Note 2 - Acquisition |
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| Business Combination [Text Block] |
2. Acquisition
Acquisition of Comtrafo
On December 5, 2025 (the "Comtrafo Acquisition Date"), the Company entered into a Stock Exchange Agreement (the “Stock Exchange Agreement”) with the selling stockholders named therein. Pursuant to the terms of the Stock Exchange Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding shares of capital stock of Comtrafo Indústria de Transformadores Elétricos S.A. ("Comtrafo") (the "Comtrafo Acquisition"). Additionally, the Company has agreed to pay the selling stockholders of Comtrafo an additional amount up to 382.5 million Brazilian Real of cash upon the achievement of specified earnings before interest, taxes, depreciation, and amortization ("EBITDA") objectives during the three years following the Comtrafo Acquisition Date. This contingent consideration is recorded as a liability based on a Monte Carlo simulation to determine fair value at the time of issuance and on a recurring basis at each reporting period. Comtrafo is a Brazil-based manufacturer of large power and distribution transformers primarily for utility customers and also for industrial customers.
The Comtrafo Acquisition has been accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. The Company allocated the purchase price on a preliminary basis using the information available as of December 5, 2025 to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition. Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, and revisions of provisional estimates of fair values of deferred taxes, contingent consideration and intangible asset balances. Changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill.
The total purchase price of approximately $202.9 million includes the fair value of the Company’s common stock issued at closing, contingent consideration and cash paid, as follows (in millions):
At the Comtrafo Acquisition Date, in addition to the $88.3 million cash, the Company valued the Company’s common stock at $33.01 per share, which was the opening price on that date. Comtrafo Acquisition costs of $1.2 million were included in selling, general, and administrative (“SG&A”) for the fiscal year ended March 31, 2026.
The following table summarizes the allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed and related deferred income taxes in connection with the Comtrafo Acquisition as of the Comtrafo Acquisition Date: (in millions)
The fair value of the financial assets acquired includes receivables with a fair value of $6.9 million. The gross amount due is $10.5 million, of which $3.6 million is expected to be uncollectible. The Company adjusted the fair value for receivables that exceeded a year.
Inventory includes a $1.5 million adjustment to step-up the inventory balance to fair value consistent with the purchase price allocation. The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling cost and a normal profit margin on those manufacturing and selling efforts. The inventory step-up adjustment increased cost of revenue $0.8 million in the fiscal year ended March 31, 2026, as the inventory was sold. The inventory step-up adjustment increased cost of revenue $0.7 million in the three months ended June 30, 2026. The inventory step-up has been fully recognized to cost of revenue as of June 30, 2026.
As part of the Comtrafo Acquisition, the Company identified three debt agreements that Comtrafo had entered into prior to the Comtrafo Acquisition Date. The debt agreements totaling $8.8 million were subsequently paid off during the fiscal year ended March 31, 2026.
Backlog of $2.6 million was evaluated using the multi period excess earnings method under the income approach. The contracts do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a -month period with the expense being allocated to cost of revenues.
Customer relationships of $7.9 million relate to customers currently under contract and was based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 5 years with the expense being allocated to SG&A.
Goodwill represents the value associated with the acquired workforce and expected synergies related to the business combination of the two companies. Goodwill resulting from the Comtrafo Acquisition was assigned to the Company's Grid segment. Goodwill recognized in the Comtrafo Acquisition is not deductible for tax purposes. The $1.1 million of deferred tax asset is primarily related to basis difference of intangibles, inventory and property, plant, and equipment.
Unaudited Pro Forma Operating Results
The unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2025 presented as if the Comtrafo Acquisition had occurred on April 1, 2025, is as follows:
The pro forma amounts include the historical operating results of the Company and Comtrafo with appropriate adjustments that give effect to acquisition related costs, income taxes, intangible amortization resulting from the Comtrafo Acquisition and certain conforming accounting policies of the Company. The pro forma amounts are not necessarily indicative of the operating results that would have occurred if the Comtrafo Acquisition and related transactions had been completed at the beginning of the applicable period presented. In addition, the pro forma amounts are not necessarily indicative of operating results in future periods.
Comtrafo contributed $19.4 million of revenue and $9.0 million in net income for the Company for the three months ended June 30, 2026. Amortization expense of $0.7 million is included in the three months ended June 30, 2026, as a result of the acquired intangible assets from the Comtrafo Acquisition. |
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