SEC Filing | OSI Systems, Inc.

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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 September 30, 2020

◻

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 October 27, 2020, there were 17,920,788 shares of the registrant’s common stock outstanding.

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OSI SYSTEMS, INC.

INDEX


		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1 —	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2020 and September 30, 2020	3
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2019 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2019 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2019 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2019 and 2020	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4 —	Controls and Procedures	28

PART II — OTHER INFORMATION		29
Item 1 —	Legal Proceedings	29
Item 1A —	Risk Factors	29
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3 —	Defaults Upon Senior Securities	29
Item 4 —	Mine Safety Disclosures	29
Item 5 —	Other Information	29
Item 6 —	Exhibits	30
Signatures		31

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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,		September 30,
	2020		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	76,102	$	76,925
Accounts receivable, net		269,840		253,149
Inventories		241,226		255,434
Prepaid expenses and other current assets		30,541		29,285
Total current assets		617,709		614,793
Property and equipment, net		127,936		127,705
Goodwill		310,627		315,511
Intangible assets, net		128,279		134,781
Other assets		83,990		78,158
Total assets	$	1,268,541	$	1,270,948
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	59,000	$	51,000
Current portion of long-term debt		926		898
Accounts payable		84,940		92,605
Accrued payroll and related expenses		46,127		31,816
Advances from customers		28,155		41,117
Other accrued expenses and current liabilities		110,953		116,501
Total current liabilities		330,101		333,937
Long-term debt		267,072		269,356
Deferred income taxes		5,846		3,153
Other long-term liabilities		93,370		106,962
Total liabilities		696,389		713,408
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, 18,011,982 shares at June 30, 2020 and 17,912,541 shares at September 30, 2020		122,553		95,084
Retained earnings		474,793		484,137
Accumulated other comprehensive loss		(25,194)		(21,681)
Total stockholders’ equity		572,152		557,540
Total liabilities and stockholders’ equity	$	1,268,541	$	1,270,948

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 September 30,
	2019		2020
Net revenues:
Products	$	209,761	$	182,747
Services		81,091		72,161
Total net revenues		290,852		254,908
Cost of goods sold:
Products		146,342		124,841
Services		45,299		34,316
Total cost of goods sold		191,641		159,157
Gross profit		99,211		95,751
Operating expenses:
Selling, general and administrative		62,177		58,617
Research and development		14,246		12,082
Impairment, restructuring and other charges (benefit), net		(2,099)		8,359
Total operating expenses		74,324		79,058
Income from operations		24,887		16,693
Interest and other expense, net		(4,736)		(4,189)
Income before income taxes		20,151		12,504
(Provision) benefit for income taxes		592		(3,160)
Net income	$	20,743	$	9,344
Earnings per share:
Basic	$	1.14	$	0.52
Diluted	$	1.10	$	0.51
Shares used in per share calculation:
Basic		18,259		18,051
Diluted		18,903		18,335

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 September 30,
	2019		2020
Net income	$	20,743	$	9,344
Other comprehensive income (loss):
Foreign currency translation adjustment		(3,052)		3,454
Other		10		59
Other comprehensive income (loss)		(3,042)		3,513
Comprehensive income	$	17,701	$	12,857

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 September 30, 2019
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2019	18,167,020	$	168,913	$	399,541	$	(16,727)	$	551,727
Exercise of stock options	167,306		2,832		—		—		2,832
Vesting of RSUs	360,866		—		—		—		—
Shares issued under employee stock purchase program	34,837		2,065		—		—		2,065
Stock-based compensation expense	—		6,416		—		—		6,416
Repurchase of common stock	(126,051)		(13,262)		—		—		(13,262)
Taxes paid related to net share settlement of equity awards	(246,514)		(25,915)		—		—		(25,915)
Net income	—		—		20,743		—		20,743
Other comprehensive loss	—		—		—		(3,042)		(3,042)
Balance—September 30, 2019	18,357,464	$	141,049	$	420,284	$	(19,769)	$	541,564


	Three Months Ended September 30, 2020
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2020	18,011,982	$	122,553	$	474,793	$	(25,194)	$	572,152
Exercise of stock options	69,195		80		—		—		80
Vesting of RSUs	286,701		—		—		—		—
Shares issued under employee stock purchase program	32,641		2,022		—		—		2,022
Stock-based compensation expense	—		6,109		—		—		6,109
Repurchase of common stock	(320,136)		(24,816)		—		—		(24,816)
Taxes paid related to net share settlement of equity awards	(167,842)		(10,864)		—		—		(10,864)
Net income	—		—		9,344		—		9,344
Other comprehensive income	—		—		—		3,513		3,513
Balance—September 30, 2020	17,912,541	$	95,084	$	484,137	$	(21,681)	$	557,540

See accompanying notes to condensed consolidated financial statements.

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Three Months Ended September 30,
	2019		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	20,743	$	9,344
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions:
Depreciation and amortization		13,539		10,002
Stock-based compensation expense		6,416		6,109
Deferred income taxes		(3)		96
Amortization of debt discount and issuance costs		2,308		2,400
Impairment charges		—		552
Provision (benefit) for loss on accounts receivable		(221)		2,916
Other		160		16
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		(6,940)		14,356
Inventories		4,167		(14,278)
Prepaid expenses and other assets		(13,272)		3,377
Accounts payable		7,594		7,358
Accrued payroll and related expenses		(11,675)		(9,469)
Advances from customers		6,673		12,773
Deferred revenue		(4,459)		5,355
Other		(192)		2,925
Net cash provided by operating activities		24,838		53,832
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(6,026)		(3,780)
Purchases of certificates of deposit		—		(1,815)
Proceeds from maturities of certificates of deposit		—		700
Acquisition of business, net of cash acquired		—		(3,000)
Payments for intangible and other assets		(2,088)		(4,446)
Net cash used in investing activities		(8,114)		(12,341)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on bank lines of credit		7,000		(8,000)
Proceeds from long-term debt		198		156
Payments on long-term debt		(253)		(303)
Proceeds from exercise of stock options and employee stock purchase plan		4,897		2,102
Payments of contingent consideration		(144)		(121)
Repurchases of common stock		(13,262)		(24,816)
Taxes paid related to net share settlement of equity awards		(25,915)		(10,864)
Net cash used in financing activities		(27,479)		(41,846)
Effect of exchange rate changes on cash		(419)		1,178
Net change in cash and cash equivalents		(11,174)		823
Cash and cash equivalents—beginning of period		96,316		76,102
Cash and cash equivalents—end of period	$	85,142	$	76,925
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	2,986	$	3,015
Income taxes	$	4,098	$	1,735

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 condensed consolidated financial statements include the accounts of OSI Systems, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded in accordance with SEC rules and regulations and GAAP applicable to interim unaudited financial statements. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. These unaudited condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC. The results of operations for the three months ended September 30, 2020 are not necessarily indicative of the operating results to be expected for the full 2021 fiscal year or any future periods.

Use of Estimates

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

Earnings Per Share Computations

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. We compute diluted earnings per share by dividing net income available to common stockholders by the sum of the weighted average number of common shares and dilutive potential common shares outstanding during the period. Potential common shares consist of the shares issuable upon the exercise of stock options and restricted stock unit awards under the treasury stock method. The underlying equity component of the 1.25% convertible senior notes due 2022 (the “Notes”) discussed in Note 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 because the principal amount of the Notes is intended to be settled in cash upon conversion. The dilutive effect of the Notes is included in the calculation below for the three months ended September 30, 2019. There was no dilutive effect of the Notes for the three months ended September 30, 2020.

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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 September 30,
	2019		2020
Net income available to common stockholders	$	20,743	$	9,344

Weighted average shares outstanding—basic		18,259		18,051
Dilutive effect of equity awards		628		284
Dilutive effect of the Notes		16		—
Weighted average shares outstanding—diluted		18,903		18,335

Basic earnings per share	$	1.14	$	0.52
Diluted earnings per share	$	1.10	$	0.51
Shares excluded from diluted earnings per share due to their anti-dilutive effect		84		87

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 $76.9 million at September 30, 2020. Of this amount, approximately 76% 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, Malaysia, Canada, Singapore, India and Australia and to a lesser extent in Mexico, Germany and Albania among other countries. We have cash holdings in financial institutions that exceed insured limits for such institutions; however, we mitigate this risk by utilizing international financial institutions of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments and foreign currency forward contracts. The carrying values of financial instruments, other than long-term debt instruments, are representative of their fair values due to their short-term maturities. The carrying values of our long-term debt instruments are considered to approximate their fair values, as 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 September 30, 2020.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Level 1 category includes assets and liabilities measured at quoted prices in active markets for identical assets and liabilities. The Level 2 category includes assets and liabilities measured from observable inputs other than quoted market prices. The Level 3 category includes assets and liabilities for which valuation inputs are unobservable and significant to the fair value measurement. Our contingent payment obligations related to acquisitions, which are further discussed in Note 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, 2020								September 30, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets :
Insurance company contracts	$	—	$	37,155	$	—	$	37,155	$	—	$	39,724	$	—	$	39,724
Liabilities:
Contingent consideration	$	—	$	—	$	13,867	$	13,867	$	—	$	—	$	21,015	$	21,015

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Derivative Instruments and Hedging Activity

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

The net investment hedge has been designated as a hedge instrument and accounted for under ASC 815 “Derivatives and Hedging” (ASC 815). Hedge effectiveness is assessed using the spot method, consistent with guidance in ASC 815 whereby the change in fair value of the forward contract is recorded in the same manner as the related currency translation adjustments, within other comprehensive income, as the hedging instrument is expected to be fully effective unless the amount hedged exceeds the net investment in the foreign operation, or the foreign operation is liquidated. We initiated the net investment hedge during the three months ended September 30, 2020 and the amount recorded in other comprehensive income was not significant for such period.

The net gains or losses from the foreign currency forward contracts for balance sheet exposures, which are not designated as hedge instruments, are reported in the consolidated income statement immediately. We initiated these forward contracts during the three months ended September 30, 2020 and the amounts reported in the consolidated income statement were not significant for such period. The fair value of our forward foreign exchange contracts is estimated using a standard valuation model and market-based observable inputs over the contractual term. Unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. As of September 30, 2020 we held foreign currency forward contracts with notional amounts totalling $37.5 million. Unrealized gains and losses from the forward currency forward contracts as of September 30, 2020 were not significant. There were no derivative instruments as of June 30, 2020.

Recently Adopted Accounting Pronouncements

Retirement Benefit Plans

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

Intangibles

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

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

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

2. Business Combinations

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

Fiscal Year 2021 Business Acquisition

In July 2020 we (through our Healthcare division) acquired a privately-held software development company for $3.0 million, plus up to $12.0 million in potential contingent consideration. The goodwill recognized for this business is deductible for income tax purposes. This acquisition was financed with available cash on hand. This business acquisition was not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations and certain other disclosures related to this business have not been presented.

3. Balance Sheet Details

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


	June 30,		September 30,
Accounts receivable, net	2020		2020
Accounts receivable	$	287,488	$	273,515
Less allowance for doubtful accounts		(17,648)		(20,366)
Total	$	269,840	$	253,149


	June 30,		September 30,
Inventories	2020		2020
Raw materials	$	132,797	$	142,404
Work-in-process		50,023		58,363
Finished goods		58,406		54,667
Total	$	241,226	$	255,434

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	June 30,		September 30,
Property and equipment, net	2020		2020
Land	$	16,516	$	16,523
Buildings, civil works and improvements		57,709		57,796
Leasehold improvements		9,052		9,158
Equipment, furniture and fixtures		149,310		151,568
Computer software		18,217		21,932
Computer software implementation in process		11,817		10,131
Construction in process		3,598		3,909
Total		266,219		271,017
Less accumulated depreciation and amortization		(138,283)		(143,312)
Property and equipment, net	$	127,936	$	127,705

Depreciation and amortization expense for property and equipment was $5.1 million and $5.2 million for the three months ended September 30, 2019 and 2020, respectively.

4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2020 were as follows (in thousands):


					Optoelectronics
					and
	Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated
Balance as of June 30, 2020	$	203,627	$	39,983	$	67,017	$	310,627
Goodwill acquired or adjusted during the period		498		3,244		—		3,742
Foreign currency translation adjustment		149		113		880		1,142
Balance as of September 30, 2020	$	204,274	$	43,340	$	67,897	$	315,511

Intangible assets consisted of the following (in thousands):


		June 30, 2020						September 30, 2020
	Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8 years	$	41,332	$	(16,295)	$	25,037	$	44,436	$	(16,344)	$	28,092
Patents	19 years		9,962		(2,584)		7,378		10,214		(2,845)		7,369
Developed technology	10 years		55,719		(19,556)		36,163		60,945		(21,167)		39,778
Customer relationships/backlog	7 years		64,128		(32,110)		32,018		63,550		(33,172)		30,378
Total amortizable assets			171,141		(70,545)		100,596		179,145		(73,528)		105,617
Non-amortizable assets:
IPR&D			533		—		533		533		—		533
Trademarks			27,150		—		27,150		28,631		—		28,631
Total intangible assets		$	198,824	$	(70,545)	$	128,279	$	208,309	$	(73,528)	$	134,781

Amortization expense related to intangible assets was $4.9 million and $4.8 million for the three-month periods ended September 30, 2019 and 2020, respectively.

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At September 30, 2020, the estimated future amortization expense for intangible assets was as follows (in thousands):


2021 (remaining 9 months)	$	13,977
2022		17,804
2023		17,457
2024		16,774
2025		12,691
Thereafter		26,914
Total	$	105,617

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 September 30, 2019 and 2020, we capitalized software development costs in the amounts of $1.3 million and $4.1 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 606. When we recognize revenue in advance of the point in time at which contracts give us the right to invoice a customer, we record this as unbilled revenue, which is included in accounts receivable, net, on the consolidated balance sheet. We may also receive consideration, per the terms of a contract, from customers prior to transferring goods to the customer. We record customer deposits as contract liabilities. Additionally, we may receive payments, most typically under service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability. We recognize these contract liabilities as sales after all revenue recognition criteria are met.

Contract assets and liabilities were as follows (in thousands):


	June 30,		September 30,
Contract Assets:	2020		2020		Change		% Change
Unbilled revenue	$	43,011	$	53,463	$	10,452	24	%


Contract Liabilities:
Advances from customers	$	28,155	$	41,117	$	12,962	46	%
Deferred revenue—current		32,863		37,508		4,645	14	%
Deferred revenue—long-term		13,214		14,029		815	6	%

Contract assets increased during the three months ended September 30, 2020 primarily due to satisfaction of performance obligations for cargo and vehicle inspection systems in our Security division which have not yet been billed to customers. The increase in contract liabilities was primarily due to receipt of contract deposits and additional performance obligations in our Security division.

Remaining Performance Obligations. Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $297.6 million. We expect to recognize revenue on approximately 51% of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter. During the three months ended September 30, 2020, we recognized revenue of $19.1 million from contract liabilities existing at the beginning of the period.

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

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6. Leases

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


	Three Months Ended September 30,
	2019		2020
Operating lease cost	$	2,649	$	2,533
Variable lease cost		138		258
Short-term lease cost		209		212
	$	2,996	$	3,003

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


	Balance Sheet Category	June 30, 2020		September 30, 2020
Operating lease ROU assets, net	Other assets	$	27,936	$	25,417

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	8,537	$	8,006
Operating lease liabilities, long-term	Other long-term liabilities		19,713		18,235
Total operating lease liabilities		$	28,250	$	26,241

Weighted average remaining lease term					4.5 years
Weighted average discount rate					4.3 %

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


	Three Months Ended September 30,
	2019		2020
Cash paid for operating lease liabilities	$	2,572	$	2,580
ROU assets obtained in exchange for new lease obligations		1,313		122

Maturities of operating lease liabilities at September 30, 2020 were as follows (in thousands):


	September 30, 2020
Less than one year	$	8,919
1 – 2 years		6,220
2 – 3 years		4,377
3 – 4 years		3,764
4 – 5 years		2,399
Thereafter		3,407
		29,086
Less: imputed interest		(2,845)
Total lease liabilities	$	26,241

7. Impairment, Restructuring and Other Charges

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

During the quarter ended September 30, 2019, we recognized a net benefit of $2.1 million primarily related to reimbursements from our insurance carriers for covered legal charges, partially offset by additional legal fees related to class action litigation and government investigations.

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During the three months ended September 30, 2020, we commenced exit activities associated with an expired turnkey contract in Mexico whereby we incurred non-recurring charges totaling $6.9 million comprised of exit costs of $2.5 million for employee terminations, facility closure and other exit costs of $1.1 million, direct transaction costs of $2.7 million and impairment of a right-of-use asset of $0.6 million. We also conducted other operational efficiency activites which resulted in employee termination costs of $1.4 million and other costs of $0.1 million. The following tables summarize impairment, restructuring and other charges (benefit), net for the periods set forth below (in thousands):


	Three Months Ended September 30, 2019
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Employee termination costs (benefit)	$	—	$	—	$	(13)	$	71	$	58
Legal recoveries, net		—		—		—		(2,157)		(2,157)
	$	—	$	—	$	(13)	$	(2,086)	$	(2,099)


	Three Months Ended September 30, 2020
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Impairment charges	$	552	$	—	$	—	$	—	$	552
Employee termination costs		3,737		—		146		—