Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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Security Division. Through our Security division, we provide security screening products, multi-platform software solutions, and services globally, as well as turnkey security screening solutions. These products and services are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband. We also provide high-power RF systems for transmission, surveillance and other applications for defense, research and industrial use. Revenues from our Security division accounted for 66% and 65% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.

Optoelectronics and Manufacturing Division. Through our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including aerospace and defense electronics, security and inspection systems, medical imaging and diagnostics, telecommunications, office automation, computer peripherals, industrial automation, and consumer products. We also provide our optoelectronic devices and electronics manufacturing services to OEM customers, and our own Security and Healthcare divisions. Revenues from external customers in our Optoelectronics and Manufacturing division accounted for 23% and 26% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.

Healthcare Division. Through our Healthcare division, we design, manufacture, market and service patient monitoring, cardiology and remote monitoring, and connected care systems globally for sale primarily to hospitals and medical centers. Our products monitor patients in critical, emergency and perioperative care areas of the hospital and provide information, through wired and wireless networks, to physicians and nurses who may be at the patient's bedside, in another area of the hospital or even outside the hospital. Revenues from our Healthcare division accounted for 11% and 9% of our total consolidated revenues for the three months ended September 30, 2025 and 2026, respectively.

Trends and Uncertainties

The following is a discussion of certain trends and uncertainties that we believe have influenced, and may continue to influence, our results of operations.

Global Economic Considerations. Our products and services are sold in numerous countries worldwide, with a large percentage of our sales generated outside the United States. Therefore, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, interest rate policies, and labor shortages. Increasing diplomatic and trade friction between the U.S. and China has also created significant uncertainty in the global economy. These global macroeconomic factors, coupled with political unrest internationally and the volatile U.S. political climate, have created uncertainty and impacted demand for certain of our products and services. In addition, the military conflicts in the Middle East and the continued conflict between Russia and Ukraine, each as discussed further below, together with the sanctions, export controls and other measures imposed in response to these conflicts have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition or results of operations. We do not know how long this uncertainty will continue. These factors could have a material adverse effect on our business, results of operations and financial condition.

Global Trade. The current domestic and international political environment, including in relation to recent and further potential changes by the U.S. and other countries in policies on global trade and tariffs, has resulted in uncertainty surrounding the future state of the global economy and global trade. This uncertainty is exacerbated by sanctions imposed by the U.S. government against certain businesses and individuals in select other countries. Tariffs, trade restrictions and retaliatory measures by such other countries could result in reductions in our revenues or cost increases on materials used in our products, which could materially and adversely affect our business, financial condition, results of operations and cash flows. Consistent with our strategy, we are taking measures to contain costs to reduce the impact of tariffs. To date, our strategies have mitigated, but not eliminated, our exposure to these conditions. We continue to monitor changes in trade policies and evaluate additional actions to manage potential effects on product costs, supply availability and customer demand. Continued or increased uncertainty regarding global trade due to these or other factors may require us to modify our current business practices and could have a material adverse effect on our business, results of operations and financial condition.

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Supply and Demand for Memory and Semiconductor Components. We have experienced tighter supply conditions and increased costs for certain memory and other semiconductor components, reflecting a broader global imbalance between supply and demand for memory used in data center and AI-related infrastructure. While we have taken actions to mitigate these impacts, including qualifying alternative sources, purchasing certain components in advance of demand and seeking price adjustments from customers, we may not be able to fully offset these cost increases, and continued constraints in component availability could delay our ability to fulfill customer orders and adversely affect our gross margins, business and results of operations.

Geopolitical Environment. The global security environment remains subject to significant uncertainty due to ongoing geopolitical tensions, military conflicts, terrorist threats, and regional instability, including the ongoing military conflict in the Middle East. Governments, transportation authorities, border protection agencies, and critical infrastructure operators continue to assess evolving security risks and may increase investments in security screening, inspection, and detection technologies. As a result, demand for certain of our security inspection products and related services could be affected by changes in government spending priorities and security requirements. At the same time, geopolitical events may influence the timing and execution of customer procurement decisions, funding approvals, contract awards, and project implementations. The extent to which current or future conflicts may affect our business will depend on the duration, geographic scope, and economic consequences of such events, as well as governmental responses that remain difficult to predict.

Conflicts in the Middle East. We generate a significant portion of our revenues from international markets and maintain a global supply chain supporting the design, manufacture, and servicing of our products. Escalation of geopolitical conflicts, including the military conflict involving the United States, Israel and Iran, which escalated significantly in February 2026 and included the closure of strategic airspaces and critical maritime routes such as the Strait of Hormuz and the Red Sea, have disrupted transportation routes, logistics networks, airspace, supplier operations, and international trade flows. These disruptions have resulted, and may continue to result, in shipment delays, longer lead times, project schedule delays, inventory management challenges, or higher operating costs. The conflicts in the Middle East continued to adversely affect certain customer projects during the first quarter of fiscal 2027, resulting in delays in shipments, installations, customer acceptance procedures, project schedules and the timing of certain orders, which negatively impacted our revenues and operating results for the period. Certain customers in the region have also reprioritized near-term spending and procurement activities. To date, these delays have not resulted in the cancellation of orders, and the related orders remain in our backlog with revised delivery schedules; however, there can be no assurance that further delays or cancellations will not occur. Continuation or further escalation of the conflict, including any expansion of hostilities to additional countries in which we or our customers operate, a prolonged disruption of shipping through the Strait of Hormuz or the imposition of additional sanctions or export controls, could adversely affect our ability to procure components, fulfill customer orders, deploy personnel, or complete installations in a timely manner and could have a material adverse effect on our business, results of operations and financial condition.

Russia-Ukraine Conflict. The ongoing conflict between Ukraine and Russia and the sanctions and export controls imposed in response to this conflict have increased global economic and political uncertainty. This has the potential to indirectly disrupt our supply chain and access to certain resources. While we have not experienced significant adverse impacts to date resulting from this conflict, we have certain research and development activities within Ukraine for our Healthcare division which have experienced limited disruption. This conflict and the conflict in the Middle East also have increased the threat of malicious cyber-activity from other countries and other actors.

Currency Exchange Rates. On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 0.04% for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, primarily due to the weakening of the U.S. dollar against certain other foreign currencies compared to the prior year period. Any strengthening of the U.S. dollar against foreign currencies would adversely impact our sales in future periods, and any weakening of the U.S. dollar against foreign currencies would positively impact our sales in future periods.

Healthcare Considerations. Certain hospitals and healthcare systems continue to face financial pressures arising from labor costs, inflation, reimbursement challenges and elevated interest rates. To the extent these conditions persist, healthcare providers may defer or reduce capital equipment purchases, which could adversely affect demand for our Healthcare products.

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Government Policies. Our results of operations and cash flows could be materially affected by changes in U.S. or foreign government legislative, regulatory or enforcement policies, as well as potential or actual U.S. government shutdowns, including the impact on near-term bookings and revenues of the most recent Department of Homeland Security shutdown. U.S. government operations are currently funded under a continuing resolution that expires on December 11, 2026. A further lapse in appropriations, or an extended period of funding under continuing resolutions, could delay U.S. government procurements, contract awards, deliveries and payments and adversely affect our results of operations.

Results of Operations for the Three Months Ended September 30, 2025 (Q1 Fiscal 2026) Compared to the Three Months Ended September 30, 2026 (Q1 Fiscal 2027) (amounts in millions)

Net Revenues

The table below and the discussion that follows are based upon the way in which we analyze our business. See Note 12 to the condensed consolidated financial statements for additional information about our business segments.

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Revenues for the Security division during Q1 fiscal 2027 increased year-over-year due to increases in product and service revenues of approximately $3.6 million and $6.2 million, respectively. The increase in product revenues was primarily due to increases in RF system and checkpoint screening revenues, partially offset by lower cargo and vehicle inspection revenues. The increase in service revenues was primarily attributable to growth in the installed base of products and airport screening services.

Revenues for the Optoelectronics and Manufacturing division during Q1 fiscal 2027 increased year-over-year due to increases in product revenues of approximately $5.5 million in our optoelectronics business and $9.2 million in our contract manufacturing business.

Revenues for the Healthcare division during Q1 fiscal 2027 decreased year-over-year primarily due to lower patient monitoring revenues, principally in the U.S., reflecting the timing of customer orders.

Gross Profit

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Gross profit is impacted by sales volume and changes in overall manufacturing-related costs, such as raw materials and component costs, warranty expense, provision for inventory, freight, tariffs, and logistics. Gross profit for Q1 fiscal 2027 increased to $123.8 million from $123.2 million in the prior-year period. The increase was primarily attributable to higher gross profit in our Security and Optoelectronics and Manufacturing divisions, partially offset by lower gross profit in our Healthcare division. Gross profit as a percentage of net revenues decreased to 30.7% from 32.0% in the prior-year period, reflecting lower Healthcare revenues, which generally carry relatively higher gross margins; unfavorable changes in revenue mix within the Security division; and higher Optoelectronics and Manufacturing revenues, which generally carry relatively lower gross margins.

Operating Expenses

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Selling, general and administrative. Our significant selling, general and administrative ("SG&A") expenses include employee compensation, sales commissions, travel, professional services, marketing expenses, and depreciation and amortization expense. SG&A expense for Q1 fiscal 2027 increased $1.7 million compared to the same prior-year period, primarily due to higher salaries and benefits, occupancy costs, and certain technology, marketing, and outside-services costs. These increases were partially offset by lower acquired-intangible amortization, bad-debt expense, external commissions, and travel expense.

Research and development. Research and development ("R&D") expenses include research related to new product development and product enhancement expenditures. R&D expenses for Q1 fiscal 2027 decreased $1.0 million compared to the same prior-year period largely due to lower outside services costs, partially offset by higher compensation and certain technology and research-related expenditures.

Restructuring and other charges. Restructuring and other charges generally consist of charges relating to reductions in our workforce, facilities consolidation, costs related to acquisition activity, legal charges and other non-recurring charges. During Q1 fiscal 2027, restructuring and other charges were $2.1 million, which consisted of $0.2 million for acquisition-related costs, $0.5 million for employee terminations, $0.1 million for facility closures, $0.3 million in legal charges, and $1.0 million for non-recurring charges in the Security and Healthcare divisions. During Q1 fiscal 2026, restructuring and other charges were $2.7 million, which consisted of $2.4 million primarily for non-recurring charges in the Security and Healthcare divisions and $0.3 million for employee terminations.

Interest and Other Expense (Benefit), Net

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Interest and other expense, net. Interest and other expense, net for Q1 fiscal 2027 decreased $4.1 million compared with the corresponding prior-year period, primarily due to higher net investment income and lower interest expense on credit facility borrowings. These favorable impacts were partially offset by interest expense and amortization of debt issuance costs associated with the 2031 Notes issued in November 2025 and a lower benefit from the interest rate swap.

Income taxes. The effective tax rate for a particular period varies depending on a number of factors including (i) the mix of income earned in various tax jurisdictions, each of which applies a unique range of income tax rates and income tax credits, (ii) changes in previously established valuation allowances for deferred tax assets (changes are based upon our current analysis of the likelihood that these deferred tax assets will be realized), (iii) the level of non-deductible expenses, (iv) certain tax elections, (v) tax holidays granted to certain of our international subsidiaries, (vi) return to provision adjustments and (vii) changes in tax legislation. For Q1 fiscal 2027 and 2026, we recognized a provision for income taxes of $5.7 million and $5.1 million, respectively. The effective tax rates for Q1 fiscal 2027 and 2026 were 18.8% and 19.9%, respectively. The decrease in the effective tax rate for Q1 fiscal 2027 primarily reflects discrete tax benefits associated with equity-based compensation recognized under ASU 2016-09 and the expiration of applicable statutes of limitations related to certain uncertain tax benefits. During Q1 fiscal 2027 and 2026, we recognized a net discrete tax benefit of $0.7 million and $0.9 million, respectively, related to equity-based compensation under ASU 2016-09. In addition, during Q1 fiscal 2027, we recognized a net discrete tax benefit of $0.5 million related to changes in uncertain tax benefits resulting from the expiration of applicable statutes of limitations.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, short-term investments, cash generated from operations, existing cash borrowing arrangements and access to capital markets. Cash and cash equivalents totaled $236.3 million at September 30, 2026, compared with $359.8 million at June 30, 2026. Short-term investments were $65.7 million at September 30, 2026, compared with $0.2 million at June 30, 2026. We currently anticipate that our available cash and cash equivalents, short-term investments, credit facilities and cash flow from operations will be sufficient to meet our operational cash needs for the next 12 months and foreseeable future. In addition, we anticipate that cash generated from operations, without repatriating earnings from our non-U.S. subsidiaries, and our credit facilities will be sufficient to satisfy our obligations in the U.S.

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Our senior secured credit facility comprises a term loan and a $725.0 million revolving credit facility which mature in July 2030. The revolving credit facility includes a $350.0 million sub-limit for letters of credit, which includes up to $300.0 million for borrowings in certain foreign currencies. As of September 30, 2026, there were no borrowings under the revolving credit facility, $87.6 million was outstanding under the letters of credit sub-facility, and $90.0 million was outstanding under the term loan. As of September 30, 2026, the amount available to borrow under the credit facility was $637.4 million. See Note 8 to the condensed consolidated financial statements for further discussion.

Cash Provided by Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period due to changes in net income, adjusted for non-cash items, and working capital. Cash provided by operating activities was $37.1 million during Q1 fiscal 2027, compared to $17.1 million during the same prior-year period. The increase was primarily due to higher net income and favorable changes in working capital. Significant contributors included increased accounts payable of $21.5 million compared to $12.0 million in the prior-year period, increased advances from customers of $21.7 million compared to $11.1 million in the prior-year period, and lower cash usage from deferred revenue. These favorable changes were partially offset by inventory growth of $48.5 million, compared to $47.4 million in the prior-year period, and a lower source of cash from accounts receivable of $10.3 million compared to $17.0 million in the prior-year period. Inventory increased to support anticipated fiscal 2027 revenue growth primarily in the Security and Optoelectronics and Manufacturing divisions.

Cash Used in Investing Activities. Net cash used in investing activities was $79.1 million during Q1 fiscal 2027, compared to $10.9 million during the same prior-year period. The increase in cash used in investing activities was primarily attributable to $65.5 million of purchases of short-term investments during the first quarter of fiscal 2027, compared to no such purchases in the prior-year period. Capital expenditures were $7.7 million during the first quarter of fiscal 2027 compared to $7.0 million in the prior-year period, while payments for intangible and other assets increased to $5.9 million from $4.4 million in the prior-year period.

Cash Provided by (Used in) Financing Activities. Net cash used in financing activities was $81.5 million during Q1 fiscal 2027, compared to net cash provided by financing activities of $12.2 million during the same prior-year period. The change was primarily due to common stock repurchases, including applicable excise taxes, of $62.8 million during the first quarter of fiscal 2027, compared to no repurchases in the prior-year period. Additionally, during the prior-year period, we generated net proceeds from debt financing activities, consisting of $100.1 million of long-term debt borrowings offset by $129.9 million of long-term debt repayments and $74.1 million of net borrowings on bank lines of credit, whereas there were no borrowings on bank lines of credit and $2.5 million of long-term debt repayments during the first quarter of fiscal 2027. These changes were partially offset by reduced taxes paid related to the net share settlement of equity awards, which decreased to $18.4 million from $34.4 million in the prior-year period.

Borrowings

See Note 8 to the condensed consolidated financial statements for a detailed discussion regarding our credit facility and other borrowings.

Cash Held by Foreign Subsidiaries

Our cash and cash equivalents totaled $236.3 million at September 30, 2026. Of this amount, approximately 35% was held by our foreign subsidiaries and subject to repatriation tax considerations. These foreign funds were held primarily by our subsidiaries in India, the United Kingdom, Singapore, and Canada. We intend to permanently reinvest certain earnings from foreign operations, and we currently do not anticipate that we will need this cash in foreign countries to fund our U.S. operations. In the event we repatriate cash from certain foreign operations and if taxes have not previously been withheld on the related earnings, we would provide for withholding taxes at the time we change our intention with regard to the reinvestment of those earnings.

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Issuer Purchases of Equity Securities

The following table contains information about the shares of common stock we purchased during the quarter ended September 30, 2026:

Contractual Obligations

During the first quarter of fiscal year 2027, there were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. See Notes 1, 6, 8 and 10 to the condensed consolidated financial statements for additional information regarding our contractual obligations.

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. During the first quarter of fiscal year 2027, we adopted ASU 2024-04 and ASU 2025-05. These adoptions did not have a material impact on our condensed consolidated financial statements. See Note 1 for further discussion.

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