		2021		2021
Land	$	16,516	$	16,345	$	16,357	$	16,349
Buildings, civil works and improvements		57,709		57,645		57,555		56,353
Leasehold improvements		9,052		8,654		8,874		9,083
Equipment, furniture and fixtures		149,310		156,006
Equipment and tooling						129,735		130,411
Furniture and fixtures						3,275		3,382
Computer equipment						19,349		20,108
Computer software		18,217		23,052		23,090		23,298
Computer software implementation in process		11,817		10,615		11,102		11,040
Construction in process		3,598		4,459		4,011		3,797
Total		266,219		276,776		273,348		273,821
Less accumulated depreciation and amortization		(138,283)		(151,299)		(155,344)		(157,007)
Property and equipment, net	$	127,936	$	125,477	$	118,004	$	116,814

Depreciation and amortization expense for property and equipment was ~~$5.4~~$5.2 million and ~~$5.5~~$5.3 million for the three months ended ~~March 31, 2020 and 2021, respectively, and $15.9 million and $16.3 million for the nine months ended March 31,~~September 30, 2020 and 2021, respectively.

4.3. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the ~~nine-month~~three-month period ended ~~March 31,~~September 30, 2021 were as follows (in thousands):


					Optoelectronics								Optoelectronics
					and								And
	Security		Healthcare		Manufacturing				Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated		Division		Division		Division		Consolidated
Balance as of June 30, 2020	$	203,627	$	39,983	$	67,017	$	310,627
Balance as of June 30, 2021									$	206,426	$	43,584	$	70,294	$	320,304
Goodwill acquired or adjusted during the period		1,905		3,244		—		5,149		212		—		—		212
Foreign currency translation adjustment		264		333		2,838		3,435		(150)		(94)		(927)		(1,171)
Balance as of March 31, 2021	$	205,796	$	43,560	$	69,855	$	319,211
Balance as of September 30, 2021									$	206,488	$	43,490	$	69,367	$	319,345

1311

Table of Contents

Intangible assets consisted of the following (in thousands):


		June 30, 2020						March 31, 2021							June 30, 2021						September 30, 2021
	Weighted	Gross						Gross						Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles		Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net		Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8 years	$	41,332	$	(16,295)	$	25,037	$	45,421	$	(14,817)	$	30,604	8-9 years	$	49,183	$	(15,679)	$	33,504	$	53,326	$	(16,436)	$	36,890
Patents	19 years		9,962		(2,584)		7,378		9,890		(2,790)		7,100	19 years		8,753		(2,597)		6,156		8,501		(2,697)		5,804
Developed technology	10 years		55,719		(19,556)		36,163		60,923		(24,352)		36,571	10 years		60,665		(25,923)		34,742		60,612		(27,505)		33,107
Customer relationships/backlog	7 years		64,128		(32,110)		32,018		62,577		(35,929)		26,648
Customer relationships														7 years		50,676		(26,588)		24,088		50,099		(27,750)		22,349
Total amortizable assets			171,141		(70,545)		100,596		178,811		(77,888)		100,923			169,277		(70,787)		98,490		172,538		(74,388)		98,150
Non-amortizable assets:
In-process research and development			533		—		533		533		—		533
In-process R&D																533		—		533		533		—		533
Trademarks			27,150		—		27,150		28,602		—		28,602			28,585		—		28,585		28,579		—		28,579
Total intangible assets		$	198,824	$	(70,545)	$	128,279	$	207,946	$	(77,888)	$	130,058		$	198,395	$	(70,787)	$	127,608	$	201,650	$	(74,388)	$	127,262

Amortization expense related to intangible assets was ~~$4.9~~$4.8 million and ~~$4.8~~$4.4 million for the three months ended ~~March 31,~~September 30, 2020 and 2021, ~~respectively. For the nine months ended March 31, 2020 and 2021, amortization expense related to intangible assets was $14.3 million and $15.1 million,~~ respectively.

At ~~March 31,~~September 30, 2021, the estimated future amortization expense for intangible assets was as follows (in thousands):

2021 (remaining 3 months)

$
4,660
2022

17,152
2023

17,377
2024

16,705
2025

13,986
Thereafter

31,043
Total

$
100,923

Fiscal Year


2022 (remaining 9 months)	$	12,764
2023		19,482
2024		18,962
2025		15,668
2026		11,736
Thereafter		19,538
Total	$	98,150

Software development costs for software products incurred before establishing technological feasibility are charged to operations. 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. In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above. For each of the three months ended ~~March 31,~~September 30, 2020 and 2021, we capitalized software development costs in the ~~amounts~~amount of ~~$4.5 million and $2.6 million, respectively. For the nine months ended March 31, 2020 and 2021, we capitalized software development costs in the amounts of $7.7 million and $9.1 million, respectively.~~$4.1 million.

5.4. Contract Assets and Liabilities

We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to 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 ~~sheet.~~sheets. We may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability. We recognize these contract liabilities as sales after all revenue recognition criteria are met.

1412

Table of Contents

~~Contract~~The table below shows the balance of contract assets and liabilities as of June 30, 2021 and September 30, 2021, including the change between the periods. There were ~~as follows~~no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands):


	June 30,		September 30,
	2021		2021		Change		% Change
Unbilled revenue (included in accounts receivable, net)	$	40,853	$	41,107	$	254	1	%

Contract Liabilities (in thousands)

June 30,

March 31,




Contract Assets:

2020

2021

$ Change

% Change

Unbilled revenue

$
43,011

$
46,866

$
3,855

9
%


Contract Liabilities:

									June 30,		September 30,
									2021		2021		Change		% Change
Advances from customers	$	28,155	$	48,132	$	19,977	71	%	$	38,463	$	34,564	$	(3,899)	(10)	%
Deferred revenue—current		32,863		37,075		4,212	13	%		32,689		35,615		2,926	9	%
Deferred revenue—long-term		13,214		13,470		256	2	%		14,898		18,150		3,252	22	%

Contract assets ~~increased during~~were comparable with the ~~nine months ended March 31, 2021 primarily due to satisfaction~~beginning of ~~performance obligations for aviation, cargo and vehicle inspection customers in our Security division which have not yet been billed.~~the fiscal year. The increase in contract liabilities was primarily due to deferred revenue from receipt of ~~upfront deposits from customers~~payments under service and warranty contracts primarily in our Security division.

Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the aggregate 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 ~~March 31,~~September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately ~~$322.8~~$414.1 million. We expect to recognize revenue on approximately ~~67%~~34% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter. During the ~~nine~~three months ended ~~March 31,~~September 30, 2021, we recognized revenue of ~~$45.0~~$22.8 million from contract liabilities existing at the beginning of the period.

Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.

6.5. Leases

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

Three Months Ended March 31,

Nine Months Ended March 31,

2020

2021

2020

2021
Operating lease cost

$
2,525

$
2,216

$
7,771

$
7,120
Variable lease cost

237

280

551

723
Short-term lease cost

350

258

745

649

$
3,112

$
2,754

$
9,067

$
8,492

~~Supplemental disclosures related to operating leases were as follows (in thousands):~~

Balance Sheet Category

June 30, 2020

March 31, 2021
Operating lease ROU assets, net

Other assets

$
27,936

$
23,856

Operating lease liabilities, current portion

Other accrued expenses and current liabilities

$
8,537

$
7,646
Operating lease liabilities, long-term

Other long-term liabilities

19,713

16,742
Total operating lease liabilities

$
28,250

$
24,388

Weighted average remaining lease term

4.2 years
Weighted average discount rate

4.2 %


	Three Months Ended September 30,
	2020		2021
Operating lease cost	$	2,533	$	2,275
Variable lease cost		258		184
Short-term lease cost		212		279
	$	3,003	$	2,738

1513

Table of Contents

Supplemental disclosures related to operating leases were as follows (in thousands):


	Balance Sheet Category	June 30, 2021		September 30, 2021
Operating lease ROU assets, net	Other assets	$	23,439	$	29,787

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	7,499	$	7,591
Operating lease liabilities, long-term	Other long-term liabilities		16,317		22,526
Total operating lease liabilities		$	23,816	$	30,117

Weighted average remaining lease term					3.9 years
Weighted average discount rate					4.1 %

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


	Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021
Cash paid for operating lease liabilities	$	7,664	$	7,773	$	2,580	$	2,327
ROU assets obtained in exchange for new lease obligations		3,718		1,810		122		1,643

Maturities of operating lease liabilities at ~~March 31,~~September 30, 2021 were as follows (in thousands):


	March 31, 2021		September 30, 2021
Less than one year	$	8,475	$	8,378
1 – 2 years		5,929		7,298
2 – 3 years		4,866		6,044
3 – 4 years		3,215		4,395
4 – 5 years		2,060		3,635
Thereafter		2,421		2,751
		26,966		32,501
Less: imputed interest		(2,578)		(2,384)
Total lease liabilities	$	24,388	$	30,117

7.6. Impairment, Restructuring and Other Charges

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

During the three months ended ~~March 31,~~September 30, 2021, we recognized ~~a total net benefit of ($0.3)~~$2.5 million in restructuring and other charges which included a$2.2 million in legal charges net ~~benefit~~ of ~~($0.7) million for reimbursements from our~~ insurance ~~carriers for covered legal charges. We also incurred charges of $0.2~~recoveries, $0.3 million for employee terminations, and ~~$0.2 million~~an insignificant net benefit for facility closure and operational efficiency activities.

During the ~~nine~~three months ended ~~March 31, 2021,~~September 30, 2020, we ~~incurred a total net expense of $7.9 million which included $7.2 million for~~commenced exit activities associated with an expired turnkey contract in ~~Mexico. Such~~Mexico whereby we incurred non-recurring charges totaling $6.9 million comprised of exit costs ~~include $2.8~~of $2.5 million for employee terminations, ~~$1.1 million for~~ facility closure and other exit costs of $1.1 million, direct transaction costs of $2.7 million and ~~$0.6 million for~~impairment of a right-of-use asset ~~impairment for a leased facility.~~of $0.6 million. We also ~~incurred costs of $1.6 million for~~conducted other ~~employee terminations and facility closure costs for~~ operational efficiency activities ~~and $0.3 million for acquisition-related activities. We also recognized a net benefit of ($1.2) million for reimbursements from our insurance carriers for covered legal charges.~~

~~During the three and nine months ended March 31, 2020, we abandoned a non-core product line in our Healthcare division~~ which resulted in ~~the write-off~~employee termination costs of assets, including intangible and fixed assets, totaling $3.3 million as we determined that these assets had no value and were permanently impaired. In addition, we continued to recover certain legal costs related to class action litigation and government investigations through insurance reimbursement. We also incurred additional legal fees related to these matters as well as restructuring charges by the divisions as noted in the tables below. This resulted in a net expense of $4.5$1.4 million and ~~$1.5 million during the three and nine months ended March 31, 2020, respectively.~~other costs of $0.1 million.

1614

Table of Contents

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

Three Months Ended March 31, 2020

Optoelectronics and

Healthcare

Manufacturing


Security Division

Division

Division

Corporate

Total
Impairment charges

$
—

$
3,258

$
—

$
—

$
3,258
Acquisition-related costs

107

—


41

155

303
Employee termination costs

328

466

259

50

1,103
Facility closures/consolidation

30

—

—

—

30
Legal costs (recoveries), net

—

—

—

(146)

(146)
Total expensed

$
465

$
3,724

$
300

$
59

$
4,548


	Three Months Ended March 31, 2021										Three Months Ended September 30, 2020
					Optoelectronics and										Optoelectronics and
			Healthcare		Manufacturing								Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total		Security Division		Division		Division		Corporate		Total
Acquisition-related costs	$	22	$	—	$	—	$	—	$	22
Impairment charges											$	552	$	—	$	—	$	—	$	552
Employee termination costs		213		—		—		—		213		3,737		—		146		—		3,883
Facility closures/consolidation costs (benefit)		166		—		—		—		166
Mexico transaction costs												2,692		—		—		—		2,692
Facility closures/consolidation												1,272		—		—		—		1,272
Legal costs (recoveries), net		—		—		—		(686)		(686)		—		—		—		(40)		(40)
Total expensed (benefit), net	$	401	$	—	$	—	$	(686)	$	(285)
Total expensed											$	8,253	$	—	$	146	$	(40)	$	8,359

Nine Months Ended March 31, 2020






Optoelectronics and




Healthcare

Manufacturing

Security Division

Division

Division

Corporate

Total
Impairment charges

$
—

$
3,258

$
—

$
—

$
3,258
Acquisition-related costs

107

—

41

155

303
Employee termination costs

734

466

277

119

1,596
Facility closures/consolidation

30

—

—

—

30
Legal costs (recoveries), net

—

—

—

(3,667)

(3,667)
Total expensed

$
871

$
3,724

$
318

$
(3,393)

$
1,520


	Nine Months Ended March 31, 2021										Three Months Ended September 30, 2021
					Optoelectronics and										Optoelectronics and
			Healthcare		Manufacturing								Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total		Security Division		Division		Division		Corporate		Total
Impairment charges	$	552	$	—	$	—	$	—	$	552
Acquisition-related costs		250		27		—		—		277
Employee termination costs		4,010		—		146		—		4,156	$	336	$	—	$	—	$	—	$	336
Mexico transaction costs		2,691		—		—		—		2,691
Facility closures/consolidation costs		1,420		—		—		—		1,420
Facility closures/consolidation												(61)		—		—		—		(61)
Legal costs (recoveries), net		—		—		—		(1,184)		(1,184)		—		—		—		2,235		2,235
Total expensed (benefit), net	$	8,923	$	27	$	146	$	(1,184)	$	7,912
Total expensed											$	275	$	—	$	—	$	2,235	$	2,510

The accrued liability for restructuring and other charges is included in other accrued expenses and current liabilities in the condensed consolidated balance ~~sheet.~~sheets. The changes in the accrued liability for restructuring and other charges for the ~~nine-month~~three-month period ended ~~March 31,~~September 30, 2021 were as follows (in thousands):

Facility

Employee

Closure/

Termination

Consolidation

Acquisition-

Legal Costs and


Costs

Cost

Related Costs

Settlements

Total
Balance as of June 30, 2020

$
545

$
201

$
—

$
1,882

$
2,628
Restructuring and other charges (benefit), net

4,156

1,420

277

(1,184)

4,669
Payments, adjustments and reimbursements, net

(4,570)

(1,501)

(277)

748

(5,600)
Balance as of March 31, 2021

$
131

$
120

$
0

$
1,446

$
1,697

~~Table of Contents~~


			Facility
	Employee		Closure/		Legal
	Termination		Consolidation		Costs and
	Costs		Cost		Settlements		Total
Balance as of June 30, 2021	$	250	$	386	$	2,772	$	3,408
Restructuring and other charges (benefits), net		336		(61)		2,235		2,510
Payments, adjustments and reimbursements, net		(275)		(130)		(812)		(1,217)
Balance as of September 30, 2021	$	311	$	195	$	4,195	$	4,701

8.7. Borrowings

Revolving Credit Facility

We have a revolving credit facility with an aggregate committed amount of up to $535 million which matures in April 2024. The credit facility includes a $300 million sub-limit for letters of credit. Under certain circumstances, we have the ability to increase the 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 this facility bear interest at LIBOR plus a margin of 1.0% as of ~~March 31,~~September 30, 2021 (which margin can range from 1.0% to 1.75% based on our consolidated net leverage ratio as defined in the credit facility). The LIBOR index is expected to be discontinued by the end of calendar year 2021. The terms of our credit facility allow for replacement if that occurs. Letters of credit reduce the amount available to borrow under the credit facility by their face value amount. The unused portion of the facility bears a commitment fee of 0.10% as of ~~March 31,~~September 30, 2021 (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 ~~March 31,~~September 30, 2021, there ~~were no~~was $26 million of borrowings outstanding under the revolving credit facility and ~~$66.7~~$79.4 million outstanding under the letters of credit sub facility. The amount available to borrow under the credit facility as of ~~March 31,~~September 30, 2021 was ~~$468.3~~$429.6 million. Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term. The principal amount of each revolving loan is due and payable in full on the maturity date. We have the right to repay each revolving loan in whole or in part from time to time without penalty. It is our practice to routinely borrow and repay several times per year under this revolving facility and therefore, borrowings under the credit facility are included in current liabilities. As of ~~March 31,~~September 30, 2021, we were in compliance with all financial covenants under this credit facility.

Table of Contents

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

In February 2017, we issued $287.5 million of the Notes in a private offering. The Notes are governed by an indenture dated February 22, 2017. The maturity for the payment of principal is September 1, 2022. The Notes bear interest at the rate of 1.25% and are payable in cash semiannually in arrears on each March 1 and September 1. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries, as well as any of our existing and future indebtedness that may be guaranteed by our subsidiaries to the extent of such guarantees (including the guarantees of certain of our subsidiaries under our existing revolving credit facility).

The Notes are convertible prior to March 1, 2022 only upon specified events and during specified periods and are, thereafter convertible, at any time, in each case at an initial conversion rate of 9.3056 per $1,000 principal amount of the Notes, which is equal to an initial conversion price of approximately $107.46 per share or a 38.5% premium to our stock price at the time of the issuance. The conversion rate is subject to adjustment upon certain events. Upon conversion, the original indenture provided that the Notes may be settled, at our election, in shares of our common stock, cash or a combination of cash and shares of common stock. We have irrevocably elected a combination settlement method to satisfy the conversion obligation, which provides for us to settle the principal amount of the Notes in cash and to settle the excess conversion value, if any, in shares of common stock, as well as cash in lieu of fractional shares.

We may redeem the Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days. If we undergo a fundamental change, as defined in the indenture for the Notes, subject to certain conditions, holders of the Notes may require us to repurchase all or part of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The occurrence of a fundamental change will also result in the Notes becoming immediately convertible. Since the last reported sales price of our Common Stock did not exceed 130% of the conversion price for at least 20 trading days within any applicable period of 30 consecutive trading days during fiscal year 2021, the Notes are not yet convertible.

Pursuant to ASC 470-20, we originally allocated the $287.5 million gross proceeds of the Notes between liability and equity components. The initial $242.4 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature for similar terms and priced on the same day the Notes were issued. The initial $45.1 million equity component represents the debt discount and was calculated as the difference between the fair value of the debt and the gross proceeds of the Notes. Issuance costs of $7.7 million were allocated between debt ($6.5 million) and equity ($1.2 million) components with the portion allocated to the debt presented as an offset against ~~long-term~~long term debt in the consolidated balance ~~sheet. The debt discount is~~sheet and being amortized as interest expense over the ~~remaining contractual term to maturity~~life of the Notes using anthe effective interest ~~rate~~method. The total interest expense recognized for the three months ended September 30, 2020 related to the Notes was $3.3 million, which consisted of ~~4.5%. The~~$0.9 million of contractual interest expense, $2.1 million of debt discount amortization and $0.3 million of amortization of debt issuance costs. For the three months ended September 30, 2021, the total interest expense was $1.2 million, which consisted of $0.9 million of contractual interest expense and $0.3 million of amortization of debt issuance costs. As of June 30, 2021, the unamortized debt discount of $10.5 million was eliminated upon the adoption of ASU 2020-06. The unamortized debt issuance cost of $1.4 million and $1.3 million as of June 30, 2021 and September 30, 2021, respectively, is amortized on a straight-line basis, which approximates the effective interest method, over the life of the Notes. Total interest expense recognized for the three and nine months ended March 31, 2021 related to the Notes was $3.3 million and $10.0 million, respectively, which consisted of $0.9 million and $2.7 million of contractual interest expense, $2.2 million and $6.4 million of debt discount amortization and $0.3 million and $0.9 million of amortization of debt issuance costs. For the three and nine months ended March 31, 2020, total interest expense was $3.3 million and $9.7 million, respectively, which consisted of $0.9 million and $2.7 million of contractual interest expense, $2.1 million and $6.1 million of debt discount amortization and $0.3 million and $0.9 million of amortization of debt issuance costs.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments typically will be closer to the coupon interest rate. We early adopted the new guidance on July 1, 2021 using the modified retrospective approach and recorded a $19 million increase to retained earnings and a reduction of $27 million in common stock as if there had been no equity component. Additionally, we recorded an increase to the convertible notes balance by approximately $10 million.

Table of Contents

Other Borrowings

Several of our foreign subsidiaries maintain bank lines-of-credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters-of-credit. As of ~~March 31,~~September 30, 2021, ~~$63.0~~$65.7 million was outstanding under these letter-of-credit facilities. As of ~~March 31,~~September 30, 2021, the total amount available under these credit facilities was ~~$12.9~~$9.4 million.

~~Table of Contents~~

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


	June 30,		March 31,
	2020		2021		June 30, 2021		September 30, 2021
1.25% convertible notes due September 1, 2022:
Principal amount	$	287,500	$	287,500	$	287,500	$	287,500
Unamortized discount		(19,075)		(12,680)		(10,494)		—
Unamortized debt issuance costs		(2,547)		(1,665)		(1,372)		(1,278)
		265,878		273,155		275,634		286,222
Other long-term debt		2,120		1,767		1,633		1,424
		267,998		274,922		277,267		287,646
Less current portion of long-term debt		(926)		(925)		(846)		(286,954)
Long-term portion of debt	$	267,072	$	273,997	$	276,421	$	692

9.8. Stockholders’ Equity

Stock-based Compensation

As of ~~March 31,~~September 30, 2021, we maintained the Amended and Restated 2012 Incentive Award Plan (the "2012 Plan ") and the Amended and Restated 2006 Equity Participation Plan ("2006 Plan") as stock-based employee compensation plans. NaN further grants may be made under the 2006 Plan. The 2012 Plan and the 2006 Plan are collectively referred to as the "OSI Plans."

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


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021		2020		2021
Cost of goods sold	$	189	$	199	$	517	$	571	$	179	$	206
Selling, general and administrative		5,520		7,223		17,153		18,391		5,785		6,767
Research and development		128		143		427		424		145		140
Stock-based compensation expense	$	5,837	$	7,565	$	18,097	$	19,386	$	6,109	$	7,113

As of ~~March 31,~~September 30, 2021, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at ~~$0.5~~$0.4 million for stock options and ~~$20.7~~$31.8 million for restricted stock units (“RSUs”). We expect to recognize these costs over a weighted average period of ~~2.1~~1.7 years with respect to the stock options and ~~1.9~~1.6 years for grants of RSUs.

The following summarizes stock option activity during the ~~nine~~three months ended ~~March 31,~~September 30, 2021:


		Weighted						Weighted
		Average		Weighted-Average	Aggregate			Average		Weighted-Average	Aggregate
	Number of	Exercise		Remaining Contractual	Intrinsic Value		Number of	Exercise		Remaining Contractual	Intrinsic Value
	Options	Price		Term	(in thousands)		Options	Price		Term	(in thousands)
Outstanding at June 30, 2020	326,304	$	44.41
Outstanding at June 30, 2021							255,220	$	50.24
Granted	22,171		82.17				—		—
Exercised	(87,235)		34.44				(162,393)		34.08
Expired or forfeited	(2,710)		78.71				(383)		78.14
Outstanding at March 31, 2021	258,530		50.65	2.8 years	$	11,818
Exercisable at March 31, 2021	222,512		45.03	1.8 years		11,387
Outstanding at September 30, 2021							92,444		78.51	6.1 years	$	1,590
Exercisable at September 30, 2021							58,840		74.44	4.6 years		1,226

1917

Table of Contents

The following summarizes RSU award activity during the ~~nine~~three months ended ~~March 31,~~September 30, 2021:


		Weighted-			Weighted-
		Average			Average
	Shares	Fair Value		Shares	Fair Value
Nonvested at June 30, 2020	423,590	$	88.68
Nonvested at June 30, 2021				435,925	$	84.16
Granted	337,778		80.32	306,349		89.92
Vested	(310,939)		86.20	(310,077)		82.58
Forfeited	(8,244)		84.47	(1,548)		82.43
Nonvested at March 31, 2021	442,185	$	84.12
Nonvested at September 30, 2021				430,649	$	89.40

In December 2020, our shareholders authorized an increase of 1.65 million shares for the 2012 Plan resulting in a maximum pool of 7.1 million shares. As of ~~March 31,~~September 30, 2021, there were approximately ~~2.1~~1.5 million shares available for grant under the 2012 Plan. Under the terms of the 2012 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 ~~81,621~~136,242 and ~~136,242~~96,620 performance-based RSUs during the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2021, respectively. These performance based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from 0 to 400% of the original number of shares or units awarded. Compensation cost associated with these performance based RSUs are recognized based on the estimated number of shares that we ultimately expect will vest. If the estimated number of shares to vest is revised in the future, then ~~stock based~~stock-based compensation expense will be adjusted accordingly.

Stock Repurchase Program

~~In April 2020, the~~Our Board of Directors has authorized a share repurchase program of up to ~~1,000,000~~3,000,000 shares of common stock. ~~In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program.~~ 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. Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion. Upon repurchase, the shares are restored to the status of authorized but unissued shares and we record them in our consolidated financial statements as a reduction in the number of shares of common stock issued and outstanding.

During the ~~nine~~three months ended ~~March 31,~~September 30, 2021, we repurchased ~~322,588~~168,506 shares of our common stock.

Dividends

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.

~~10.~~9. Commitments and Contingencies

Acquisition-Related Contingent Obligations

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 caps, the remaining maximum amount of such potential future payments is ~~$30.2~~$32.4 million as of ~~March 31,~~September 30, 2021.

We account for such contingent payments for acquisitions which occurred through the end of fiscal year 2009 as additions to the purchase price of the acquired business. We made contingent payments relating to such acquisitions of ~~$0.2~~$0.1 million and ~~$1.5~~$0.3 million, respectively, during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2020 and ~~$0.2 million and $0.9 million, respectively, during the three and nine months ended March 31, 2021.~~2021, respectively.

~~Table of Contents~~

For acquisitions completed after fiscal 2009, pursuant to ~~Financial Accounting Standard 141R, which was codified into~~ ASC 805, the estimated fair value of these obligations is recorded as a liability at the time of the acquisition with subsequent revisions recorded in Selling, general and administrative expense in the consolidated financial statements. The estimated fair value measurements of contingent earnout obligations are primarily based on unobservable inputs, which may include projected revenues, gross margins, operating income and the estimated probability of achieving the earnouts.

Table of Contents

These projections and 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, ~~2020~~2021 to ~~March 31,~~September 30, 2021 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, 2020	$	13,867
Beginning fair value, June 30, 2021			$	19,431
Addition of contingent earnout obligations		7,304		68
Foreign currency translation adjustment		523		(119)
Changes in fair value for contingent earnout obligations		(2,357)		(2,426)
Payments on contingent earnout obligations		—		—
Ending fair value, March 31, 2021	$	19,337
Ending fair value, September 30, 2021			$	16,954

Environmental Contingencies

We are subject to various environmental laws. ~~Our practice is to~~We often conduct environmental investigations at our manufacturing facilities in North America, Asia-Pacific, and Europe, and, to the extent practicable, on all new properties in order to identify, as of the date of such investigation, potential areas of environmental concern related to past and present activities or from nearby operations. In certain cases, we have conducted further environmental assessments consisting of soil and groundwater testing and other investigations deemed appropriate by independent environmental consultants.

We continue to investigate contamination of the soil and groundwater beneath the Hawthorne, California facility that resulted from unspecified on-and off-site releases occurring prior to our occupancy. We believe the releases are of a historical nature and not uncommon to the region in general. We continue to take voluntary actions, in cooperation with the local governing agency, to fully investigate the site and develop appropriate remedial actions.

We have not accrued for loss contingencies relating to the Hawthorne facility or any other environmental matters because we believe that, although unfavorable outcomes are possible, they are not considered by our management to be probable and reasonably estimable. 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

In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from breaches of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our directors and certain of our officers. It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. We have not recorded any liability for costs related to contingent indemnification obligations as of ~~March 31,~~September 30, 2021.

On December 31, 2017, we and Deepak Chopra, our Chief Executive Officer, entered into an amendment to Mr. Chopra's employment agreement that, among other things, provides for a $13.5 million bonus payment to Mr. Chopra on or within 45 days of January 1, 2024 contingent upon Mr. Chopra's continued employment with us through that date, subject to accelerated payout terms in the event of Mr. Chopra's death or disability. The bonus is recorded in the financial statements over the remaining term of the employment agreement and is included in other long-term liabilities.

~~Table of Contents~~

Product Warranties

We offer our customers warranties on many of the products that we sell. These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment. Concurrent with the sale of products, we record a provision for estimated warranty expenses with a corresponding increase in cost of goods sold. We periodically adjust this provision based on historical experience and anticipated expenses. We charge actual expenses of repairs under warranty, including parts and labor, to this provision when incurred. The current obligation for warranty provision is included in other accrued expenses and current liabilities and the noncurrent portion is included in other long-term liabilities in the consolidated balance sheets.

Table of Contents

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


	Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021
Balance at beginning of period	$	21,724	$	20,825	$	20,825	$	19,736
Additions and adjustments		6,105		3,759		930		1,004
Reductions for warranty repair costs		(6,557)		(4,975)		(1,180)		(2,376)
Balance at end of period	$	21,272	$	19,609	$	20,575	$	18,364

Legal Proceedings

In December 2017, a short seller released a report regarding our compliance with the FCPA. Following that report, we and certain of our executive officers have been named as defendants in several lawsuits in the District Court that were filed in December 2017 and February 2018. Each of the complaints closely tracks the allegations set forth in the short seller's report. All of the actions, which were consolidated by the District Court in March 2018 in an action captioned Arkansas Teacher Retirement System et al. v. OSI Systems, Inc. et al., No. 17 cv 08841, allege violations of Sections 10(b) and 20(a) of the Exchange Act, relating to certain of our public statements and filings with the SEC, and seek damages and other relief based upon the allegations in the complaints. Although we believe that the actions are without merit, because of the costs and inherent uncertainty in litigation, we reached an agreement to settle the Arkansas Teacher Retirement Systems matter for $12.5 million, subject to court approval. We have accrued the $12.5 million in Other accrued expenses and current liabilities as of September 30, 2021. The settlement amount is probable and anticipated to be recovered by insurance and, therefore, we also recorded an asset for $12.5 million within Prepaid expenses and other current assets as of September 30, 2021. If the insurance recovery is less than the agreed-upon settlement, we would recognize an expense for the difference between the settlement and the amount recovered.

In April 2018 and March 2019, two shareholder derivative complaints were filed purportedly on behalf of the Company against certain members of our Board of Directors (as individual defendants), a former member of our Board of Directors, and a member of management. The derivative actions, which were consolidated by the District Court in November 2019 in an action captioned ~~Kocen and~~ Riley v. Chopra, et al. No. 18 CV 03371, allege, among other things, breach of fiduciary duties relating to the allegations contained in the above-mentioned short seller report and seek damages, restitution, injunctive relief, attorneys' and experts' fees, costs, expenses, and other unspecified relief. ~~We believe that the~~The derivative actions ~~are without merit~~have been dismissed and intend to defend them vigorously, and we expect to incur costs associated with defending against these actions. At this early stage of the litigations, the ultimate outcomes are uncertain and we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, if any, or their effect, if any, on our financial statements.

~~The SEC and the DOJ are conducting~~ an investigation of trading in our securities and have each subpoenaed information regarding trading by executives, directors, and employees, as well as our operations and disclosures in and around the time of certain trades. With respect to these trading related matters, in fiscal year 2018, we took action with respect to a senior level employee. At this time, we are unable to predict what, if any, action may be taken by the DOJ or SEC as a result of these trading related investigations, or any penalties or remedial measures these agencies may seek. We place a high priority on compliance with our anticorruption and securities trading policies and are cooperating with each of the government investigations.appeal is pending.

We are involved in various other claims and legal proceedings arising in the ordinary course of business. In our opinion after consultation with legal counsel, the ultimate disposition of such proceedings is not likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. We have not accrued for loss contingencies relating to any such matters because we believe that, although unfavorable outcomes in the proceedings are possible, they are not considered by management to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to our company, the impact on our business, financial condition, results of operations and cash flows could be material.

2220

Table of Contents

~~11.~~10. Income Taxes

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, our tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The effective tax rates for the three months ended ~~March 31,~~September 30, 2020 and 2021 were 25.3% and ~~2020 were 33.7% and (3.4)%~~15.9%, respectively. During the three months ended ~~March 31,~~September 30, 2020 and 2021, we recognized a net ~~discrete tax expense of $2.2 million for return-to-provision true-up adjustments of $2.4 million, offset by a~~ discrete tax benefit of ~~($0.2)~~$0.3 million and $2.1 million, respectively, for ~~equity-based~~stock-based compensation under ASU 2016-09. ~~During the three months ended March 31, 2020, we recognized a discrete tax benefit of $5.1 million for a return to provision true-up adjustment.~~

The effective tax rate for the nine months ended March 31, 2021 and 2020 was 30.1% and 8.7%, respectively. During the nine months ended March 31, 2021, we recognized a net discrete tax expense of $2.3 million for return-to-provision true-up adjustments of $2.8 million, offset by a ($0.5) million tax benefit from equity-based compensation under ASU 2016-09. During the nine months ended March 31, 2020, we recognized a discrete tax benefit of $12.0 million for equity-based compensation under ASU 2016-09 of $6.8 million and a return to provision true-up adjustment of $5.2 million.

~~12.~~11. Segment Information

We have determined that we operate in 3 identifiable industry segments: (a) security and inspection systems (Security division), (b) medical monitoring and diagnostic cardiology systems (Healthcare division) and (c) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division). We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative ~~expenses;~~expenses, expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments. Both the Security and Healthcare divisions comprise primarily end-product businesses, whereas the Optoelectronics and Manufacturing division primarily supplies components and subsystems to external OEM customers, as well as to the Security and Healthcare divisions. Sales between divisions are at transfer prices that approximate market values. All other accounting policies of the segments are the same as described in Note 1, Basis of Presentation.

~~Table of Contents~~

The following tables present our results of operations and identifiable assets by industry segment (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,				Three Months Ended September 30,
	2020		2021		2020		2021		2020		2021
Revenues (1) —by Segment:
Security division	$	187,076	$	151,409	$	578,477	$	431,420	$	134,775	$	149,517
Healthcare division		45,662		54,023		127,862		160,421		51,503		50,588
Optoelectronics and Manufacturing division, including intersegment revenues		70,240		90,278		216,684		257,713		79,914		92,305
Intersegment revenues elimination		(10,095)		(11,923)		(33,946)		(34,850)		(11,284)		(13,153)
Total	$	292,883	$	283,787	$	889,077	$	814,704	$	254,908	$	279,257

Income (loss) from operations —by Segment:
Security division	$	24,525	$	23,969	$	73,405	$	52,651	$	8,906	$	21,593
Healthcare division		1,682		7,333		5,793		25,640		8,984		5,920
Optoelectronics and Manufacturing division		7,309		10,484		25,096		29,638		8,740		9,783
Corporate		(10,161)		(9,078)		(23,578)		(25,895)		(9,456)		(12,463)
Intersegment eliminations		270		(242)		715		(517)
Intersegment Eliminations										(481)		(153)
Total	$	23,625	$	32,466	$	81,431	$	81,517	$	16,693	$	24,680


	June 30,		March 31,		June 30,		September 30,
	2020		2021		2021		2021
Assets (2) —by Segment:
Security division	$	758,054	$	751,008	$	798,192	$	806,025
Healthcare division		208,857		211,226		220,411		220,818
Optoelectronics and Manufacturing division		232,408		275,976		282,039		295,684
Corporate		109,178		126,157		121,293		125,102
Eliminations (3)		(39,956)		(38,407)		(37,568)		(36,990)
Total	$	1,268,541	$	1,325,960	$	1,384,367	$	1,410,639

(1)For each of the ~~three and nine month~~three-month periods ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2021, 0 customer accounted for greater than 10% of total net revenues.

(2)~~NaN~~As of June 30, 2021 and September 30, 2021, 0 customer accounted for ~~13% of accounts receivable, net as of June 30, 2020. A different customer accounted for~~greater than 10% of accounts ~~receivable, net as of March 31, 2021.~~receivable.

(3)Eliminations in assets reflect the amount of inter-segment profits in inventory and inter-segment ROU assets under ASC 842 as of the balance sheet date. Such inter-segment profit will be realized when inventory is shipped to the external customers of the Security and Healthcare divisions.

2421

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report, “OSI”, the “Company”, “we”, “us”, “our” and similar terms refer to OSI Systems, Inc. together with our wholly-owned subsidiaries.

This management’s discussion and analysis of financial condition as of ~~March 31,~~September 30, 2021 and results of operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 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, ~~2020~~2021 filed with the SEC.

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to our current expectations, beliefs, and projections concerning matters that are not historical facts. Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “may,” “should,” “will,” “would,” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve uncertainties, risks, assumptions and contingencies, many of which are outside our control. Assumptions upon which our forward-looking statements are based could prove to be inaccurate, and actual results may differ materially from those expressed in or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from those expectations are disclosed in this report, our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020~~2021 (including Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and other documents filed by us from time to time with the SEC. Such factors, of course, do not include all factors that might affect our business and financial condition. We could be exposed to a variety of negative consequences as a result of delays related to the award of domestic and international contracts; failure to secure the renewal of key customer contracts; delays in customer programs; delays in revenue recognition related to the timing of customer acceptance; ~~unanticipated impacts of sequestration and other U.S. Government budget control provisions;~~ changes in domestic and foreign government spending, budgetary, procurement and trade policies adverse to our businesses; global economic uncertainty; impacts on our business related to or resulting from the COVID-19 ~~pandemic;~~pandemicsuch as 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; unfavorable currency exchange rate fluctuations; effect of changes in tax legislation; market acceptance of our new and existing technologies, products and services; our ability to win new business and convert any orders received to sales within the fiscal year; enforcement actions in respect of any noncompliance with laws and regulations including export control and environmental regulations and the matters that are the subject of some or all of our investigations and compliance reviews, contract and regulatory compliance matters, and actions, which if brought, could result in judgments, settlements, fines, injunctions, debarment or penalties; and other risks and uncertainties, including but not limited to those detailed herein and from time to time in our other SEC filings, which could have a material and adverse impact on our business, financial condition and results of operation. Many of the referenced risks could be amplified by the magnitude and duration of the COVID-19 pandemic.All forward-looking statements contained in this report are qualified in their entirety by this statement. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation other than as may be required under securities laws to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We are a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace. We have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, diagnostic cardiology and connected care systems and ~~related supplies and~~associated accessories; and (c) Optoelectronics and Manufacturing, providing specialized electronic components for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among others.

2522

Table of Contents

Security Division. 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 ~~65%~~53% and ~~53%~~54% of our total consolidated revenues for the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2021, respectively. ~~We were impacted by the COVID-19 pandemic as discussed in the “Trends and Uncertainties-Coronavirus Pandemic” section below.~~

Healthcare Division. Through our Healthcare division, we design, manufacture, market and service patient monitoring, diagnostic cardiology and connected care systems ~~and related supplies and accessories~~ globally for sale primarily to hospitals and medical centers. 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 ~~14%~~20% and ~~20%~~18% of our total consolidated revenues for the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2021, respectively.

Optoelectronics and Manufacturing Division. Through our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation and consumer products. We 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 ~~21%~~27% and ~~27%~~28% of our total consolidated revenues for the ~~nine~~three months ended ~~March 31,~~September 30, 2020 and 2021, respectively.

Trends and Uncertainties

The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations.

Coronavirus Pandemic. The coronavirus disease 2019 (“COVID-19”) pandemic has dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns, and market volatility. The COVID-19 pandemic has caused, and is likely to continue to cause, significant economic disruptions and has impacted, and is expected to continue to impact, our operations and the operations of our suppliers, logistics providers and customers as a result of quarantines, facility closures and travel and logistics restrictions. Our ability to continue to operate without significant negative impacts will in part depend on our ability to protect our employees and our supply chain and to keep our manufacturing facilities open and operating effectively. We have endeavored to implement government and health authority recommendations to protect our employees worldwide. While we do not expect these pandemic-related impacts to be long-term, there is substantial uncertainty regarding the duration and ultimate impact of the COVID-19 pandemic. ~~Our~~During the early stages of the pandemic, our Healthcare division ~~has~~ experienced increased demand for certain products as a result of COVID-19. In our Security division, ~~during~~throughout the ~~latter part of fiscal 2020 and in fiscal 2021,~~pandemic, receipt of certain orders ~~was~~has been delayed, most notably with respect to our aviation and cargo products, and our ~~service~~ revenues ~~were~~have been adversely impacted as a result of the pandemic. ~~During the first nine months~~As many customers of ~~fiscal 2021, bookings accelerated, but as many of our customers in~~ our Security division ~~are being~~continue to be impacted by the pandemic, we have received and could receive further requests to delay deliveries of equipment and modify service arrangements or the scheduling of factory or site acceptance tests, which has impacted, and could further impact, timing of revenue recognition. In addition, as a result of COVID-19 related government regulations, certain of our global manufacturing facilities have had to limit operations and might have to limit operations in the future. If these business interruptions resulting from COVID-19 were to be prolonged or expanded in scope, our business, financial condition, results of operations and cash flows would be materially and adversely impacted. We intend to continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in our best interests and the best interests of our employees, suppliers and customers.

Table of Contents

Global Economic Considerations.Our products and services are sold in numerous countries worldwide, with a large percentage of our sales generated outside the United States. Therefore, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. In addition to the COVID-19 pandemic, these other global macroeconomic factors, coupled with the U.S. political climate, have created uncertainty and impacted demand for certain of our products and services. We do not know how long this uncertainty will continue. These factors could have a material negative effect on our business, results of operations and financial condition.

Global Trade. In addition to the COVID-19 pandemic, the current domestic and international political environment, including in relation to recent and further potential changes by the U.S. and other countries in policies on global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy and global trade. This uncertainty is exacerbated by sanctions imposed by the U.S. government against certain businesses and individuals in select countries. 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.

~~Table of Contents~~

Healthcare Considerations. As described above, our Healthcare division ~~has~~ experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic. Increased healthcare capital purchases made in prior periods may result in fewer capital purchases ~~during the balance of fiscal 2021 and~~in subsequent periods. The pandemic may also impact our ability to manufacture ~~products~~product needed to timely fill orders if we experience supply chain disruptions or need to close any manufacturing facility due to employee COVID-19 cases or local government regulations.

European Union Threat Detection Standards.The EU has implemented regulations for all airports within the EU that use explosive detection systems to have hold baggage screening systems that are compliant with the European Civil Aviation Conference (ECAC) Standard 3. The deadline for compliance with this mandate was initially set for September 2020. Given the uncertainty surrounding the COVID-19 ~~situation,~~pandemic, the EU revised the regulations, and the date ~~whereby~~by which airports using explosive detection systems for hold baggage screening must meet Standard 3 has been changed to March 2024, with certain larger airports required to meet earlier installation dates. Our Security division’s real time tomography (RTT) product has passed the ECAC explosive detection system Standard 3 threat detection requirement.

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, including U.S. and foreign government policies to manage the COVID-19 pandemic, such as travel restrictions or site closures.

Changes in Costs and Supply Chain Disruptions. Our costs are subject to fluctuations, particularly due to changes in raw material, component, and logistics costs. Our manufacturing and supply chain operations, including freight and shipping activities, have been and may continue to be impacted by increased vendor costs as well as the current global supply chain bottleneck. This increased cost environment has been exacerbated by the COVID-19 pandemic. Although we strive to implement, achieve, and sustain cost containment measures, including supply chain optimization and general overhead and workforce optimization, if we are unable to mitigate the impact of increased costs through pricing or other actions, there could be a negative impact on our business, results of operations, and financial condition.

Results of Operations for the Three Months Ended ~~March 31,~~September 30, 2020 ~~(Q3 2020)~~(Q1 Fiscal 2021) Compared to the Three Months Ended ~~March 31,~~September 30, 2021 ~~(Q3 2021)~~(Q1 Fiscal 2022) (amounts in millions)

Net Revenues

The table below and the discussion that follows are based upon the way in which we analyze our business. See Note 1211 to the condensed consolidated financial statements for additional information about our business segments.


	Q3		% of		Q3		% of						Q1		% of		Q1		% of
	2020		Net Revenues		2021		Net Revenues		$ Change		% Change		Fiscal 2021		Net Revenues		Fiscal 2022		Net Revenues		$ Change		% Change
Security	$	187.1	64	%	$	151.4	53	%	$	(35.7)	(19)	%	$	134.8	53	%	$	149.5	54	%	$	14.7	11	%
Healthcare		45.7	16			54.0	19			8.3	18			51.5	20			50.6	18			(0.9)	(2)
Optoelectronics and Manufacturing		60.1	20			78.4	28			18.3	30			68.6	27			79.2	28			10.6	15
Total net revenues	$	292.9	100	%	$	283.8	100	%	$	(9.1)	(3)	%	$	254.9	100	%	$	279.3	100	%	$	24.4	10	%

Table of Contents

Revenues for the Security division during the three months ended ~~March 31,~~September 30, 2021 ~~continued~~increased 11% year over year. Our product revenues increased by approximately $16 million as compared to bethe prior year comparable period where revenues were more adversely impacted by the COVID-19 ~~pandemic most notably in~~pandemic. In addition, our aviation and cargo businesses, as we experienced delays in the timing of delivery and installation of equipment and related services, as well as the timing of receipt of new orders. Our cargo businessservice revenues decreased by ~~$17.4~~approximately $1 million. ~~We also experienced a decrease in revenues of $15.8 million associated with the expiration of a contract in Mexico in June 2020.~~

Revenues for the Healthcare division during the three months ended ~~March 31,~~September 30, 2021 were relatively comparable year-over-year. Cardiology sales increased ~~year-over-year due to higher~~by approximately $2 million and service, supplies and accessories sales ~~of $8.3~~increased by approximately $1 million, ~~attributable to~~while patient monitoring ~~systems and cardiology equipment and related service revenue.~~sales decreased by approximately $4 million.

Revenues for the Optoelectronics and Manufacturing division during the three months ended ~~March 31,~~September 30, 2021 increased ~~year-over-year~~year-over year as a result of ~~higher~~an increase in revenue ~~of $14.6 million from~~in our contract manufacturing business of approximately $9 million and ~~$3.6~~an increase in revenue of approximately $2 million ~~from~~in our optoelectronics business.

Gross Profit


	Q3		% of		Q3		% of		Q1		% of		Q1		% of
	2020		Net Revenues		2021		Net Revenues		Fiscal 2021		Net Revenues		Fiscal 2022		Net Revenues
Gross profit	$	109.1	37.3	%	$	104.0	36.7	%	$	95.8	37.6	%	$	99.3	35.6	%

~~Table of Contents~~

Gross profit is impacted by sales volume, productivity, and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics. ~~The overall decrease~~Our cost of goods sold increased year-over-year primarily as a result of the change in gross profit resulted from decreased revenues in the Security division, mitigated by higher sales in our Healthcare and Optoelectronics and Manufacturing divisions. There were no significant changes in overall manufacturing-related costs.revenues. Gross profit as a percentage of net revenues during the ~~three months~~quarter ended ~~March 31,~~September 30, 2021 decreased on a year-over-year basis due to (i) ~~a reduced gross margin within~~an increase in revenues in the Optoelectronics and Manufacturing division (which has the lowest gross margin among our divisions) as a percentage of total net revenues, and (ii) a reduction in the Optoelectronics and Manufacturing and Security division gross margins due to a less favorable sales mix and ~~(ii) an increase in Optoelectronics~~increased component, freight and ~~Manufacturing revenues as a percentage of total net revenues, which inherently carries the lowest~~travel costs. Our gross margin ~~of each of~~increased within the ~~divisions. This was somewhat offset by an improved gross margin in our~~ Healthcare division asdue to a ~~result of the benefit of economies of scale associated with increased~~more favorable sales ~~combined with operating efficiencies.~~mix.

Operating Expenses


	Q3		% of		Q3		% of						Q1		% of		Q1		% of
	2020		Net Revenues		2021		Net Revenues		$ Change		% Change		Fiscal 2021		Net Revenues		Fiscal 2022		Net Revenues		$ Change		% Change
Selling, general and administrative	$	65.6	22.4	%	$	57.9	20.4	%	$	(7.7)	(11.7)	%	$	58.6	23.0	%	$	57.3	20.5	%	$	(1.3)	(2.2)	%
Research and development		15.4	5.2			13.9	4.9			(1.5)	(9.3)			12.1	4.7			14.8	5.3			2.7	22.3
Impairment, restructuring and other charges (benefit), net		4.5	1.6			(0.3)	(0.1)			(4.8)	(106.3)			8.4	3.3			2.5	0.9			(5.9)	(70.2)
Total operating expenses	$	85.5	29.2	%	$	71.5	25.2	%	$	(14.0)	(16.3)	%	$	79.1	31.0	%	$	74.6	26.7	%	$	(4.5)	(5.7)	%

Selling, general and administrative.Our significant selling, general and administrative (SG&A) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense. SG&A expense for the three months ended ~~March 31,~~September 30, 2021 decreased as compared to the same prior-year period due to a reduced ~~travel and entertainment and marketing expenses~~provision for losses on accounts receivable of ~~$2.0~~$4.3 million. This decrease was offset by an increase in compensation expense of $2.5 million and ~~$2.1 million, respectively, resulting from the COVID-19 pandemic, lower employee compensation~~increased travel expense of ~~$1.3 million, decreased third-party sales commissions of $1.5 million, and a reduction in the provision for bad debt of $1.0~~$0.9 million.

Research and development.Research and development (R&D) expenses include research related to new product development and product enhancements. The ~~decrease~~increase in R&D ~~expenses~~expense during the three months ended ~~March 31,~~September 30, 2021 from the same prior-year period reflected ~~lower materials~~an increase in compensation expense and ~~supplies consumed~~outside services of approximately $3 million to support new product development initiatives primarily in ~~research activities of $1.0 million~~our Security and ~~a decrease in travel expenses of $0.3 million resulting from the COVID-19 pandemic.~~Healthcare divisions.

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. ~~The net benefit in~~During the three months ended ~~March 31,~~September 30, 2021, impairment, restructuring and other charges consisted of ~~($0.7)~~$2.2 million ~~benefit~~ for ~~net reimbursements from our insurance carriers for covered~~ legal charges, ~~a $0.2~~$0.3 million ~~charge~~in charges for employee terminations from operational efficiency activities, and ~~a $0.2 million charge~~an insignificant net benefit for facility closure and operational efficiency activities. ~~The net expense in~~During the three months ended ~~March 31,~~September 30, 2020, ~~included $3.3~~we commenced exit activities associated with a turnkey contract in Mexico whereby we incurred non-recurring charges totaling $6.9 million ~~from~~comprised of exit costs of $2.5 million for employee terminations, facility closure and other exit costs of $1.1 million, direct transaction costs of $2.7 million and impairment of ~~assets~~a right-of-use asset of $0.6 million. We also conducted other operational efficiency activities which resulted in ~~our Healthcare division for the exit of a product line, $1.1 million of~~ employee termination and ~~facility closure~~other costs ~~and $0.1 million~~ of ~~other net costs.~~$1.5 million.

Table of Contents

Interest and other expense, net.For the three months ended ~~March 31,~~September 30, 2021, interest and other expense, net was ~~$4.2~~$2.0 million as compared to ~~$4.7~~$4.2 million in the comparable prior-year period. This decrease was driven most significantly by our adoption of ASU 2020-06 (see Note 1 to the condensed consolidated financial statements for further discussion) and, to a lesser extent, lower average levels of borrowing under our revolving credit facility ~~as well as lower average interest rates~~ during the three months ended ~~March 31,~~September 30, 2021 compared to the same period in the prior year. Interest expense during the three months ended September 30, 2020 included $2.2 million of non-cash interest expense, which was primarily related to the ~~Notes during each of the three months ended March 31, 2021 and 2020 (see Note 8 to the condensed consolidated financial statements for further discussion).~~Notes.

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 the three months ended ~~March 31,~~September 30, 2021, we recognized a provision for income taxes of ~~$9.5~~$3.6 million compared to ~~a benefit for income taxes of $(0.6)~~$3.2 million for the comparable prior-year period. The effective tax rates for the three months ended ~~March 31,~~September 30, 2021 and 2020 were ~~33.7%~~15.9% and ~~(3.4)%~~25.3%, respectively. During the three months ended ~~March 31,~~September 30, 2021, we recognized a net discrete tax ~~expense of $2.2 million for return-to-provision true-up adjustments of $2.4 million, offset by a discrete tax~~ benefit of ~~($0.2)~~$2.1 million compared to $0.3 million in the prior year for equity-based compensation under ASU 2016-09. ~~During the three months ended March 31, 2020, we recognized a discrete tax benefit of ($5.1) million for a return-to-provision true-up adjustment.~~

~~Table of Contents~~

~~Results of Operations for the Nine Months Ended March 31, 2020 (YTD Q3 2020) Compared to the Nine Months Ended March 31, 2021 (YTD Q3 2021) (amounts in millions)~~

~~Net Revenues~~

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.

YTD Q3

% of

YTD Q3

% of






2020

Net Revenues

2021

Net Revenues

$ Change

% Change

Security

$
578.5

65
%
$
431.4

53
%
$
(147.1)

(25)
%
Healthcare

127.9

14

160.4

20

32.5

25

Optoelectronics and Manufacturing

182.7

21

222.9

27

40.2

22

Total net revenues

$
889.1

100
%
$
814.7

100
%
$
(74.4)

(8)
%

Revenues for the Security division during the nine months ended March 31, 2021 decreased on a year-over-year basis due to the continued impact of the COVID-19 pandemic, most notably in our aviation and cargo businesses, as we experienced delays in the timing of delivery and installation of equipment and related services, as well as the timing of receipt of new orders. Our cargo business revenues decreased by $67 million and advanced security screening business revenues decreased by $34 million. We also experienced a decrease in revenues of approximately $50 million associated with the expiration of a contract in Mexico in June 2020.

Revenues for the Healthcare division during the nine months ended March 31, 2021 increased year-over-year due to increased sales of patient monitoring systems, cardiology equipment and related supplies and accessories totaling approximately $32 million.

Revenues for the Optoelectronics and Manufacturing division during the nine months ended March 31, 2021 increased year-over year as a result of an increase in revenue in our contract manufacturing business of approximately $32 million coupled with an increase in sales of approximately $8 million in our optoelectronics business, which includes a $7 million increase in revenues from a small business acquired in February 2020.

~~Gross Profit~~

YTD Q3

% of

YTD Q3

% of


2020

Net Revenues

2021

Net Revenues

Gross profit

$
319.1

35.9
%
$
301.9

37.1
%

The overall decrease in gross profit was driven by the decrease in revenues for the Security division which was somewhat mitigated by higher sales in our Healthcare and Optoelectronics and Manufacturing divisions. There were no significant changes in manufacturing-related costs. Gross profit as a percentage of net revenues during the nine months ended March 31, 2021 increased on a year-over-year basis due to (i) an improved gross margin in our Healthcare division (which has the highest gross margin among our divisions) as a result of the benefit of economies of scale associated with increased sales, combined with operating efficiencies, (ii) increase in Healthcare revenue as a percentage of total net revenues, and (iii) an increase in service gross margin in our Security division. Our gross margin decreased within the Optoelectronics and Manufacturing division due to a less favorable sales mix.

~~Operating Expenses~~

YTD Q3

% of

YTD Q3

% of






2020

Net Revenues

2021

Net Revenues

$ Change

% Change

Selling, general and administrative

$
191.7

21.6
%
$
172.6

21.2
%
$
(19.1)

(9.9)
%
Research and development

44.5

5.0

39.8

4.9

(4.7)

(10.5)

Impairment, restructuring and other charges (benefit), net

1.5

0.1

7.9

0.9

6.4

420.5

Total operating expenses

$
237.7

26.7
%
$
220.3

27.0
%
$
(17.4)

(7.3)
%

~~Table of Contents~~

~~Selling, general and administrative~~. SG&A expense for the nine months ended March 31, 2021 decreased as compared to the same prior-year period due to reduced travel and entertainment and marketing expenses of $6.8 million and $3.4 million, respectively, due to the COVID-19 pandemic, decreased third-party sales commissions of $6.5 million, and reduced employee compensation expense of $4.8 million resulting from implementation of cost containment measures. These decreases were offset by an increase in the provision for loss on accounts receivable of $3.5 million.

~~Research and development~~. The decrease in R&D expense during the nine months ended March 31, 2021 from the same prior-year period reflected lower employee compensation expenses of $1.9 million, a decrease in materials and supplies consumed in research activities of $1.8 million, and reduced travel expenses of $1.0 million due to the COVID-19 pandemic.

~~Impairment, restructuring and other charges (benefit).~~ During the nine months ended March 31, 2021, we incurred $7.2 million for exit activities associated with an expired turnkey contract in Mexico. Such exit costs include $2.8 million for employee terminations, $1.1 million for facility closure and other exit costs, direct transaction costs of $2.7 million, and $0.6 million for right-of-use asset impairment for a leased facility. We also incurred costs of $1.6 million for other employee terminations and facility closure costs for operational efficiency activities and $0.3 million for acquisition-related activities. This was offset by a net benefit of ($1.2) million for reimbursements from our insurance carriers for covered legal charges. During the nine months ended March 31, 2020, we incurred impairment, restructuring and other charges, net of $3.3 million related to the exit of a product line in our Healthcare division, $1.6 million of employee termination and facility closure costs, and $0.3 million of acquisition costs, which were offset by a net recovery of $3.7 million for certain legal costs through insurance reimbursements.

~~Other Income and Expenses~~

~~Interest and other expense, net~~. For the nine months ended March 31, 2021, interest and other expense, net was $12.6 million as compared to $14.3 million in the comparable prior-year period. This decrease was driven by lower average levels of borrowing under our revolving credit facility as well as lower average interest rates during the nine months ended March 31, 2021 compared to the same period in the prior year. Interest expense included $6.7 million and $6.6 million of non-cash interest expense during the nine months ended March 31, 2021 and 2020, respectively, mainly related to the Notes (see Note 8 to the condensed consolidated financial statements for further discussion).

~~Income taxes~~. For the nine months ended March 31, 2021 and 2020, we recognized a provision for income taxes of $20.8 million and $5.9 million, respectively. The effective tax rate for the nine months ended March 31, 2021 and 2020 was 30.1% and 8.7%, respectively. During the nine months ended March 31, 2021, we recognized a net discrete tax expense of $2.3 million for return-to-provision true-up adjustments of $2.8 million, offset by a ($0.5) million tax benefit from equity-based compensation under ASU 2016-09. During the nine months ended March 31, 2020, we recognized a discrete tax benefit of $12.0 million for equity-based compensation under ASU 2016-09 of $6.8 million and a return to provision true-up adjustment of $5.2 million.

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 ~~$92.5~~$54.7 million at ~~March 31,~~September 30, 2021, ~~an increase~~a decrease of ~~$16.4~~$25.9 million, or ~~21.5%~~32.1%, from ~~$76.1~~$80.6 million at June 30, ~~2020.~~2021. 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. In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S. subsidiaries, and our credit facility will be sufficient to satisfy our obligations in the U.S.

We have a five-year revolving credit facility that allows us to borrow up to $535 million. As of ~~March 31,~~September 30, 2021, there were no$26.0 million of borrowings outstanding under the revolving credit facility and letters of credit outstanding totaled ~~$66.7~~$79.4 million.

Cash Provided by (Used in) Operating Activities.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 the ~~nine~~three months ended ~~March 31,~~September 30, 2021, we ~~generated~~used cash ~~from~~in operations of ~~$131.1~~$11.0 million compared to ~~$105.6~~generating $53.8 million in the same prior-year period. This ~~increase~~decrease was driven by ~~favorable~~increases in inventory, lower collections of accounts receivable and customer advances and other changes in net working capital.

~~Table of Contents~~

Cash Used in Investing Activities. Net cash used in investing activities was ~~$26.2~~$7.8 million for the ~~nine~~three months ended ~~March 31,~~September 30, 2021 as compared to ~~$28.3~~$12.3 million in the same prior-year period. ~~During the nine months ended March 31 2021, we used cash of $3.0 million for the acquisition of a business.~~ Capital expenditures in the ~~nine month~~three-month period ended ~~March 31,~~September 30, 2021 were ~~$11.2~~$3.5 million compared to ~~$16.1~~$3.8 million in the same prior-year period. Expenditures for intangible and other assets in the ~~nine month~~three-month period ended ~~March 31,~~September 30, 2021 were ~~$9.9~~$4.3 million compared to ~~$8.8~~$4.4 million in the same prior-year period. ~~Purchases~~In addition, during the three months ended September 30, 2020, we used cash of ~~certificates~~$3.0 million for the acquisition of ~~deposit in the nine month period ended March 31, 2021 were $4.8 million while there were none in the same prior-year period.~~a business.

Cash Used in Financing Activities. Net cash used in financing activities was ~~$91.4~~$7.2 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2021, compared to ~~$68.5~~$41.8 million during the same prior-year period. The ~~significant~~ changes in cash used in financing activities primarily relate to (i) net ~~repayments of~~proceeds from borrowings on bank lines of credit totaling ~~$59.0~~$26.0 million in the ~~nine~~three month period ended ~~March 31,~~September 30, 2021 compared to net repayments of borrowings of ~~$7.0~~$8.0 million in the same prior-year period and (ii) ~~$36.6~~$34.8 million used for share repurchases and taxes paid related to the net share settlement of equity awards in the ~~nine~~three month period ended ~~March 31,~~September 30, 2021 compared to ~~$78.5~~$35.7 million for the same prior-year period.

Borrowings

See Note 87 to the condensed consolidated financial statements for a detailed discussion regarding our revolving credit facility and our Notes.

Cash Held by Foreign Subsidiaries

Table of Contents

Kingdom, India, Malaysia, ~~Canada,~~ Singapore, and ~~India~~Canada, and to a lesser extent in ~~Puerto Rico~~Australia, Albania and ~~Albania~~Germany among ~~other countries.~~others. 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. operations. 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 ~~March 31,~~September 30, 2021:

Maximum number (or

approximate dollar

value) of

Total number of

shares (or

Total number of

shares (or

shares (or units)

units)

shares (or units)

units)

purchased as

that may

purchased as

that may

Total number of

Average price

part of publicly

yet be purchased

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

shares (or units)

paid per share (or

announced plans or

under the plans or

Purchased

unit)

Programs

programs (1)

purchased

unit)

programs

programs (1)

January 1 to January 31, 2021

—

2,679,864

February 1 to February 28, 2021

—

2,679,864

March 1 to March 31, 2021

2,452

95.74

2,452

2,677,412

July 1 to July 31, 2021

—

2,547,995

August 1 to August 31, 2021

2,700

99.24

2,700

2,545,295

September 1 to September 30, 2021

165,806

96.31

165,806

2,379,489

2,452

168,506

(1)

In April 2020, the Board of Directors authorized a share repurchase program of up to 1,000,000 shares of common stock. In August 2020, the Board of Directors increased the maximum number of shares to 3,000,000 shares authorized under the stock repurchase program. Upon repurchase, the shares 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.

Contractual Obligations

During the ~~nine~~three months ended ~~March 31,~~September 30, 2021, 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, ~~2020.~~2021. See Notes 1, ~~6, 8~~5, 7 and 109 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

~~Table of Contents~~

Off-Balance Sheet Arrangements

As of ~~March 31,~~September 30, 2021, we did not have any significant off-balance sheet arrangements, ~~as defined in Item 303(a)(4) of Regulation S-K.~~other than those previously disclosed.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the potential impact of those pronouncements on our condensed consolidated financial statements, see Note 1 to the condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. There have been no material changes in our exposure to market risk during the ~~nine~~three months ended ~~March 31,~~September 30, 2021 from that described in the Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of ~~March 31,~~September 30, 2021, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)

Table of Contents

or 15d-15(e) of the Exchange Act). Based upon management's review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~third~~first quarter of fiscal ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company have been detected.

3228

Table of Contents

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~The material~~From time to time, we are subject to legal proceedings, claims, and litigation arising in the ordinary course of our business or otherwise. More information regarding legal proceedings in which we are involved ~~are discussed in~~can be found under Note ~~10,~~9, “Commitments and ~~Contingencies,”~~Contingencies” of the Notes to the ~~Condensed~~ Consolidated Financial Statements in Part I, Item 1 of this ~~Quarterly~~ Report, ~~on Form 10-Q, and are hereby~~which is incorporated by ~~reference.~~reference into this Item 1.

ITEM 1A. RISK FACTORS

The discussion of our business, financial condition and results of operations in this Quarterly Report on Form 10-Q for the period ended ~~March 31,~~September 30, 2021 should be read together with the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020,~~2021, filed with the SEC on August ~~21, 2020,~~23, 2021, which describe various risks and uncertainties that could materially affect our business, financial condition and results of operations in the future. There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. Further, COVID-19 and its impact on the global health and economic environment, as well as reactions to resurgences of COVID-19 or other future pandemics, could also amplify the other risk factors described in our Annual Report on Form 10-K and thus materially affect our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

See Issuer Purchases of Equity Securities discussion under Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is ~~hereby~~ incorporated by ~~reference.~~reference into this Item 2.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

On April 28, 2021, our Compensation Committee approved an amendment to our long-term incentive program as applicable to our Chief Executive Officer to extend the program to include fiscal years 2022 and 2023 and to increase for the current and all remaining performance periods the potential additional shares that our Chief Executive Officer can earn under the compound annual operating income growth metric in accordance with the chart below. Ninety percent of any additional shares earned under the program will vest on the date such shares are granted, and ten percent will vest on the one-year anniversary of the date such shares are granted.None

Operating Income Metric

Potential

Additional Shares

CAGR EBIT

as % of Initial

Growth

Grant

9.5
%
70
%

10.0
%
80
%

10.5
%
90
%

11.0
%
100
%

3329

Table of Contents

ITEM 6. EXHIBITS


Exhibit Number		Description
10.1^†*		Third Amendment to Amended and Restated Retirement Benefit Award Agreement effective as of October 27, 2021 by and between Deepak Chopra and OSI Systems, Inc.

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

*	Filed herewith

†	Denotes a management contract or compensatory plan or arrangement.

3430

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Hawthorne, State of California on the 3029^th day of ~~April~~October 2021.

	OSI SYSTEMS, INC.

	By:	/s/ Deepak Chopra
		Deepak Chopra
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Alan Edrick
		Alan Edrick
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

3531


	Nine Months Ended March 31, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2019	18,167,020	$	168,913	$	399,541	$	(16,727)	$	551,727
Exercise of stock options	201,003		4,112		—		—		4,112
Vesting of RSUs	388,756		—		—		—		—
Shares issued under employee stock purchase program	71,595		4,286		—		—		4,286
Stock-based compensation expense	—		18,097		—		—		18,097
Repurchase of common stock	(562,707)		(51,775)		—		—		(51,775)
Taxes paid related to net share settlement of equity awards	(255,042)		(26,761)		—		—		(26,761)
Net income	—		—		61,287		—		61,287
Other comprehensive loss	—		—		—		(8,697)		(8,697)
Balance—March 31, 2020	18,010,625	$	116,872	$	460,828	$	(25,424)	$	552,276


2021 (remaining 3 months)	$	4,660
2022		17,152
2023		17,377
2024		16,705
2025		13,986
Thereafter		31,043
Total	$	100,923


	June 30,		March 31,
Contract Assets:	2020		2021		$ Change		% Change
Unbilled revenue	$	43,011	$	46,866	$	3,855	9	%


	YTD Q3		% of		YTD Q3		% of
	2020		Net Revenues		2021		Net Revenues		$ Change		% Change
Security	$	578.5	65	%	$	431.4	53	%	$	(147.1)	(25)	%
Healthcare		127.9	14			160.4	20			32.5	25
Optoelectronics and Manufacturing		182.7	21			222.9	27			40.2	22
Total net revenues	$	889.1	100	%	$	814.7	100	%	$	(74.4)	(8)	%


Operating Income Metric
			Potential
			Additional Shares
CAGR EBIT			as % of Initial
Growth			Grant
	9.5	%	70	%
	10.0	%	80	%
	10.5	%	90	%
	11.0	%	100	%