OSIS 10-K & 10-Q changes, risk factors and insider trading

U.S. budgeting process disruptions could reduce government spending, which could adversely impact our revenues, earnings, cash flows and financial condition. Funding for U.S. federal Government activities takes place on an annual basis with the Government fiscal year beginning on October 1 and ending on September 30. In recent years, the budgeting process has often not been completed by October 1st, which has required the temporary extension of funding authority. This in turn can and has resulted in temporary Government shutdowns, causing delays in procurements and contract awards. Because the provision of appropriated funds is undertaken on an annual basis and subject to budgetary rules and requirements, there can be disruptions to federal funding of current and future procurements.

We cannot predict the consequences of current or future geopolitical events, but they may adversely affect the markets in which we operate and our results of operations. Ongoing instability and current conflicts in global markets, and the potential for other conflicts and future terrorist activities and other recent geopolitical events throughout the world, including the ongoing conflict between Russia and Ukraine,Ukraine the ongoing conflictand in the Middle East and its regional effects, and increased tensions in Asia, have created and may continue to create economic and political uncertainties and impacts that could have a material adverse effect on our business, operations, and profitability. These types of matters cause uncertainty in financial markets and may significantly increase the political, economic and social instability in the geographic areas in which we operate. In addition, in connection with the current status of international relations with Russia, particularly in light of the conflict between Russia and Ukraine, the U.S. governmentGovernment has imposed enhanced export controls on certain products and sanctions on certain industry sectors and parties in Russia. The governments of other jurisdictions in which we operate, such as the European Union and Canada, may also implement sanctions or other restrictive measures. These potential sanctions and export controls, as well as any responses from Russia, could adversely affect us and/or our supply chain, business partners, or customers.

In 2025, the U.S. government announced the imposition of additional tariffs on certain goods imported from numerous countries. Multiple nations responded with reciprocal tariffs and other trade actions. The recent enactment of tariffs by the U.S. government,Government, along with the unpredictability of the rates and other potential actions that may be taken by the U.S. governmentGovernment and foreign governments (including trade restrictions, new or increased tariffs or quotas, reciprocal tariffs, embargoes, sanctions and counter sanctions, safeguards or customs restrictions) may materially increase our costs and reduce our margins. These actions may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales. We are actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory actions by other countries. We are currently taking actions to mitigate this cost pressure, including accelerating, increasing or canceling inventory, further diversifying suppliers and re-sourcing to countries with lower tariffs, working with longstanding factory partners to reduce costs, identifying further cost reductions across our business andbusiness, planning for strategic price increases.increases and pursuing potential tariff refunds. However, there can be no assurance that we will be able to implement any strategies in a timely fashion, that these measures will be successful, or that they will offset the negative impact of the tariffs and other government actions on our business.

We could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers, suppliers, or other third parties; our products and services may be subject to potential cyber-attacks or other information technology vulnerabilities. We manage and store proprietary, sensitive and confidential data related to our business operations. We may be subject to cyber-attacks and breaches of the information technology systems we use for these purposes. ExperiencedThreat programmers and hackersactors may be able to penetrate our network and application security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns.operational harm. Hackers may also be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities in our systems or products. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacturing, including “vulnerabilities,” “bugs” and other problems that could unexpectedly interfere with the operation of our systems or products. Cyber-threats vary in technique, are persistent, frequently change, and increasingly are more sophisticated, targeted, and difficult to detect or prevent. We expend significant capital and resources to protect against the threat of security breaches, including cyber-attacks, viruses, worms, malware, ransomware and other malicious software programs. Substantial additional expenditures may be required before or after a cyber-attack to mitigate or alleviate problems caused by unauthorized access, theft of data stored within our information systems, or the introduction of computer malware or ransomware to our environment. Our remediation efforts may not be successful, and there could be interruptions, delays, or cessation of service due to cyber-attacks or other data security breaches.

We often identify attempts to gain unauthorized access to our systems. Given the rapidly evolving nature and proliferation of cyber-threats, there can be no assurance that our employee training, operational, and other technical security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access, damage, or interruption of our systems and operations. We are likely to face attempted cyber-attacks in the future. Cyber threat activity is expected to accelerate as adversaries increasingly leverage AI to enhance attack sophistication and scale. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems as well as any systems used in acquired operations. In addition, breaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our suppliers, customers or other third parties could expose us or any such affected third party to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business, even if we were not responsible for the breach. Furthermore, we are exposed to additional risks because we rely in certain capacities on third-party software, data management, and cloud service providers with possible security problems and security vulnerabilities beyond our control. Media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation and materially and adversely impact our business.

Shares of our common stock issuable upon conversion of the 2.25% Convertible Senior Notes due 2029 (the “2029 Notes”) or the 0.50% Convertible Senior Notes due 2031 (the “2031 Notes”), collectively the “Notes”, may dilute the ownership interest of our stockholders or may adversely affect the market price of our common stock. The conversion of any portion of the 2029 Notes may dilute the ownership interests of our stockholders. Upon conversion of the 2029 Notes, the default settlement method is a combination settlement with a specified dollar amount of $1,000 per $1,000 principal amount of notes and shares of our common stock as described in Note 8. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. Also the existence of the 2029 Notes may encourage short selling by market participants because the conversion of the 2029 Notes could be used to satisfy short positions, or anticipated conversion of the 2029 Notes into shares of our common stock could depress the price of our common stock.

Our indebtedness (including the 2029 Notes) could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our debt obligations, including the 2029 Notes. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: (i) increasing our vulnerability to adverse economic and industry conditions; (ii) limiting our ability to obtain additional financing; (iii) requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; (iv) limiting our flexibility to plan for, or react to, changes in our business; and (v) placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital. Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the 2029 Notes, and our cash needs may increase in the future. If we fail to comply with debt covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in such indebtedness and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the 2029 Notes for cash following a fundamental change, or to pay the cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the 2029 Notes or pay cash upon their conversion. Noteholders may, subject to a limited exception, require us to repurchase their 2029 Notes following a fundamental change (as defined in the Convertible Note Indenture) at a cash repurchase price generally equal to the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the related fundamental change repurchase date. In addition, all conversions of 2029 Notes require the principal amount to be settled in cash. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2029 Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the 2029 Notes or pay the cash amounts due upon conversion. Our existing credit facility contains certain limitations on cash payments for the conversion, redemption or repurchase of the 2029 Notes, including compliance with certain leverage ratios on a pro forma basis after giving effect to such cash payments. Our failure to repurchase 2029 Notes or pay the cash amounts due upon conversion when required will constitute a default under the Note Indenture. A default under the Note Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2029 Notes.

Provisions in the Note Indenture could delay or prevent an otherwise beneficial takeover of us. Certain provisions in the 2029 Notes and the Note Indenture could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then, subject to certain exceptions, noteholders will have the right to require us to repurchase their 2029 Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the 2029 Notes and the Note Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The accounting method for the 2029 Notes could adversely affect our reported financial condition and results. The accounting method for reflecting the 2029 Notes on our balance sheet, accruing interest expense for the 2029 Notes and potential inclusion of underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. In accordance with applicable accounting standards, the 2029 Notes are reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the 2029 Notes, net of issuance costs. The issuance costs are treated as a debt discount for accounting purposes, which are being amortized into interest expense over the term of the 2029 Notes. As a result of this amortization, the interest expense that we expect to recognize for the 2029 Notes for accounting purposes will be greater than the cash interest payments we will pay on the 2029 Notes, which will result in lower reported income. In addition, the shares underlying the 2029 Notes will be reflected in our diluted earnings per share using the “if converted” method. Under that method, the underlyingpotential equitycommon componentshares issuable upon conversion of the 2029 Notes will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price of $191.98 because the principal amount of the 2029 Notes will be settled in cash upon conversion,,conversion, then we will calculate our diluted earnings per share assuming that all of the 2029 Notes were converted at the beginning of the reporting period and that we issued shares of our common stock to settle the excess. The after-tax interest expense associated with the 2029 Notes will not be added back to the numerator of the diluted earnings per share calculation for these purposes. The application of the if-converted method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share. Furthermore, if any of the conditions to the convertibility of the 2029 Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the 2029 Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their 2029 Notes and could materially reduce our reported working capital.

We are subject to import and export controls that could subject us to liability or impair our ability to compete in international markets. Due to the international scope of our operations, we are subject to a complex system of import-import - and export-related laws and regulations, including U.S. export control and customs regulations and customs regulations of other countries. These regulations are complex and vary among the legal jurisdictions in which we operate. Any alleged or actual failure to comply with such regulations may subject us to government scrutiny, investigation, and civil and criminal penalties, and may limit our ability to import or export our products or to provide services outside the United States. Depending on severity, any of these penalties could have a material impact on our business, financial condition and results of operations.

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, each of which is a reportable segment: (a) Security, providing security and inspection systems, high-power RF systems and turnkey security screening solutions; (b) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for our Security and Healthcare divisions, as well as to third parties for applications in the defense and aerospace markets, among othersothers, and for our Security and Healthcare divisions; and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.

Security Division. Through our Security division, we provide security screening products, multi-platform software solutions, and services globally, as well as turnkey security screening solutions. These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband. We also provide high-power RF systems for transmission, surveillance and other applications for defense, research and industrial use. Revenues from our Security division accounted for 70% of our total consolidated revenues for fiscal 2025.2026.

Acquisitions. We acquired twoone businessesbusiness in fiscal 20252026 and two businesses in fiscal 2024,2025, as described in Note 2 to the Consolidated Financial Statements. None of these acquisitions waswere considered material.significant.

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. There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates,rate policies, and labor shortages. Increasing diplomatic and trade friction between the U.S. and China has also created significant uncertainty in the global economy. These global macroeconomic factors, coupled with political unrest internationally and the volatile U.S. political climate and political unrest internationally,climate, have created uncertainty and impacted demand for certain of our products and services. Conflicts in Iran, Gaza and nearby regions have created political and economic uncertainty in the Middle East. Also, the continued conflict between Russia and Ukraine and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations. We do not know how long this uncertainty will continue. These factors could have a material adverse effect on our business, results of operations and financial condition.

Global Trade. 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 other countries. Tariffs, trade restrictions and retaliatory measures by such other countries could result in revenue reductions for the Company or cost increases on material used in our products, which could materially and adversely affect our business, financial condition, results of operations and cash flows. Consistent with our strategy, we are taking measures to contain costs to reduce the impact of tariffs. To date, our strategies have helped minimize our exposure to these conditions. Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.

Inventory. The majority of our inventories are valued using the average costing method with select subsidiaries using the standard costing method. Inventories are stated at the lower of cost (firstfirst-in, - in, first - outfirst-out) or net realizable value. We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors become less favorable than those projected, additional inventory write-downs may be required.

Subsequent to the fiscal year end, onOn July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. Key income-tax related provisions of the OBBBA relevant to our Company include the removal of mandatory capitalization of domestic research and development expenditures, permanent extension of bonus depreciation and revisions to international tax regimes. WeThe areCompany evaluatingevaluated the financialprovisions of the legislation and based on the Company’s analysis, the OBBBA did not have a material impact ofon OBBBA,the whichCompany’s consolidated financial statements. The Company will becontinue into effectmonitor forany future administrative guidance related to the fiscal year ending June 30, 2026. The legislation will affect the timing and recognition of certain deductions, which, if implemented, could impact our effective tax rate and deferred tax balances in future periods.legislation.

Fiscal 20252026 Compared with Fiscal 2024.2025. Revenues for the Security division during the fiscal year ended June 30, 20252026 increased by $51.8 million on a year-over-year basis primarily due to an increase in product and service revenues of approximately $97.0 million and $56.1 million, respectively. The increase in product revenue was primarily driven by growth in cargo and vehicle inspection systems, trace detection systems, and checkpoint screening sales.revenues. The increase in service revenuerevenues was due primarily to the increase in the installed base of products.products of cargo and vehicle inspection systems and aviation and checkpoint inspection systems. Product revenues for fiscal 2026 were comparable to fiscal 2025 as an increase in revenue from RF systems and other security products were offset by a decrease in product revenues from customers in Mexico.

Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 20252026 increased year-overyear-over-year yearby mainly$26.7 million due to an increase of $23.5 millionincreases in theour optoelectronics business and our contract manufacturing business.business of $8.2 million and $18.5 million, respectively.

Revenues for the Healthcare division during the fiscal year ended June 30, 20252026 decreased by $5.6 million year-over-year due primarily to a reduction in cardiologypatient monitoring sales of $4.8$9.6 million, in service revenue of $1.9 million and patientin monitoringsupplies salesand accessories revenue of $1.8 million, partially offset by increases in servicecardiology revenuesales of $2.4 million and supplies and accessories revenue of $1.1$7.7 million.

Fiscal 20252026 Compared with Fiscal 2024.2025. Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, tariffs, and logistics. Gross profit increased approximately $56.7$5.9 million in fiscal 20252026 as compared to the prior year on ana 11.3%4.3% increase in net revenue. The gross margin in fiscal year 20252026 was relativelylower comparablethan the prior year due to the priorsales year.mix in the Security division arising from an unfavorable shift in revenue mix. Revenue from Security division customers in Mexico, which generated margins above the division average, declined by $148.8 million year-over-year, while revenue increased in businesses that generally carried lower margins. Gross margin was also adversely affected by lower margins in aviation and checkpoint inspection systems. These impacts were partially offset by higher revenue and improved profitability from RF systems.

Fiscal 20252026 Compared with Fiscal 2024.2025. SG&A expense for the fiscal year ended June 30, 20252026 increaseddecreased $21.2$12.5 million compared to the same prior-year period, primarily due to increasesa in compensation expense, professional fees, information technology costs and the unfavorablefavorable impact offrom foreign currency exchange rates,rates and decreased employee compensation, including reduced stock-based compensation expense related to the retirement of our former CEO in fiscal year 2025, partially offset by lowerhigher bad debt expense compared to the same prior-year period. Although SG&A expense increased in fiscal 2025 compared to fiscal 2024, as a percentage of net revenues, SG&A expense decreased from 17.5% in fiscal 2024 to 17.0% in fiscal 2025.

Fiscal 20252026 Compared with Fiscal 2024.2025. R&D expense during the fiscal year ended June 30, 20252026 was $8.1$5.7 million higher than in the same prior-year period, driven primarily by increased compensation costs related to investments to support new product development initiatives,initiatives mainlyprimarily in our Security division and Healthcare division.

RestructuringImpairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges. We have undertaken certain restructuring activities in an effort to align our global capacity and infrastructure with demand by our customers and fully integrate acquisitions, thereby improving our operational efficiency. Our efforts have helped enhance our ability to improve operating margins, retain and expand existing relationships with customers and attract new business. We may utilize similar measures in the future to realign our operations to further increase our operating efficiencies. The effect of these efforts may materially affect our future operating results.

Fiscal 20252026 Compared with Fiscal 2024.2025. For the fiscal year ended June 30, 2025,2026, interest and other expense, net was $31.4$26.2 million as compared to $27.8$31.4 million in the prior fiscal year. The increasedecrease in interest and other expense, net was drivena primarilyresult byof a decrease in interest expense from lower average interest rates on our borrowings due to issuance of convertible notes and concurrent paydown of our revolving credit facility, and higher averageinterest income on increased levels of borrowingscash in fiscal 2026 compared to support the increasesame inprior workingyear capitalperiod. associatedThese withfavorable theimpacts growth in revenues, business acquisition activity, and for the repurchase of approximately $80 million of shares of common stock in July 2024. This waswere partially offset by loweran interestincrease in other expense associatedin withfiscal the2026 2029of Notes$4.4 whichmillion resultedfor prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO and a decrease$1.3 million reduction in overall average borrowing rate, including the benefit from the interest rate swap.swap Interest expense forin fiscal 20252026 andcompared 2024 included a benefit of $2.4 million and $3.6 million, respectively, fromto the interestprior rate swap.year.

Fiscal 20252026 Compared with Fiscal 2024.2025. For the fiscal years ended June 30, 20252026 and 2024,2025, we recorded a provision for income taxes of $36.5$38.0 million and $33.1$36.5 million, respectively. The effective tax rate for the fiscal years ended June 30, 20252026 and 20242025 was 19.6%19.7% and 20.5%,19.6%, respectively. During the fiscal years ended June 30, 20252026 and 2024,2025, we recognized a net discrete tax benefit of $6.7$5.8 million and $4.7$6.7 million, respectively. The net discrete benefit recorded in the fiscal year ended June 30, 2026 is primarily related to equity-based compensation under ASU 2016-09, changes to prior year estimates, and changes in uncertain tax positions. The net discrete benefit recorded in the fiscal year ended June 30, 2025 is primarily related to equity-based compensation under ASU 2016-09, favorable resolution to a foreign tax dispute, and changes in uncertain tax positions. The net discrete benefit recorded in the fiscal year ended June 30, 2024 is primarily related to equity-based compensation under ASU 2016-09 and adjustments to prior year estimates.

Cash Provided by (Used in) Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period,period asdue to changes in net income, adjusted for non-cash items, and working capital fluctuations impact cash flows.capital. During fiscal 2025,2026, cash provided by operations was $97.6$275.9 million compared to cash usedprovided inby operations of $87.5$97.6 million in the prior fiscal year. The positivenet changeincrease in cash flows from operating activities was due primarily to improvements in collection of accounts receivable and utilization of inventories associated with the revenue growth in our Security division, partially offset by otherfavorable changes in net working capitalcapital, comparedlargely withfrom thelower sameaccounts periodreceivable, lastan year,increase in deferred revenue and other liabilities, as well as the impact of higher net income in fiscal 2025 compared withto the priorsame fiscalprior-year year.period. These favorable changes were partially offset by unfavorable fluctuations in accounts payable, advances from customers, inventory and prepaid expenses and other assets.

Cash Used in Investing Activities. Net cash used in investing activities was $117.9$68.3 million during fiscal 20252026 as compared to $37.6$117.9 million used during the prior year. DuringThe fiscaldecrease 2025,in wecash used in investing activities was primarily due to lower cash of $76.7 millionpaid for the acquisition of businessesbusinesses, aswhich was $26.3 million during fiscal 2026 compared to $9.0$76.7 million in the prior fiscal year. NetThis favorable impact was partially offset by increased capital expenditures of $30.6 million in fiscal 2025 were $23.8 million2026 compared to $22.1 million in the prior fiscal year. Expenditures for intangible and other assets in fiscal 2025 were $17.7 million compared to $17.3$23.8 million in the prior fiscal year. In addition, we received proceeds from maturitiesthe sale of certificatesproperty and equipment of deposit of $0.1$6.5 million in fiscal 20252026 compared to $10.3$0.3 million in the same prior-year period.

Cash Provided by Financing Activities. Net cash provided by financing activities was $30.8$46.7 million during fiscal 2025,2026, compared to $144.3$30.8 million during the prior fiscal year. The changesincrease in cash flows from financing activities was primarily relatedue to net proceeds of $562.9 million from issuance of $350.0the million2031 in senior convertible notes, net of issuance costs of $9.5 million,Notes, partially offset by (i1) net repaymentsrepayment of $178.0 million on bankour linesrevolving credit facility and (2) the repurchase of creditcommon shares of 214.2$271.9 millionmillion. This is compared to net proceeds in fiscal 2025 comparedof to$340.6 million from issuance of the 2029 Notes, partially offset by (1) net borrowingsrepayment of $162.0$228.0 million on our revolving credit facility and (2) repurchases of common shares for an aggregate of $80.4 million in the priorsame prior-year period. In connection with the July 2025 amendment and extension of our revolving credit facility, we replaced the $128.1 million term loan with a new $100.0 million term loan. Taxes paid related to net share settlement of equity awards were $36.3 million during fiscal year;2026 andcompared (iii)to share repurchases totaling $80.4$22.6 million in fiscal 2025 compared to no share repurchases in the priorsame fiscalprior-year year.period.

Borrowings. Outstanding borrowingsdebt ontotaled lines$1,001.0 million at June 30, 2026, an increase of credit$351.4 andmillion other current and long-term debt totaledfrom $649.6 million at June 30, 2025,2025. anThis increase was due primarily to proceeds from the 2031 Notes, partially offset by repayment of $128.0outstanding revolver borrowings and net reduction in the term loan associated with our credit facility. Contractual debt maturities of $2.5 million fromwill $521.6be millionpayable atwithin Junethe 30,next 2024.12 months. As of June 30, 2025,2026, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion.discussion, including future contractual maturities and potential cash settlement upon conversion or redemption of the 2029 Notes and 2031 Notes. We anticipate that cash generated from our operations, existing cash borrowing arrangements and future access to capital markets should be sufficient to meet our cash requirements for at least the next 12 months. However, our future capital requirements will depend on many factors, including future business acquisitions, capital expenditures, litigation, stock repurchases and levels of research and development spending, among other factors. The adequacy of available funds will depend on many factors, including the success of our businesses in generating cash, continued compliance with financial covenants contained in our credit facility and the health of capital markets in general, among other factors.

Our cash and cash equivalents totaled $106.4$359.8 million at June 30, 2025.2026. Of this amount, approximately 78%23% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in India, United Kingdom, Singapore, Canada, Singapore, and Malaysia, and to a lesser extent in Australia, Albania, Indonesia, Uruguay and Germany, among other countries.Malaysia. 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.

The discussion of our business, financial condition and results of operations in this Quarterly Report on Form 10-Q for the period ended DecemberMarch 31, 20252026 should be read together with the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC on August 25, 2025, 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, 2025.

This management’s discussion and analysis of financial condition as of DecemberMarch 31, 20252026 and results of operations for the three and sixnine months ended DecemberMarch 31, 20252026 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, 2025 filed with the SEC.

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 our expectations are disclosed in this report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (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; government shutdown; delays in revenue recognition related to the timing of customer acceptance; the impact of potential information technology, cybersecurity or data security breaches; changes in domestic and foreign government spending, budgetary, procurement, and trade policies adverse to our businesses; the impact of the Russia-Ukraine conflict or conflicts in the Middle East, including the potential for broad economic disruption and increased global tensions; global economic uncertainty, including the impact of tariffs; material delays and cancellations of orders or deliveries thereon, supply chain disruptions, plant closures, or other adverse impacts on our ability to execute business plans; unfavorable currency exchange rate fluctuations; unfavorable interest rate fluctuations; effect of changes in tax legislation, guidance and interpretations; 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; 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 factors described in our other SEC filings. All forward-looking statements contained in this report are qualified in their entirety by this section. Moreover, we operate in a very competitive and rapidly changing environment, and 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. 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.

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 andsystems, turnkey security screening solutions and radio frequency equipment; (b) 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; and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.

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. We also advance the application of radio frequency broadcast transmission and scientific and industrial equipment for a global customer base across various sectors.

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. There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, interest rates, and labor shortages. Increasing diplomatic and trade friction between the U.S. and China has also created significant uncertainty in the global economy. These global macroeconomic factors, coupled with political unrest internationally and the volatile U.S. political climate, have created uncertainty and impacted demand for certain of our products and services. The continued conflict between Russia and Ukraine and in the Middle East and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations. We do not know how long this uncertainty will continue. These factors could have a material adverse effect on our business, results of operations and financial condition.

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, as well as potential or actual U.S. government shutdowns.shutdowns, including the impact on near-term bookings and revenues of the recent Department of Homeland Security shutdown.

Currency Exchange Rates. On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.6%0.8% for the sixnine months ended DecemberMarch 31, 20252026 compared to the sixnine months ended DecemberMarch 31, 2024,2025, primarily due to the weakening of the U.S. dollar against other foreign currencies in 2025.2026. Any strengthening of the U.S. dollar against foreign currencies would adversely impact our sales for the remainder of the fiscal year, and any weakening of the U.S. dollar against foreign currencies would positively impact our sales for the remainder of the fiscal year.

Results of Operations for the Three Months Ended DecemberMarch 31, 20242025 (Q2Q3 Fiscal 2025) Compared to the Three Months Ended DecemberMarch 31, 20252026 (Q2Q3 Fiscal 2026) (amounts in millions)

Revenues for the Security division during Q2Q3 fiscal 2026 increased year-over-year due primarily to increases in product and service revenues of approximately $17.7 million and $27.0$6.1 million, respectively.offset Theby increasea slight decrease in product revenues was primarily driven by salesrevenue of aviation$1.7 screening systems and radio frequency (RF) products.million. The increase in service revenue was due primarily to an increase in the installed base of products.

Revenues for the Healthcare division during Q2Q3 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales.sales and service of $5.0 million and $1.0 million, respectively, partially offset by an increase in cardiology product sales of $3.0 million.

Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, tariffs, and logistics. Gross profit increasedwere approximately $4.5 million in Q2 fiscal 2026 as comparedcomparable to the priorsame yearperiod drivenlast by the increase in sales.year. The gross margin decreased as compared to the prior year comparable period as the prior year period had a more favorable mix of Security division product revenues.

Selling, general and administrative. Our significant selling, general and administrative (“SG&A”) expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, foreign currency translation, and depreciation and amortization expense. On an 11% year-over-year increase in revenues, ourOur SG&A expenses for Q2Q3 fiscal 2026 were comparable$1.7 tomillion lower than in the same periodprior-year lastperiod, year.primarily due to a favorable impact from foreign currency exchange rates, favorable settlement of a post-acquisition claim and lower professional fees, partially offset by an increase in bad debt expense.

Research and development. Research and development (“R&D”) expenses include research related to new product development and product enhancements. R&D expenses increasedwere $1.5higher millionthan inthe Q2same fiscalperiod 2026last asyear comparedprimarily due to Q2an fiscalincrease 2025 driven by increasedin compensation costs to support new product development initiatives in our Security and Healthcare divisions.

Impairment, restructuring and other charges. Impairment, restructuring and other charges generally consist of costs relating to reductions in our workforce, facilities consolidation, costs related to acquisition activity, and other non-recurring charges. During Q2Q3 fiscal 2026, we recognized $2.9$6.2 million in impairment, restructuring and other charges, which included $1.0$0.2 million for impairment of assets, $0.7$1.7 million for employee terminationsterminations, and$2.0 million for acquisition-related costs, $1.2 million for non-recurring business unit modifications and $1.1 million for a legal settlement, primarily in our Healthcare division. During Q2Q3 fiscal 2025, we recognized $0.2$2.3 million primarilyin impairment, restructuring and other charges, which included $1.8 million for acquisitionemployee activity.terminations and $0.5 million for facility closure costs.

Interest and other expense, net. Interest and other expense, net was $8.6$8.2 million and $10.7$4.0 million for Q2Q3 fiscal 2025 and 2026, respectively. The increasedecrease was due to a charge included in other expense in Q2 fiscal 2026 of $4.4 million for prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO. This increase was partially offset by a decrease in interest expense, net as a result of lower average interest rates on our borrowings due to new convertible notes andthe paydown of our revolving credit facility using proceeds from the issuance of the 0.50% 2031 Notes in November 2025 and higher interest income on increased levels of cash in Q2Q3 fiscal 2026 compared to the same prior year period.

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 Q2Q3 fiscal 2025 and 2026, we recognized a provision for income taxes ofwas $11.5$6.9 million and $9.4$9.0 million, respectively. The effective tax rates for Q2Q3 fiscal 2025 and 2026 were 23.3%14.3% and 19.5%,18.3%, respectively. During Q2Q3 fiscal 2025,2026 we recognized a net discrete tax benefitbenefits of $0.3$2.6 million related to equity-based compensation under ASU 2016-09.2016- 09 and uncertain tax benefits. During Q2Q3 fiscal 2026,2025 we recognized a net discrete tax benefitbenefits of $0.8$4.5 million related to equity-based compensation under ASU 2016-09 and a benefit of $1.0 million from changes in prior year estimates.tax estimates and uncertain tax benefits.

Results of Operations for the SixNine Months Ended DecemberMarch 31, 20242025 (YTD Q2Q3 Fiscal 2025) Compared to the SixNine Months Ended DecemberMarch 31, 20252026 (YTD Q2Q3 Fiscal 2026) (amounts in millions)

Revenues for the Security division during YTD Q2Q3 fiscal 2026 increased year-over-year due to an increase in product and service revenues of approximately $27.3$25.5 million and $47.4$53.5 million, respectively. The increase in product revenues was primarily driven by growth in aviation screening systems and RFradio frequency products. The increase in service revenue was due primarily to an increase in the installed base of products.

Revenues for the Healthcare division during YTD Q2Q3 fiscal 2026 decreased year-over-year primarily due to a decrease in patient monitoring sales.sales and service of $11.2 million and $1.2 million, respectively, partially offset by an increase in cardiology product sales of $4.7 million.

Selling, general and administrative. SG&A expenses for YTD Q2Q3 fiscal 2026 were $5.7$7.6 million lower than in the same prior-year period, primarily due to decreased employee compensationcompensation, favorable settlement of a post-acquisition claim and a favorable impact offrom foreign currency exchange ratesrates, partially offset by higher bad debt expense in YTD Q2Q3 fiscal 2026 compared to the same prior-year period.

Research and development. R&D expenseexpenses for YTD Q2Q3 fiscal 2026 increased $4.2$5.0 million over the same prior-year period driven by increased compensation costs to support new product development initiatives in our Security division and Healthcare division.

Impairment, restructuring and other charges. Impairment, restructuring and other charges increased by $4.2 million over the same prior-year period. In YTD Q2Q3 fiscal 2026, we recognized $5.6$11.8 million in impairment, restructuring and other charges, which included $1.0$1.2 million for impairment of assets, $1.1$2.7 million for employee terminations, $1.3$2.0 million for acquisition-related costs, $2.6 million for non-recurring business unit modifications and $1.1 million for a legal settlement in our Healthcare division, and $2.2 million of non-recurring charges in our Security division. In YTD Q2Q3 fiscal 2025, we recognized $1.4$3.6 million in restructuring and other charges, which included $0.6 million in acquisition relatedacquisition-related costs, $0.2$0.8 million for facility closure costs for operational efficiency activities, and $0.6$2.3 million for employee terminations.

Interest and other expense, net. Interest and other expense, net was $16.0$24.2 million and $18.1$22.1 million for YTD Q2Q3 fiscal 2025 and 2026, respectively. The increasedecrease was a result of lower average interest rates on our borrowings due to athe chargepaydown includedof our revolving credit facility using proceeds from the new convertible notes and higher interest income on increased levels of cash in YTD Q3 fiscal 2026 compared to the same prior year period. This decrease was partially offset by an increase in other expense in Q2 fiscal 2026 of $4.4 million for prior service cost amortization due to a pension plan amendment in December 2025 for our former CEO. This increase was partially offset by a decrease in interest expense, net as a result of lower average interest rates on our borrowings due to new convertible notes and paydown of our revolving credit facility and higher interest income on increased levels of cash in YTD Q2 fiscal 2026 compared to the same prior year period.

Income taxes. For YTD Q2Q3 fiscal 2025 and 2026, we recognized a provision for income taxes of $16.6$23.4 million and $14.5$23.5 million, respectively. The effective tax rates for YTD Q2Q3 fiscal 2025 and 2026 were 22.9%19.5% and 19.7%,19.1%, respectively. For YTD Q2Q3 fiscal 2025, we recognized a discrete tax benefit of $0.8$1.3 million related to equity-based compensation under ASU 2016-09.2016-09 and a discrete tax benefit of $4.1 for changes in prior year estimates and uncertain tax benefits. For YTD Q2Q3 fiscal 2026, we recognized a discrete tax benefit of $1.7$2.1 million related to equity-based compensation under ASU 2016-09 and a benefit of $1.0$3.3 million for changes in prior year estimates.estimates and uncertain tax benefits.

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facilities. Cash and cash equivalents totaled $336.7$345.2 million at DecemberMarch 31, 20252026 compared to $106.4 million at June 30, 2025. We currently anticipate that our available funds, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and the foreseeable future beyond that. In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S. subsidiaries, and our credit facilities will be sufficient to satisfy our current obligations in the U.S.

In November 2025, we issued an aggregate of $575.0 million principal amount of 0.5% convertible senior notes due in February 2031. In connection with the issuance of the 2031 Notes, we repurchased 546,945 shares of our common stock for approximately $146.1 million. We also repaid $288.1 million of borrowings under our revolving credit facility.

In July 2025 we amended and extended our revolving credit facility to mature in July 2030, to increase the revolving limit from $600 million to $725 million and replaced the $128.1 million term loan with a new $100.0 million term loan. The sub-limit for letters of credit was increased from $300 million to $350 million, which includes up to $300 million for borrowings in certain foreign currencies. As of DecemberMarch 31, 2025,2026, there were no borrowings outstanding under the revolving credit facility, $113.6$106.7 million of outstanding letters of credit, and $97.5$95.0 million outstanding under the term loan. As of DecemberMarch 31, 2025,2026, the total amount available under our revolving credit facility was $611.4$618.3 million. See Note 8 to the consolidated financial statements for further discussion.

Cash Provided by 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. For YTD Q2Q3 fiscal 2026, cash provided by operations was $79.3$93.8 million compared to $15.4$97.0 million in the comparable prior-year period. The net increasedecrease in cash flows from operating activities was due primarily to favorableunfavorable improvementschanges in net working capitalcapital, including lower advances from customers and lower impact of changes in deferred revenue compared to the same prior-year comparableperiod. periodThese whichunfavorable impacts were largelypartially attributableoffset toby favorable changes in accounts receivable, prepaid expensesinventories, and otheraccrued current assets,payroll and accountsrelated payable,expenses, partiallyas offsetwell byas unfavorablehigher changesnet inincome advances from customers, other liabilities and inventorycompared to supportthe futuresame growth.prior-year period.

Cash Used in Investing Activities. Net cash used in investing activities was $21.4$28.5 million for YTD Q2Q3 fiscal 2026 as compared to $97.6$106.4 million in the same prior year period. The decrease in cash used in investing activities was primarily due to cash paid for the acquisition of a business in YTD Q2Q3 fiscal 2025 compared to a negligible amount in YTD Q2Q3 fiscal 2026. Capital expenditures for YTD Q2Q3 fiscal year 2026 were $13.7$21.3 million compared to $13.2$17.7 million in the same prior-year period. Proceeds from the sale of property and equipment for YTD Q3 fiscal 2026 were primarily due to the sale of a facility located in Dallas, Texas.

Cash Provided by Financing Activities. Net cash provided by financing activities was $172.6$174.1 million for YTD Q2Q3 fiscal 2026, compared to $89.2$10.4 million during the same prior-year period. The increase in cash flows from financing activities was primarily due to net proceeds of $562.9 million from issuance of the 2031 Notes, partially offset by (1) net repayment of $178.0 million on our revolving credit facility and (2) the repurchase of our common shares for an aggregate of $146.1 million. This is compared to net proceeds of $340.5$340.6 million from issuance of the 2029 Notes, partially offset by (1) net repayment of $148.0$228.0 million on our revolving credit facility and (2) repurchases of common shares for an aggregate of $80.4 million in the same prior-year period. In connection with the July 2025 amendment and extension of our revolving credit facility, we replaced the $128.1 million term loan with a new $100.0 million term loan. Taxes paid related to net share settlement of equity awards were $36.3 million during YTD Q2Q3 fiscal 2026 compared to $22.6 million in the same prior-year period.

Our cash and cash equivalents totaled $336.7$345.2 million at DecemberMarch 31, 2025.2026. Of this amount, approximately 32%25% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in the United Kingdom, India, Singapore, Canada, and MexicoMalaysia and to a lesser extent in Malaysia,Albania, Albania,Australia, and Germany,Guatemala, among other countries. We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S. 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 PurchasePurchases of Equity Securities

TheWe followingdid tablenot containsrepurchase information about theany shares of common stock we purchased during the third quarter endedof Decemberfiscal 31,year 2025:2026.

During the sixnine months ended DecemberMarch 31, 2025,2026, other than the reductionreplacement of ourthe $128.1 million term loan with a $100.0 million term loan in July 2025 in connection with the expansion and extension of our credit facility and issuance of the 2031 Notes in November 2025, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption. See Note 1 for further discussion. There were no new pronouncements adopted in the secondthird quarter of fiscal year 2026.