Business Combination |
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| Business Combination [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination |
19. Business Combination
On August 13, 2025, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) to acquire 100% of the equity interests of Cal Microturbine for total consideration of approximately $14.9 million, which was comprised of $6.0 million cash paid at closing, $3.4 million in deferred consideration, and the settlement of preexisting relationships of $5.5 million. The acquisition expands the Company’s direct distribution and service capabilities in key markets and is expected to enhance operational efficiencies and customer reach. The transaction closed on August 13, 2025 (“Closing Date”) and was funded using available cash on hand.
The table below summarizes the total consideration transferred at the Closing Date (in thousands):
At the time of acquisition, Capstone and Cal Microturbine were engaged in ongoing litigation and arbitration related to their distributor agreement. As a result of the Purchase Agreement, these disputes were resolved, and mutual releases were executed. Neither company had recorded any contingent assets nor liabilities related to these matters as of the Closing Date. Refer to Note 17— Commitments and Contingencies Cal Microturbine Arbitration for further details.
The Company incurred acquisition and integration-related costs of $0.9 million during the three months ended September 30, 2025, which were recorded within “Selling, general and administrative” expenses on the Company’s Consolidated Statement of Operations.
The Company accounted for this acquisition using the acquisition method of accounting for business combinations in accordance with ASC 805, Business Combinations (“ASC 805”), which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. Any excess of consideration to be transferred over the estimated fair value of assets acquired and liabilities assumed is recorded as goodwill.
Determining the fair values of the assets and liabilities of Cal Microturbine requires judgment and certain assumptions to be made, the most significant of these being related to the valuation of Cal Microturbine’s customer relationships. Cal Microturbine’s customer relationship assets were valued using the multi-period excess earnings method, with significant assumptions including projected revenue, attrition rate, operating expense, selling and general administrative expenses, and discount rate. Because the valuation relies on these company-specific forecasts and assumptions rather than observable market data, the fair value measurement for customer relationships is categorized as a Level 3 measurement in the ASC 820 fair value hierarchy.
As of the date of this filing, the Company performed the preliminary analysis to assign fair value to all tangible and intangible assets acquired and liabilities assumed. As such, the preliminary purchase price allocation will be subject to further refinement and may change. The Company expects to finalize the fair value measurements as soon as practicable, but no later than 12 months from the Closing Date. No goodwill has been recognized as its management estimate as of the date of this filing is that the fair value of the net assets and liabilities acquired approximates the purchase price. However, upon finalizing its purchase price allocation, goodwill may result.
The following table summarizes the amounts of assets acquired and liabilities assumed at the acquisition date, valued at their estimated acquisition date fair value (in thousands):
(1) The intangible asset relates to customer relationships and was determined to have a weighted average amortization period of 6 years.
The post-closing operating results of Cal Microturbine have been included in our consolidated financial statements. For the period from the Closing Date through September 30, 2025, the Company’s Consolidated Statements of Operations includes Cal Microturbine revenue of $708 thousand and earnings of $221 thousand.
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma consolidated results of operations present the estimated unaudited pro forma combined results of Capstone and Cal Microturbine for the three months ended September 30, 2025 and 2024, and the six months ended September 30, 2025 and 2024, as if the acquisition had occurred on April 1, 2024 and was prepared in accordance with ASC 805.
The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Capstone and Cal Microturbine. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the Cal Microturbine acquisition been completed on April 1, 2024, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Capstone and Cal Microturbine.
Cal Microturbine’s fiscal year end is December 31, which differs from Capstone’s year-end. To ensure comparability, the pro forma financial information was prepared using comparable reporting periods. Cal Microturbine’s financial data was derived from internally generated, unaudited reports. Certain estimates were applied to allocate revenues and expenses appropriately across the periods presented in the pro forma results.
The unaudited supplemental pro forma financial information reflects pro forma adjustments related to transaction expenses incurred by Capstone and Cal Microturbine, elimination of revenue and expenses between the Capstone and Cal Micro, amortization expense due to step-up in fair value of the acquired assets, interest expense, and income tax adjustments (in thousands). The pro forma earnings below for the 2025 period were adjusted to exclude costs associated with the acquisition that were recognized in SG&A and pro forma earnings for the 2024 period was adjusted to include these charges.
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