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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended December 31, 2025

☐

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

For the transition period from to

Commission File Number 000-23125

OSI SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


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

12525 Chadron Avenue

Hawthorne, California 90250

(Address of principal executive offices) (Zip Code)

(310) 978-0516

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

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

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

As of January 22, 2026, there were 16,472,549 shares of the registrant’s common stock outstanding.

Table of Contents

OSI SYSTEMS, INC.

INDEX

		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2025 and December 31, 2025	3
	Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2024 and 2025	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2024 and 2025	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended December 31, 2024 and 2025	6
	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2024 and 2025	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4 —	Controls and Procedures	35

PART II — OTHER INFORMATION		36

Item 1 —	Legal Proceedings	36
Item 1A —	Risk Factors	36
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3 —	Defaults Upon Senior Securities	36
Item 4 —	Mine Safety Disclosures	36
Item 5 —	Other Information	36
Item 6 —	Exhibits	37
Signatures		38

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


	June 30,		December 31,
	2025		2025
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	106,405	$	336,722
Accounts receivable, net		837,743		833,152
Inventories		407,174		452,613
Prepaid expenses and other current assets		71,539		64,358
Total current assets		1,422,861		1,686,845
Property and equipment, net		126,747		128,502
Goodwill		387,393		385,747
Intangible assets, net		183,290		183,394
Other assets		120,966		137,753
Total assets	$	2,241,257	$	2,522,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	178,000	$	—
Current portion of long-term debt		8,130		5,052
Accounts payable		205,181		212,715
Accrued payroll and related expenses		49,535		44,020
Advances from customers		68,184		63,518
Deferred revenue		77,788		93,207
Other accrued expenses and current liabilities		110,120		116,850
Total current liabilities		696,938		535,362
Long-term debt, net		463,504		998,902
Deferred income taxes		3,334		1,332
Other long-term liabilities		126,397		141,155
Total liabilities		1,290,173		1,676,751
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value—10,000,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value—100,000,000 shares authorized; issued and outstanding, 16,794,399 shares at June 30, 2025 and 16,451,106 shares at December 31, 2025		29,758		2,507
Retained earnings		942,254		861,971
Accumulated other comprehensive loss		(20,928)		(18,988)
Total stockholders’ equity		951,084		845,490
Total liabilities and stockholders’ equity	$	2,241,257	$	2,522,241

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)


		Three Months Ended December 31,					Six Months Ended December 31,
		2024		2025			2024			2025
Net revenues:
Products		$	333,671	$	350,762		$	589,479		$	626,572
Services			86,149		113,295			174,348			222,108
Total net revenues			419,820		464,057			763,827			848,680
Cost of goods sold:
Products			224,087		249,011			394,509			451,067
Services			48,582		63,417			100,665			122,799
Total cost of goods sold			272,669		312,428			495,174			573,866
Gross profit			147,151		151,629			268,653			274,814
Operating expenses:
Selling, general and administrative			70,722		70,201			142,945			137,156
Research and development			18,257		19,759			36,030			40,186
Impairment, restructuring and other charges			215		2,874			1,393			5,604
Total operating expenses			89,194		92,834			180,368			182,946
Income from operations			57,957		58,795			88,285			91,868
Interest and other expense, net			(8,619)		(10,713)			(15,978)			(18,111)
Income before income taxes			49,338		48,082			72,307			73,757
Provision for income taxes			(11,519)		(9,383)			(16,552)			(14,502)
Net income		$	37,819	$	38,699		$	55,755		$	59,255
Earnings per share:
Basic		$	2.26	$	2.31		$	3.33		$	3.52
Diluted		$	2.22	$	2.22		$	3.27		$	3.39
Shares used in per share calculation:
Basic			16,724		16,740			16,733			16,818
Diluted			17,040		17,469			17,048			17,472

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)


		Three Months Ended December 31,				Six Months Ended December 31,
		2024		2025		2024		2025
Net income		$	37,819	$	38,699	$	55,755	$	59,255
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax			(9,463)		2,383		(8,282)		2,222
Net unrealized gain (loss) on derivatives, net of tax			1,683		(215)		(1,537)		(454)
Other, net of tax			380		86		380		172
Other comprehensive income (loss)			(7,400)		2,254		(9,439)		1,940
Comprehensive income		$	30,419	$	40,953	$	46,316	$	61,195

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)


	Three Months Ended December 31, 2024
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—September 30, 2024	16,710,749	$	17	$	810,553	$	(24,075)	$	786,495
Exercise of stock options	18,253		1,732		—		—		1,732
Vesting of RSUs	24,988		—		—		—		—
Stock-based compensation expense	—		8,509		—		—		8,509
Taxes paid related to net share settlement of equity awards	(8,185)		(1,325)		—		—		(1,325)
Net income	—		—		37,819		—		37,819
Other comprehensive loss	—		—		—		(7,400)		(7,400)
Balance—December 31, 2024	16,745,805	$	8,933	$	848,372	$	(31,475)	$	825,830


	Three Months Ended December 31, 2025
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—September 30, 2025	16,977,595	$	4,390	$	962,810	$	(21,242)	$	945,958
Exercise of stock options	3,710		393		—		—		393
Vesting of RSUs	24,277		—		—		—		—
Stock-based compensation expense	—		7,050		—		—		7,050
Repurchase of common stock	(546,945)		(7,492)		(139,538)		—		(147,030)
Taxes paid related to net share settlement of equity awards	(6,881)		(1,834)		—		—		(1,834)
Net income	—		—		38,699		—		38,699
Other comprehensive income	—		—		—		2,254		2,254
Balance—December 31, 2025	16,451,756	$	2,507	$	861,971	$	(18,988)	$	845,490

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands, except share data)


	Six Months Ended December 31, 2024
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2024	17,055,497	$	24,289	$	861,230	$	(22,036)	$	863,483
Exercise of stock options	19,210		1,802		—		—		1,802
Vesting of RSUs	322,406		—		—		—		—
Shares issued under employee stock purchase plan	31,143		2,329		—		—		2,329
Stock-based compensation expense	—		14,931		—		—		14,931
Repurchase of common stock	(531,314)		(28,919)		(51,524)		—		(80,443)
Taxes paid related to net share settlement of equity awards	(151,137)		(5,499)		(17,089)		—		(22,588)
Net income	—		—		55,755		—		55,755
Other comprehensive loss	—		—		—		(9,439)		(9,439)
Balance—December 31, 2024	16,745,805	$	8,933	$	848,372	$	(31,475)	$	825,830


	Six Months Ended December 31, 2025
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2025	16,794,399	$	29,758	$	942,254	$	(20,928)	$	951,084
Exercise of stock options	5,925		610		—		—		610
Vesting of RSUs	337,857		—		—		—		—
Shares issued under employee stock purchase plan	20,219		2,634		—		—		2,634
Stock-based compensation expense	—		13,250		—		—		13,250
Repurchase of common stock	(546,945)		(7,492)		(139,538)		—		(147,030)
Taxes paid related to net share settlement of equity awards	(159,699)		(36,253)		—		—		(36,253)
Net income	—		—		59,255		—		59,255
Other comprehensive income	—		—		—		1,940		1,940
Balance—December 31, 2025	16,451,756	$	2,507	$	861,971	$	(18,988)	$	845,490

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Six Months Ended December 31,
	2024		2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	55,755	$	59,255
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions:
Depreciation and amortization		22,097		19,866
Stock-based compensation expense		14,931		13,250
Provision for (recovery of) losses on accounts receivable		(395)		1,204
Deferred income taxes		(372)		18
Amortization of debt discount and issuance costs		800		1,163
Other		119		765
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		(64,244)		20,366
Inventories		(44,173)		(46,095)
Prepaid expenses and other assets		(24,652)		869
Accounts payable		(12,261)		7,686
Accrued payroll and related expenses		(9,230)		(2,382)
Advances from customers		23,393		(4,676)
Deferred revenue		17,400		15,563
Other		36,220		(7,515)
Net cash provided by operating activities		15,388		79,337
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(13,195)		(13,713)
Proceeds from sale of property and equipment		114		1,652
Proceeds from maturities of certificates of deposit		110		—
Acquisition of business, net of cash acquired		(75,500)		(92)
Payments for intangible and other assets		(9,088)		(9,281)
Net cash used in investing activities		(97,559)		(21,434)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on bank lines of credit		(148,000)		(178,000)
Proceeds from long-term debt		340,543		662,957
Payments on long-term debt		(4,130)		(131,800)
Proceeds from exercise of stock options and employee stock purchase plan		4,131		3,244
Payment of contingent consideration		(331)		(486)
Repurchase of common stock		(80,443)		(147,030)
Taxes paid related to net share settlement of equity awards		(22,588)		(36,253)
Net cash provided by financing activities		89,182		172,632
Effect of exchange rate changes on cash		(731)		(218)
Net increase in cash and cash equivalents		6,280		230,317
Cash and cash equivalents—beginning of period		95,353		106,405
Cash and cash equivalents—end of period	$	101,633	$	336,722
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	11,621	$	12,649
Income taxes	$	18,106	$	32,385

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the SEC. The results of operations for the three and six months ended December 31, 2025 are not necessarily indicative of the operating results to be expected for the full 2026 fiscal year or any future periods.

Use of Estimates

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

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 2.25% convertible senior notes due 2029 (the “2029 Notes”) and the 0.50% convertible senior notes due 2031 (the “2031 Notes”) discussed in Note 8 to the condensed consolidated financial statements will have a net impact on diluted earnings per share when the average price of our common stock exceeds the conversion price of $191.98 for the 2029 Notes and $353.82 for the 2031 Notes because the principal amounts of the respective convertible senior notes will be settled in cash upon conversion. There was a dilutive effect of the 2029 Notes as set forth in the table below for the three and six months ended December 31, 2025. There was no dilutive impact of the 2031 Notes.

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


		Three Months Ended December 31,					Six Months Ended December 31,
		2024			2025		2024		2025
Net income available to common stockholders		$	37,819		$	38,699	$	55,755	$	59,255
Weighted average shares outstanding—basic			16,724			16,740		16,733		16,818
Dilutive effect of equity awards			316			246		315		267
Dilutive effect of 2029 Notes			—			483		—		387
Weighted average shares outstanding—diluted			17,040			17,469		17,048		17,472
Basic earnings per share		$	2.26		$	2.31	$	3.33	$	3.52
Diluted earnings per share		$	2.22		$	2.22	$	3.27	$	3.39
Shares excluded from diluted earnings per share due to their anti-dilutive effect			9			7		5		3

Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less as of the acquisition date to be cash equivalents.

Our cash and cash equivalents totaled $336.7 million at December 31, 2025. Of this amount, approximately 32% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in the United Kingdom, India, Singapore, Canada, and Mexico and to a lesser extent Malaysia, Albania, and Germany, among other countries. We have cash holdings in financial institutions that exceed insured limits for such financial institutions; however, we mitigate this risk by utilizing international financial institutions which we believe to be of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments, an interest rate swap contract and foreign currency forward contracts. The carrying values of financial instruments, other than long-term debt instruments and our interest rate swap contract, are representative of their fair values due to their short-term maturities. The carrying values of our long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates for financing available to us. The fair values of our foreign currency forward contracts were not significant as of June 30, 2025 or as of December 31, 2025.

Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The “Level 1” category includes assets and liabilities at quoted prices in active markets for identical assets and liabilities. The “Level 2” category includes assets and liabilities from observable inputs other than quoted market prices. The “Level 3” category includes assets and liabilities for which valuation techniques are unobservable and significant to the fair value measurement. Our contingent payment obligations related to acquisitions, which are further discussed in Note 10 to the condensed consolidated financial statements, are in the “Level 3” category for valuation purposes.

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


		June 30, 2025									December 31, 2025
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets—Insurance company contracts		$	—	$	54,437	$	—	$	54,437		$	—	$	60,517	$	—	$	60,517
Assets – Interest rate swap contract		$	—	$	932	$	—	$	932		$	—	$	292	$	—	$	292
Liabilities—Convertible notes		$	—	$	472,770	$	—	$	472,770		$	—	$	1,104,564	$	—	$	1,104,564
Liabilities—Contingent consideration		$	—	$	—	$	19,086	$	19,086		$	—	$	—	$	13,363	$	13,363

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Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts and an interest rate swap agreement. Our foreign currency forward contracts are utilized to partially mitigate certain balance sheet exposures or used as a net investment hedge to protect against potential changes resulting from short-term foreign currency fluctuations. These foreign currency forward contracts have original maturities of up to three months. We also manage our risk to changes in interest rates using derivative instruments. We use fixed interest rate swaps to effectively convert a portion of the variable interest rate payments to fixed interest rate payments. We do not use hedging instruments for speculative purposes.

The net gains or losses from our foreign currency forward contracts, which are not designated as hedge instruments, are reported in the consolidated statements of operations, and the amounts reported for the three and six months ended December 31, 2024 and 2025 were not significant. The fair value of our foreign currency forward contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of June 30, 2025 and December 31, 2025, we held foreign currency forward contracts with notional amounts totaling $99.9 million and $160.1 million, respectively. Unrealized gains and losses from our foreign currency forward contracts as of June 30, 2025 and December 31, 2025 were not significant.

Our interest rate swap agreement was entered into to improve the predictability of cash flows from interest payments related to our variable, Secured Overnight Financing Rate (“SOFR”)-based debt. The interest rate swap matures in December 2026. The interest rate swap is considered an effective cash flow hedge, and as a result, the net gains or losses on such instrument are reported as a component of other comprehensive income (loss) in our consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings. A qualitative and quantitative assessment of the interest rate swap hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

As of June 30, 2025 and December 31, 2025, the notional amount of the derivative instruments designated as an interest rate swap hedge was $175 million. The fair value of the interest rate swap agreement as of June 30, 2025 and December 31, 2025 is recorded in Other assets within the consolidated balance sheet.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:


		Three Months Ended December 31,						Six Months Ended December 31,
		2024			2025			2024			2025
Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded		$	(8,619)		$	(10,713)		$	(15,978)		$	(18,111)
Gain (loss) recognized in other comprehensive income (loss), net of tax		$	1,683		$	(215)		$	(1,537)		$	(454)
Benefit reclassified from accumulated other comprehensive income (loss) to interest expense, net		$	635		$	322		$	1,535		$	786

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption. There were no new pronouncements adopted in the second quarter of fiscal year 2026.

Accounting Guidance Not Yet Adopted

In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid to or received from federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. We are evaluating the potential impact of ASU 2023-09 on disclosures in our Consolidated Financial Statements which is effective beginning with our Form 10-K for fiscal year 2026.

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In November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The standard will be effective for us beginning with our Form 10-K for fiscal year 2028 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures.

In September 2025, the FASB issued Accounting Standards Update 2025-06 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”) which modernizes the accounting for internal-use software to current development practices, clarifies when to begin capitalizing costs and enhances disclosure requirements. This update is effective for interim and annual periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of this standard on our accounting for internal-use software and related disclosure requirements.

2. Business Combinations

Under Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition method of accounting requires us to record assets acquired less liabilities assumed from an acquisition at their estimated fair values at the date of acquisition. Any excess of the total estimated purchase price over the estimated fair value of the net assets acquired should be recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, trade names, useful lives and discount rates. Management’s estimates of fair value are based on assumptions which are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period for fair value, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available, we may record adjustments to the preliminary assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are included in earnings.

Fiscal Year 2025 Business Acquisitions

In September 2024, we (through our Security division) acquired 100% of the shares of common stock of a privately held provider of critical military, space and surveillance solutions to expand our customer base and offer additional products and services for existing customers, for approximately $76.0 million, plus up to $24.0 million in potential contingent consideration. We paid $75.5 million in cash at the closing of the transaction and recorded a holdback liability of $0.5 million which is scheduled to be paid in 2030. The cash paid for this acquisition was financed with borrowings from our credit facility. The acquisition date fair value of the contingent consideration was $9.7 million, which, when combined with the amount of cash paid at close and the holdback amount, resulted in total purchase consideration of $85.7 million being allocated to the preliminary fair value of assets acquired and liabilities assumed. The acquisition date fair value of total assets acquired, including measurement period adjustments, was $113.9 million which comprised accounts receivable of $26.1 million, inventory and other current assets of $2.7 million, property and equipment of $7.0 million, goodwill of $30.7 million, other intangible assets of $47.3 million and other noncurrent assets of $0.1 million. Goodwill includes the value of the assembled workforce, new customers and other future economic benefits which do not qualify for separate recognition. The goodwill recognized for this business acquisition is not deductible for income tax purposes. Other intangible assets include amortizable intangible assets of $36.7 million with amortization periods of 7 to 10 years and an indefinite-lived intangible asset of $8.1 million. The acquisition date fair value of total liabilities assumed, including measurement period adjustments, was $28.2 million, which includes a deferred tax liability of $7.3 million that was recognized primarily due to the acquisition of other intangible assets. During the three months ended September 30, 2025, we recorded measurement period adjustments which decreased goodwill by $1.4 million due to a decrease in deferred income taxes of $1.8 million and an increase in intangible assets of $0.1 million, which were partially offset by a decrease in accounts receivable of $0.5 million. The measurement period adjustments did not have a significant impact on the consolidated statement of operations. The measurement period ended in September 2025, accordingly no further purchase price adjustments have been recorded during the three months ended December 31, 2025.

In April 2025, we (through our Security Division) acquired a privately held provider of engineering and structural component services for approximately $1.3 million, plus up to $0.9 million in potential contingent consideration. The acquisition was financed with cash on hand. The goodwill recognized for this business acquisition is not deductible for income tax purposes.

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3. Balance Sheet Details

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


	June 30,		December 31,
Accounts receivable, net	2025		2025
Accounts receivable	$	855,494	$	851,949
Less allowance for doubtful accounts		(17,751)		(18,797)
Total	$	837,743	$	833,152


	June 30,		December 31,
Inventories	2025		2025
Raw materials	$	245,993	$	267,849
Work-in-process		72,124		83,630
Finished goods		89,057		101,134
Total	$	407,174	$	452,613


		June 30,		December 31,
Property and equipment, net		2025		2025
Land		$	16,087	$	16,075
Buildings, civil works and improvements			55,559		56,543
Leasehold improvements			14,636		14,797
Equipment, tooling, furniture and fixtures			158,411		157,587
Computer equipment			24,092		26,090
Computer software			30,954		31,597
Computer software implementation in process			4,472		4,664
Construction in process			7,370		9,682
Total			311,581		317,035
Less accumulated depreciation and amortization			(184,834)		(188,533)
Property and equipment, net		$	126,747	$	128,502

Depreciation and amortization expense for property and equipment was $5.0 million and $5.2 million for the three months ended December 31, 2024 and 2025, respectively, and $11.7 million and $10.6 million for the six months ended December 31, 2024 and 2025, respectively.

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the six-month period ended December 31, 2025 were as follows (in thousands):


					Optoelectronics
					And
		Security			Manufacturing			Healthcare
		Division			Division			Division			Consolidated
Balance as of June 30, 2025		$	266,365		$	72,323		$	48,705		$	387,393
Goodwill adjustments during the period (see Note 2)			(1,306)			—			—			(1,306)
Foreign currency translation adjustment			40			(328)			(52)			(340)
Balance as of December 31, 2025		$	265,099		$	71,995		$	48,653		$	385,747

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Intangible assets consisted of the following (in thousands):


	June 30, 2025						December 31, 2025
	Gross						Gross
	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	$	91,386	$	(8,941)	$	82,445	$	99,947	$	(10,115)	$	89,832
Patents		9,617		(4,353)		5,264		9,675		(4,435)		5,240
Developed technology		99,937		(55,865)		44,072		100,049		(61,345)		38,704
Customer relationships		20,991		(9,380)		11,611		18,410		(8,794)		9,616
Total amortizable assets		221,931		(78,539)		143,392		228,081		(84,689)		143,392
Non-amortizable assets:
Trademarks		39,898		—		39,898		40,002		—		40,002
Total intangible assets	$	261,829	$	(78,539)	$	183,290	$	268,083	$	(84,689)	$	183,394

Amortization expense related to intangible assets was $5.6 million and $4.4 million for the three months ended December 31, 2024 and 2025, respectively. Amortization expense related to intangible assets was $10.4 million and $9.2 million for the six month ended December 31, 2024 and 2025, respectively.

At December 31, 2025, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):

Fiscal Year


2026 (remaining 6 months)	$	9,525
2027		15,343
2028		12,110
2029		9,683
2030		9,018
Thereafter		87,713
Total	$	143,392

Software development costs for software products incurred before establishing technological feasibility are charged to operations. Software development costs incurred after establishing technological feasibility are capitalized on a product-by-product basis until the product is available for general release to customers at which time amortization begins. Annual amortization, charged to cost of goods sold, is the amount computed using the ratio that current revenues for a product bear to the total current and anticipated future revenues for that product. In the event that future revenues are not estimable, such costs are amortized on a straight-line basis over the remaining estimated economic life of the product. Amortizable assets that have not yet begun to be amortized are included in Thereafter in the table above. For the three months ended December 31, 2024 and 2025, we capitalized software development costs of $4.6 million in each of the respective periods. For the six months ended December 31, 2024 and 2025, we capitalized software development costs in the amounts of $8.8 million and $8.9 million, respectively.

5. Contract Assets and Liabilities

We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheets. We may also receive consideration, per the terms of a contract, from customers prior to transferring control of goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability in either Other accrued expenses and current liabilities or Other long-term liabilities. We recognize these contract liabilities as sales after all revenue recognition criteria are met.

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The table below shows the balance of contract assets and liabilities as of June 30, 2025 and December 31, 2025, including the change between such dates. There were no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands)

 

June 30,

 

December 31,

 

2025

 

2025

 

Change

 

% Change

Unbilled revenue (included in accounts receivable, net)

242,742

194,730

(48,012)

(20)

Contract Liabilities (in thousands)


		June 30,			December 31,
		2025			2025			Change			% Change
Advances from customers		$	68,184		$	63,518		$	(4,666)		(7)	%
Deferred revenue—current			77,788			93,207			15,419		20	%
Deferred revenue—long-term			18,856			21,216			2,360		13	%

Contract Assets. Contract assets decreased $48.0 million primarily due to achievement of certain contractual milestones in our Security division giving us the right to invoice customers.

Contract Liabilities. Advances from customers decreased $4.7 million primarily due to application of certain amounts to customer invoices during the period. Total deferred revenue increased $17.8 million primarily due to service contracts which allow us to collect payment prior to performance of these obligations.

Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the portion of the transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period. As of December 31, 2025, the portion of the transaction price allocated to remaining performance obligations was approximately $625.3 million. We expect to recognize revenue on approximately 47% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter. During the six months ended December 31, 2025, we recognized revenue of $56.9 million from contract liabilities existing at the beginning of the period.

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

6. Leases

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


		Three Months Ended December 31,						Six Months Ended December 31,
		2024			2025			2024			2025
Operating lease cost		$	2,805		$	3,746		$	5,618		$	7,203
Variable lease cost			285			248			479			534
Short-term lease cost			434			272			931			541
		$	3,524		$	4,266		$	7,028		$	8,278

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


		Balance Sheet Category		June 30, 2025			December 31, 2025
Operating lease right of use (“ROU”) assets, net		Other assets		$	32,040		$	42,054

Operating lease liabilities, current portion		Other accrued expenses and current liabilities		$	11,712		$	12,775
Operating lease liabilities, long-term		Other long-term liabilities			20,977			30,493
Total operating lease liabilities				$	32,689		$	43,268

Weighted average remaining lease term								5.5 years
Weighted average discount rate								5.7	%

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


		Six Months Ended December 31,
		2024			2025
Cash paid for operating lease liabilities		$	6,059		$	6,955
ROU assets obtained in exchange for new lease obligations			2,887			15,616

Maturities of operating lease liabilities at December 31, 2025 were as follows (in thousands):


		December 31, 2025
Less than one year		$	14,720
1 – 2 years			10,889
2 – 3 years			5,660
3 – 4 years			4,420
4 – 5 years			2,760
Thereafter			12,200
			50,649
Less: imputed interest			(7,381)
Total lease liabilities		$	43,268

7. Impairment, Restructuring and Other Charges

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

During the three months ended December 31, 2025, we recognized $2.9 million in impairment, restructuring and other charges, which included $1.0 million for impairment of assets, $0.7 million for employee terminations and $1.2 million for non-recurring business unit modifications in our Healthcare division. During the six months ended December 31, 2025, we recognized $5.6 million in impairment, restructuring and other charges, which included $1.0 million for impairment of assets, $1.1 million for employee terminations, $1.3 million for non-recurring business unit modifications in our Healthcare division, and $2.2 million of non-recurring charges in our Security division.

During the three months ended December 31, 2024, we recognized $0.2 million in impairment, restructuring and other charges primarily for acquisition-related costs. During the six months ended December 31, 2024, we recognized $1.4 million in impairment, restructuring and other charges, which included $0.6 million in acquisition related costs, $0.2 million for facility closure costs for operational efficiency activities, and $0.6 million for employee terminations.

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


	Three Months Ended December 31, 2024
			Optoelectronics and
			Manufacturing		Healthcare
	Security Division		Division		Division		Corporate		Total
Acquisition-related costs	$	19	$	—	$	—	$	215	$	234
Employee termination costs		(19)		14		—		—		(5)
Other		—		(14)		—		—		(14)
Total	$	—	$	—	$	—	$	215	$	215


		Three Months Ended December 31, 2025
					Optoelectronics and
					Manufacturing			Healthcare
		Security Division			Division			Division			Corporate			Total
Acquisition-related costs		$	6		$	—		$	—		$	—		$	6
Employee termination costs			335			234			183			—			752
Impairment of assets			956			—			—			—			956
Other			—			—			1,174			(14)			1,160
Total		$	1,297		$	234		$	1,357		$	(14)		$	2,874


		Six Months Ended December 31, 2024
					Optoelectronics and
					Manufacturing			Healthcare
		Security Division			Division			Division			Corporate			Total
Acquisition-related costs		$	369		$	—		$	—		$	215		$	584
Employee termination costs			104			319			152			—			575
Facility closures/consolidation			6			242			—			—			248
Other			—			(14)			—			—			(14)
Total		$	479		$	547		$	152		$	215		$	1,393


		Six Months Ended December 31, 2025
					Optoelectronics and
					Manufacturing			Healthcare
		Security Division			Division			Division			Corporate			Total
Acquisition-related costs		$	27		$	—		$	—		$	—		$	27
Employee termination costs			498			261			293			—			1,052
Impairment of assets			956			—			—			—			956
Other			2,173			—			1,396			—			3,569
Total		$	3,654		$	261		$	1,689		$	—		$	5,604

The accrued liability for impairment, restructuring and other charges is included in Other accrued expenses and current liabilities in our condensed consolidated balance sheets. The changes in the accrued liability for impairment, restructuring and other charges for the six-month period ended December 31, 2025 were as follows (in thousands):


								Facility
		Acquisition-			Employee			Closure/			Legal
		Related			Termination			Consolidation			and Other
		Costs			Costs			Cost			Cost			Total
Balance as of June 30, 2025		$	—		$	445		$	623		$	1,717		$	2,785
Restructuring and other charges, net			27			1,052			—			3,569			4,648
Payments and adjustments, net			(27)			(1,399)			(599)			(2,046)			(4,071)
Balance as of December 31, 2025		$	—		$	98		$	24		$	3,240		$	3,362

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8. Borrowings

Revolving Credit Facility

In July 2025 we amended and extended our revolving credit facility, now maturing in July 2030, to increase the limit from $600 million to $725 million and replaced the $128.1 million term loan with a $100.0 million term loan which were accounted for as a debt modification. The sub-limit for letters of credit was increased from $300 million to $350 million, which includes up to $300 million for borrowings in certain foreign currencies. Under certain circumstances and subject to certain conditions, we have the ability to increase the revolving credit facility by an amount equal to the greater of $300 million or such amount as would not cause our secured leverage ratio to exceed a specified level. Other enhancements include the permitted securitization of certain qualifying assets of up to $100 million.

Borrowings under the facility bore interest at SOFR plus a margin of 1.25% as of December 31, 2025 (which margin can range from 1.0% to 1.75% based on our consolidated net leverage ratio as defined in the credit facility). Letters of credit reduce the amount available to borrow under the credit facility by their face value amount. The unused portion of the facility bore a commitment fee of 0.15% as of December 31, 2025 (which fee can range from 0.10% to 0.25% based on our consolidated net leverage ratio as defined in the credit facility). Our borrowings under the credit agreement are guaranteed by certain of our U.S.-based subsidiaries and are secured by substantially all of our assets and substantially all the assets of certain of our subsidiaries. The credit facility contains various representations and warranties, affirmative, negative and financial covenants and events of default. As of December 31, 2025, there were no borrowings outstanding under the revolving credit facility, $113.6 million outstanding under the letters of credit sub-facility, and $97.5 million outstanding under the term loan. As of December 31, 2025, the amount available to borrow under the revolving credit facility was $611.4 million. Loan amounts under the revolving credit facility may be borrowed, repaid and re-borrowed during the term. The principal amount of each loan is due and payable in full on the maturity date. We have the right to repay each loan in whole or in part from time to time without penalty. It is our practice to routinely borrow and repay several times per year under the revolving facility and therefore, borrowings under the revolving credit facility are included in current liabilities. As of December 31, 2025, we were in compliance with all financial covenants under this credit facility. In September 2022, we entered into an interest rate swap agreement in order to mitigate the interest rate risk on a portion of the interest payments expected to be made on the borrowings outstanding under the revolving credit facility and term loan. Refer to Note 1 for further information relating to the interest rate swap agreement.

2.25% Convertible Senior Notes Due 2029

In July 2024, we issued an aggregate of $350.0 million principal amount of 2.25% convertible senior notes due in August 2029 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), at an issuance price equal to 97.5% of the principal amount. The 2029 Notes were issued pursuant to and are governed by an indenture dated July 19, 2024. The proceeds from the issuance of the 2029 Notes were $340.4 million, net of the issuance discount and debt issuance costs.

The 2029 Notes are unsecured obligations which bear regular interest at 2.25% per annum payable semiannually in arrears on February 1 and August 1 of each year. The 2029 Notes will mature on August 1, 2029, unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2029 Notes are convertible into a combination of cash and shares of our common stock, at an initial conversion rate of 5.2090 shares of common stock per $1,000 principal amount of 2029 Notes, which is equivalent to an initial conversion price of approximately $191.98 per share of our common stock. The default settlement method is a combination settlement with a specified dollar amount of $1,000 per $1,000 principal amount of notes. The conversion rate is subject to customary adjustments for certain dilutive events. We may redeem for cash all or any portion of the 2029 Notes, at our option, on or after August 6, 2027 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest up to the day before the redemption date. The holders of the 2029 Notes may require us to repurchase the 2029 Notes upon the occurrence of certain fundamental change transactions at a redemption price equal to 100% of the principal amount of the 2029 Notes redeemed, plus accrued and unpaid interest up to the day before the redemption date.

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Holders of the 2029 Notes may, at their option, convert all or a portion of their 2029 Notes prior to May 1, 2029, in multiples of $1,000 principal amounts, only (i) during any calendar quarter if our common stock price exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days at the end of the prior calendar quarter, (ii) during the five consecutive business days immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the 2029 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day, (iii) upon the occurrence of specified corporate events or certain distributions on our common stock; or (iv) if we call any or all of the 2029 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2029 Notes called for redemption.

On or after May 1, 2029, the 2029 Notes will be convertible by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2029 Notes who convert the 2029 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2029 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate.

We accounted for the issuance of the 2029 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. The following table is a summary of the 2029 Notes as of December 31, 2025 (in thousands):


		December 31,
		2025
Principal amount		$	350,000
Unamortized debt discount and issuance costs			(6,865)
Net carrying amount		$	343,135

Fair value (Level 2)		$	528,500

As of December 31, 2025, one of the conditions allowing holders of the 2029 Notes to convert had been met. The trading price of our common stock remained above 130% of the applicable $191.98 conversion price for at least 20 trading days during the 30 consecutive trading-day period ending on, and including, December 31, 2025 (the last trading day of the quarter ended December 31, 2025), resulting in the right of the holders of the 2029 Notes to convert their 2029 Notes beginning January 2, 2026 through March 31, 2026 (the last trading day of the quarter ending March 31, 2026). Should the holders of the 2029 Notes elect to convert some or all of the 2029 Notes, we intend to draw on our revolving credit facility to settle the obligation. We have sufficient availability on our revolving credit facility to fully refinance the principal amount of the 2029 Notes for more than one year, accordingly, the net carrying amount of the 2029 Notes continues to be classified as a noncurrent liability on the condensed consolidated balance sheets. To the extent that conversion of the 2029 Notes cannot be refinanced with the revolving credit facility in the future, the portion that cannot be refinanced will be classified as current and recorded in current portion of long-term debt on the condensed consolidated balance sheets. No sinking fund is provided for the 2029 Notes, which means that we are not required to redeem or retire them periodically. As of December 31, 2025 we were in compliance with applicable financial covenants under the indenture governing the 2029 Notes.

For each of the three months ended December 31, 2025 and 2024, total interest expense for the 2029 Notes was $2.4 million (comprised of $2.0 million of contractual interest expense and $0.4 million of amortization of debt discount and issuance costs). For the six months ended December 31, 2025, total interest expense for the 2029 Notes was $4.8 million (comprised of $3.9 million of contractual interest expense and $0.9 million of amortization of debt discount and issuance costs) compared with total interest expense for the 2029 Notes of $4.3 million (comprised of $3.5 million of contractual interest expense and $0.8 million of amortization of debt discount and issuance costs) for the six months ended December 31 2024. The unamortized debt issuance cost is amortized on the effective interest method over the life of the 2029 Notes.

0.50% Convertible Senior Notes Due 2031

In November 2025, we issued an aggregate of $575.0 million principal amount of 0.50% convertible senior notes due in February 2031 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act at an issuance price equal to 98% of the principal amount. The 2031 Notes were issued pursuant to and are governed by an indenture dated November 20, 2025. The proceeds from the issuance of the 2031 Notes were approximately $562.9 million, net of the issuance discount and debt issuance costs.

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The 2031 Notes are unsecured obligations which bear regular interest at 0.50% per annum payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2026. The 2031 Notes will mature on February 1, 2031, unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2031 Notes are convertible into a combination of cash and shares of our common stock, at an initial conversion rate of 2.8263 shares of common stock per $1,000 principal amount of 2031 Notes, which is equivalent to an initial conversion price of approximately $353.82 per share of our common stock. The default settlement method is a combination settlement with a specified dollar amount of $1,000 per $1,000 principal amount of notes. The conversion rate is subject to customary adjustments for certain dilutive events. We may redeem for cash all or any portion of the 2031 Notes, at our option, on or after February 6, 2029 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100% of the principal amount of the 2031 Notes to be redeemed, plus accrued and unpaid interest up to the day before the redemption date. The holders of the 2031 Notes may require us to repurchase the 2031 Notes upon the occurrence of certain fundamental change transactions at a redemption price equal to 100% of the principal amount of the 2031 Notes redeemed, plus accrued and unpaid interest up to the day before the redemption date.

Holders of the 2031 Notes may, at their option, convert all or a portion of their 2031 Notes prior to November 1, 2030, in multiples of $1,000 principal amounts, only (i) during any calendar quarter if our common stock price exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days at the end of the prior calendar quarter, (ii) during the five consecutive business days immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the 2031 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day, (iii) upon the occurrence of specified corporate events or certain distributions on our common stock; or (iv) if we call any or all of the 2031 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2031 Notes called for redemption.

On or after November 1, 2030, the 2031 Notes will be convertible by the holders thereof at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2031 Notes who convert the 2031 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2031 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate.

We accounted for the issuance of the 2031 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. The following table is a summary of the 2031 Notes as of December 31, 2025 (in thousands):


	December 31,
	2025
Principal amount	$	575,000
Unamortized debt discount and issuance costs		(11,841)
Net carrying amount	$	563,159

Fair value (Level 2)	$	576,064

The 2031 Notes were not eligible for conversion as of December 31, 2025. No sinking fund is provided for the 2031 Notes, which means that we are not required to redeem or retire them periodically. As of December 31, 2025 we were in compliance with applicable financial covenants under the indenture governing the 2031 Notes.

For the three and six months ended December 31, 2025, total interest expense for the 2031 Notes was $0.6 million (comprised of $0.3 million of contractual interest expense and $0.3 million of amortization of debt discount and issuance costs). The unamortized debt issuance cost is amortized on the effective interest method over the life of the 2031 Notes.

Other Borrowings

Several of our foreign subsidiaries maintain bank lines of credit, denominated in local currencies and U.S. dollars, primarily for the issuance of letters of credit. As of December 31, 2025, $62.8 million was outstanding under these letter-of-credit facilities. As of December 31, 2025, the total amount available under these credit facilities was $58.3 million.

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


		June 30,			December 31,
		2025			2025
Term loan		$	128,125		$	97,500
2029 Notes, net			342,231			343,135
2031 Notes, net			—			563,159
Other long-term debt			1,278			160
			471,634			1,003,954
Less current portion of long-term debt			(8,130)			(5,052)
Long-term portion of debt		$	463,504		$	998,902

Future principal payments of long-term debt by fiscal year as of December 31, 2025 are as follows (in thousands):


2026 (6 months remaining)	$	2,555
2027		5,061
2028		5,022
2029		5,017
2030 and thereafter		986,299
Total	$	1,003,954

9. Stockholders’ Equity

Stock-based Compensation

As of December 31, 2025, we maintained the Amended and Restated 2012 Incentive Award Plan (the “OSI Plan”) as a stock-based employee compensation plan.

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


		Three Months Ended December 31,						Six Months Ended December 31,
		2024			2025			2024			2025
Cost of goods sold		$	226		$	291		$	470		$	576
Selling, general and administrative			8,142			6,595			14,166			12,349
Research and development			141			164			295			325
Stock-based compensation expense		$	8,509		$	7,050		$	14,931		$	13,250

As of December 31, 2025, total unrecognized compensation cost related to share-based compensation grants under the OSI Plan were estimated at $1.3 million for stock options and $19.1 million for restricted stock units (“RSUs”). We expect to recognize these costs over a weighted average period of 2.3 years with respect to the stock options and 2.3 years with respect to the RSUs.

The following summarizes stock option activity during the six months ended December 31, 2025:


				Weighted
				Average			Weighted-Average		Aggregate
		Number of		Exercise			Remaining Contractual		Intrinsic Value
		Options		Price			Term		(in thousands)
Outstanding at June 30, 2025		60,253		$	121.41
Granted		8,379			266.17
Exercised		(5,925)			102.80
Expired or forfeited		(618)		$	152.22
Outstanding at December 31, 2025		62,089		$	142.41		7.6 years		$	7,087
Exercisable at December 31, 2025		36,226		$	109.21		6.6 years		$	5,283

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The following summarizes RSU award activity during the six months ended December 31, 2025:


				Weighted-
				Average
		Shares		Fair Value
Nonvested at June 30, 2025		355,396		$	116.34
Granted		226,363			226.20
Vested		(337,857)			162.27
Forfeited		(2,091)			116.37
Nonvested at December 31, 2025		241,811		$	155.00

As of December 31, 2025, there were approximately 1.6 million shares available for grant under the OSI Plan. Under the terms of the OSI Plan, RSUs granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted. RSUs forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited.

We granted 80,682 and 48,392 performance-based RSUs during the six months ended December 31, 2024 and 2025, respectively. These performance-based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from zero to 280% of the original number of shares or units awarded. Compensation cost associated with these performance-based RSUs are recognized based on the estimated number of shares that we ultimately expect will vest. If the estimated number of shares to vest is revised in the future, then stock-based compensation expense will be adjusted accordingly.

Stock Repurchase Program

In September 2022, our Board of Directors increased the stock repurchase authorization to a total of 2 million shares. This program does not expire unless our Board of Directors acts to terminate the program. The timing and actual numbers of shares to be purchased under this program will depend on a variety of factors, including stock price, general business and market conditions and other investment opportunities. Repurchases may be made from time to time under the program through open-market purchases or privately-negotiated transactions at our discretion. Upon repurchase, the shares are restored to the status of authorized but unissued shares, and we record them in our consolidated financial statements as a reduction in the number of shares of common stock issued and outstanding, with the excess purchase price over par value recorded as a reduction of additional paid-in capital. If additional paid-in capital were to be reduced to zero, we would record the remainder of the excess purchase price over par value as a reduction of retained earnings.

During the six months ended December 31, 2025, we repurchased 546,945 shares of common stock for an aggregate purchase price of $146.1 million in connection with the issuance of the 2031 Notes. As of December 31, 2025, there were 643,611 shares remaining available for repurchase under the authorized repurchase program.

Dividends

We have not paid any dividends since the consummation of our initial public offering in 1997 and we do not currently intend to pay any dividends in the foreseeable future. Our Board of Directors will determine the payment of future dividends, if any. Certain of our current bank credit facilities restrict the payment of dividends and future borrowings may contain similar restrictions.

10. Commitments and Contingencies

Acquisition-Related Contingent Obligations

Under the terms and conditions of the purchase agreements associated with certain acquisitions, we may be obligated to make additional payments based on the achievement of certain sales or profitability milestones through the acquired operations. For agreements that contain contingent consideration obligations, the remaining maximum amount of such potential future payments is $37.9 million as of December 31, 2025.

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Projections and estimated probabilities are used to estimate future contingent earnout payments, which are discounted back to present value to compute contingent earnout liabilities. The following table provides a roll-forward from June 30, 2025 to December 31, 2025 of the contingent consideration liability, which is included in other accrued expenses and current liabilities and other long-term liabilities in our consolidated balance sheets (in thousands):


Beginning fair value, June 30, 2025		$	19,086
Foreign currency translation adjustment			(34)
Changes in fair value for contingent earnout obligations			(5,203)
Payments on contingent earnout obligations			(486)
Ending fair value, December 31, 2025		$	13,363

Guarantees

We are periodically required to provide performance bonds to do business with certain customers. These arrangements are common in the industry and generally have terms ranging between one year and ten years. The bonds are provided by various bonding agencies. However, we are ultimately liable for claims that may occur against them. As of June 30, 2025 and December 31, 2025, we had a maximum financial exposure related to performance bonds of approximately $104 million and $107 million, respectively. As described in Note 8, we and several of our foreign subsidiaries have issued letters of credit under the revolving credit facility and international bank facilities. These letters of credit are issued to protect various customers, suppliers and government agencies under contractual arrangements and regulatory requirements. We have no history of significant claims and there are no pending matters that would require us to perform under any of these arrangements, and we believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the consolidated financial statements. Accordingly, no liability for any of these arrangements has been recorded as of June 30, 2025 and December 31, 2025.

Environmental Contingencies

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

We have not accrued for loss contingencies relating to environmental matters because we believe that, although unfavorable outcomes are possible, they are not considered by our management to be probable and reasonably estimable. If one or more of these environmental matters are resolved in a manner adverse to us, the impact on our business, financial condition, results of operations and cash flow could be material.

Indemnifications

In the normal course of business, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations, warranties or covenants, or intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our directors and certain of our officers. It is not possible to determine the maximum potential amount under these indemnification agreements due to, among other factors, the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. We have not recorded any liability for costs related to contingent indemnification obligations as of December 31, 2025.

Product Warranties

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

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


		Six Months Ended December 31,
		2024			2025
Balance at beginning of period		$	11,089		$	11,612
Additions			2,553			1,696
Reductions for warranty repair costs and adjustments			(2,199)			(2,968)
Balance at end of period		$	11,443		$	10,340

Legal Proceedings

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

11. Income Taxes

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

The effective tax rates for the three months ended December 31, 2024 and 2025 were 23.3% and 19.5%, respectively. During the three months ended December 31, 2024, we recognized a net discrete tax benefit of $0.3 million, related to equity-based compensation under ASU 2016-09. During the three months ended December 31, 2025 we recognized a net discrete tax benefit of $0.9 million related to equity-based compensation under ASU 2016-09 and a benefit of $1.0 million for changes in prior years estimates. The effective tax rates for the six months ended December 31, 2024 and 2025 were 22.9% and 19.7%, respectively. During the six months ended December 31, 2024, we recognized a net discrete tax benefit of $0.8 million, related to equity-based compensation under ASU 2016-09. During the six months ended December 31, 2025 we recognized a net discrete tax benefit of $1.7 million, related to equity-based compensation under ASU 2016-09 and a benefit of $1.0 million for changes in prior-year tax estimates.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. Key income-tax related provisions of the OBBBA relevant to our Company include the removal of mandatory capitalization of domestic research and development expenditures, permanent extension of bonus depreciation and revisions to international tax regimes. We are evaluating the financial impact of OBBBA, which is in effect for the current fiscal year ending June 30, 2026. The legislation will affect the timing and recognition of certain deductions, which, if implemented, could impact our effective tax rate and deferred tax balances in future periods.

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12. Segment Information

We operate in three identifiable industry segments: (a) security and inspection systems (Security division), (b) optoelectronic devices and manufacturing (Optoelectronics and Manufacturing division) and (c) medical monitoring systems (Healthcare division). We also have a corporate segment (Corporate) that includes executive compensation and certain other general and administrative expenses, expenses related to stock issuances and legal, audit and other professional service fees not allocated to industry segments. Both the Security and Healthcare divisions comprise primarily end-product businesses, whereas the Optoelectronics and Manufacturing division primarily supplies components and subsystems to external OEM customers, as well as to the Security and Healthcare divisions. Sales between divisions are at transfer prices that approximate market values. All other accounting policies of the segments are the same as described in Note 1, Basis of Presentation. We disclose segment income (loss) from operations as our measure of segment profit/loss, reconciled to consolidated income (loss) from operations. The measure of segment income (loss) from operations excludes impairment, restructuring and other charges presented below which are presented to reconcile to consolidated income from operations. Business segment disclosures consider information used by/provided to our chief operating decision maker (“CODM”). Our Chief Executive Officer serves as the CODM. The CODM uses segment income (loss) from operations, as well as the expenses within each segment including cost of sales, selling, general and administrative expenses and research and development expenses, to allocate resources to segments in the budgeting and forecasting process along with periodic ongoing reviews of results and overall activity in the markets where each segment operates.

The following tables present our results of operations and identifiable assets by our three industry segments, along with amounts for Corporate/Eliminations, which are reconciled to consolidated amounts (in thousands):


		Three Months Ended December 31, 2024
					Optoelectronics
					and
		Security			Manufacturing			Healthcare			Corporate/
		Division			Division			Division			Eliminations			Consolidated
Revenues (1):
External customer revenue		$	289,987		$	84,979		$	44,854		$	—		$	419,820
Revenue between segments			—			15,764			—			(15,764)			—
Total revenues			289,987			100,743			44,854			(15,764)			419,820
Cost of goods sold			184,853			79,256			23,895			(15,335)			272,669
Selling, general and administrative expenses			38,208			7,895			15,163			9,456			70,722
Research and development expenses			12,873			1,310			4,074			—			18,257
Segment income (loss) from operations			54,053			12,282			1,722			(9,885)			58,172
Impairment, restructuring and other charges			—			—			—			215			215
Income (loss) from operations		$	54,053		$	12,282		$	1,722		$	(10,100)		$	57,957
Capital expenditures		$	3,688		$	1,009		$	175		$	618		$	5,490
Depreciation and amortization		$	6,904		$	1,939		$	1,406		$	398		$	10,647

(1)	For the three months ended December 31, 2024, one customer in the Security division accounted for 10% of the Company’s consolidated net revenues.

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		Three Months Ended December 31, 2025
					Optoelectronics
					and
		Security			Manufacturing			Healthcare			Corporate/
		Division			Division			Division			Eliminations			Consolidated
Revenues (2):
External customer revenue		$	334,705		$	92,818		$	36,534		$	—		$	464,057
Revenue between segments			—			19,734			—			(19,734)			—
Total revenues			334,705			112,552			36,534			(19,734)			464,057
Cost of goods sold			226,159			88,354			17,738			(19,823)			312,428
Selling, general and administrative expenses			38,058			8,755			13,783			9,605			70,201
Research and development expenses			13,730			1,276			4,753			—			19,759
Segment income (loss) from operations			56,758			14,167			260			(9,516)			61,669
Impairment, restructuring and other charges			1,297			234			1,357			(14)			2,874
Income (loss) from operations		$	55,461		$	13,933		$	(1,097)		$	(9,502)		$	58,795
Capital expenditures		$	4,189		$	1,799		$	329		$	368		$	6,685
Depreciation and amortization		$	6,322		$	1,720		$	1,070		$	494		$	9,606

(2)	For the three months ended December 31, 2025, no customer accounted for 10% or more of the Company’s consolidated net revenues.

Six Months Ended December 31, 2024

Optoelectronics

OSI SYSTEMS INC 10-Q