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What changed in OSI SYSTEMS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of OSI SYSTEMS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+319 added−294 removedSource: 10-K (2024-08-29) vs 10-K (2023-08-29)

Top changes in OSI SYSTEMS INC's 2024 10-K

319 paragraphs added · 294 removed · 248 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

100 edited+20 added−12 removed119 unchanged
Biggest changeNevertheless, with the exception of the loss of the, Rapiscan ® , AS&E ® or Spacelabs ® trademarks, the impact of the loss of any single trademark or patent would not likely have a material adverse effect on our business. 9 Table of Contents Government Regulation of Medical Devices The patient monitoring, cardiology and remote monitoring, and connected care systems we design, manufacture, and market are subject to regulation by numerous government agencies, principally the U.S.
Biggest changeThe loss of some of our trademarks or patents might have a negative impact on our financial results and operations. Nevertheless, with the exception of the loss of the Rapiscan ® , AS&E ® or Spacelabs ® trademarks, the impact of the loss of any single trademark or patent would not likely have a material adverse effect on our business.
We have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) 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 others.
We have three operating divisions: (a) Security, providing security and inspection systems and turnkey security screening solutions; (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.
Most of our high-volume, labor-intensive manufacturing activities are performed at our facilities in India, Indonesia and Malaysia. Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.
Most of our high-volume, labor-intensive manufacturing activities are performed at our facilities in Mexico, India, Indonesia and Malaysia. Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.
Government sponsored initiatives in one nation often stimulate corresponding security programs by others in part because such initiatives frequently require that other nations bolster their security strategies, including acquiring or improving their security and inspection equipment and screening operations, in order to participate in international aviation and cross-border trade activities.
Government sponsored initiatives in one nation often stimulate corresponding security programs by others in part because such initiatives frequently require that other nations bolster their security strategies, including acquiring or improving their security and inspection equipment and screening operations, in order to participate in international aviation and to facilitate cross-border trade activities.
Spacelabs OnTrak™ ambulatory blood pressure system has been validated for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings. Our Sentinel ® 11 Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for cardiology and remote monitoring.
Spacelabs OnTrak™ ambulatory blood pressure system has been validated for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings. Our Sentinel ® Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for cardiology and remote monitoring.
Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, LCD and TFT displays, box-build manufacturing, and flex circuitry on a complete turnkey basis.
Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, LCD and TFT displays, box-build manufacturing, and flex and rigid - flex circuitry on a complete turnkey basis.
Industry Overview We sell our security and inspection solutions and healthcare products primarily to end‑users, while we design and manufacture our optoelectronic devices and value‑added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers. 1 Table of Contents Security.
Industry Overview We sell our security and inspection solutions and healthcare products primarily to end‑users, while we design and manufacture our optoelectronic devices and value‑added subsystems and provide electronics manufacturing services primarily for original equipment manufacturer (OEM) customers. 1 Table of Contents Security Division.
In addition, some competitors may have the ability to respond quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do.
In addition, some competitors may have the ability to respond rapidly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do.
In addition to product design, we provide civil works and system integration services to install and integrate our products with other systems, networks and facilities at the customer site. We support cooperative and government-funded research projects with universities and directly with government agencies themselves.
In addition to product design, we provide civil works and system integration services to install and integrate our products with other systems, networks and facilities at the customer site. We support cooperative and government-funded research projects with universities, government - funded laboratories, and directly with government agencies themselves.
We currently manufacture our patient monitoring and cardiology and remote monitoring systems in Washington state. We outsource manufacturing of certain of our supplies and accessories. We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, India, Indonesia, Malaysia, and the United Kingdom.
We currently manufacture our patient monitoring and cardiology and remote monitoring systems in Washington state. We outsource manufacturing of certain of our supplies and accessories. We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, Mexico, India, Indonesia, Malaysia, and the United Kingdom.
We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug and human trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and internationally.
We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug and human trafficking, gun violence, and by new government mandates and appropriations for security and inspection products both in the United States and internationally.
Optoelectronic Devices and Manufacturing Services. Optoelectronic devices designed, manufactured and sold through our Optoelectronics and Manufacturing division generally consist of both active and passive components. Active components sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light.
Optoelectronic devices designed, manufactured and sold through our Optoelectronics and Manufacturing division generally consist of both active and passive components. Active components sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light.
We plan to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate on a long-term basis security screening checkpoints for our customers. 3 Table of Contents We expect that a market for software-as-a-service (SaaS) platforms that are capable of integrating the data that security inspection systems produce with related information derived from vehicle license plates, cargo container numbers, drivers’ licenses, government databases, and other sources will also continue to develop, mature and grow, particularly as customers shift their operating procedures to take advantage of secure, cloud-based, networking technologies.
We plan to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate security screening checkpoints for our customers. 3 Table of Contents We expect that a market for software-as-a-service (SaaS) platforms that are capable of integrating the data that security inspection systems produce with related information derived from vehicle license plates, cargo container numbers, drivers’ licenses, government databases, and other sources will also continue to develop, mature and grow, particularly as customers shift their operating procedures to take advantage of secure, cloud-based, networking technologies.
Also included in the scope of the regulation are devices designed for the purpose of “prediction and prognosis” of a disease or other health condition. ● Device manufacturers are being required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the new EU MDR.
Also included in the scope of the regulation are devices designed for the purpose of “prediction and prognosis” of a disease or other health condition. ● Device manufacturers are required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the EU MDR.
A copy of this annual report on Form 10-K is available without charge upon written request addressed to: c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310) 978-0516. ​ 16 Table of Contents ​
A copy of this annual report on Form 10-K is available without charge upon written request addressed to: c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310) 978-0516. ​ ​ 17 Table of Contents ​
This sales organization is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers. We market and sell our healthcare products globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors.
This sales organization is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers. We market and sell our healthcare solutions globally through a direct sales and marketing staff located in North America, South America, Europe and Asia, in addition to a global network of independent distributors.
Competition results in price reductions and reduced margins and could result in loss of market share. Although our competitors offer products in competition with one or more of our products, we can supply a variety of system types and offer among the widest array of solutions available from a single supplier.
Competition results in price reductions and reduced margins and could result in loss of market share. Although our competitors offer products in competition with one or more of our products, we can supply a variety of system types and we offer among the widest array of security inspection solutions available from a single supplier.
Our optoelectronic devices are used in a wide variety of applications for diversified markets including aerospace and defense, avionics, medical imaging and diagnostics, biochemistry analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security. Medical applications for our devices include diagnostic and imaging products, patient monitoring equipment, and glucose monitors.
Our optoelectronic devices are used in a wide variety of applications for diversified markets including aerospace and defense, automotive, medical imaging and diagnostics, biochemistry analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security. Medical applications for our devices include diagnostic and imaging products, patient monitoring equipment, and glucose monitors.
We seek to further enhance our research and development program and consider such program to be an important element of our business and operations. Manufacturing and Materials We currently manufacture our security and inspection systems domestically in California, Kentucky, Massachusetts, Tennessee, and Virginia, and internationally in Malaysia and the United Kingdom.
We seek to further enhance our research and development program and consider such program to be an important element of our business and operations. Manufacturing and Materials We currently manufacture our security and inspection systems domestically in California, Kentucky, Massachusetts, and Tennessee, and internationally in Germany, Malaysia and the United Kingdom.
We develop and market patient monitoring systems, cardiology and remote monitoring products, and connected care systems and associated supplies and accessories. Our efforts to develop new products and improve our existing medical technologies are focused on the needs of healthcare organizations, caregivers, and their patients.
We develop and market patient monitoring systems, cardiology and remote monitoring products, connected care solutions, remote clinical monitoring and associated supplies and accessories. Our efforts to develop new products and improve our existing medical technologies are focused on the needs of healthcare organizations, caregivers, and their patients.
To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and plastic molding of components. The principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, detectors, data acquisition and computer systems, conveyance systems, vehicles, and miscellaneous mechanical and electrical components.
To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and molding of plastic components. 8 Table of Contents The principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, detectors, data acquisition and computer systems, conveyance systems, vehicles, and miscellaneous mechanical and electrical components.
We market and sell our optoelectronic devices and value-added manufacturing services, through both our direct sales and marketing staff located in North America, Europe and Asia, and indirectly through a global network of independent sales representatives and distributors.
We market and sell our optoelectronic devices and manufacturing services, through both our direct sales and marketing staff located in North America, Europe and Asia, and indirectly through a global network of independent sales representatives and distributors.
In recent years, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, railways, seaports, cruise line terminals, sporting venues, freight forwarding operations, government and military installations and nuclear facilities.
In recent years, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, railways, seaports, cruise line terminals, sports and entertain venues, freight forwarding operations, government and military installations and nuclear facilities.
The organization must document the specific qualifications of this individual relative to the required tasks. 13 Table of Contents ● The EU MDR requires rigorous post-market oversight of medical devices. ● The EU MDR allows the EU Commission or expert panels to publish “Common Specifications,” such as requirements for technical documentation, risk management, or clinical evaluation. ● Devices are to be reclassified according to risk, contact, duration, and invasiveness. ● Systematic clinical evaluation is being required for Class IIa and Class IIb medical devices. ● All approved devices must be recertified in accordance with the new EU MDR requirements.
The organization must document the specific qualifications of this individual relative to the required tasks. ● The EU MDR requires rigorous post-market oversight of medical devices. ● The EU MDR allows the EU Commission or expert panels to publish “Common Specifications,” such as requirements for technical documentation, risk management, or clinical evaluation. ● Devices are to be reclassified according to risk, contact, duration, and invasiveness. ● Systematic clinical evaluation is required for Class IIa and Class IIb medical devices. ● All approved devices must be recertified in accordance with the EU MDR requirements.
If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer, and our business and financial condition could be adversely affected. Other Foreign Healthcare Regulations We are also subject to regulation in the foreign countries in which we manufacture, market, and/or import our products.
If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer, and our business and financial condition could be adversely affected. 13 Table of Contents Other Foreign Healthcare Regulations We are also subject to regulation in the foreign countries in which we manufacture, market, and/or import our products.
The trend toward increased screening of goods entering and departing from ports and crossing borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of inspecting shipping containers for contraband and assisting customs officials in the verification of shipping manifests.
The trend toward increased screening of goods entering and departing from ports and crossing borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of inspecting shipping containers (including trucks and rail cars) for contraband and assisting customs officials in the verification of shipping manifests.
We have a team dedicated to updating and revising key systems, processes, and product technical documentation to meet the new EU MDR requirements. Environmental Regulations We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products.
We have a team dedicated to updating and revising key systems, processes, and product technical documentation to meet the EU MDR requirements. 14 Table of Contents Environmental Regulations We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products.
A person or entity does not need to have actual knowledge of the statutes or specific intent to violate them in order to have committed a violation.
A person or entity does not need to have actual knowledge of the statutes or specific intent to violate them to have committed a violation.
It is also incumbent on us to monitor third-party software for new vulnerabilities and verify and validate any software updates or patches meant to address vulnerabilities. Our facilities, records and manufacturing processes are subject to periodic scheduled and unscheduled inspections by the FDA.
It is also incumbent on us to monitor third-party software for new vulnerabilities and verify and validate any software updates or patches meant to address vulnerabilities. 11 Table of Contents Our facilities, records and manufacturing processes are subject to periodic scheduled and unscheduled inspections by the FDA.
Research and Development Our security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Singapore, India, and Malaysia. These products include mechanical, electrical, analog and digital electronics, and software components and subsystems.
Research and Development Our security and inspection systems and software are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Germany, Singapore, India, and Malaysia. These products include mechanical, electrical, analog and digital electronics, software, as well as other components and subsystems.
Our healthcare products are primarily designed at our facilities in the United States and in the United Kingdom with sustaining engineering efforts in India. These products include enterprise and embedded software, networking, connectivity, mechanical, electronic and software subsystems, most of which are designed by us.
Our healthcare products are primarily designed at our facilities in the United States, the United Kingdom and India. These products include enterprise and embedded software, networking, connectivity, mechanical, electronic and software subsystems, most of which are designed by us.
These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing. 11 Table of Contents Significant healthcare reforms have had an impact on medical device manufacturer and hospital revenues.
These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing. Significant healthcare reforms have had an impact on medical device manufacturer and hospital revenues.
Since the initial onset of the COVID-19 pandemic, our divisions have experienced supply chain and labor availability challenges that have impacted the price and availability of parts, components, consumables, freight, shipping, and third-party services, adversely impacting our gross margin as well as delayed product deliveries, installations, maintenance and repair work, and technical support, among other work and services.
In connection with the COVID-19 pandemic, our divisions experienced supply chain and labor availability challenges that impacted the price and availability of parts, components, consumables, freight, shipping, and third-party services, adversely impacting our gross margin as well as delayed product deliveries, installations, maintenance and repair work, and technical support, among other work and services.
In the markets in which we compete to provide optoelectronic devices and electronics manufacturing services, competition is based primarily on factors such as expertise in the design and development of optoelectronic devices, product quality, timeliness of delivery, price, technical support and the ability to provide fully integrated services from application development and design through production.
In the markets in which we compete to provide optoelectronic devices and electronics manufacturing services, our customers evaluate us and our competitors based primarily on factors such as expertise in the design and development of optoelectronic devices, product quality, timeliness of delivery, price, technical support and the ability to provide fully integrated services from application development and design through production.
We sell products directly to end customers, as well as through integrated delivery networks and group purchasing organizations in the U.S., the NHS Supplies Organisation in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia. Optoelectronic Devices and Electronics Manufacturing Services.
We sell products directly to end customers, as well as through integrated delivery networks and group purchasing organizations in the U.S., the NHS Supplies Organization in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia.
Security and inspection products are used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, correctional facilities, government and military installations, sports and concert venues and other locations where the interdiction of criminal activities is paramount. The U.S.
Security and inspection products are used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations (to screen cargo before it is loaded onto airplanes and ships), government and military installations, sports and concert venues, correctional facilities, and other locations where the interdiction of criminal activities is paramount. The U.S.
Information Technology and Cybersecurity Risk Management We rely extensively on digital technology to conduct operations and engage with our customers and business partners. As the complexity of our engagements grows, so do the threats from cyber intrusion, ransomware, denial of service, phishing, account takeover, data manipulation and other cyber misconduct.
Pricing for many of these items has remained elevated. Information Technology and Cybersecurity Risk Management We rely extensively on digital technology to conduct operations and engage with our customers and business partners. As the complexity of our engagements grows, so do the threats from cyber intrusion, ransomware, denial of service, phishing, account takeover, data manipulation and other cyber misconduct.
Our optoelectronic devices and the electronics we manufacture are used in a broad range of products by a variety of customers in the following market segments: defense, aerospace and avionics; analytical and medical imaging; healthcare; telecommunications; homeland security; toll and traffic management; and automotive.
Our optoelectronic devices and the electronics we manufacture are used in a broad range of products by a variety of customers in the following market segments: defense, aerospace and avionics; analytical and medical imaging; healthcare; telecommunications; homeland security; toll and traffic management; and automotive. Patient Monitoring, Cardiology and Remote Monitoring, and Connected Care Solutions.
Our Security division also offers trace detection systems that are designed to detect trace amounts of explosives or narcotics and people screening products, such as walk-through metal detectors for use at security checkpoints at airports, government buildings, sports arenas and other venues. Patient Monitoring and Cardiology and Remote Monitoring.
Our Security division also offers trace detection systems that are designed to detect trace amounts of explosives or narcotics and people screening products, such as walk-through metal detectors for use at security checkpoints at airports, government buildings, sports arenas and other venues. Optoelectronic Devices and Manufacturing Services .
Sentinel supports mobile and remote working, taking ECG management to the point of care for flexible use of devices and capture of data. In addition, the capital-intensive products that our Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities. Additionally, our Healthcare division manufactures multivendor compatible accessories for use with third-party devices.
Sentinel supports mobile and remote working, taking ECG management to the point of care for flexible use of devices and capture of data. The capital-intensive products that our Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities.
Of the total employees, 2,014 were employed in the Americas, 3,527 were employed in Asia and 882 were employed in Europe. Available Information We are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC.
Of the total employees, 2,038 were employed in the Americas, 3,565 were employed in Asia and 1,078 were employed in Europe. Available Information We are subject to the informational requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC.
Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the product for which clearance has been sought is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA had not yet called for the submission of pre-market approval applications.
Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process. 10 Table of Contents Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the product for which clearance has been sought is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA had not yet called for the submission of pre-market approval applications.
Our cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services. 2 Table of Contents Optoelectronics and Manufacturing.
Our cardiology and remote monitoring systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services.
Manufacturers of currently approved medical devices will have a transition time to meet the requirements of the EU MDR. The EU MDR differs in several important ways from the EU’s directives for medical devices and active implantable medical devices replaced thereby.
Manufacturers of currently approved medical devices have a transition time to meet the requirements of the EU MDR with expiration of such transition time depending on the class of medical device. The EU MDR differs in several important ways from the EU’s directives for medical devices and active implantable medical devices replaced thereby.
A variety of technologies are currently used globally in security and inspection applications, including transmission and backscatter X-ray, and 3-D computed tomography, radiation detection, metal detection, millimeter wave imaging, explosive trace detection, and optical inspection.
A variety of technologies are currently used globally in non-intrusive security and inspection systems, including transmission and backscatter X-ray interrogation, 3-D computed tomography, radiation monitoring, metal detection, millimeter wave imaging, chemical trace detection, and optical inspection.
Department of Defense, U.S. Department of State, U.S. Department of Commerce, and U.S. Department of Justice, as well as many premier international government agencies, including airports and other critical infrastructure agencies. Our contracts with the U.S. Government are generally subject to termination for convenience at the election of the U.S.Government.
Department of Defense, U.S. Department of State, U.S. Department of Commerce, and U.S. Department of Justice, as well the ministries and departments of many international governments, including transportation and border control authorities and other critical infrastructure agencies. Our contracts with the U.S. Government are generally subject to termination for convenience at the election of the U.S. Government.
The EU MDR imposes stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance, than the medical device directives replaced by the EU MDR. The EU MDR became effective as of May 26, 2021.
The EU MDR imposes stricter requirements for the marketing and sale of medical devices, including in the areas of clinical evaluation, quality systems and post-market surveillance, than the medical device directives replaced by the EU MDR.
We and other medical device manufacturers are being confronted with major changes in the EU’s decades-old regulatory framework governing market access to the EU. The EU’s Medical Devices Regulation (“EU MDR”) is replacing the EU’s Medical Device Directive (93/42/EEC) and the EU’s Directive on active implantable medical devices (90/385/EEC).
We and other medical device manufacturers are confronted with major changes in the EU’s decades-old regulatory framework governing market access to the EU. The EU’s Medical Devices Regulation (“EU MDR”) has replaced, effective as of May 26, 2021, the EU’s Medical Device Directive (93/42/EEC) and the EU’s Directive on active implantable medical devices (90/385/EEC).
The COVID-19 pandemic strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected changes. Our customers expect clinical value, economic value, and clinical decision support.
These factors include inflationary pressures, labor shortages and unfavorable shifts in payor mix. The COVID-19 pandemic strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected changes. Our customers expect clinical value, economic value, and clinical decision support.
Our broader diversity strategies include focus at all levels of our organization, including with senior management and our Board of Directors. As of June 30, 2023, 46% of our global workforce was female and 52% of our U.S. workforce was ethnically diverse.
Our broader diversity strategies include focus at all levels of our organization, including senior management and our Board of Directors. As of June 30, 2024, 43.9% of our global workforce was female and 53.6% of our U.S. workforce was ethnically diverse.
Consequently, certain of our security and inspection products have been and continue to be sold for use at airports. Our security and inspection products are also used for security and customs purposes at locations in addition to airports, such as border crossings, shipping ports, sporting venues, military and other government installations, freight forwarding facilities, high-profile locations such as U.K.
Our security and inspection products are also used for security and customs purposes at locations in addition to airports, such as border crossings, shipping ports, sports and entertainment venues, military and other government installations, freight forwarding facilities, high-profile locations such as U.K.
If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to material penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our results of operations. 12 Table of Contents Additionally, there has been a trend towards increased federal and state regulation of payments and other transfers of value provided to healthcare professionals or entities.
If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to material penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our results of operations.
For the fiscal year ended June 30, 2023, our Security division’s direct sales to the U.S. Government were approximately $235 million. Additionally, certain of our contracts with foreign governments also contain provisions allowing the government to terminate a contract for convenience. For further discussion, please refer to Item 1A.
For the fiscal year ended June 30, 2024, our Security division’s direct sales to the U.S. Government were approximately $91.4 million. Additionally, certain of our contracts with foreign governments also contain provisions allowing the government to terminate a contract for convenience. For further discussion, please refer to Item 1A. “Risk Factors.” Optoelectronic Devices and Electronics Manufacturing Services.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of items or services for which payment may be made, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.
Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs. 12 Table of Contents The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of items or services for which payment may be made, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.
Approximately $0.8 billion of our backlog as of June 30, 2023 is not reasonably expected to be fulfilled in fiscal year 2024. Sales orders underlying our backlog are firm orders, although, from time to time we may agree to permit a customer to cancel an order, or an order may be cancelled for other reasons.
As of June 30, 2024, our consolidated backlog totaled approximately $1.7 billion, compared to $1.8 billion as of June 30, 2023. Sales orders underlying our backlog are firm orders, although, from time to time we may agree to permit a customer to cancel an order, or an order may be cancelled for other reasons.
We develop, manufacture and sell laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the “OSI Laserscan” and “Autosense” trade names. We offer solid-state laser products for aerospace, defense, telecommunication and medical applications under the “OSI LaserDiode” trade name.
We develop, manufacture and sell laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the “OSI Laserscan” and “Autosense” trade names.
We do, however, qualify alternative sources for many of our materials, parts, and components. We purchase most materials, parts, and components pursuant to purchase orders placed from time to time in the ordinary course of business.
We purchase most materials, parts, and components pursuant to purchase orders placed from time to time in the ordinary course of business.
As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and components or within the markets for security and inspection systems, patient monitoring, cardiology and remote monitoring, or optoelectronic devices.
As a result, we may not be able to compete successfully against all designers and manufacturers of specialized electronic systems and components or within all markets for security and inspection systems, patient monitoring, cardiology and remote monitoring, or optoelectronic devices. Future competitive pressures may materially and adversely affect our business, financial condition and results of operations.
Our Healthcare division designs, manufactures and markets products globally to end users primarily under the “Spacelabs” trade name. Spacelabs products include patient monitors for use in perioperative, critical care and emergency care environments with neonatal, pediatric and adult patients.
Our Healthcare division designs, manufactures and markets products globally to end users primarily under the “Spacelabs Healthcare” trade name. Spacelabs products include patient monitors for use in perioperative, critical care, step down and emergency care environments with neonatal, pediatric and adult patients. Our patient monitoring systems include bedside monitors such as the Xprezzon and Qube as well as telemetry solutions.
Spacelabs predictive analytics clinical decision support tools provide surveillance and deterioration alerting for patients in all levels of care in the hospital setting and includes FDA-cleared and regulated products featuring the Rothman Index, a proprietary patient condition score available through EMR-integrated, web-based, or mobile app interfaces. 5 Table of Contents For electrocardiograph monitoring or multiparameter monitoring of ambulatory patients, we offer a digital telemetry system.
Spacelabs predictive analytics clinical decision support tools provide surveillance and deterioration alerting for patients in all levels of care in the hospital setting and includes FDA-cleared and regulated products featuring the Rothman Index, a proprietary patient condition score available through EMR-integrated, web-based, or mobile app interfaces. These tools help to drive care improvement initiatives hospitals are funding today.
Future competitive pressures may materially and adversely affect our business, financial condition and results of operations. 14 Table of Contents In the security and inspection market, competition is based primarily on factors such as product performance specification standards, quality and reliability, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships and reputation, technological capabilities of the products, price, local market presence, program execution capability, and breadth of sales and service organization.
In the security and inspection market, competition is based primarily on factors such as product performance specification standards, quality and reliability, maintenance and repair competency, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships and reputation, technological capabilities of the products, price, local market presence, historical program execution experience, and breadth of sales and service organization.
We also support these sales and customer service efforts by providing operator in service training, comprehensive interactive eLearning for all monitoring products, software updates and upgrades and service training for customer biomedical staff and distributors. We also provide IT specialists and clinical specialists to provide support both before and after product sale.
We also support these sales and customer service efforts by providing operator in service training, comprehensive interactive eLearning for all products, software updates and upgrades and service training for customer biomedical staff and distributors. We provide this support via our international team of technical and clinical specialists.
Further, we provide turnkey screening services to certain customers for which we may recognize revenue over multi-year periods. Certain of our cargo and vehicle inspection systems may require more than a year of lead-time. We have experienced some significant shipping delays associated with our cargo and vehicle inspection systems.
Certain of our cargo and vehicle inspection systems may require more than a year of lead-time. We have experienced some significant delays associated with shipments of our cargo and vehicle inspection systems to certain customers.
Additionally, our flexible circuit businesses offer design expertise, fabrication capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets. Growth Strategy We believe that one of our primary competitive strengths is our expertise in the cost effective design and manufacture of specialized electronic systems and components for critical applications.
Growth Strategy We believe that one of our primary competitive strengths is our expertise in the cost effective design and manufacture of specialized electronic systems and components for critical applications.
The silicon-based optoelectronic devices manufactured by us are critical components in most of our products and subsystems. We purchase silicon wafers and other electronic components from unaffiliated third-party providers. For cost, quality control, technological, and efficiency reasons, we purchase certain materials, parts, and components only from single vendors with whom we have ongoing relationships.
We purchase silicon wafers and other electronic components from unaffiliated third-party providers. For cost, quality control, technological, and efficiency reasons, we purchase certain materials, parts, and components only from single vendors with whom we have ongoing relationships. We do, however, qualify alternative sources for many of our materials, parts, and components.
These laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including pricing, customer support, education and training programs, physician consulting, research grants and other service arrangements.
They particularly impact how we structure our sales offerings, including pricing, customer support, education and training programs, physician consulting, research grants and other service arrangements.
A large proportion of our X-ray generators, linear accelerators, computers and conveyance systems used in our cargo and vehicle inspection systems are purchased from unaffiliated third-party providers. 8 Table of Contents The principal raw materials and subcomponents used in producing our healthcare products consist of printed circuit boards, housings, mechanical assemblies, pneumatic devices, touch screens, medical grade displays, cables, filters, textiles, fabric, gauges, fittings, tubing and packaging materials.
The principal raw materials and subcomponents used in producing our healthcare products consist of printed circuit boards, housings, mechanical assemblies, pneumatic devices, touch screens, medical grade displays, cables, filters, textiles, fabric, gauges, fittings, tubing and packaging materials. We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third-party providers.
We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third-party providers. The principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials.
The principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials. The silicon-based optoelectronic devices we manufacture are critical components in most of our products and subsystems.
These initiatives, such as the Customs‑Trade Partnership Against Terrorism, the U.S. Transportation Security Administration’s Air Cargo Screening Mandate and the U.S. Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments across the world.
Customs and Border Protection Container Security Initiative, have resulted in increased demand for security and inspection products, as have similar programs undertaken by governments across the world.
We are also currently involved, both in the United States and internationally, in research projects aimed at improving our medical systems and at expanding our current product lines. We design and manufacture optoelectronic devices and we provide electronics manufacturing services primarily in our facilities in the United States and internationally in the United Kingdom, Canada, India, Indonesia, and Malaysia.
We are also currently involved, both in the United States and internationally, in research projects aimed at improving our medical systems and at expanding our current product lines.
As of June 30, 2023, we employed 6,423 people, of whom 3,975 were employed in manufacturing, 543 were employed in engineering or research and development, 624 were employed in administration, 342 were employed in sales and marketing and 939 were employed in service capacities.
As of June 30, 2024, we employed 6,681 people, of whom 3,995 were employed in manufacturing, 584 were employed in engineering or research and development, 655 were employed in administration, 360 were employed in sales and marketing and 1,087 were employed in service capacities.
Food and Drug Administration (FDA), and by other federal, state, local and foreign authorities. These systems are also subject to various U.S. and foreign product performance and safety standards.
These systems are also subject to various U.S. and foreign product performance and safety standards.
In addition, these products are designed to interact with hospital information systems. Spacelabs SafeNSound™ assists hospitals in providing value-based care by streamlining workflows and improving communications. Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside. These tools help address top challenges facing hospitals today.
Features include comprehensive reporting tools, a communications dashboard for monitor technicians, and a device management system to admit patients to monitors/telemetry at the bedside. These tools help address top challenges facing hospitals today.
We also offer turnkey security screening services, as well as related software integration platforms, operator training, and the staffing and operation of security screening checkpoints under the “S2” trade name. From time to time we form joint ventures to carry out our operations in certain geographies, including, for example, Albania.
We also offer turnkey security screening services, as well as related software integration platforms, operator training, and the staffing and operation of security screening checkpoints under the “S2” trade name.
In addition, issued patents may not survive challenges to their validity or enforceability, or may be found to not be infringed by any third parties. Although we believe that our patents have value, our patents, or any additional patents that may be issued in the future, may not be able to provide meaningful protection from competition.
Although we believe that our patents have value, our patents, or any additional patents that may be issued in the future, may not be able to provide meaningful protection from competition. We believe that our trademarks and trade names and patents are important to our business.
To date, all of the patient monitoring and cardiology and remote monitoring systems we manufacture and sell in the United States have required only 510(k) pre-market notification clearance.
Therefore, these devices are typically subject to the PMA application process, which is more costly and time consuming than the 510(k) process and requires substantial clinical data. To date, all of the patient monitoring and cardiology and remote monitoring systems we manufacture and sell in the United States have required only 510(k) pre-market notification clearance.
Backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and should not be considered a meaningful indicator of our performance on an annual or quarterly basis.
Backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and should not be considered a meaningful indicator of our performance on an annual or quarterly basis. 16 Table of Contents Human Capital The strength and talent of our workforce are critical to the success of our businesses, and we strive to attract, develop and retain personnel commensurate with the needs of our businesses.
A large portion of the optoelectronic devices, subsystems and circuit card assemblies used in our inspection systems are manufactured in-house.
A large portion of the optoelectronic devices, subsystems and circuit card assemblies used in our inspection systems are manufactured in-house. A large proportion of our X-ray generators, linear accelerators, computers and conveyance systems used in our cargo and vehicle inspection systems are purchased from unaffiliated third-party providers.
Our PathfinderSL ® and Lifescreen™ Pro analysis tools provide clinicians the ability to save Holter analysis time and to do detailed analysis when needed inside or outside the hospital. Our Eclipse Pro Holter recorders provide up to 14 days of 3-channel recording or up to 72 hours of 12 lead with pacing.
Our Eclipse Pro Holter recorders provide up to 14 days of 3-channel recording or up to 72 hours of 12 lead with pacing.
We believe that our patient monitoring products are easier to use than the products of many of our competitors because we offer a consistent user interface throughout many of our product lines. We also believe that the capability of our monitoring systems to connect together, and to the hospital IT infrastructure, is a key competitive advantage.
We also believe that the capability of our monitoring systems to connect together, and to the hospital infrastructure, is a key competitive advantage.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe 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.
Biggest changeIf the systems on which we rely are damaged or cease to function properly due to any number of causes, ranging from failures of our third-party service providers to catastrophic events, to power outages, to security breaches, we may suffer interruptions in our ability to manage operations which may adversely impact our business, results of operations and/or financial condition. 25 Table of Contents 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.
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 impact our business. Our products and services may also be at risk of cyber-attacks and security breaches.
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. Our products and services may also be at risk of cyber attacks and security breaches.
Business and Industry Risks If operators of, or algorithms installed on, our security and inspection systems fail to detect weapons, explosives or other devices or materials that are used to commit a terrorist act or other mass casualty event, we could be exposed to product and professional liability and related claims for which we may not have adequate insurance coverage.
Business and Industry Risks If operators of, or algorithms installed on, our security and inspection systems fail to detect weapons, explosives or other devices or materials that are used to commit a crime, terrorist act or other mass casualty event, we could be exposed to product and professional liability and related claims for which we may not have adequate insurance coverage.
Moreover, recent health care reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them to have committed a violation.
Moreover, health care reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them to have committed a violation.
We could be subject to changes in our tax rates, the adoption of new U.S. or international tax legislation, or exposure to additional tax liabilities. We are subject to taxes in the U.S. and numerous foreign jurisdictions. Tax rates in various jurisdictions may be subject to significant change due to economic and political conditions or otherwise.
We could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation, or exposure to additional tax liabilities. We are subject to taxes in the U.S. and numerous foreign jurisdictions. Tax rates in various jurisdictions may be subject to significant change due to economic and political conditions or otherwise.
Legislative or regulatory reforms such as the new EU Medical Devices Regulation may make it more difficult and costly for us to obtain certification, regulatory clearance, or approval of any future products and to manufacture, market, and distribute our products after certification, clearance, or approval is obtained.
Legislative or regulatory reforms such as the EU Medical Devices Regulation may make it more difficult and costly for us to obtain certification, regulatory clearance, or approval of any future products and to manufacture, market, and distribute our products after certification, clearance, or approval is obtained.
In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. 30 Table of Contents Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. 31 Table of Contents Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
The loss or termination of a contract by such an institution, even if for reasons unrelated to the quality of our products or services, could therefore have a more wide-spread and potentially material adverse effect on our business, financial condition and results of operations. 17 Table of Contents Our acquisition and alliance activities could result in disruption of our ongoing business and other operational difficulties, unrecoverable costs, and other negative consequences, any of which could adversely impact our financial condition and results of operations.
The loss or termination of a contract by such an institution, even if for reasons unrelated to the quality of our products or services, could therefore have a more wide-spread and potentially material adverse effect on our business, financial condition and results of operations. 18 Table of Contents Our acquisition and alliance activities could result in disruption of our ongoing business and other operational difficulties, unrecoverable costs, and other negative consequences, any of which could adversely impact our financial condition and results of operations.
Government contracts typically contain provisions and are subject to laws and regulations that provide government agencies rights not typically found in commercial contracts, including the ability to: (i) terminate, reduce the value of, or otherwise modify existing contracts; (ii) suspend or prohibit us from doing business with the government or a specific government agency; and (iii) claim rights in technologies and systems invented, developed or produced by us at the government’s expense.
Government contracts typically contain provisions and are subject to laws and regulations that provide government agencies rights not typically found in commercial contracts, including the ability to: (i) terminate, reduce the value of, or otherwise modify existing contracts; (ii) suspend or prohibit us from doing business with the government or a specific government agency; and (iii) claim rights in technologies and systems invented, developed or produced by us, in whole or in part, at the government’s expense.
We also offer turnkey security screening solutions under which we perform some or all of the security screening tasks that have historically been performed by our customers.
We also offer various turnkey security screening solutions under which we perform some or all of the security screening tasks that have historically been performed by our customers.
Nevertheless, if such a system were to fail to signal to an operator when an explosive, weapon or other contraband was in fact present, resulting in significant loss of life or damage, we would be subject to risk of significant product liability claims. Security inspection by technological means is circumstance and application-specific.
If such a system were to fail to signal to an operator when an explosive, weapon or other contraband was present, resulting in loss of life or damage, we would be subject to risk of significant product liability claims. Security inspection by technological means is circumstance and application-specific.
Decisions by an agency to terminate one of our contracts for default could negatively affect our ability to win future awards not only from such agency, but also from other government agencies and commercial customers, many of whom evaluate past performance, or are required to review past performance information, when making their procurement decisions. 21 Table of Contents U.S.
Decisions by an agency to terminate one of our contracts for default could negatively affect our ability to win future awards not only from such agency, but also from other government agencies and commercial customers, many of whom evaluate past performance, or are required to review past performance information, when making their procurement decisions. U.S.
We cannot provide assurance that we will succeed in developing and marketing product enhancements or new products that respond to technological change, new industry standards, changed customer requirements or competitive products on a timely and cost‑effective basis.
We cannot provide assurance that we will succeed in developing and marketing product enhancements or new products that respond to technological change, new industry standards, evolving customer requirements or competitive products on a timely and cost‑effective basis.
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 face aggressive competition in each of our operating divisions. If we do not compete effectively, our business will be harmed.
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. 19 Table of Contents We face aggressive competition in each of our operating divisions. If we do not compete effectively, our business will be harmed.
Consequently, a product liability claim, product recall or other claim could have a material adverse effect on our business, financial condition and results of operations. 27 Table of Contents Our global operations expose us to legal compliance risks related to certain anti-bribery and anti-corruption laws. We are required to comply with the U.S.
Consequently, a product liability claim, product recall or other claim could have a material adverse effect on our business, financial condition and results of operations. Our global operations expose us to legal compliance risks related to certain anti-bribery and anti-corruption laws. We are required to comply with the U.S.
Department of Homeland Security in granting coverage (or extensions of coverage) and in our ability to meet the evolving standards of the SAFETY Act application process has and may in the future continue to result in coverage limitations for our products and services.
Department of Homeland Security in granting coverage and in our ability to meet the evolving standards of the SAFETY Act application process has and may in the future continue to result in coverage limitations for our products and services.
For more information about our litigation matters, see “Legal Proceedings” and Note 11 to the consolidated financial statements. ​ 31 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None. ​
For more information about our litigation matters, see “Legal Proceedings” and Note 11 to the consolidated financial statements. ​ ​ 32 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None. ​
If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues. 22 Table of Contents Interruptions in our ability to purchase raw materials and subcomponents may adversely affect our profitability. We purchase raw materials and certain subcomponents from third parties.
If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues. Interruptions in our ability to purchase raw materials and subcomponents may adversely affect our profitability. We purchase raw materials and certain subcomponents from third parties.
In addition, because of the complex customer acceptance criteria associated with some of our products, on some occasions, products the title of which has passed to our customers are still included in our inventory until revenue recognition criteria are met. As a result, inventory levels are elevated from time to time.
In addition, because of the complex customer acceptance criteria associated with some of our products, on some occasions, the title of which or risk of loss has passed to our customers are still included in our inventory until revenue recognition criteria are met. As a result, inventory levels are elevated from time to time.
Depending on severity, any of these penalties could have a material impact on our business, financial condition and results of operations. Our business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection.
Depending on severity, any of these penalties could have a material impact on our business, financial condition and results of operations. 29 Table of Contents Our business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection.
Additionally, even if we are able to develop new products and product enhancements to meet any such standards, we cannot provide assurance that they will be profitable or that they will achieve market acceptance. We develop certain of our security inspection technologies to meet the certification requirements of various government regulatory agencies worldwide, including the U.S.
Additionally, even if we are able to develop new products and product enhancements to meet any such standards, we cannot provide assurance that they will be profitable or that they will achieve market acceptance. We also develop certain of our security inspection technologies to meet the certification requirements of various government regulatory agencies worldwide.
If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management, future sales, profitability and financial condition. 26 Table of Contents Our credit facility contains provisions that could restrict our ability to finance our future operations or engage in other business activities that may be in our interest.
If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management, future sales, profitability and financial condition. Our credit facility contains provisions that could restrict our ability to finance our future operations or engage in other business activities that may be in our interest.
GDPR, a regulation implemented on May 25, 2018 in the EU on data protection and privacy for all individuals in the EU and the EEA, applies to all enterprises, regardless of location, that are doing business in the EU or that collect and analyze data tied to EU and EEA residents.
GDPR, a regulation implemented in the EU on data protection and privacy for all individuals in the EU and the EEA, applies to all enterprises, regardless of location, that are doing business in the EU or that collect and analyze data tied to EU and EEA residents.
As a result of the conflict between Russia and Ukraine, there is also an increased likelihood of cyberattacks or cybersecurity incidents that could either directly or indirectly impact our operations.
As a result of the conflict between Russia and Ukraine, there is also an increased likelihood of cyber attacks or cybersecurity incidents that could either directly or indirectly impact our operations.
The FDA can delay, limit or deny clearance or approval of a device for many reasons. Our future products may not obtain FDA clearance on a timely basis, or at all.
The FDA can delay, limit or deny clearance or approval of a device for many reasons. 30 Table of Contents Our future products may not obtain FDA clearance on a timely basis, or at all.
Acquisition and alliance activities often involve risks, including: ● difficulty in assimilating the acquired operations and employees and realizing synergies expected to result from the acquisition; ● potential liabilities of, or claims against, an acquired company, some of which might not be known until after the acquisition; ● difficulty in managing product development activities with our alliance partners; ● difficulty in effectively coordinating sales and marketing efforts; ● difficulty in combining product offerings and product lines quickly and effectively; ● difficulty in retaining the key employees of the acquired operation; ● disruption of our ongoing business, including diversion of management time; ● inability to successfully integrate the acquired technologies and operations into our businesses and maintain uniform standards, controls, policies and procedures; ● unanticipated changes in market or industry practices that adversely impact our strategic and financial expectations regarding an acquired company or acquired assets and require us to write off or dispose of such acquired company or assets; ● lacking the experience necessary to enter into new product or technology markets successfully; and ● difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
Acquisition and alliance activities often involve risks, including: (i) difficulty in assimilating the acquired operations and employees and realizing synergies; (ii) potential liabilities of, or claims against, an acquired company, some of which might not be known until after the acquisition; (iii) difficulty in managing product development activities with our alliance partners; (iv) difficulty in effectively coordinating sales and marketing efforts; (v) difficulty in combining product offerings and product lines quickly and effectively; (vi) difficulty in retaining the key employees of the acquired operation; (vii) disruption of our ongoing business, including diversion of management time; (viii) inability to successfully integrate the acquired technologies and operations into our businesses and maintain uniform standards, controls, policies and procedures; (ix) unanticipated changes in market or industry practices that adversely impact our strategic and financial expectations regarding an acquired company or acquired assets and require us to write off or dispose of such acquired company or assets; (x) lacking the experience necessary to enter into new product or technology markets successfully; and (xi) difficulty in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies that, prior to the acquisition, had lacked such controls, procedures and policies.
In addition, there are other federal laws that include specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties.
In addition, there are other federal laws that include specific privacy and security obligations for certain types of health information and impose additional sanctions and penalties.
Operational Risks As a U.S. Government contractor, we are subject to extensive Federal procurement rules and regulations as well as contractual obligations that are unique to doing business with the U.S. Government. Non-compliance with any such rules, regulations or contractual obligations could negatively affect current programs, potential awards and our ability to do business with the U.S.
Government contractor, we are subject to extensive Federal procurement rules and regulations as well as contractual obligations that are unique to doing business with the U.S. Government. Non-compliance with any such rules, regulations or contractual obligations could negatively affect current programs, potential awards and our ability to do business with the U.S. Government in the future. U.S.
To the extent that we are unsuccessful in recouping our material and manufacturing costs, this could have a material adverse effect on our business, financial condition and results of operations.
If we are unsuccessful in recouping our material and manufacturing costs, this could have a material adverse effect on our business, financial condition and results of operations.
Department of Homeland Security restrict coverage to specific model numbers, software, and options within our product lines, sales to specific customers, and impose various other limitations, and contain conditions and requirements that we may not (or may not be able to) continue to satisfy in the future. Delays by the U.S.
Also, the terms of the SAFETY Act coverage decisions awarded to us by the U.S. Department of Homeland Security restrict coverage to specific model numbers, software, and options within our product lines, sales to specific customers, and impose various other limitations, and contain conditions and requirements that we may not continue to satisfy in the future. Delays by the U.S.
Risks associated with our international operations and sales include, without limitation, those arising from the following factors: ● differing legal and court systems and changes to such systems; ● differing labor laws and changes in those laws; ● differing tax laws and changes in those laws; ● differing environmental laws and changes in those laws; ● differing laws governing our distributors and sales agents and changes in those laws; ● differing protection of intellectual property and changes in that protection; and ● differing import and export requirements and changes to those requirements.
Risks associated with our international operations and sales include, without limitation, those arising from differing: (i) legal and court systems and changes to such systems; (ii) labor laws and changes in those laws; (iii) tax laws and changes in those laws; (iv) environmental laws and changes in those laws; (v) laws governing our distributors and sales agents and changes in those laws; (vi) protection of intellectual property and changes in that protection; and (vii) differing import and export requirements and changes to those requirements.
Following initial clearance from regulatory authorities, we continue to be subject to extensive regulatory requirements. Government authorities can withdraw marketing clearance or impose sanctions due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance.
Government authorities can withdraw marketing clearance or impose sanctions due to our failure to comply with regulatory standards or due to the occurrence of unforeseen problems following initial clearance.
Efforts by governmental and third-party payers to reduce healthcare costs or the implementation of new legislative reforms imposing additional government controls could cause a reduction in sales or in the selling price of our products, which could adversely affect our business, financial condition and results of operations. 19 Table of Contents Consolidation in the healthcare industry could have a material and adverse effect on our revenues and results of operations.
Efforts by governmental and third-party payers to reduce healthcare costs or the implementation of new legislative reforms imposing additional government controls could cause a reduction in sales or in the selling price of our products, which could materially and adversely affect our business, financial condition and results of operations.
If a contraband item were to pass through our operations and be used to perform a terrorist act, mass casualty event or other crime, we would be subject to risk of significant professional liability claims.
If a contraband item were to pass through the security screening services that we perform for a customer and be used to perform a terrorist act, mass casualty event or other crime, we would be subject to risk of significant professional liability claims.
Substantial government regulation in the United States and abroad may restrict our ability to sell our patient monitoring, cardiology and remote monitoring, and connected care systems, and failure to comply with such laws and regulations may have a material adverse impact on our business.
If we fail to comply with applicable international regulatory requirements our financial performance may be harmed. Substantial government regulation in the United States and abroad may restrict our ability to sell our patient monitoring, cardiology and remote monitoring, and connected care systems, and failure to comply with such laws and regulations may have a material adverse impact on our business.
Following its entry into application on May 26, 2021, the EU MDR introduced substantial changes to the obligations with which medical device manufacturers must comply in the EEA. High risk medical devices are subject to additional scrutiny during the conformity assessment procedure.
The EU MDR introduced substantial changes to the obligations with which medical device manufacturers must comply in the EEA. High - risk medical devices are subject to additional scrutiny during the conformity assessment procedure.
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. 25 Table of Contents 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.
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.
Unlike directives such as the EU Medical Devices Directive, which must be implemented into the national laws of EEA countries, the EU MDR is directly applicable, without the need for adoption by EEA country laws implementing them, in all EEA countries and intended to eliminate current differences in regulation of medical devices among EEA countries.
The EU MDR is directly applicable, without the need for adoption by EEA country laws implementing them, in all EEA countries and intended to eliminate current differences in regulation of medical devices among EEA countries.
In addition, turnkey screening solutions projects, in contrast to the sale and installation of security inspection equipment, also require that we hire and manage large numbers of local personnel in jurisdictions where we may not have previously operated.
In addition, turnkey screening solutions projects require that we hire and manage large numbers of local personnel in jurisdictions where we may not have previously operated.
We have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted and while we expect the impacts of conflict between Russia and Ukraine to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
We have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted and while we expect the impacts of conflict between Russia and Ukraine to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time. 21 Table of Contents 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.
In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result, we may not be able to obtain these task orders or recognize revenues under these multi-award contracts. Our failure to compete effectively in this procurement environment would adversely affect our revenues and profitability.
In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result, we may not be able to obtain these task orders or recognize revenues under these multi-award contracts.
Accordingly, our future results could be harmed by a variety of factors, including without limitation: ● changes in foreign currency exchange rates; ● changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets; ● political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict; ● longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions; ● imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions, trade disputes, and other trade restrictions; ● difficulty in staffing and managing widespread operations; ● difficulty in managing distributors and sales agents and their compliance with applicable laws; ● changes in a foreign government’s budget, leadership and national priorities; ● increased legal risks arising from differing legal systems; and ● compliance with export control and anticorruption legislation, including but not limited to, the Foreign Corrupt Practices Act and UK Bribery Act and International Traffic in Arms Regulations. 23 Table of Contents There are inherent risks associated with operations in Mexico.
Accordingly, our future results could be harmed by a variety of factors, including without limitation: (i) changes in foreign currency exchange rates; (ii) changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets; (iii) political and economic instability, including the possibility of civil unrest, terrorism, mass violence or armed conflict; (iv) geopolitical events, wars and military conflicts; (v) longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions; (vi) imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions, trade disputes, and other trade restrictions; (vii) difficulty in staffing and managing widespread operations; (viii) difficulty in managing distributors and sales agents and their compliance with applicable laws; (ix) changes in a foreign government’s budget, leadership and national priorities; (x) increased legal risks arising from differing legal systems; and (xi) compliance with export control and anticorruption legislation.
We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could materially and adversely impact our business, financial condition, and results of operations.
We expect that market demand, governmental regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances, which may exert further downward pressure on the prices of our products and could materially and adversely impact our business, financial condition, and results of operations. 20 Table of Contents Technological advances and evolving regulatory standards could reduce our future product sales, which could cause our revenues to grow more slowly or decline.
Any attempts by cyber attackers to disrupt our information systems or the information systems of our vendors, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy, and damage our reputation or brand. Insurance may not be sufficient to cover significant expenses and losses related to such cyberattacks and cybersecurity incidents.
Any attempts by cyber attackers to disrupt our information systems or the information systems of our vendors, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy, and damage our reputation or brand.
In addition, since we conduct business in currencies other than the U.S. dollar but report our financial results in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, financial condition and results of operations. 18 Table of Contents U.S. budgeting process disruptions could reduce government spending, which could adversely impact our revenues, earnings, cash flows and financial condition.
In addition, since we conduct business in currencies other than the U.S. dollar but report our financial results in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies could have a material adverse effect on our business, financial condition and results of operations.
Given increasing cyber security threats, there can be no assurance that we will not experience business interruptions, data loss, ransom, misappropriation, or corruption or theft or misuse of proprietary information or related litigation and investigation, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.
Given increasing cybersecurity threats, there can be no assurance that we will not experience business interruptions, data loss, ransom, misappropriation, or corruption or theft or misuse of proprietary information or related litigation and investigation, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation. 26 Table of Contents Delays, costs, and disruptions that result from upgrading, integrating and maintaining the security of our information and technology networks and systems could materially and adversely affect us.
Under the SAFETY Act, providers, such as our Security division, may apply to the U.S. Department of Homeland Security for coverage of their products and services. If granted coverage, such providers receive certain legal protections against product liability, professional liability and certain other claims that could arise following an act of terrorism. We have applied to the U.S.
If granted coverage, such providers receive certain legal protections against product liability, professional liability and certain other claims that could arise following an act of terrorism. We have applied to the U.S.
Any recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a material adverse impact on us.
Any similar natural or manmade disaster that affects a key supplier or customer could lead to a similar disruption in our business. 24 Table of Contents Any recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a material adverse impact on us.
In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted. 24 Table of Contents Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA or applicable foreign regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.
Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA or applicable foreign regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.
Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or adoption of new tax legislation or changes in tax laws or their interpretation. 20 Table of Contents We are also subject to the examination of our tax returns and other tax matters by the U.S.
Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or adoption of new tax legislation or changes in tax laws or their interpretation.
Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations.
We are also subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
This trend is likely to continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result.
This trend is likely to continue, and the cost and time required to obtain marketing clearance in any given country may increase as a result. Our products may not obtain any necessary foreign clearances on a timely basis, or at all.
As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy.
The conflict between Russia and Ukraine and the related implications may negatively impact our operations. In February 2022, Russia invaded Ukraine. As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy.
We are currently in the process of fulfilling agreements to provide cargo and vehicle inspection systems and related services to government customers in Mexico. These agreements are significant to our business, financial condition and results of operations.
There are inherent risks associated with operations in Mexico. We are currently in the process of fulfilling agreements to provide cargo and vehicle inspection systems and related services to government customers in Mexico.
We are currently modernizing and upgrading our information technology systems while simultaneously integrating systems from our various acquisitions, including making changes to legacy systems, and replacing some legacy systems with new and advanced functionality.
We are dependent on information technology networks and systems, including Internet and Internet-based or “cloud” computing services, to collect, process, transmit, and store electronic information. We are currently modernizing and upgrading our information technology systems while also simultaneously integrating systems from our various acquisitions, including making changes to legacy systems, and replacing some legacy systems with new and advanced functionality.
California passed the California Consumer Privacy Act, which imposes significant changes in data privacy regulation, and New York has passed the Stop Hacks and Improve Electronic Data Security Act, which expands the state’s existing privacy laws.
California passed the California Consumer Privacy Act which came into effect January 1, 2020 and was amended and expanded by the California Privacy Rights Act, or CPRA, which came into effect on January 1, 2023, which imposes significant changes in data privacy regulation, and New York has passed the Stop Hacks and Improve Electronic Data Security Act, which expands the state’s existing privacy laws.
In any such circumstance, we could face the imposition of delay penalties and breach of contract claims by our customer. Any material delay caused by our construction firm subcontractors could therefore ultimately have a material adverse effect on our business, financial condition and results of operations. We accumulate excess inventory from time to time.
Any material delay caused by our construction firm subcontractors could therefore ultimately have a material adverse effect on our business, financial condition and results of operations. 23 Table of Contents We accumulate excess quantities or elevated inventory levels from time to time.
Our revenues are dependent on orders of security and inspection systems, turnkey security screening solutions and patient monitoring and cardiology and remote monitoring systems, which may have lengthy and unpredictable sales cycles.
Our failure to compete effectively in this procurement environment would adversely affect our revenues and profitability. 22 Table of Contents Our revenues are dependent on orders of security and inspection systems, turnkey security screening solutions and patient monitoring and cardiology and remote monitoring systems, which may have lengthy and unpredictable sales cycles.
If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected. The conflict between Russia and Ukraine and the related implications may negatively impact our operations. In February 2022, Russia invaded Ukraine.
There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operating results could be materially adversely affected.
The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing. If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants.
If we are not one of the providers selected by one of these organizations, we may be precluded from making sales to its members or participants.
Our products may not obtain any necessary foreign clearances on a timely basis, or at all. 29 Table of Contents Once any of our patient monitoring, cardiology and remote monitoring, or connected care systems is cleared for sale, regulatory authorities may still limit the use of such product, prevent its sale or manufacture or require a recall or withdrawal of such product from the marketplace.
Once any of our patient monitoring, cardiology and remote monitoring, or connected care systems is cleared for sale, regulatory authorities may still limit the use of such product, prevent its sale or manufacture or require a recall or withdrawal of such product from the marketplace. Following initial clearance from regulatory authorities, we continue to be subject to extensive regulatory requirements.
If we fail to comply with applicable international regulatory requirements, even if such non-compliance by us is inadvertent, or if we are unable to comply with changes to such requirements, our financial performance may be harmed.
We are facing an increasingly complex international regulatory environment which is constantly changing and if we fail to comply with international regulatory requirements, or are unable to comply with changes to such requirements, our financial performance may be harmed.
We contract with third parties that may be unable to fulfill contracts on time. We contract with third-party vendors to service our equipment in the field. We have made such arrangements because sometimes it is more efficient to outsource these activities than it is for our own employees to service our equipment.
We contract with third parties that may be unable to fulfill contracts on time. We contract with third-party vendors to service our equipment in the field.
We may not ultimately be able to develop technologies, or develop in a timely way solutions that are ultimately able to meet the new standards. Certain of our U.S.
Such standards change as threat and risk assessments evolve and as new technology becomes available within the industry, which enables regulators to demand performance improvements. We may not ultimately be able to develop, or develop in a timely way, solutions that are ultimately able to meet the new standards. Certain of our U.S.
We cannot provide assurance that there will not be component failures, manufacturing errors, noncompliance with quality system requirements or good manufacturing practices, design defects, software defects or labeling inadequacies in any device that could result in an unsafe condition or injury to the patient.
All medical devices can experience performance problems that require review and possible corrective action by us or a component supplier. Component failures, manufacturing errors, noncompliance with quality system requirements or good manufacturing practices, design defects, software defects or labeling inadequacies in any device could result in an unsafe condition or injury to the patient.
The healthcare industry has been consolidating and organizations such as group purchasing organizations, independent delivery networks, and large single accounts, such as the United States Veterans Administration, continue to consolidate purchasing decisions for many of our healthcare provider customers. As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts.
Consolidation in the healthcare industry could have a material and adverse effect on our revenues and results of operations. The healthcare industry has been consolidating and organizations such as group purchasing organizations, independent delivery networks, and large single accounts continue to consolidate purchasing decisions for many of our healthcare provider customers.
General Risks Significant inflation and increasing interest rates could materially and adversely affect our business and financial results. The current inflation rate could materially and adversely affect us by increasing our operating costs, including our materials, freight, and labor costs, which are already under pressure due to supply chain constraints.
The current inflation rate could materially and adversely affect us by increasing our operating costs, including our materials, freight, and labor costs.
Technological advances and evolving industry and regulatory standards and certifications could reduce our future product sales, which could cause our revenues to grow more slowly or decline. The markets for our products are characterized by rapidly changing technology, changing customer needs, evolving industry or regulatory standards and certifications and frequent new product introductions and enhancements.
The markets for our products are characterized by rapidly changing technology, changing customer needs, evolving industry or regulatory standards and certifications and frequent new product introductions and enhancements. The emergence of new industry or regulatory standards and certification requirements in related fields may adversely affect the demand for our products.
This delay could be lengthy and we could incur significant expenses to repair or replace the facilities. Any similar natural or manmade disaster that affects a key supplier or customer could lead to a similar disruption in our business.
This delay could be lengthy and we could incur significant expenses to repair or replace the facilities.
In addition, many of our manufacturing facilities, and therefore employees, suppliers, real property, capital equipment, cash and other assets are located outside the United States.
Economic, political, legal, operational and other risks associated with international sales and operations could adversely affect our financial performance. Our businesses are subject to risks associated with doing business internationally. Many of our manufacturing facilities, and therefore employees, suppliers, real property, capital equipment, cash and other assets are located outside the United States.
Legal and Regulatory Risks The Support Anti-terrorism by Fostering Effective Technologies Act of 2002 (SAFETY Act) may not shield us against legal claims we may face following an act of terrorism. The SAFETY Act provides important legal liability protections for providers of qualified anti-terrorism products and services.
This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital. 28 Table of Contents Legal and Regulatory Risks The Support Anti-terrorism by Fostering Effective Technologies Act of 2002 (SAFETY Act) may not shield us against legal claims we may face following an act of terrorism.
GDPR creates a range of compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal information, and significantly increases financial penalties for noncompliance. 28 Table of Contents We are facing an increasingly complex international regulatory environment which is constantly changing and if we fail to comply with international regulatory requirements, or are unable to comply with changes to such requirements, our financial performance may be harmed.
GDPR creates a range of compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal information, and significantly increases financial penalties for noncompliance.
If we issue equity securities as consideration in an acquisition, current stockholders percentage ownership and earnings per share may be diluted. As a result of these and other risks, we cannot be certain that our previous or future acquisitions will be successful and will not materially adversely affect the conduct, operating results or financial condition of our business.
Integrating acquired businesses is complex, time consuming and expensive, and can negatively impact the effectiveness of our internal control over financial reporting. As a result of these and other risks, we cannot be certain that our acquisitions will be successful and will not materially adversely affect the conduct, operating results or financial condition of our business.
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 temporary extensions of funding authority, known as a continuing resolution.
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.
A future recall announcement could harm our reputation with customers and negatively affect our sales.
A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA or a foreign governmental authority could take enforcement action for failing to report the recalls when they were conducted.
Government in the future. U.S. Government contractors must comply with extensive procurement regulations and other requirements including, but not limited to, those appearing in the Federal Acquisition Regulation (FAR) and its supplements, as well as specific procurement rules and contractual conditions imposed by various U.S. Government agencies. In addition, U.S.
Government contractors must comply with extensive procurement regulations and other requirements. In addition, U.S.
Removed
There are also many other factors beyond our control that could lead to liability claims should an act of terrorism, mass casualty event, or other crime occur. Past terrorism attacks in the U.S. and in other locations worldwide and the potential for future attacks have caused commercial insurance for such threats to become extremely difficult to obtain.
Added
In recent years, the budgeting process has often not been completed by October 1st, which has required the temporary extension of funding authority.
Removed
In the event that we are found liable following an act of terrorism or other mass casualty event, the insurance we currently have in place would not fully cover the claims for damages.
Added
As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts. The purchasing power of these larger customers has increased, and may continue to increase, causing downward pressure on product pricing.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES As of June 30, 2023, we owned the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ Square Location Description of Facility Footage Billerica, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 186,200 Snoqualmie, Washington Headquarters and administrative, manufacturing, engineering, sales, marketing and service for our Healthcare division 177,000 Batam, Indonesia Manufacturing for our Optoelectronics and Manufacturing division 93,500 Stoke on Trent, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 90,000 Surrey, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 59,000 ​ As of June 30, 2023, we leased the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ Location Description of Facility Square Footage Expiration Hawthorne, California ​ Corporate headquarters and administrative, manufacturing, engineering, sales and marketing and service for our Optoelectronics and Manufacturing division ​ 88,000 ​ 2028 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Security division 167,600 2024 ~ 2025 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Optoelectronics and Manufacturing division 110,100 2024 ~ 2025 Torrance, California Manufacturing, engineering, sales and marketing and service for our Security division 91,900 2027 Batam, Indonesia (1) Manufacturing for our Optoelectronics and Manufacturing division 105,400 2023 ~ 2028 Andover, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 64,200 2027 (1) This is comprised of multiple leases at the same or nearby facilities. 32 Table of Contents We believe that our facilities are in adequate condition to support our current operations but expect to expand as necessary to support our anticipated future growth.
Biggest changePROPERTIES As of June 30, 2024, we owned the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ Square Location Description of Facility Footage Billerica, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 186,200 Snoqualmie, Washington Headquarters and administrative, manufacturing, engineering, sales, marketing and service for our Healthcare division 177,000 Batam, Indonesia Manufacturing for our Optoelectronics and Manufacturing division 93,500 Stoke on Trent, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 90,000 Surrey, United Kingdom Manufacturing, engineering, sales, marketing and service for our Security division 59,000 ​ As of June 30, 2024, we leased the following principal facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ Location Description of Facility Square Footage Expiration Hawthorne, California ​ Corporate headquarters and administrative, manufacturing, engineering, sales and marketing and service for our Optoelectronics and Manufacturing division ​ 88,000 ​ 2027 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Security division 167,600 2025 Johor Bahru, Malaysia(1) Manufacturing, engineering, sales and service for our Optoelectronics and Manufacturing division 110,100 2024 ~ 2025 Torrance, California Manufacturing, engineering, sales and marketing and service for our Security division 91,900 2027 Batam, Indonesia (1) Manufacturing for our Optoelectronics and Manufacturing division 101,100 2024 ~ 2028 Andover, Massachusetts Manufacturing, engineering, sales and marketing and service for our Security division 64,200 2027 Tecate, Mexico Manufacturing for our Optoelectronics and Manufacturing division 60,200 2028 (1) This is comprised of multiple leases at the same or nearby facilities.
Accordingly, we do not believe that our failure to renew any of the leases that are scheduled to expire in the next few years will have a material adverse effect on our operations. ​
Accordingly, we do not believe that our failure to renew any of the leases that are scheduled to expire in the next few years will have a material adverse effect on our operations. ​ 34 Table of Contents
We currently anticipate that we will be able to renew the leases that are scheduled to expire in the next few years on terms that are substantially the same as those currently in effect.
We believe that our facilities are in adequate condition to support our current operations but expect to expand as necessary to support our anticipated future growth. We currently anticipate that we will be able to renew the leases that are scheduled to expire in the next few years on terms that are substantially the same as those currently in effect.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMore information regarding legal proceedings in which we are involved can be found under Note 11, “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements in Item 8, which is incorporated by reference into this Item 3. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable ​ 33 Table of Contents PART II
Biggest changeMore information regarding legal proceedings in which we are involved can be found under Note 11, “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements in Item 8, which is incorporated by reference into this Item 3. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePerformance Graph The graph below compares the cumulative total stockholder return for the period beginning on the market close on the last trading day before the beginning of our fifth preceding fiscal year through and including the end of our last completed fiscal year with (a) The Nasdaq Composite Index and (b) a peer group of publicly traded issuer(s) with which we have generally competed.
Biggest change(2) Awards of restricted stock units or other awards that convey the full value of the shares subject to the award are counted as 1.87 shares for every one award granted. 35 Table of Contents Performance Graph The graph below compares the cumulative total stockholder return for the period beginning on the market close on the last trading day before the beginning of our fifth preceding fiscal year through and including the end of our last completed fiscal year with (a) The Nasdaq Composite Index and (b) a peer group of publicly traded issuer(s) with which we have generally competed.
Unregistered Sales of Equity Securities We did not sell any unregistered shares of Common Stock during the fiscal year ended June 30, 2023. Issuer Purchases of Equity Securities We did not repurchase any shares of Common Stock during the quarter ended June 30, 2023.
Unregistered Sales of Equity Securities We did not sell any unregistered shares of common stock during the fiscal year ended June 30, 2024. Issuer Purchases of Equity Securities We did not repurchase any shares of common stock during the fiscal year ended June 30, 2024.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Market and Other Information Our Common Stock is traded on The Nasdaq Global Select Market under the symbol “OSIS.” As of August 21, 2023, there were approximately 94 holders of record of our Common Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Market and Other Information Our common stock is traded on The Nasdaq Global Select Market under the symbol “OSIS.” As of August 26, 2024, there were approximately 92 holders of record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information concerning our equity compensation plans as of June 30, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ Number of securities to ​ Weighted ‑ average ​ future issuance under ​ ​ be issued upon exercise ​ exercise price of ​ equity compensation ​ ​ of outstanding options, ​ outstanding options, ​ plans (excluding securities Plan category ​ warrants and rights ​ warrants and rights ​ reflected in column (a)) ​ (a) ​ (b) (c) ​ Equity compensation plans approved by security holders 83,677 $ 87.09 764,333 (1)(2) Equity compensation plans not approved by security holders — ​ ​ N/A — ​ Total 83,677 $ 87.09 764,333 ​ (1) These shares are available for future issuance under our Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”), which was approved by our shareholders on December 10, 2020.
Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information concerning our equity compensation plans as of June 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of securities ​ ​ ​ ​ ​ ​ ​ remaining available for ​ ​ Number of securities to ​ Weighted ‑ average ​ future issuance under ​ ​ be issued upon exercise ​ exercise price of ​ equity compensation ​ ​ of outstanding options, ​ outstanding options, ​ plans (excluding securities Plan category ​ warrants and rights ​ warrants and rights ​ reflected in column (a)) ​ (a) ​ (b) (c) ​ Equity compensation plans approved by security holders 78,958 ​ $ 97.87 ​ 2,535,891 (1)(2) Equity compensation plans not approved by security holders — ​ ​ N/A ​ — ​ Total 78,958 ​ $ 97.87 ​ 2,535,891 ​ (1) These shares are available for future issuance under our Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”), which was approved by our shareholders on December 10, 2020 and amended on December 12, 2023.
The peer group includes the following companies: Conmed Corp, Leidos Holdings Inc. and Smiths Group Plc. 34 Table of Contents The graph assumes that $100.00 was invested on June 30, 2018 in (a) our Common Stock, (b) The Nasdaq Composite Index, and (c) the companies comprising the peer group described above (weighted according to the issuer’s stock market capitalization at the beginning of each period for which a return is indicated).
The graph assumes that $100.00 was invested on June 30, 2019 in (a) our common stock, (b) The Nasdaq Composite Index, and (c) the companies comprising the peer group described above (weighted according to the issuer’s stock market capitalization at the beginning of each period for which a return is indicated). The graph assumes that all dividends were reinvested.
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ​ ​ The following table provides the same information in tabular form as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 2019 2020 2021 2022 2023 OSI Systems, Inc. 100.00 145.65 96.52 131.44 110.49 152.37 The Nasdaq Composite Index 100.00 107.78 136.82 198.71 152.16 191.93 Peer Group 100.00 92.88 84.28 95.11 83.91 98.10 ​ ​ ITEM 6. [RESERVED] ​ 35 Table of Contents
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. ​ ​ The following table provides the same information in tabular form as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 2020 2021 2022 2023 2024 OSI Systems, Inc 100.00 66.27 ​ 90.24 ​ 75.86 ​ 104.62 ​ 122.10 The Nasdaq Composite Index 100.00 126.94 ​ 184.36 ​ 141.17 ​ 178.08 ​ 230.80 Peer Group 100.00 90.75 ​ 102.41 ​ 90.35 ​ 105.62 ​ 110.55 ​ ​ 36 Table of Contents ITEM 6. [RESERVED] ​ 37 Table of Contents
The graph assumes that all dividends were reinvested. Historical stock price performance is not necessarily indicative of future stock price performance.
Historical stock price performance is not necessarily indicative of future stock price performance.
Removed
(2) Awards of restricted stock units or other awards that convey the full value of the shares subject to the award are counted as 1.87 shares for every one award granted.
Added
The peer group includes the following companies: Conmed Corp, Leidos Holdings Inc. and Smiths Group Plc.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. ​ [RESERVED] ​ 35 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 36 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 43 Item 8. ​ Financial Statements and Supplementary Data ​ 44
Biggest changeItem 6. ​ [RESERVED] ​ 37 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 38 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 45 Item 8. ​ Financial Statements and Supplementary Data ​ 46

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe increase in both product and service revenue was primarily driven by increased sales of cargo and vehicle inspection systems. ​ Revenues for the Healthcare division during the fiscal year ended June 30, 2023 decreased year-over-year due to a reduction in patient monitoring and cardiology sales of $12.2 million and $2.9 million, respectively. ​ Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2023 increased year-over-year as a result of increases in revenue in our optoelectronics and contract manufacturing businesses of approximately $9.2 million and $4.1 million, respectively. ​ Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ % of ​ Fiscal ​ % of ​ Fiscal ​ % of ​ ​ 2021 Net Revenues 2022 Net Revenues 2023 Net Revenues ​ ​ ​ (Dollars in millions) ​ Gross profit ​ $ 419.9 ​ 36.6 % $ 424.4 35.9 % $ 430.5 ​ 33.7 % ​ Fiscal 2023 Compared with Fiscal 2022.
Biggest changeThe slowdown in the optoelectronics business was primarily driven by the push-out of orders and deliveries from customers who were adjusting their inventory levels ​ Revenues for the Healthcare division during the fiscal year ended June 30, 2024 decreased year-over-year due primarily to a reduction in patient monitoring sales of $24.2 million, partially offset by increases in service revenue of $3.7 million, cardiology sales of $0.3 million and supplies and accessories revenue of $1.1 million. ​ Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ % of ​ Fiscal ​ % of ​ Fiscal ​ % of ​ ​ 2022 Net Revenues 2023 Net Revenues 2024 Net Revenues ​ ​ ​ (Dollars in millions) ​ Gross profit ​ $ 424.4 ​ 35.9 % $ 430.5 33.7 % $ 530.5 ​ 34.5 % ​ Fiscal 2024 Compared with Fiscal 2023.
We have three operating divisions, each of which is a reportable segment: (a) Security, providing security and inspection systems and turnkey security screening solutions; (b) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories; and (c) 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 others.
We have three operating divisions, each of which is a reportable segment: (a) Security, providing security and inspection 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 others; and (c) Healthcare, providing patient monitoring, cardiology and remote monitoring, and connected care systems and associated accessories.
If we continue to net settle equity awards, we will use additional cash to pay our tax withholding obligations in connection with such settlements. 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 foreseeable future.
If we continue to net settle equity awards, we will continue to use additional cash to pay our tax withholding obligations in connection with such settlements. 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 foreseeable future.
In certain instances, contracts with customers can contain multiple performance obligations such as civil works to prepare a site for equipment installation, training of customer personnel to operate equipment, and after-market service of equipment. We generally assign multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract.
In certain instances, contracts with customers can contain multiple performance obligations such as civil works to prepare a site for equipment installation, training of customer personnel to operate equipment, and after-market service of equipment. We assign multiple elements in a contract into separate performance obligations if those elements are distinct, both individually and in the context of the contract.
During the fiscal year ended June 30, 2023, impairment, restructuring and other charges were $7.6 million and consisted of $3.9 million for legal charges, net of insurance reimbursements, $1.7 million for employee terminations, $1.5 million for other facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.
During the fiscal year ended June 30, 2023, restructuring and other charges were $7.6 million and consisted of $3.9 million for legal charges, net of insurance reimbursements, $1.7 million for employee terminations, $1.5 million for other facility closure costs for operational efficiency activities, and $0.4 million in acquisition related costs.
Consolidated Results Discussion and analysis of our financial condition and results of operations for fiscal 2021 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2022.
Consolidated Results Discussion and analysis of our financial condition and results of operations for fiscal 2022 has been omitted from this Annual Report on Form 10-K, and is available in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2023.
Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. 39 Table of Contents Net Revenues The table below and the discussion that follows are based upon the way we analyze our business.
Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. Net Revenues The table below and the discussion that follows are based upon the way we analyze our business.
As a result of terrorist attacks and smuggling operations against the U.S. and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, sporting venues, government and military installations, railways, and nuclear facilities.
As a result of terrorist attacks and smuggling operations against the U.S. and in other locations worldwide, security and inspection products have increasingly been used at a wide range of facilities in addition to airports, such as border crossings, seaports, freight forwarding operations, sports and entertainment venues, government and military installations, railways, and nuclear facilities.
We 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 2023 Compared with Fiscal 2022.
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 2024 Compared with Fiscal 2023.
We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required. Income Taxes.
We write down inventory for slow-moving and obsolete inventory based on historical usage, orders on hand, assessments of future demands, and market conditions, among other items. If these factors are less favorable than those projected, additional inventory write-downs may be required. 40 Table of Contents Income Taxes.
The following summarizes our critical accounting policies and estimates used in preparing our consolidated financial statements: 38 Table of Contents Revenue Recognition. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligations are broadly categorized as product sales, service revenue, and project-specific contract revenue.
The following summarizes our critical accounting policies and estimates used in preparing our consolidated financial statements: Revenue Recognition. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligations are broadly categorized as product sales, service revenue, and project-specific contract revenue.
Government and other international government customers manage fiscal challenges including those stemming from government spending that occurred during the COVID-19 pandemic; such reductions could have a material, adverse effect on our business, financial condition and results of operations. Healthcare Division.
Government and other international government customers manage fiscal challenges including those stemming from government spending that occurred during the COVID-19 pandemic; such reductions could have a material, adverse effect on our business, financial condition and results of operations. Optoelectronics and Manufacturing Division.
If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation. Inventory. Inventories are stated at the lower of cost or net realizable value.
If multiple promises comprise a series of distinct services which are substantially the same and have the same pattern of transfer, they are combined and accounted for as a single performance obligation. Inventory. Inventories are stated at the lower of cost (first - in, first - out) or net realizable value.
On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 1.0% for the year ended June 30, 2023 compared to the year ended June 30, 2022, primarily due to the strengthening of the U.S. dollar against other foreign currencies in fiscal 2023.
On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 1.6% for the year ended June 30, 2024 compared to the year ended June 30, 2023, primarily due to the strengthening of the U.S. dollar against other foreign currencies in fiscal 2024.
We acquired four businesses during fiscal 2023 and two businesses during fiscal 2022, as described in Note 2 to the Consolidated Financial Statements. None of such acquisitions was considered material. 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. Global Economic Considerations.
We acquired two businesses in fiscal 2024 and four businesses in fiscal 2023, as described in Note 2 to the Consolidated Financial Statements. None of these acquisitions was considered material. 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. Global Economic Considerations.
Critical Accounting Policies and Estimates The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
Critical Accounting Policies and Estimates The following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).
We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 26% of our total consolidated revenues for fiscal 2023.
We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 21% of our total consolidated revenues for fiscal 2024. Healthcare Division.
These foreign funds were held primarily by our subsidiaries in the United Kingdom, Qatar, Singapore, India, Malaysia and Canada, and to a lesser extent in Indonesia, Australia, Germany and Mexico among other countries.
These foreign funds were held primarily by our subsidiaries in the United Kingdom, India, Singapore, Canada, and Australia, and to a lesser extent in Malaysia, Egypt, Albania, Indonesia and Germany, among other countries.
Revenues from our Healthcare division accounted for 15% of our total consolidated revenues for fiscal 2023. 36 Table of Contents The healthcare markets in which we operate are highly competitive. We believe that our customers choose among competing products on the basis of product performance, functionality, price, value and service.
Revenues from our Healthcare division accounted for 11% of our total consolidated revenues for fiscal 2024. 38 Table of Contents The healthcare markets in which we operate are highly competitive. We believe that our customers choose among competing products on the basis of product performance, functionality, price, value and service.
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. 37 Table of Contents Global Trade.
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.
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. During fiscal 2023, we generated cash from operations of $94.8 million compared to $63.8 million in the prior fiscal year.
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 fiscal 2024, we used cash from operations of $87.5 million compared to cash provided by operations of $94.8 million in the prior fiscal year.
During fiscal year 2023, our Security division was awarded two significant international contracts valued in aggregate greater than $700 million with expected revenues to be recognized over multiple years.
During fiscal years 2023 and 2024, our Security division was awarded three significant international contracts valued in aggregate greater than $800 million with expected revenues to be recognized over multiple years.
Revenues for the Security division during the fiscal year ended June 30, 2023 increased on a year-over-year basis due to an increase in product and service revenues of approximately $66.1 million and $31.0 million, respectively.
Revenues for the Security division during the fiscal year ended June 30, 2024 increased on a year-over-year basis due to an increase in product and service revenues of approximately $275.0 million and $7.8 million, respectively.
While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.
This has the potential to indirectly disrupt our supply chain and access to certain resources. While we have not experienced significant adverse impacts to date and will continue to monitor for any impacts and seek to mitigate disruption that may arise, we have certain research and development activities within Ukraine for our Healthcare division which have been somewhat impacted.
Any further strengthening of the U.S. dollar against foreign currencies would adversely impact our sales for the remainder of the year, and any weakening of the U.S. dollar against foreign currencies would positively impact our sales for the remainder of the year. Coronavirus Pandemic.
Any further strengthening of the U.S. dollar against foreign currencies would adversely impact our sales in future periods, and any weakening of the U.S. dollar against foreign currencies would positively impact our sales in future periods. Coronavirus Pandemic.
Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics. Gross profit increased approximately $6.1 million in fiscal 2023 as compared to the prior year on an 8% increase in sales.
Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, and logistics. Gross profit increased approximately $100.0 million in fiscal 2024 as compared to the prior year on a 20.4% increase in sales.
As of June 30, 2023, we had lease payment obligations of $33.5 million, with $10.8 million payable within the next 12 months. Cash Held by Foreign Subsidiaries Our cash and cash equivalents totaled $76.8 million at June 30, 2023. Of this amount, approximately 97% was held by our foreign subsidiaries and subject to repatriation tax considerations.
As of June 30, 2024, we had lease payment obligations of $30.8 million, with $10.8 million payable within the next 12 months. 44 Table of Contents Cash Held by Foreign Subsidiaries Our cash and cash equivalents totaled $95.4 million at June 30, 2024. Of this amount, approximately 81% was held by our foreign subsidiaries and subject to repatriation tax considerations.
Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2021-2022 ​ 2022-2023 ​ ​ 2021 ​ Net Revenues ​ 2022 ​ Net Revenues ​ 2023 Net Revenues ​ % Change ​ % Change ​ ​ ​ (Dollars in millions) ​ Selling, general and administrative ​ $ 240.7 ​ 21.0 % $ 235.6 ​ 19.9 % $ 228.3 ​ 17.9 % (2) % (3) % Research and development ​ 53.7 ​ 4.7 % 59.6 ​ 5.0 % ​ 59.4 ​ 4.6 % 11 % (0) % Impairment, restructuring and other charges ​ 10.1 ​ 0.9 % 7.5 ​ 0.6 % ​ 7.6 ​ 0.6 % (25) % 1 % Total operating expenses ​ $ 304.5 ​ 26.5 % $ 302.7 ​ 25.6 % $ 295.3 ​ 23.1 % (1) % (2) % ​ 40 Table of Contents 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.
Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ ​ Fiscal ​ % of ​ Fiscal ​ % of ​ Fiscal ​ % of ​ 2022-2023 ​ 2023-2024 ​ ​ 2022 Net Revenues 2023 Net Revenues 2024 Net Revenues % Change % Change ​ ​ ​ (Dollars in millions) ​ Selling, general and administrative ​ $ 235.6 ​ 19.9 % $ 228.3 ​ 17.9 % $ 269.7 ​ 17.5 % (3.1) % 18.1 % Research and development ​ 59.6 ​ 5.1 % 59.4 ​ 4.7 % ​ 65.3 ​ 4.3 % (0.3) % 9.9 % Impairment, restructuring and other charges ​ 7.5 ​ 0.6 % 7.6 ​ 0.5 % ​ 6.4 ​ 0.4 % 1.3 % (15.8) % Total operating expenses ​ $ 302.7 ​ 25.6 % $ 295.3 ​ 23.1 % $ 341.4 ​ 22.2 % (2.4) % 15.6 % ​ 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.
The 1.25% convertible notes that were previously outstanding during the year ended June 30, 2022 were retired in September 2022 using borrowings from our credit facility which carries a higher interest rate than the convertible notes. 41 Table of Contents Provision for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Fiscal Fiscal ​ ​ 2021 ​ 2022 ​ 2023 ​ ​ (Dollars in millions) Provision for income taxes ​ $ 24.6 ​ $ 24.8 ​ $ 23.5 ​ 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, (vi) return to provision adjustments and (vii) changes in tax legislation.
Provision for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Fiscal Fiscal ​ ​ 2022 ​ 2023 ​ 2024 ​ ​ (Dollars in millions) Provision for income taxes ​ $ 24.8 ​ $ 23.5 ​ $ 33.1 ​ 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, (vi) return to provision adjustments and (vii) changes in tax legislation.
Revenues from our Security division accounted for 59% of our total consolidated revenues for fiscal 2023.
Revenues from our Security division accounted for 68% of our total consolidated revenues for fiscal 2024.
Fiscal 2023 Compared with Fiscal 2022. For the fiscal years ended June 30, 2023 and 2022, we recognized a provision for income taxes of $23.5 million and $24.8 million, respectively. The effective tax rate for the fiscal years ended June 30, 2023 and 2022 was 20.4% and 17.7%, respectively.
Fiscal 2024 Compared with Fiscal 2023. For the fiscal years ended June 30, 2024 and 2023, we recorded a provision for income taxes of $33.1 million and $23.5 million, respectively. The effective tax rate for the fiscal years ended June 30, 2024 and 2023 was 20.5% and 20.4%, respectively.
Interest and Other Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ 2021 2022 2023 ​ ​ (Dollars in millions) Interest and other expense, net ​ $ 16.7 ​ $ 9.0 ​ $ 20.0 ​ Fiscal 2023 Compared with Fiscal 2022.
Interest and Other Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ 2022 2023 2024 ​ ​ (Dollars in millions) Interest and other expense, net ​ $ 9.0 ​ $ 20.0 ​ $ 27.8 ​ Fiscal 2024 Compared with Fiscal 2023.
While we believe that national security spending will continue to be a priority, U.S. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies. Additionally, there continues to be volatility in international markets that has impacted international security spending.
In recent years, U.S. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies, including those responsible for national security spending. Additionally, there continues to be volatility in international markets that has impacted international security spending.
See Note 14 to the consolidated financial statements for additional information about business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2021-2022 2022-2023 ​ ​ 2021 Net Revenues 2022 Net Revenues 2023 Net Revenues % Change % Change ​ ​ ​ (Dollars in millions) ​ Security ​ $ 633.3 ​ 55 % $ 663.2 ​ 56 % $ 760.3 ​ 59 % 5 % 15 % Healthcare ​ 212.3 ​ 19 % ​ 205.7 17 % ​ 190.5 ​ 15 % (3) % (7) % Optoelectronics / Manufacturing ​ 301.3 ​ 26 % ​ 314.3 27 % ​ 327.6 ​ 26 % 4 % 4 % Total Net Revenues ​ $ 1,146.9 ​ ​ ​ $ 1,183.2 ​ ​ ​ $ 1,278.4 ​ ​ ​ 3 % 8 % ​ Fiscal 2023 Compared with Fiscal 2022.
See Note 14 to the consolidated financial statements for additional information about business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ ​ Fiscal % of Fiscal % of Fiscal ​ % of ​ 2022-2023 2023-2024 ​ ​ 2022 Net Revenues 2023 Net Revenues 2024 Net Revenues % Change % Change ​ ​ ​ (Dollars in millions) ​ Security ​ $ 663.2 ​ 56.0 % $ 760.3 ​ 59.5 % $ 1,043.1 ​ 67.8 % 14.6 % 37.2 % Optoelectronics / Manufacturing ​ 314.3 ​ 26.6 % ​ 327.6 25.6 % ​ 324.3 ​ 21.1 % 4.2 % (1.0) % Healthcare ​ 205.7 ​ 17.4 % ​ 190.5 14.9 % ​ 171.4 ​ 11.1 % (7.4) % (10.0) % Total Net Revenues ​ $ 1,183.2 ​ ​ ​ $ 1,278.4 ​ ​ ​ $ 1,538.8 ​ ​ ​ 8.0 % 20.4 % ​ Fiscal 2024 Compared with Fiscal 2023.
As of June 30, 2023, there was $215.0 million outstanding under our revolving credit facility, $143.1 million outstanding under the term loan, and $48.5 million of outstanding letters of credit. As of June 30, 2023, the total amount available under these credit facilities was $336.5 million. See Note 8 to the consolidated financial statements for further discussion.
As of June 30, 2024, there was $135.6 million outstanding under the term loan, $384.0 million outstanding under our revolving credit facility and $74.5 million of outstanding letters of credit. As of June 30, 2024, the total amount available under our revolving credit facility was $141.5 million. See Note 8 to the consolidated financial statements for further discussion.
Net capital expenditures in fiscal 2023 were $15.8 million compared to $14.9 million in the prior fiscal year. Expenditures for intangible and other assets in fiscal 2023 were $16.4 million compared to $15.6 million in the prior fiscal year.
Net capital expenditures in fiscal 2024 were $22.1 million compared to $15.8 million in the prior fiscal year. Expenditures for intangible and other assets in fiscal 2024 were $17.3 million compared to $16.4 million in the prior fiscal year.
As described below, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic. Increased healthcare capital purchases made in prior periods may result in fewer capital purchases in subsequent periods. Government Policies.
As described, our Healthcare division experienced some increased demand for its patient monitoring products as a result of the COVID-19 pandemic during the earlier stages of the pandemic.
Research and Development Our Security and Healthcare divisions have historically invested substantial amounts in research and development (“R&D”). We intend to continue this trend in future years, although specific programs may or may not continue to be funded and funding levels may fluctuate. R&D expenses included research related to new product development and product enhancement expenditures.
We intend to continue this trend in future years, although specific programs may or may not continue to be funded and funding levels may fluctuate. R&D expenses included research related to new product development and product enhancement expenditures. Fiscal 2024 Compared with Fiscal 2023.
During the fiscal years ended June 30, 2023 and 2022, we recognized a net discrete tax benefit of $2.8 million and $7.0 million, respectively, primarily related to equity-based compensation under ASU 2016-09, adjustments to prior year estimates, and changes in uncertain tax positions.
During the fiscal years ended June 30, 2024 and 2023, we recognized a net discrete tax benefit of $4.7 million and $2.8 million, respectively, primarily related to equity-based compensation under ASU 2016-09, adjustments to prior year estimates, and changes in uncertain tax positions. 43 Table of Contents Liquidity and Capital Resources Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility.
Stock Repurchase Program In September 2022, our Board of Directors increased to 2,000,000 shares the maximum number of shares authorized under the stock repurchase program. This program does not expire unless our Board of Directors acts to terminate the program. During fiscal 2023, we repurchased 400,230 shares. As of June 30, 2023, 1,721,870 shares remained available for repurchase.
Stock Repurchase Program In September 2022, our Board of Directors increased to a total of 2,000,000 shares the maximum number of shares authorized under the stock repurchase program. This program does not expire unless our Board of Directors acts to terminate the program. During fiscal 2024, we did not repurchase shares of our common stock.
We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to pursue security and inspection opportunities as they arise throughout the world. Currently, the U.S. Government is discussing various options to address the U.S. Government’s overall fiscal challenges and we cannot predict the outcome of these efforts.
We believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to pursue security and inspection opportunities as they arise throughout the world.
The gross margin declined from 35.9% to 33.7% driven by the mix of sales and increased costs. Our cost of goods sold increased year-over-year primarily as a result of the increase in revenues and higher raw material costs.
The gross margin increased from 33.7% to 34.5% driven by economies of scale on increased sales, especially in the Security division, and a favorable overall mix of sales. Our cost of goods sold increased year-over-year as a result of the increase in revenues.
The changes in cash flows from financing activities primarily relate to (i) net repayments on bank lines of credit and the term loan of $5.9 million in fiscal 2023 compared to $64.3 million in the prior fiscal year; and (ii) $46.7 million used for share repurchases and taxes paid related to the net share settlement of equity awards in fiscal 2023 compared to $131.0 million in the prior fiscal year. 42 Table of Contents Material Cash Requirements Our material cash requirements include the following contractual and other obligations.
The changes in cash flows from financing activities primarily relate to (i) net borrowings on bank lines of credit and long-term debt of $162.0 million in fiscal 2024 compared to $5.9 million in the prior fiscal year; (ii) $23.3 million used for taxes paid related to the net share settlement of equity awards in fiscal 2024 compared to $12.0 million in the prior fiscal year; and (iii) there were no share repurchases in fiscal 2024 compared to $34.7 million in the prior fiscal year.
In addition, purchases of certificates of deposit in fiscal 2023 were $5.3 million compared to $2.2 million in the same prior-year period. Cash Used in Financing Activities. Net cash used in financing activities was $37.2 million during fiscal 2023, compared to $64.0 million during the prior fiscal year.
In addition, we received proceeds from maturities of certificates of deposit of $10.3 million in fiscal 2024 compared to $3.8 million in the same prior-year period. Cash Provided by (Used in) Financing Activities. Net cash provided by financing activities was $144.3 million during fiscal 2024, compared to net cash used of $37.2 million during the prior fiscal year.
Fiscal 2023 Compared with Fiscal 2022. R&D expense during the fiscal year ended June 30, 2023 was comparable to the prior fiscal year. Impairment, Restructuring and Other Charges Impairment, restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, impairment of assets, costs related to acquisition activity, legal charges and other non-recurring charges.
R&D expense during the fiscal year ended June 30, 2024 was $5.9 million higher than in the same prior-year period, driven primarily by compensation costs related to investments to support new product development initiatives, mainly in our Security division compared to the same prior-year period. 42 Table of Contents 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.
This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility during the year ended June 30, 2023 in comparison with the interest rates and levels of borrowing during the same period in the prior year.
For the fiscal year ended June 30, 2024, interest and other expense, net was $27.8 million as compared to $20.0 million in the comparable prior-year period. This increase was driven by higher average interest rates and higher average levels of borrowing under our credit facility.
Borrowings. Outstanding lines of credit and current and long-term debt totaled $359.6 million at June 30, 2023, an increase of $6.2 million from $353.4 million at June 30, 2022. As of June 30, 2023, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion.
As of June 30, 2024, we were in compliance with all financial covenants under our various borrowing agreements. See Note 8 to the consolidated financial statements for further discussion.
There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, and labor shortages. These global macroeconomic factors, coupled with the U.S. political climate and political unrest internationally, have created uncertainty and impacted demand for certain of our products and services.
These global macroeconomic factors, coupled with the volatile U.S. political climate and political unrest internationally, have created uncertainty and impacted demand for certain of our products and services. Conflicts in Gaza and nearby regions have created political and economic uncertainty in the Middle East.
During the fiscal year ended June 30, 2022, impairment, restructuring and other charges were $7.5 million and consisted of $5.1 million for legal charges primarily related to class action litigation and government investigations, net of insurance reimbursements, $1.1 million in charges for employee terminations, $0.3 million in acquisition related costs, and $1.0 million in impairment charges.
During the fiscal year ended June 30, 2024, restructuring and other charges were $6.4 million and consisted of $3.2 million for facility closure costs for operational efficiency activities, $1.4 million for employee terminations, $1.0 million in acquisition related costs, and $0.8 million in legal charges.
Fiscal 2023 Compared with Fiscal 2022. We reported consolidated sales of $1,278.4 million in fiscal 2023, an 8.0% increase compared to the prior year. Our income from operations increased to $135.3 million in fiscal 2023 or 11.1% growth from the prior year driven primarily by increased sales and a reduction in operating expenses of $7.4 million. Acquisitions.
Our income from operations increased to $189.1 million in fiscal 2024 or 39.8% growth from the prior year driven primarily by increased sales of $260.3 million which increased associated gross profit by $99.9 million, partially offset by and an increase in operating expenses of $46.2 million. Acquisitions.
During fiscal 2022, we received proceeds of $32 million from the sale of corporate owned real estate thereby reducing the amount of net cash used in investing activities in such year. During fiscal 2023, we used cash of $7.1 million for the acquisition of businesses as compared to $14.1 million in the prior fiscal year.
Cash Used in Investing Activities. Net cash used in investing activities was $37.6 million during fiscal 2024 as compared to $40.5 million used during the prior year. During fiscal 2024, we used cash of $9.0 million for the acquisition of businesses as compared to $7.1 million in the prior fiscal year.
Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies. Changes in Costs and Supply Chain Disruptions. Our costs are subject to fluctuations, particularly due to changes in raw material, component, and logistics costs.
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. 39 Table of Contents Russia’s Invasion of Ukraine. The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.
Liquidity and Capital Resources Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations and our credit facility. Cash and cash equivalents totaled $76.8 million at June 30, 2023, compared to $64.2 million at June 30, 2022. During fiscal 2023, we generated $94.8 million of cash flow from operations.
Cash and cash equivalents totaled $95.4 million at June 30, 2024, compared to $76.8 million at June 30, 2023. During fiscal 2024, cash used in operations was $87.5 million.
SG&A expense for the fiscal year ended June 30, 2023 was $7.3 million lower than such expenses in the same prior-year period primarily due to a $5 million reduction in compensation and external commission expenses and a $1 million reduction in marketing expense, a reduction in the fair value of certain contingent liabilities, partially offset by $2 million lower bad debt recoveries and increased travel and meeting expenses compared to the same prior-year period.
Fiscal 2024 Compared with Fiscal 2023. SG&A expense for the fiscal year ended June 30, 2024 was $41.4 million higher than in the same prior-year period, primarily due to increases in compensation expense, provision for losses on accounts receivable, and an unfavorable impact of foreign currency exchange rates compared to the same prior-year period.
These proceeds and $5.9 million of net bank borrowings and long-term debt were used for the following: $15.8 million invested in capital expenditures, $7.1 million for the acquisition of four businesses and $46.7 million for share repurchases and taxes paid related to the net share settlement of equity awards.
As a result, we borrowed $169.0 million under our credit facility to fund working capital requirements as well as the following: $39.4 million invested in capital expenditures and acquisition of intangible assets, $9.0 million for the acquisition of two businesses and $23.3 million for taxes paid related to the net share settlement of equity awards.
Removed
Although there has been an increase in demand for patient monitoring products due to the COVID-19 pandemic, there is continued uncertainty regarding the U.S. federal government budget and the Affordable Care Act, either of which may impact hospital spending, third-party payer reimbursement and fees to be levied on certain medical device revenues, any of which could adversely affect our business and results of operations.
Added
In addition, many factors, including public policy spending priorities, available resources, and product and economic cycles, have a significant impact on the capital spending policies of our customers. Impasses in national, regional, or local government budgeting decisions could lead to substantial delays or reductions in governmental spending.
Removed
In addition, hospital capital spending appears to have been impacted by strategic uncertainties surrounding the Affordable Care Act and economic pressures. We also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services. During this period of uncertainty, sales of our healthcare products may be negatively impacted.
Added
Many of our products have lengthy sales and purchase order cycles or are subject to competitive bidding or public tender processes. As a result, customers may delay or accelerate system purchases in conjunction with timing of their capital budget timelines or be unable to complete such purchases at all.
Removed
A prolonged delay could have a material adverse effect on our business, financial condition and results of operations. Optoelectronics and Manufacturing Division.
Added
Fiscal 2024 Compared with Fiscal 2023. We reported consolidated sales of $1,538.8 million in fiscal 2024, a 20.4% increase compared to the prior year.
Removed
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 challenges. Specifically, we are impacted by the global shortage of electronic components and other materials needed for production and freight availability.
Added
There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, rising 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.
Removed
We expect continued disruptions in obtaining material and freight availability as the world economies react to and recover from supply chain shortages. 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. Russia’s Invasion of Ukraine.
Added
Certain hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, higher interest rates make access to credit more expensive, and fiscal stimulus programs enacted during the COVID - 19 pandemic wind down. To the extent macroeconomic conditions remain challenging, it is likely that hospitals’ spend on capital equipment will be adversely impacted.
Removed
The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. This has the potential to indirectly disrupt our supply chain and access to certain resources.
Added
The increase in product revenue was primarily driven by growth in cargo and vehicle inspection systems, trace detections systems, and checkpoint screening sales from international contracts.
Removed
Gross profit as a percentage of net revenues during the fiscal year ended June 30, 2023 decreased on a year-over-year basis due to (i) a reduction in the Security division gross margin due to a decrease in margin from product sales driven by a less favorable product mix and increased component costs, (ii) a reduction in sales in the Healthcare division, which carries the highest gross margin of our three divisions, and (iii) an increase in sales in the Optoelectronics and Manufacturing division, which carries the lowest gross margin of our three divisions.
Added
The increase in service revenue was due primarily to the increase in the installed base of products. 41 Table of Contents Revenues for the Optoelectronics and Manufacturing division during the fiscal year ended June 30, 2024 decreased year-over year mainly due to a decline of $11.9 million in the optoelectronics business.
Removed
Other Income Fiscal 2023 Compared with Fiscal 2022. During the fiscal year ended June 30, 2023, there was no other income. For the fiscal year ended June 30, 2022, other income was $27.4 million, driven by the gain on sale of property and equipment primarily from the sale of corporate owned real estate.
Added
The contract manufacturing business partially offset the decline with an increase of $8.4 million in revenue.
Removed
For the fiscal year ended June 30, 2023, interest and other expense, net was $20.0 million as compared to $9.0 million in the comparable prior-year period.
Added
Although SG&A expense increased in fiscal 2024 compared to fiscal 2023, as a percentage of net revenues, SG&A expense decreased from 17.9% in fiscal 2023 to 17.5% in fiscal 2024. Research and Development Our Security and Healthcare divisions have historically invested substantial amounts in research and development (“R&D”).
Removed
We have a $750 million credit facility that is comprised of a $600 million revolving credit facility, which includes a $300 million sub-facility for letters of credit, and a $150 million term loan.
Added
We also executed an interest rate swap in fiscal 2023 which resulted in a benefit of $1.3 million and $3.6 million in fiscal 2023 and 2024, respectively.
Removed
This increase was driven by lower increases in inventory, increased accounts payable and other changes in net working capital. Cash Used in Investing Activities. Net cash used in investing activities was $40.5 million during fiscal 2023 as compared to $12.7 million used during the prior year.
Added
As further described in Note 8 to the consolidated financial statements, subsequent to June 30, 2024 we issued $350 million in senior convertible notes which have a coupon interest rate of 2.25% maturing in August 2029. Our credit facility comprises a term loan and a $600 million revolving credit facility, which includes a $300 million sub-facility for letters of credit.
Added
The net change in cash flows from operating activities was due primarily to a net increase in accounts receivable and inventories associated with the revenue growth in the Security division, partially offset by other changes in net working capital compared with the same period last year as well as impact of higher net income in fiscal 2024 compared with the prior fiscal year.
Added
Material Cash Requirements Our material cash requirements include the following contractual and other obligations. Borrowings. Outstanding lines of credit and current and long-term debt totaled $521.6 million at June 30, 2024, an increase of $162.0 million from $359.6 million at June 30, 2023.
Added
As of June 30, 2024, 1,721,870 shares remained available for repurchase. Subsequent to June 30, 2024, in connection with the issuance of $350 million in convertible senior notes in July 2024, we repurchased 531,314 shares of common stock for an aggregate purchase price of $80 million.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed11 unchanged
Biggest changeInterest Rate Risk The principal maturity and estimated value of our long-term debt exposure for each of the fiscal years set forth below as of June 30, 2023 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2029 and ​ ​ ​ ​ ​ ​ ​ 2024 2025 2026 2027 2028 Thereafter Total Fair Value Term loan ​ $ 7,500 ​ $ 7,500 ​ $ 7,500 ​ $ 120,625 ​ $ — ​ $ — ​ $ 143,125 ​ $ 143,125 ​ Average interest rate ​ ​ 6.20 % ​ 6.20 % ​ 6.20 % ​ 6.20 % ​ — % ​ — % ​ 6.20 % ​ 6.20 % Finance lease obligations ​ $ 576 ​ $ 492 ​ $ 301 ​ $ 73 ​ $ — ​ $ — ​ $ 1,442 ​ $ 1,442 ​ Average interest rate of finance lease obligations ​ 3.5 % 3.5 % 3.5 % 3.5 % — % — % 3.5 % 3.5 % ​ At June 30, 2023, we had $215.0 million of borrowings under our revolving credit facility and $143.1 million of term loan outstanding. ​
Biggest changeInterest Rate Risk The principal maturity and estimated value of our long-term debt exposure for each of the fiscal years set forth below as of June 30, 2024 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2030 and ​ ​ ​ ​ ​ ​ ​ 2025 2026 2027 2028 2029 Thereafter Total Fair Value Term loan ​ $ 7,500 ​ $ 7,500 ​ $ 120,625 ​ $ — ​ $ — ​ $ — ​ $ 135,625 ​ $ 135,625 ​ Average interest rate ​ ​ 6.44 % ​ 6.44 % ​ 6.44 % ​ — % ​ — % ​ — % ​ 6.44 % ​ 6.44 % Finance lease obligations ​ $ 667 ​ $ 619 ​ $ 490 ​ $ 145 ​ $ 4 ​ $ — ​ $ 1,925 ​ $ 1,925 ​ Average interest rate of finance lease obligations ​ 5.7 % 5.7 % 5.7 % 5.7 % 5.7 % — % 5.7 % 5.7 % ​ As further described in Note 8 to the Consolidated Financial Statements, subsequent to June 30, 2024 we issued $350 million in senior convertible notes which have a coupon interest rate of 2.25% maturing in August 2029. ​
We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future. 43 Table of Contents Foreign Currency Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 30 countries.
We monitor economic and currency conditions around the world to evaluate whether there may be any significant effect on our international sales in the future. 45 Table of Contents Foreign Currency Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. We conduct business in more than 35 countries.
Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a net gain (loss) of approximately $(1.3) million, $0.6 million, and $2.0 million for the fiscal years ended June 30, 2021, 2022 and 2023, respectively.
Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a net gain (loss) of approximately $0.6 million, $2.0 million, and $(5.1) million for the fiscal years ended June 30, 2022, 2023 and 2024, respectively.
Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $13.5 million in fiscal 2023. Inflation Heightened levels of inflation continue to present risk for us.
Conversely, a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of approximately $0.1 million in fiscal 2024. Inflation Heightened levels of inflation continue to present risk for us.
A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $13.5 million in fiscal 2023.
A 10% appreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net increase in our operating income of approximately $0.1 million in fiscal 2024.

Other OSIS 10-K year-over-year comparisons