UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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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.
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).
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.
| 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
As of October 24, 2023, there were
OSI SYSTEMS, INC.
INDEX
PAGE | ||
3 | ||
3 | ||
Condensed Consolidated Balance Sheets at June 30, 2023 and September 30, 2023 | 3 | |
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | |
26 | ||
26 | ||
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
28 | ||
29 | ||
30 | ||
2
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, | |||||
| 2023 |
| 2023 | |||
ASSETS | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Inventories |
| |
| | ||
Prepaid expenses and other current assets |
| |
| | ||
Total current assets |
| |
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Property and equipment, net |
| |
| | ||
Goodwill |
| |
| | ||
Intangible assets, net |
| |
| | ||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
CURRENT LIABILITIES: | ||||||
Bank lines of credit | $ | | $ | | ||
Current portion of long-term debt |
| |
| | ||
Accounts payable |
| |
| | ||
Accrued payroll and related expenses |
| |
| | ||
Advances from customers |
| |
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Other accrued expenses and current liabilities |
| |
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Total current liabilities |
| |
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Long-term debt |
| |
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Deferred income taxes |
| |
| | ||
Other long-term liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 10) | ||||||
STOCKHOLDERS’ EQUITY: | ||||||
Preferred stock, $ |
|
| ||||
Common stock, $ |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
3
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended September 30, | ||||||
| 2022 |
| 2023 | |||
Net revenues: | ||||||
Products | $ | | $ | | ||
Services |
| |
| | ||
Total net revenues |
| |
| | ||
Cost of goods sold: | ||||||
Products |
| |
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Services |
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Total cost of goods sold |
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Gross profit |
| |
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Operating expenses: | ||||||
Selling, general and administrative |
| |
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Research and development |
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Impairment, restructuring and other charges, net |
| |
| | ||
Total operating expenses |
| |
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Income from operations |
| |
| | ||
Interest and other expense, net |
| ( |
| ( | ||
Income before income taxes |
| |
| | ||
Provision for income taxes |
| ( |
| ( | ||
Net income | $ | | $ | | ||
Earnings per share: | ||||||
Basic | $ | | $ | | ||
Diluted | $ | | $ | | ||
Shares used in per share calculation: | ||||||
Basic |
| |
| | ||
Diluted |
| |
| | ||
See accompanying notes to condensed consolidated financial statements.
4
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(amounts in thousands)
| Three Months Ended September 30, | |||||
| 2022 |
| 2023 | |||
Net income | $ | | $ | | ||
Other comprehensive loss: | ||||||
Foreign currency translation adjustment, net of tax |
| ( |
| ( | ||
Net unrealized gain on derivatives, net of tax | | | ||||
Other, net of tax | | | ||||
Other comprehensive loss | ( | ( | ||||
Comprehensive income | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
5
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(amounts in thousands, except share data)
Three Months Ended September 30, 2022 | ||||||||||||||
Accumulated | ||||||||||||||
Common Stock | Other | |||||||||||||
| Number of |
|
| Retained |
| Comprehensive |
| |||||||
| Shares |
| Amount |
| Earnings |
| Loss |
| Total | |||||
Balance—June 30, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Exercise of stock options |
| | | — | — | | ||||||||
Vesting of RSUs |
| | — | — | — | — | ||||||||
Shares issued under employee stock purchase program |
| | | — | — | | ||||||||
Stock-based compensation expense |
| — | | — | — | | ||||||||
Repurchase of common stock | ( | ( | ( | — | ( | |||||||||
Taxes paid related to net share settlement of equity awards |
| ( | ( | ( | — | ( | ||||||||
Net income |
| — | — | | — | | ||||||||
Other comprehensive loss |
| — | — | — | ( | ( | ||||||||
Balance—September 30, 2022 | | $ | | $ | | $ | ( | $ | | |||||
Three Months Ended September 30, 2023 | ||||||||||||||
Accumulated | ||||||||||||||
Common Stock | Other | |||||||||||||
| Number of |
|
| Retained |
| Comprehensive |
| |||||||
| Shares |
| Amount |
| Earnings |
| Loss |
| Total | |||||
Balance—June 30, 2023 | | $ | | $ | | $ | ( | $ | | |||||
Exercise of stock options | | | — | — | | |||||||||
Vesting of RSUs | | — | — | — | — | |||||||||
Shares issued under employee stock purchase program | | | — | — | | |||||||||
Stock-based compensation expense | — | | — | — | | |||||||||
Taxes paid related to net share settlement of equity awards | ( | ( | ( | — | ( | |||||||||
Net income | — | — | | — | | |||||||||
Other comprehensive loss | — | — | — | ( | ( | |||||||||
Balance—September 30, 2023 |
| | $ | | $ | | $ | ( | $ | | ||||
6
OSI SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Three Months Ended September 30, | ||||||
| 2022 |
| 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions: | ||||||
Depreciation and amortization |
| |
| | ||
Stock-based compensation expense |
| |
| | ||
Recovery of losses on accounts receivable | ( | ( | ||||
Deferred income taxes | |
| | |||
Amortization of debt discount and issuance costs |
| | — | |||
Other |
| | | |||
Changes in operating assets and liabilities—net of business acquisitions: | ||||||
Accounts receivable |
| ( |
| | ||
Inventories |
| ( |
| ( | ||
Prepaid expenses and other assets |
| ( |
| ( | ||
Accounts payable |
| |
| | ||
Accrued payroll and related expenses | ( | ( | ||||
Advances from customers |
| |
| | ||
Deferred revenue | | ( | ||||
Other |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Acquisition of property and equipment |
| ( |
| ( | ||
Proceeds from sale of property and equipment | | | ||||
Purchases of certificates of deposit | ( | ( | ||||
Proceeds from maturities of certificates of deposit | — | | ||||
Acquisition of businesses, net of cash acquired |
| ( |
| — | ||
Payments for intangible and other assets |
| ( |
| ( | ||
Net cash used in investing activities |
| ( |
| ( | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Net borrowings on bank lines of credit |
| |
| | ||
Proceeds from long-term debt |
| |
| | ||
Payments on long-term debt |
| ( |
| ( | ||
Proceeds from exercise of stock options and employee stock purchase plan |
| |
| | ||
Payments of contingent consideration | ( | ( | ||||
Repurchases of common stock |
| ( |
| — | ||
Taxes paid related to net share settlement of equity awards |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Effect of exchange rate changes on cash |
| ( |
| | ||
Net change in cash and cash equivalents |
| ( |
| | ||
Cash and cash equivalents—beginning of period |
| |
| | ||
Cash and cash equivalents—end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid, net during the period for: | ||||||
Interest | $ | | $ | | ||
Income taxes | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
7
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, 2023 filed with the SEC. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the operating results to be expected for the full 2024 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 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, | |||||
2022 |
| 2023 | ||||
Net income available to common stockholders | $ | | $ | | ||
Weighted average shares outstanding—basic |
| |
| | ||
Dilutive effect of equity awards |
| |
| | ||
Weighted average shares outstanding—diluted |
| |
| | ||
Basic earnings per share | $ | | $ | | ||
Diluted earnings per share | $ | | $ | | ||
Shares excluded from diluted earnings per share due to their anti-dilutive effect | | | ||||
8
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 $
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 the 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, 2023 and September 30, 2023.
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 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, 2023 |
| September 30, 2023 | |||||||||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||||||
Assets—Insurance company contracts | $ | — | $ | | $ | — | $ | | $ | — | $ | | $ | — | $ | | ||||||||
Assets – Interest rate swap contract | $ | — | $ | | $ | — | $ | | $ | — | $ | | $ | — | $ | | ||||||||
Liabilities—Contingent consideration | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | | $ | | ||||||||
Derivative Instruments and Hedging Activity
Our use of derivatives consists of foreign currency forward contracts and an interest rate swap contract. 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 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 months ended September 30, 2022 and 2023 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, 2023 and September 30, 2023, we held foreign currency forward contracts with notional amounts totaling $
9
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 income in the consolidated financial statements and are reclassified as net income when the underlying hedged interest expense 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.
As of June 30, 2023 and September 30, 2023, the notional amount of the derivative instruments designated as an interest rate swap hedge was $
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:
| Three Months Ended September 30, | |||||
2022 |
| 2023 | ||||
Total interest and other expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | ( | $ | ( | ||
Gain recognized in other comprehensive income, net of tax |
| |
| | ||
Benefit (expense) reclassified from accumulated other comprehensive income to interest expense, net |
| ( |
| | ||
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our Consolidated Financial Statements upon adoption. There were no new pronouncements adopted in the first quarter of fiscal year 2024.
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 2024 Business Acquisition
In October 2023, we (through our Security Division) acquired a privately held provider of radiation detection technology for approximately $
The goodwill recognized for this business acquisition is not deductible for income tax purposes.
Fiscal Year 2023 Business Acquisitions
In April 2023, we (through our Optoelectronics and Manufacturing division) acquired a privately held provider of engineering and contract manufacturing solutions for approximately $
10
In February 2023, we (through our Healthcare division) acquired a privately held provider of software and solutions for approximately $
Through our Security division, we acquired (i) in December 2022 certain assets of a provider of baggage and parcel inspection systems for approximately $
The goodwill recognized for each of the fiscal year 2023 business acquisitions is not deductible for income tax purposes. These business acquisitions in fiscal 2023 and 2024, 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 |
| 2023 |
| 2023 | ||
Accounts receivable | $ | | $ | | ||
Less allowance for doubtful accounts |
| ( |
| ( | ||
Total | $ | | $ | | ||
June 30, | September 30, | |||||
Inventories |
| 2023 |
| 2023 | ||
Raw materials | $ | | $ | | ||
Work-in-process |
| |
| | ||
Finished goods |
| |
| | ||
Total | $ | | $ | | ||
June 30, | September 30, | |||||
Property and equipment, net |
| 2023 |
| 2023 | ||
Land | $ | | $ | | ||
Buildings, civil works and improvements |
| |
| | ||
Leasehold improvements |
| |
| | ||
Equipment and tooling |
| |
| | ||
Furniture and fixtures |
| |
| | ||
Computer equipment |
| |
| | ||
Computer software |
| |
| | ||
Computer software implementation in process | | | ||||
Construction in process |
| |
| | ||
Total |
| |
| | ||
Less accumulated depreciation and amortization |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
Depreciation and amortization expense for property and equipment was $
11
4. Goodwill and Intangible Assets
The changes in the carrying value of goodwill by segment for the three-month period ended September 30, 2023 were as follows (in thousands):
Optoelectronics | ||||||||||||
And | ||||||||||||
Security | Healthcare | Manufacturing | ||||||||||
| Division |
| Division |
| Division |
| Consolidated | |||||
Balance as of June 30, 2023 | $ | | $ | | $ | | $ | | ||||
Foreign currency translation adjustment |
| ( | ( | ( | ( | |||||||
Balance as of September 30, 2023 | $ | | | | | |||||||
Intangible assets consisted of the following (in thousands):
June 30, 2023 | September 30, 2023 | |||||||||||||||||||
Weighted | Gross | Gross | ||||||||||||||||||
Average | Carrying | Accumulated | Intangibles | Carrying | Accumulated | Intangibles | ||||||||||||||
| Lives |
| Value |
| Amortization |
| Net |
| Value |
| Amortization |
| Net | |||||||
Amortizable assets: | ||||||||||||||||||||
Software development costs |
| $ | | $ | ( | $ | | | ( | | ||||||||||
Patents |
|
| |
| ( |
| | | ( | | ||||||||||
Developed technology |
|
| |
| ( |
| | | ( | | ||||||||||
Customer relationships |
|
| |
| ( |
| | | ( | | ||||||||||
Total amortizable assets |
| | ( | | | ( | | |||||||||||||
Non-amortizable assets: | ||||||||||||||||||||
In-process R&D | | — | | | — | | ||||||||||||||
Trademarks |
| | — | | | — | | |||||||||||||
Total intangible assets | $ | | $ | ( | $ | | | ( | | |||||||||||
Amortization expense related to intangible assets was $
At September 30, 2023, the estimated future amortization expense for amortizable intangible assets was as follows (in thousands):
Fiscal Year
2024 (remaining 9 months) |
| $ | |
2025 |
| | |
2026 |
| | |
2027 | | ||
2028 | | ||
Thereafter |
| ||
Total | $ | |
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, 2022 and 2023, we capitalized software development costs in the amounts of $
12
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, 2023 and September 30, 2023, 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, |
|
|
| ||||||
| 2023 |
| 2023 |
| Change |
| % Change |
| ||||
Unbilled revenue (included in accounts receivable, net) | $ | | $ | | $ | |
| | % | |||
Contract Liabilities (in thousands)
| June 30, |
| September 30, |
|
|
| ||||||
| 2023 |
| 2023 |
| Change |
| % Change | |||||
Advances from customers | $ | | $ | | $ | | | % | ||||
Deferred revenue—current |
| |
| |
| ( | ( | % | ||||
Deferred revenue—long-term |
| |
| |
| ( | ( | % | ||||
Contract assets increased during the three months ended September 30, 2023 primarily from the timing and nature of milestones met in contracts for a number of customers in our Security Division where we met the revenue recognition criteria under ASC 606 in advance of the time when contracts give us the right to invoice customers.
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, 2023, the portion of the transaction price allocated to remaining performance obligations was approximately $
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
13
6. Leases
The components of operating lease expense were as follows (in thousands):
Three Months Ended September 30, | ||||||
| 2022 |
| 2023 | |||
Operating lease cost | $ | | $ | | ||
Variable lease cost | |
| | |||
Short-term lease cost | |
| | |||
$ | | $ | | |||
Supplemental disclosures related to operating leases were as follows (in thousands):
| Balance Sheet Category |
| June 30, 2023 |
| September 30, 2023 | ||||
Operating lease right of use (“ROU”) assets, net |
| $ | | $ | | ||||
Operating lease liabilities, current portion |
| $ | | $ | | ||||
Operating lease liabilities, long-term |
|
| |
| | ||||
Total operating lease liabilities | $ | | $ | | |||||
Weighted average remaining lease term |
|
| |||||||
Weighted average discount rate |
|
| | % | |||||
Supplemental cash flow information related to operating leases was as follows (in thousands):
| Three Months Ended September 30, | |||||
| 2022 |
| 2023 | |||
Cash paid for operating lease liabilities | $ | | $ | | ||
ROU assets obtained in exchange for new lease obligations |
| |
| | ||
Maturities of operating lease liabilities at September 30, 2023 were as follows (in thousands):
| September 30, 2023 | ||
Less than one year | $ | | |
1 – 2 years |
| | |
2 – 3 years |
| | |
3 – 4 years |
| | |
4 – 5 years |
| | |
Thereafter |
| | |
| | ||
Less: imputed interest |
| ( | |
Total lease liabilities | $ | | |
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, 2023, we recognized $
14
During the three months ended September 30, 2022, we recognized $
The following tables summarize impairment, restructuring and other charges (benefits), net for the periods set forth below (in thousands):
Three Months Ended September 30, 2022 | |||||||||||||||
|
|
| Optoelectronics and |
|
| ||||||||||
Healthcare | Manufacturing | ||||||||||||||
| Security Division |
| Division |
| Division |
| Corporate |
| Total | ||||||
Employee termination costs | $ | | $ | — | $ | — | $ | — | $ | | |||||
Facility closures/consolidation | | — | | — | | ||||||||||
Legal costs, net |
| |
| |
| — |
| |
| | |||||
Total | $ | | $ | | $ | | $ | | $ | | |||||
Three Months Ended September 30, 2023 | |||||||||||||||
Optoelectronics and | |||||||||||||||
Healthcare | |||||||||||||||