OSI Systems(OSIS) - 2022 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion for the three and nine months ended March 31, 2022 Financial Statements (Unaudited) This section provides the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with accompanying notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | March 31, 2022 | | :--- | :--- | :--- | | Total current assets | $709,404 | $758,536 | | Total assets | $1,384,367 | $1,459,091 | | Total current liabilities | $344,767 | $645,836 | | Total liabilities | $744,547 | $840,597 | | Total stockholders' equity | $639,820 | $618,494 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $290,477 | $283,787 | $846,415 | $814,704 | | Gross profit | $102,858 | $104,019 | $301,961 | $301,851 | | Income from operations | $28,426 | $32,466 | $82,192 | $81,517 | | Other income, net | $27,373 | $— | $27,373 | $— | | Net income | $42,735 | $18,773 | $81,584 | $48,155 | | Diluted EPS | $2.41 | $1.03 | $4.52 | $2.63 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,813 | $131,053 | | Net cash used in investing activities | ($6,587) | ($26,163) | | Net cash used in financing activities | ($30,857) | ($91,414) | | Net change in cash and cash equivalents | $2,666 | $16,363 | Note 2: Business Combinations The Security division completed two acquisitions in February 2022, including an intelligent inspection solutions provider and a sales and services company - Acquired a provider of intelligent inspection solutions for approximately $14 million, with potential contingent consideration up to $25 million[36] - Acquired a sales and services company for approximately $1.1 million[37] Note 4: Goodwill and Intangible Assets Consolidated goodwill and net intangible assets increased as of March 31, 2022, primarily due to Security division acquisitions Goodwill by Segment (in thousands) | Segment | Balance as of June 30, 2021 | Balance as of March 31, 2022 | | :--- | :--- | :--- | | Security Division | $206,426 | $224,109 | | Healthcare Division | $43,584 | $43,403 | | Optoelectronics and Manufacturing Division | $70,294 | $69,143 | | Consolidated | $320,304 | $336,655 | - Net intangible assets increased to $139.8 million at March 31, 2022, from $127.6 million at June 30, 2021[42] Note 6: Leases The company completed a sale-leaseback transaction for its Hawthorne, CA property, recognizing a significant gain and increasing lease liabilities - Completed a sale-leaseback of its Hawthorne, CA property for $32 million, recognizing a gain of $27.4 million[52] - Total operating lease liabilities increased to $37.5 million at March 31, 2022, up from $23.8 million at June 30, 2021[53] Note 8: Borrowings The senior secured credit facility was increased to $750 million, and the company repurchased $40.2 million of convertible notes during the quarter - Amended and increased the senior secured credit facility to $750 million in December 2021[59] - Repurchased and cancelled approximately $40.2 million of principal value of the 1.25% Convertible Senior Notes during the quarter[67] Long-Term Debt Composition (in thousands) | Debt Instrument | June 30, 2021 | March 31, 2022 | | :--- | :--- | :--- | | 1.25% convertible notes (net) | $275,634 | $246,802 | | Term loan | $— | $50,000 | | Other long-term debt | $1,633 | $1,221 | | Total | $277,267 | $298,023 | Note 9: Stockholders' Equity The company repurchased over 1.1 million shares of common stock during the nine-month period, with additional shares available for repurchase - Repurchased 1,117,258 shares of common stock during the nine months ended March 31, 2022[76] - As of March 31, 2022, 1,430,737 shares remained available for repurchase under the authorized program[76] Note 10: Commitments and Contingencies The company settled a $12.5 million lawsuit and saw an increase in acquisition-related contingent consideration liabilities - Settled the Arkansas Teacher Retirement System lawsuit for $12.5 million, which was paid during the quarter, with $4.5 million reimbursed by insurance during the quarter and the remaining $8.0 million in April 2022[89] - The fair value of contingent consideration liability related to acquisitions increased from $19.4 million at June 30, 2021, to $28.3 million at March 31, 2022[81] Note 12: Segment Information The Security division was the largest contributor to revenue and income from operations for the nine months ended March 31, 2022 Revenues by Segment (in thousands) | Segment | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Security division | $454,079 | $431,420 | | Healthcare division | $155,191 | $160,421 | | Optoelectronics and Manufacturing division | $275,917 | $257,713 | Income from Operations by Segment (in thousands) | Segment | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Security division | $60,323 | $52,651 | | Healthcare division | $20,430 | $25,640 | | Optoelectronics and Manufacturing division | $34,342 | $29,638 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and YTD FY2022 financial results, highlighting revenue growth, gross margin changes, and ongoing global uncertainties - Key trends and uncertainties affecting the business include the COVID-19 pandemic, global economic conditions, supply chain disruptions, and the Russia-Ukraine conflict[108][109][114][115] Net Revenues by Segment - Q3 FY2022 vs Q3 FY2021 (in millions) | Segment | Q3 Fiscal 2022 | Q3 Fiscal 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Security | $158.6 | $151.4 | $7.2 | 4.8% | | Healthcare | $52.2 | $54.0 | ($1.8) | (3.3)% | | Optoelectronics and Manufacturing | $79.7 | $78.4 | $1.3 | 1.7% | | Total net revenues | $290.5 | $283.8 | $6.7 | 2.4% | Net Revenues by Segment - YTD Q3 FY2022 vs YTD Q3 FY2021 (in millions) | Segment | YTD Q3 Fiscal 2022 | YTD Q3 Fiscal 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Security | $454.1 | $431.4 | $22.7 | 5.3% | | Healthcare | $155.2 | $160.4 | ($5.2) | (3.2)% | | Optoelectronics and Manufacturing | $237.1 | $222.9 | $14.2 | 6.4% | | Total net revenues | $846.4 | $814.7 | $31.7 | 3.9% | - Cash from operations for the nine months ended March 31, 2022, was $41.8 million, a decrease from $131.1 million in the prior-year period, driven by increases in inventory and other working capital changes[142] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk exposure have occurred since the fiscal year ended June 30, 2021 - There have been no material changes in the company's exposure to market risk since the fiscal year ended June 30, 2021[151] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2022[152] - No changes in internal control over financial reporting occurred during the third quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[153] PART II — OTHER INFORMATION This section covers legal proceedings, updated risk factors, equity security sales, and a list of exhibits filed with the report Legal Proceedings This section refers to Note 10 for detailed information on various claims and litigation in the ordinary course of business - For detailed information on legal proceedings, the report refers to Note 10, "Commitments and Contingencies" in Part I, Item 1[156] Risk Factors A new risk factor concerning the Russia-Ukraine conflict has been added, with no other material changes to previously disclosed risks - A new risk factor has been added regarding the Russia-Ukraine conflict, which may negatively impact operations due to sanctions, regional instability, and adverse effects on macroeconomic conditions[158] Unregistered Sales of Equity Securities and Use of Proceeds Details are provided on the company's stock repurchases during the quarter ended March 31, 2022 Issuer Purchases of Equity Securities (Quarter Ended March 31, 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2022 | 24,000 | $82.49 | | February 2022 | 405,130 | $80.94 | | March 2022 | 206,832 | $81.14 | | Total | 635,962 | N/A | Exhibits This section lists the certifications and XBRL documents filed as exhibits to the Form 10-Q - Exhibits filed with this report include: * Certifications pursuant to Section 302 of the Sarbanes-Oxley Act (Exhibits 31.1, 31.2) * Certifications pursuant to Section 906 of the Sarbanes-Oxley Act (Exhibits 32.1, 32.2) * XBRL Instance Document and related taxonomy files (Exhibits 101.INS, 101.SCH, etc.)[164]