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, 2022

☐

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 24, 2022, there were 16,854,763 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, 2022 and September 30, 2022	3
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2021 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2021 and 2022	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2021 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2021 and 2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3 —	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4 —	Controls and Procedures	27

PART II — OTHER INFORMATION		28
Item 1 —	Legal Proceedings	28
Item 1A —	Risk Factors	28
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3 —	Defaults Upon Senior Securities	28
Item 4 —	Mine Safety Disclosures	28
Item 5 —	Other Information	28
Item 6 —	Exhibits	29
Signatures		30

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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, 2022		September 30, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	64,202	$	53,990
Accounts receivable, net		307,973		313,506
Inventories		333,907		361,949
Prepaid expenses and other current assets		40,062		41,599
Total current assets		746,144		771,044
Property and equipment, net		109,684		107,976
Goodwill		336,357		335,825
Intangible assets, net		138,370		138,202
Other assets		112,595		114,720
Total assets	$	1,443,150	$	1,467,767
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank lines of credit	$	60,000	$	215,000
Current portion of long-term debt		244,575		8,110
Accounts payable		125,204		144,420
Accrued payroll and related expenses		46,379		34,967
Advances from customers		19,917		29,973
Other accrued expenses and current liabilities		117,879		130,011
Total current liabilities		613,954		562,481
Long-term debt		48,668		143,150
Deferred income taxes		11,112		11,115
Other long-term liabilities		130,992		126,368
Total liabilities		804,726		843,114
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, 16,870,050 shares at June 30, 2022 and 16,854,153 shares at September 30, 2022		17		17
Retained earnings		663,869		656,017
Accumulated other comprehensive loss		(25,462)		(31,381)
Total stockholders’ equity		638,424		624,653
Total liabilities and stockholders’ equity	$	1,443,150	$	1,467,767

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,
	2021		2022
Net revenues:
Products	$	207,212	$	196,954
Services		72,045		71,117
Total net revenues		279,257		268,071
Cost of goods sold:
Products		142,906		143,369
Services		37,021		37,205
Total cost of goods sold		179,927		180,574
Gross profit		99,330		87,497
Operating expenses:
Selling, general and administrative		57,323		53,438
Research and development		14,817		14,540
Impairment, restructuring and other charges, net		2,510		1,219
Total operating expenses		74,650		69,197
Income from operations		24,680		18,300
Interest and other expense, net		(2,016)		(3,432)
Income before income taxes		22,664		14,868
Provision for income taxes		(3,612)		(3,633)
Net income	$	19,052	$	11,235
Earnings per share:
Basic	$	1.06	$	0.66
Diluted	$	1.04	$	0.65
Shares used in per share calculation:
Basic		17,947		16,924
Diluted		18,306		17,180

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,
	2021		2022
Net income	$	19,052	$	11,235
Other comprehensive loss:
Foreign currency translation adjustment, net of tax		(2,302)		(9,792)
Net unrealized gain on investments and derivatives, net of tax		—		3,540
Other, net of tax		133		333
Other comprehensive loss		(2,169)		(5,919)
Comprehensive income	$	16,883	$	5,316

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


	Three Months Ended September 30, 2022
						Accumulated
	Common Stock					Other
	Number of			Retained		Comprehensive
	Shares	Amount		Earnings		Loss		Total
Balance—June 30, 2022	16,870,050	$	17	$	663,869	$	(25,462)	$	638,424
Exercise of stock options	2,919		194		—		—		194
Vesting of RSUs	286,119		—		—		—		—
Shares issued under employee stock purchase program	28,603		1,969		—		—		1,969
Stock-based compensation expense	—		7,177		—		—		7,177
Repurchase of common stock	(208,427)		(208)		(17,079)		—		(17,287)
Taxes paid related to net share settlement of equity awards	(125,111)		(9,132)		(2,008)		—		(11,140)
Net income	—		—		11,235		—		11,235
Other comprehensive loss	—		—		—		(5,919)		(5,919)
Balance—September 30, 2022	16,854,153	$	17	$	656,017	$	(31,381)	$	624,653

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OSI SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)


	Three Months Ended September 30,
	2021		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	19,052	$	11,235
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects from acquisitions:
Depreciation and amortization		9,697		9,541
Stock-based compensation expense		7,113		7,177
Provision for (recovery of) losses on accounts receivable		(1,365)		(1,675)
Deferred income taxes		82		121
Amortization of debt discount and issuance costs		348		196
Other		68		7
Changes in operating assets and liabilities—net of business acquisitions:
Accounts receivable		(850)		(5,376)
Inventories		(27,764)		(29,966)
Prepaid expenses and other assets		(17,611)		(8,587)
Accounts payable		(408)		20,000
Accrued payroll and related expenses		(13,579)		(10,987)
Advances from customers		(3,813)		10,133
Deferred revenue		6,280		19,231
Other		11,731		(3,808)
Net cash provided by (used in) operating activities		(11,019)		17,242
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(3,474)		(3,281)
Proceeds from sale of property and equipment		—		92
Purchases of certificates of deposit		(106)		(73)
Acquisition of businesses, net of cash acquired		—		(1,871)
Payments for intangible and other assets		(4,254)		(3,944)
Net cash used in investing activities		(7,834)		(9,077)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on bank lines of credit		26,000		155,000
Proceeds from long-term debt		82		100,307
Payments on long-term debt		(286)		(242,479)
Proceeds from exercise of stock options and employee stock purchase plan		2,145		2,163
Payments of contingent consideration		(304)		(415)
Repurchases of common stock		(16,231)		(17,287)
Taxes paid related to net share settlement of equity awards		(18,611)		(11,140)
Net cash used in financing activities		(7,205)		(13,851)
Effect of exchange rate changes on cash		108		(4,526)
Net change in cash and cash equivalents		(25,950)		(10,212)
Cash and cash equivalents—beginning of period		80,613		64,202
Cash and cash equivalents—end of period	$	54,663	$	53,990
Supplemental disclosure of cash flow information:
Cash paid, net during the period for:
Interest	$	2,400	$	3,856
Income taxes	$	4,800	$	7,235

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, 2022 filed with the SEC. The results of operations for the three months ended September 30, 2022 are not necessarily indicative of the operating results to be expected for the full 2023 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, 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 following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended September 30,
	2021		2022
Net income available to common stockholders	$	19,052	$	11,235
Weighted average shares outstanding—basic		17,947		16,924
Dilutive effect of equity awards		359		256
Weighted average shares outstanding—diluted		18,306		17,180
Basic earnings per share	$	1.06	$	0.66
Diluted earnings per share	$	1.04	$	0.65
Shares excluded from diluted earnings per share due to their anti-dilutive effect		20		26

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.

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Our cash and cash equivalents totaled $54.0 million at September 30, 2022. Of this amount, approximately 86% 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, Singapore, Malaysia, Canada and India, and to a lesser extent in Australia, Albania, Indonesia and Mexico among other countries. We have cash holdings in financial institutions that exceed insured limits for such financial institutions; however, we mitigate this risk by utilizing international financial institutions of high credit quality.

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash and cash equivalents, insurance company contracts, accounts receivable, accounts payable, debt instruments, interest rate swap contract and foreign currency forward contracts. The carrying values of financial instruments, other than long term debt instruments and 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, 2022 and September 30, 2022.

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, 2022								September 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets—Insurance company contracts	$	—	$	40,284	$	—	$	40,284	$	—	$	41,419	$	—	$	41,419
Assets – Interest rate swap contract	$	—	$	—	$	—	$	—	$	—	$	3,540	$	—	$	3,540
Liabilities—Convertible debt	$	—	$	242,302	$	—	$	242,302	$	—	$	—	$	—	$	—
Liabilities—Contingent consideration	$	—	$	—	$	28,212	$	28,212	$	—	$	—	$	25,853	$	25,853

Derivative Instruments and Hedging Activity

Our use of derivatives consists of foreign currency forward contracts and an interest rate swap agreement. The 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 contracts have original maturities of up to three months. We also manage our risk to changes in interest rates through the use of 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. The amounts reported in the consolidated statements of operations for the three months ended September 30, 2021 and 2022 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, 2022 and September 30, 2022, we held foreign currency forward contracts with notional amounts totaling $22.9 million and $17.6 million, respectively. Unrealized gains and losses from our foreign currency forward contracts as of September 30, 2021 and 2022 were not significant.

The 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 loss in the consolidated financial statements and are reclassified as net income when the underlying hedged interest impacts earnings. A qualitative and quantitative assessment over the hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate that the hedge may no longer be highly effective.

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As of June 30, 2022 and September 30, 2022, the notional amount of the derivative instruments designated as an interest rate swap hedge was $0 and $175 million, respectively. The fair value of the interest rate swap contract as of September 30, 2022 was $3.5 million and recorded in Other assets within the condensed consolidated balance sheet.

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


	September 30,		September 30,
	2021		2022
Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded	$	(2,016)	$	(3,432)
Amount recognized in other comprehensive loss		—		3,540
Amount reclassified from accumulated other comprehensive loss to interest expense, net		—		120

Recently Adopted Accounting Pronouncements

Contract Assets and Contract Liabilities from Revenue Contracts with Customers in a Business Combination

In October 2021, the FASB issued Accounting Standards Update 2021-08, an accounting standard update to improve the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination (Topic 805). This amendment improves comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. This authoritative guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We early adopted the new guidance effective January 1, 2022 using the prospective approach and applied the amendments to both business combinations that occurred during the year ended June 30, 2022 and the business combination that occurred during the quarter ended September 30, 2022. The adoption of ASU 2021-08 did not have a material impact on our consolidated financial statements.

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 upon 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, which is up to one year from the acquisition date, as additional information that existed at the acquisition date becomes available for preliminary estimates, 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 2023 Business Acquisition

In August 2022, we (through our Security division) acquired a privately held provider of training software and solutions for approximately $1.9 million, plus up to $0.5 million in potential contingent consideration. The acquisition was financed with cash on hand. The goodwill recognized for this business is not deductible for income tax purposes.

Fiscal Year 2022 Business Acquisitions

In February 2022, we (through our Security division) acquired a privately held provider of intelligent inspection, sensory, and recognition solutions for approximately $14 million, plus up to $25 million in potential contingent consideration. The acquisition was financed with cash on hand and borrowings under our revolving bank line of credit. The goodwill recognized for this business is not deductible for income tax purposes.

In February 2022, we (through our Security division) acquired a privately held sales and services company for approximately $1.1 million, plus an immaterial amount of potential contingent consideration. The acquisition was financed with cash on hand. The goodwill recognized for this transaction is deductible for income tax purposes.

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These business acquisitions, individually and in the aggregate, were not material to our consolidated financial statements. Accordingly, pro-forma historical results of operations and other disclosures related to these businesses have not been presented.

3. Balance Sheet Details

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


	June 30,		September 30,
Accounts receivable, net	2022		2022
Accounts receivable	$	326,849	$	330,759
Less allowance for doubtful accounts		(18,876)		(17,253)
Total	$	307,973	$	313,506


	June 30,		September 30,
Inventories	2022		2022
Raw materials	$	213,290	$	225,559
Work-in-process		46,873		72,041
Finished goods		73,744		64,349
Total	$	333,907	$	361,949



	June 30,		September 30,
Property and equipment, net	2022		2022
Land	$	15,028	$	15,028
Buildings, civil works and improvements		47,309		47,255
Leasehold improvements		11,599		12,081
Equipment and tooling		128,425		128,518
Furniture and fixtures		3,592		3,454
Computer equipment		21,208		21,230
Computer software		25,153		25,344
Computer software implementation in process		9,422		9,676
Construction in process		5,283		5,563
Total		267,019		268,149
Less accumulated depreciation and amortization		(157,335)		(160,173)
Property and equipment, net	$	109,684	$	107,976

Depreciation and amortization expense for property and equipment was $5.3 million and $4.9 million for the three months ended September 30, 2021 and 2022, respectively.

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4. Goodwill and Intangible Assets

The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2022 were as follows (in thousands)


					Optoelectronics
					And
	Security		Healthcare		Manufacturing
	Division		Division		Division		Consolidated
Balance as of June 30, 2022	$	225,555	$	43,187	$	67,615	$	336,357
Goodwill acquired or adjusted during the period		2,240		—		—		2,240
Foreign currency translation adjustment		(217)		(281)		(2,274)		(2,772)
Balance as of September 30, 2022	$	227,578	$	42,906	$	65,341	$	335,825

Intangible assets consisted of the following (in thousands):


		June 30, 2022						September 30, 2022
	Weighted	Gross						Gross
	Average	Carrying		Accumulated		Intangibles		Carrying		Accumulated		Intangibles
	Lives	Value		Amortization		Net		Value		Amortization		Net
Amortizable assets:
Software development costs	8-9 years	$	64,096	$	(18,934)	$	45,162	$	65,667	$	(17,472)	$	48,195
Patents	19 years		8,541		(2,987)		5,554		8,598		(3,098)		5,500
Developed technology	10 years		66,901		(31,071)		35,830		66,916		(32,833)		34,083
Customer relationships	7 years		53,736		(32,785)		20,951		53,721		(34,129)		19,592
Total amortizable assets			193,274		(85,777)		107,497		194,902		(87,532)		107,370
Non-amortizable assets:
In-process R&D			533		—		533		533		—		533
Trademarks			30,340		—		30,340		30,299		—		30,299
Total intangible assets		$	224,147	$	(85,777)	$	138,370	$	225,734	$	(87,532)	$	138,202

Amortization expense related to intangible assets was $4.4 million and $4.7 million for the three months ended September 30, 2021 and 2022, respectively.

At September 30, 2022, the estimated future amortization expense for intangible assets was as follows (in thousands):

Fiscal Year


2023 (remaining 9 months)	$	14,084
2024		17,732
2025		17,332
2026		15,870
2027		11,742
Thereafter		30,610
Total	$	107,370

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, 2021 and 2022, we capitalized software development costs in the amounts of $4.1 million and $3.9 million, respectively.

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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.

The table below shows the balance of contract assets and liabilities as of June 30, 2022 and September 30, 2022, including the change between the periods. There were no substantial non-current contract assets for the periods presented.

Contract Assets (in thousands)


	June 30,		September 30,
	2022		2022		Change		% Change
Unbilled revenue (included in accounts receivable, net)	$	43,287	$	45,245	$	1,958	5	%

Contract Liabilities (in thousands)


	June 30,		September 30,
	2022		2022		Change		% Change
Advances from customers	$	19,917	$	29,973	$	10,056	50	%
Deferred revenue—current		31,396		50,179		18,783	60	%
Deferred revenue—long-term		20,476		20,652		176	1	%

Contract assets increased during the three months ended September 30, 2022 primarily due to satisfaction of performance obligations for aviation, cargo and vehicle inspection customers in our Security division which have not yet been billed. The overall increase in contract liabilities was primarily due to receipt of upfront deposits from customers and deferred revenue from receipt of payments under service and warranty contracts primarily in our Security division.

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 September 30, 2022, the portion of the transaction price allocated to remaining performance obligations was approximately $404.0 million. We expect to recognize revenue on approximately 55% 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, 2022, we recognized revenue of $16.5 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,
	2021		2022
Operating lease cost	$	2,275	$	2,826
Variable lease cost		184		406
Short-term lease cost		279		223
	$	2,738	$	3,455

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


	Balance Sheet Category	June 30, 2022		September 30, 2022
Operating lease ROU assets, net	Other assets	$	39,461	$	37,698

Operating lease liabilities, current portion	Other accrued expenses and current liabilities	$	9,700	$	9,664
Operating lease liabilities, long-term	Other long-term liabilities		30,363		28,684
Total operating lease liabilities		$	40,063	$	38,348

Weighted average remaining lease term					4.7 years
Weighted average discount rate					3.5	%

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


	Three Months Ended September 30,
	2021		2022
Cash paid for operating lease liabilities	$	2,327	$	2,685
ROU assets obtained in exchange for new lease obligations		1,643		413

Maturities of operating lease liabilities at September 30, 2022 were as follows (in thousands):


	September 30, 2022
Less than one year	$	10,529
1 – 2 years		9,742
2 – 3 years		7,903
3 – 4 years		6,283
4 – 5 years		5,424
Thereafter		1,700
		41,581
Less: imputed interest		(3,233)
Total lease liabilities	$	38,348

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 three months ended September 30, 2022, we recognized $1.2 million in restructuring and other charges, which included $0.9 million in legal charges and $0.3 million for employee terminations.

During the three months ended September 30, 2021, we recognized $2.5 million in restructuring and other charges which included $2.2 million in legal charges net of insurance recoveries, $0.3 million for employee terminations, and an insignificant net benefit for facility closure and operational efficiency activities.

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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 September 30, 2021
					Optoelectronics and
			Healthcare		Manufacturing
	Security Division		Division		Division		Corporate		Total
Employee termination costs	$	336	$	—	$	—	$	—	$	336
Facility closures/consolidation		(61)		—		—		—		(61)
Legal costs, net		—		—		—		2,235		2,235
Total