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Note 2 - Acquisition
 9 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
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"). 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 31, 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 additional information obtained regarding assets acquired and liabilities assumed and revisions of provisional estimates of fair values, including, but not limited to the completion of independent appraisals of inventory, customer relationships, backlog, deferred taxes, tangible assets and intangible assets. 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 $202.7 million includes the fair value of the Company's common stock issued at closing, contingent consideration and cash paid, as follows (in millions):

 

Cash payments

$88.3

Issuance of 2,417,142 shares of Company’s common stock

78.5

Contingent consideration

35.9

Total consideration

$202.7

 

At the Comtrafo Acquisition Date, in addition to the $88.3 million cash, the Company valued the Company's common stock at $32.47 per share, which was the closing price on that date. Comtrafo Acquisition costs of $1.2 million were included in SG&A and $0.1 million were included in cost of revenues for the three and nine months ended December 31, 2025. 

 

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):

 

Cash and cash equivalents

 $16.2 

Prepaid expenses and other current assets

  6.7 

Accounts receivable

  4.1 

Inventory

  28.4 

Property, plant and equipment

  50.3 

Deferred tax asset

  4.1 

Accounts payable and accrued expenses

  (10.2)

Debt, current and long-term

  (8.8)

Deferred revenue

  (19.8)

Net tangible assets/(liabilities)

  71.0 
     

Backlog

  1.8 

Customer relationships

  7.7 

Net identifiable intangible assets/(liabilities)

  9.5 
     

Goodwill

  122.2 
     

Total purchase consideration

 $202.7 

 

The fair value of the financial assets acquired includes receivables with a fair value of $4.1 million. The gross amount due is $8.5 million, of which $4.4 million is expected to be uncollectible in order to align with existing AMSC reserve policy.

 

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 $0.4 million in the three and nine months ended December 31, 2025, as the inventory was sold.

 

Backlog of $1.8 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 sixteen-month period with the expense being allocated to cost of revenues. 

 

Customer relationships of $7.7 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 $4.1 million of deferred tax asset is primarily related to basis difference of intangibles, inventory and property, plant, and equipment. 

 

Acquisition of NWL 

 

On August 1, 2024 (the "NWL Acquisition Date"), the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the selling stockholders named therein. Pursuant to the terms of the Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding shares of capital stock of Megatran Industries, Inc. ("Megatran") (the "NWL Acquisition"). Megatran's wholly-owned subsidiary, NWL, Inc. (together with Megatran, "NWL"), is a U.S.-based global provider of engineered power conversion solutions for demanding industrial and military applications.

 

The NWL Acquisition has been accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the Acquisition Date. 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 $61.4 million includes the fair value of shares of the Company’s common stock issued at closing, and cash paid, as follows (in millions):

 

Cash payments$30.0
Issuance of 1,297,600 shares of Company’s common stock31.4
Total consideration$61.4

 

At the NWL Acquisition Date, in addition to the $30.0 million cash, the Company valued the Company’s common stock, at $24.16 per share, which was the closing price on the day prior to the day that the Company completed the NWL Acquisition. NWL Acquisition costs of $1.1 million were included in selling, general and administrative ("SG&A") for the fiscal year ended  March 31, 2025.

 

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 NWL Acquisition as of the NWL Acquisition Date and reflective of measurement period adjustments (in millions):

 

Cash and cash equivalents

 $0.4 

Equity-method investments

  1.2 

Prepaid expenses and other current assets

  1.7 

Accounts receivable

  16.1 

Inventory

  23.1 

Property, plant, and equipment

  28.4 

Accounts payable and accrued expenses

  (5.6)

Deferred revenue

  (5.0)

Deferred tax liability

  (5.6)

Net tangible assets/(liabilities)

  54.7 
     

Backlog

  0.7 

Customer relationships

  1.3 

Net identifiable intangible assets

  2.0 
     

Goodwill

  4.7 
     

Total purchase consideration

 $61.4 

 

The fair value of the financial assets acquired includes receivables with a fair value of $16.1 million. The gross amount due is $16.9 million, of which $0.8 million is expected to be uncollectible.

 

Inventory includes a $0.7 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 $0.7 million for the fiscal year ended  March 31, 2025 as the inventory was sold.

 

Backlog of $0.7 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over an eight-month period with the expense being allocated to cost of revenues.

 

Customer relationships of $1.3 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is straight line over 10 years, as the results were not materially different from the economic consumption method, 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 NWL Acquisition was assigned to the Company’s Grid business segment. Goodwill recognized in the NWL Acquisition is not deductible for tax purposes.

 

Unaudited Pro Forma Operating Results

 

The unaudited pro forma condensed consolidated statement of operations for the three and nine months ended December 31, 2025 and 2024 presented as if the NWL and Comtrafo Acquisitions had occurred on April 1, 2024, is as follows:

 

  

Three Months Ended December 31, 2025

  

Nine Months Ended December 31, 2025

  

Three Months Ended December 31, 2024

  

Nine Months Ended December 31, 2024

 

Net Revenue

 $85,882  $248,163  $70,190  $222,273 

Operating income

  4,986   19,565   454   4,543 

Net income

 $119,381  $134,171  $4,776  $12,956 
                 

Net income per common share

                

Basic

 $2.61  $3.03  $0.12  $0.33 

Diluted

 $2.56  $2.97  $0.11  $0.32 

Shares - basic

  45,692   44,225   41,376   39,764 

Shares - diluted

  46,673   45,163   42,178   40,454 

 

The pro forma amounts include the historical operating results of the Company, NWL, and Comtrafo with appropriate adjustments that give effect to acquisition related costs, income taxes, intangible amortization resulting from the NWL and Comtrafo Acquisitions 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 NWL and Comtrafo Acquisitions and related transactions had been completed at the beginning of the applicable periods presented. In addition, the pro forma amounts are not necessarily indicative of operating results in future periods.

 

NWL contributed $14.1 million of revenue and $0.6 million of net loss for the Company for the three months ended December 31, 2025. NWL contributed $48.3 million of revenue and $3.9 million in net income for the Company for the nine months ended December 31, 2025. Amortization expense of less than $0.1 million and $0.1 million is included in the three and nine months ended December 31, 2025, respectively, as a result of the acquired intangible assets from the NWL Acquisition.

 

Comtrafo contributed $4.6 million of revenue and $0.9 million in net income for the Company for the three and nine months ended December 31, 2025. Amortization expense of $0.2 million is included in the three and nine months ended December 31, 2025, as a result of the acquired intangible assets from the Comtrafo Acquisition. In addition, $0.4 million for the step-up basis assigned to acquired inventory was charged to cost of revenues in the three and nine months ended December 31, 2025.