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Acquisition | 9 Months Ended
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Nov. 02, 2024
Business Combinations [Abstract] |
Acquisition | Note 3 – Acquisition We account for our business combinations using the acquisition method as prescribed by Accounting Standard Codification 805, “Business Combinations” ("ASC 805"). ASC 805 requires the purchase price of the acquisition to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair value as of the acquisition date as determined by widely accepted valuation techniques in accordance with ASC 820, “Fair Value Measurement.” Any excess of the purchase price over the fair value of the net identified assets acquired and liabilities assumed will be recorded as goodwill. ASC 805 establishes a measurement period to provide companies with a reasonable amount of time to obtain the information necessary to identify and measure various items in a business combination and cannot extend beyond one year from the acquisition date. If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the tangible and intangible assets acquired and liabilities assumed with the corresponding offset to goodwill, to the extent such information was not available to us at the acquisition date to determine such amounts. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income. We expect to complete the final fair value determination of the assets acquired and liabilities assumed as soon as practicable within the measurement period and in any event not later than one year from the acquisition closing date. Accounting for business combinations requires us to make significant estimates and assumptions at the acquisition date. Significant assumptions relevant to the determination of the fair value of the tangible and intangible assets acquired and liabilities assumed include, but are not limited to, expected future cash flows, discount rates, royalty rates, and other assumptions. Such estimates are inherently uncertain and may be subject to refinement. All acquisition-related costs, other than the costs to issue debt or equity securities, are expensed in the period in which they are incurred. Changes in the fair value of contingent consideration arrangements that are not measurement period adjustments are recognized in earnings in the period of the change. The results of operations of the acquired entity, including revenues and earnings, are included in our financial statements from the closing date of the acquisition. MTEX Background On May 4, 2024, AstroNova, along with its wholly-owned Portugal Subsidiary, AstroNova Portugal, Unipessoal, Lda (the “Purchaser”) entered into a Share Purchase Agreement (the “Purchase Agreement”) with Effort Premier Solutions Lda., a private limited company incorporated under the laws of Portugal (the “Seller”) and Elói Serafim Alves Ferreira, as the “Second Guarantor”. In accordance with the terms and subject to the conditions set forth in the Purchase Agreement, the Purchaser acquired from the Seller, 100% of the issued and outstanding share capital of MTEX. The closing date for the acquisition was May 6, 2024. This transaction is a business combination and accounted for using the acquisition method as prescribed by ASC 805. The purchase price for this acquisition consists of EUR 17,268,345 (approximately $18.7 million) paid by the Purchaser to the Seller on the closing date, and up to an additional EUR 731,655 (approximately $0.8 million) retained by the Purchaser to secure certain indemnification obligations of the Seller to be released by the Purchaser subject to resolution of such obligations. The Seller may be entitled to additional contingent consideration if specified revenue targets are achieved by MTEX as set forth in the Purchase Agreement for the three calendar year periods ending after the closing date. The contingent consideration consists of potential earn-out payments to the seller of EUR 1.0 million (approximately $1.1 million) if the specified revenue target is achieved in the full fiscal year of 2025, an additional EUR 1.5 million (approximately $1.6 million) if the specified revenue target is achieved in full fiscal year 2026, and an additional EUR 1.5 million (approximately $1.6 million) if the specified earnings targets are achieved in full fiscal year 2027, with a maximum of EUR 4.0 million (approximately $4.4 million) if all of the specified earnings targets are achieved over the three-year period. Also on May 4, 2024, the Purchaser, the Seller, the Second Guarantor and MTEX entered into a Transitional Management Agreement (the “Transitional Management Agreement”) pursuant to which the Second Guarantor will serve as MTEX’s Chief Executive Officer for a term of three years following the closing date. Under the terms of the Transitional Management Agreement, the Second Guarantor will receive a salary and grant of restricted stock units and will be entitled to participate in our incentive compensation programs on the same terms as our executive officers. The Transitional Management Agreement includes customary non-competition and confidentiality provisions. Upon the closing of the transaction, MTEX became a wholly owned indirect subsidiary of AstroNova, Inc. Purchase Price Allocation A summary of the fair value of the consideration transferred as of the acquisition closing date is presented in the table below:
(In thousands) |  | Preliminary Estimate |  |  | Measurement Period Adjustment |  |  | Revised Estimate |
Cash Paid at Closing |  | $ | 18,732 |  |  | $ | (1 | ) |  | $ | 18,731 |
Holdback Amount (a) |  |  | 742 |  |  |  | — |  |  |  | 742 |
Fair Value of the Earnout |  |  | 1,619 |  |  |  | (1,619 | ) |  |  | — |
Total Purchase Price |  | $ | 21,093 |  |  | $ | (1,620 | ) |  | $ | 19,473 |
a) The holdback amount is expected to be paid out in full over the next two years. The approach to valuing the initial contingent consideration relating to the earn-out requires the use of unobservable factors such as projected revenues over the term of the earn-out periods, discounted for the period over which the initial contingent consideration is measured, and relevant volatility rates. Based upon these assumptions, the earn-out contingent consideration was valued using an option pricing model, which resulted in the estimated fair value being reduced to zero as of the acquisition closing date. The following table sets forth the preliminary purchase price allocation of the MTEX acquisition for the estimated fair value of the net assets acquired and liabilities assumed as of May 6, 2024:
(In thousands) |  | Preliminary Estimate |  |  | Measurement Period Adjustment |  |  | Revised Estimate |
Cash |  | $ | 364 |  |  | $ | — |  |  | $ | 364 |
Accounts Receivable |  |  | 3,989 |  |  |  | (240 | ) |  |  | 3,749 |
Inventory |  |  | 3,807 |  |  |  | (173 | ) |  |  | 3,634 |
Prepaid Expenses and Other Current Assets |  |  | 301 |  |  |  | — |  |  |  | 301 |
Property, Plant and Equipment |  |  | 4,802 |  |  |  | — |  |  |  | 4,802 |
Other Long-Term Assets |  |  | 5,154 |  |  |  | 332 |  |  |  | 5,486 |
Identifiable Intangible Assets |  |  | 9,556 |  |  |  | (2,017 | ) |  |  | 7,539 |
Goodwill |  |  | 10,629 |  |  |  | 95 |  |  |  | 10,724 |
Accounts Payable and Other Current Liabilities |  |  | (4,225 | ) |  |  | — |  |  |  | (4,225 | )
Debt Assumed |  |  | (7,918 | ) |  |  | — |  |  |  | (7,918 | )
Other Long-Term Liabilities |  |  | (5,366 | ) |  |  | 383 |  |  |  | (4,983 | )
Total Purchase Price |  | $ | 21,093 |  |  | $ | (1,620 | ) |  | $ | 19,473 |
Although we have made a few adjustments to the opening balance sheet in the third quarter of the current year as we continue to finalize our due diligence and accounting for this acquisition, the amounts above remain provisional and are based on information that is currently available. Management believes the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but is waiting to complete their financial due diligence necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected continue to be subject to changes that could be significant. Management anticipates there will be changes to the price allocation as further information is collected and analyzed and pending the final completion of certain appraisals and valuation report. We expect to complete the final fair value determination of the assets acquired and liabilities assumed, resolutions of working capital, and any other purchase price adjustments identified as soon as practicable within the measurement period and, in any event, not later than one year from the acquisition closing date. The following table reflects the preliminary fair value of the acquired identifiable intangible assets and related estimated useful lives:
(In thousands) |  | Fair Value |  |  | Measurement Period Adjustment |  |  | Revised Estimate |  |  | Useful Life (years) |
Customer Relations |  | $ | 8,786 |  |  | $ | (6,183 | ) |  | $ | 2,603 |  |  |  | 10 |
Internally Developed Technology |  |  | 488 |  |  |  | 4,231 |  |  |  | 4,719 |  |  |  | 6 |
Trademarks/Tradenames |  |  | 282 |  |  |  | (65 | ) |  |  | 217 |  |  |  | 3 |
Total |  | $ | 9,556 |  |  | $ | (2,017 | ) |  | $ | 7,539 |  |  |  |
The customer relations intangible asset represents the relationships that will be maintained with certain historical customers of MTEX. The trademark/tradename intangible assets reflect the industry reputation of the MTEX name and the registered trademarks held by MTEX for the use of several marks and logos. The internally developed technology intangible asset represents software used to collect a wide range of data on each piece of equipment and the ability to monitor customer ink usage and troubleshoot issues with customers. The fair value of the customer relations intangible asset acquired was estimated by applying the income approach using the Multi-Period Excess Earning Method. This fair value measurement is based on significant inputs that are not observable in the market and therefore represents a Level 3 measurement as defined in ASC 820, “Fair Value Measurement”. The fair value determined under this approach is a function of (i) future revenues expected to be generated by these assets and the profitability of the assets, (ii) identification of the contribution of other tangible and intangible assets to the cash flows generated by these asset to apply an appropriate capital charge against the cash flow, and (iii) a discount rate of 15.5% used to calculate the present value of the stream of anticipated cash flows. The fair value of the trademark intangible asset acquired was estimated by applying the income approach using the “relief-from-royalty” method. The value under the relief-from-royalty method is a function of (i) the concluded royalty rate of 0.75%, (ii) projected revenues generated by product sales under the asset being valued, and (iii) a discount rate of 15.5%. The fair value of the internally developed technology intangible asset acquired was estimated by applying the cost approach, which takes into consideration the internal development costs of the technology and a hypothetical developer’s profit margin to build the software, the opportunity costs the buyer avoids by not having to reproduce this asset and any duplicative or unproductive efforts, as well as functional obsolescence of the technology. Goodwill of $10.7 million, which is not deductible for tax purposes, represents the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed from MTEX. The goodwill recognized under ASC 805 is attributable to the expected earnings potential of the business, synergies which are expected to enhance and expand our overall product portfolio, opportunities in new and existing markets, and MTEX's assembled workforce. The carrying amount of the goodwill was allocated to the PI segment. During the third quarter of the current year, we incurred an additional $0.3 million of acquisition-related costs resulting in total acquisition-related costs of $0.9 million as of November 2, 2024. These costs were included in general and administrative expenses in our condensed consolidated statements of income for the three and nine months ended November 2, 2024. The amounts of revenue and earnings before taxes attributable to MTEX and included in our consolidated statements of income for the three and nine months ended November 2, 2024 were as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
(In thousands) |  | November 2, 2024 |  |  | November 2, 2024 |
Revenue |  | $ | 1,738 |  |  | $ | 2,506 |
Gross Profit |  |  | 234 |  |  |  | 166 |
Operating Expenses: |  |  |  |  |  |
Selling Expenses |  |  | 839 |  |  |  | 1,755 |
Research and Development Expenses |  |  | 209 |  |  |  | 111 |
General and Administrative Expenses |  |  | 273 |  |  |  | 783 |
Total Operating Expenses |  | $ | 1,321 |  |  | $ | 2,649 |
Operating Loss |  |  | (1,087 | ) |  |  | (2,483 | )
Other Expenses |  |  | (336 | ) |  |  | (693 | )
Earnings (Loss) before Taxes |  | $ | (1,423 | ) |  | $ | (3,176 | )
MTEX results are reported as part of the PI segment. Pro forma results as if the acquisition was closed on February 1, 2024 are not provided, as disclosure of such amounts was impractical to determine.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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