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Note 13 - Contingent Consideration

3 Months Ended

Jun. 30, 2024

Business Combination, Contingent Consideration [Text Block]

13. Contingent Consideration

On October 1, 2020 (the "NEPSI Acquisition Date"), the Company entered into a Stock Purchase Agreement (the "NEPSI Stock Purchase Agreement") with the selling stockholders named therein. Pursuant to the terms of the NEPSI Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding (i) shares of capital stock of NEPSI, and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters (the "NEPSI Acquisition"). NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. NEPSI is a wholly-owned subsidiary of the Company and is operated by its Grid business unit. The purchase price was $26.0 million in cash and 873,657 restricted shares of common stock of the Company. As part of the transaction, the selling stockholders may receive up to an additional 1,000,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives during varying periods of up to four years following closing of the NEPSI Acquisition. During the year ended March 31, 2024, the Company issued 399,999 shares of common stock and cash in lieu of a fractional share of common stock, related to the achievement of specified revenue objectives in connection with the NEPSI Acquisition. One specified revenue objective, which would have earned the selling stockholders 300,000 shares of the Company’s common stock, was not achieved, leaving 300,000 shares of common stock remaining for potential issuance upon the achievement of the last specified revenue objective by September 30, 2024.

The Company evaluated the NEPSI Acquisition earnout payment set forth in the NEPSI Stock Purchase Agreement, which is expected to require settlement in the Company's common stock, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC 815, Derivatives and Hedging. As a result, for each period, the fair value of the contingent consideration will be remeasured and the resulting gain or loss will be recognized in operating expenses until the share amount is fixed.

Following is a summary of the key assumptions used in a Monte Carlo simulation to calculate the fair value of the contingent consideration related to the NEPSI Acquisition:


	*June 30,*
Fiscal Year 2024	*2024*
Revenue risk premium		5.50	%
Revenue volatility		27.5	%
Stock Price	$	23.39
Payment delay (days)		80
Fair value (millions)	$	7.0



	*March 31,*			*December 31,*			*September 30,*			*June 30,*			*March 31,*
Fiscal Year 2023	*2024*			*2023*			*2023*			*2023*			*2023*
Revenue risk premium		5.50	%		5.70	%		5.30	%		5.20	%		5.30	%
Revenue volatility		24.8	%		24.8	%		27.5	%		22.5	%		25	%
Stock Price	$	13.51		$	11.14		$	7.55		$	6.26		$	4.91
Payment delay (days)		80			80			80			80			80
Fair value (millions)	$	3.1		$	1.2		$	3.5		$	2.6		$	1.3

The Company recorded losses of $3.9 million and $1.3 million resulting from the increases in the fair value of the contingent consideration in the three months ended June 30, 2024 and 2023, respectively.