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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ___________

Commission File Number 001-08462

 

GRAHAM CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

16-1194720

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

20 Florence Avenue, Batavia, New York

14020

(Address of principal executive offices)

(Zip Code)

585-343-2216

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.10 Per Share

 

GHM

 

NYSE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

  ☐

Accelerated filer

  ☒

Non-accelerated filer

  ☐

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

As of November 7, 2024, there were outstanding 10,889,928 shares of the registrant’s common stock, par value $0.10 per share.

 

 


 

Graham Corporation and Subsidiaries

Index to Form 10-Q

As of September 30, 2024 and March 31, 2024 and for the three and six months ended September 30, 2024 and 2023

 

 

 

Page

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

3

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

31

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

31

 

 

 

Item 6.

Exhibits

32

 

 

 

Signatures

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

GRAHAM CORPORATION AND SUBSIDIARIES

FORM 10-Q

SEPTEMBER 30, 2024

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

53,563

 

 

$

45,076

 

 

$

103,514

 

 

$

92,645

 

Cost of products sold

 

 

40,764

 

 

 

37,885

 

 

 

78,347

 

 

 

74,477

 

Gross profit

 

 

12,799

 

 

 

7,191

 

 

 

25,167

 

 

 

18,168

 

Other operating expenses and income:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

8,723

 

 

 

6,115

 

 

 

17,561

 

 

 

13,134

 

Selling, general and administrative – amortization

 

 

437

 

 

 

273

 

 

 

873

 

 

 

547

 

Other operating income

 

 

(596

)

 

 

 

 

 

(726

)

 

 

 

Operating income

 

 

4,235

 

 

 

803

 

 

 

7,459

 

 

 

4,487

 

Other expense, net

 

 

91

 

 

 

94

 

 

 

182

 

 

 

187

 

Interest (income) expense, net

 

 

(153

)

 

 

55

 

 

 

(314

)

 

 

240

 

Income before provision for income taxes

 

 

4,297

 

 

 

654

 

 

 

7,591

 

 

 

4,060

 

Provision for income taxes

 

 

1,016

 

 

 

243

 

 

 

1,344

 

 

 

1,009

 

Net income

 

$

3,281

 

 

$

411

 

 

$

6,247

 

 

$

3,051

 

Per share data

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.30

 

 

$

0.04

 

 

$

0.57

 

 

$

0.29

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.30

 

 

$

0.04

 

 

$

0.57

 

 

$

0.28

 

Weighted average common shares
  outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,887

 

 

 

10,699

 

 

 

10,875

 

 

 

10,675

 

Diluted

 

 

11,024

 

 

 

10,810

 

 

 

10,995

 

 

 

10,761

 

 

See Notes to Condensed Consolidated Financial Statements.

3


 

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income

 

$

3,281

 

 

$

411

 

 

$

6,247

 

 

$

3,051

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

131

 

 

 

(58

)

 

 

103

 

 

 

(310

)

Defined benefit pension and other postretirement plans net
 of income tax expense of $
45 and $47 for the three months
ended September 30, 2024 and 2023, respectively, and $
90
and $
93 for the six months ended September 30, 2024 and
2023, respectively

 

 

150

 

 

 

164

 

 

 

300

 

 

 

328

 

Total other comprehensive income

 

 

281

 

 

 

106

 

 

 

403

 

 

 

18

 

Total comprehensive income

 

$

3,562

 

 

$

517

 

 

$

6,650

 

 

$

3,069

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4


 

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

 

September 30, 2024

 

 

March 31, 2024

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,318

 

 

$

16,939

 

Trade accounts receivable, net of allowances ($56 and $79 at September 30 and
   March 31, 2024, respectively)

 

 

29,083

 

 

 

44,400

 

Unbilled revenue

 

 

40,730

 

 

 

28,015

 

Inventories

 

 

31,536

 

 

 

33,410

 

Prepaid expenses and other current assets

 

 

4,414

 

 

 

3,561

 

Income taxes receivable

 

 

124

 

 

 

 

      Total current assets

 

 

138,205

 

 

 

126,325

 

Property, plant and equipment, net

 

 

36,602

 

 

 

32,080

 

Prepaid pension asset

 

 

6,513

 

 

 

6,396

 

Operating lease assets

 

 

6,757

 

 

 

7,306

 

Goodwill

 

 

25,520

 

 

 

25,520

 

Customer relationships, net

 

 

13,729

 

 

 

14,299

 

Technology and technical know-how, net

 

 

10,688

 

 

 

11,065

 

Other intangible assets, net

 

 

7,019

 

 

 

7,181

 

Deferred income tax asset

 

 

2,883

 

 

 

2,983

 

Other assets

 

 

1,614

 

 

 

724

 

Total assets

 

$

249,530

 

 

$

233,879

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of finance lease obligations

 

$

20

 

 

$

20

 

Accounts payable

 

 

21,887

 

 

 

20,788

 

Accrued compensation

 

 

13,097

 

 

 

16,800

 

Accrued expenses and other current liabilities

 

 

5,102

 

 

 

6,666

 

Customer deposits

 

 

86,483

 

 

 

71,987

 

Operating lease liabilities

 

 

1,142

 

 

 

1,237

 

Income taxes payable

 

 

77

 

 

 

715

 

Total current liabilities

 

 

127,808

 

 

 

118,213

 

Finance lease obligations

 

 

57

 

 

 

65

 

Operating lease liabilities

 

 

5,922

 

 

 

6,449

 

Accrued pension and postretirement benefit liabilities

 

 

1,258

 

 

 

1,254

 

Other long-term liabilities

 

 

2,011

 

 

 

2,332

 

Total liabilities

 

 

137,056

 

 

 

128,313

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $1.00 par value, 500 shares authorized

 

 

 

 

 

 

Common stock, $0.10 par value, 25,500 shares authorized, 11,064 and 10,993 shares
     issued and
10,890 and 10,850 shares outstanding at September 30 and March 31, 2024,
     respectively

 

 

1,106

 

 

 

1,099

 

Capital in excess of par value

 

 

33,120

 

 

 

32,015

 

Retained earnings

 

 

88,246

 

 

 

81,999

 

Accumulated other comprehensive loss

 

 

(6,610

)

 

 

(7,013

)

Treasury stock (174 and 143 shares at September 30 and March 31, 2024, respectively)

 

 

(3,388

)

 

 

(2,534

)

Total stockholders’ equity

 

 

112,474

 

 

 

105,566

 

Total liabilities and stockholders’ equity

 

$

249,530

 

 

$

233,879

 

 

See Notes to Condensed Consolidated Financial Statements.

5


 

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

 

 

Six Months Ended

 

 

 

September 30,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

Net income

 

$

6,247

 

 

$

3,051

 

Adjustments to reconcile net income to net cash provided by operating
   activities:

 

 

 

 

 

 

Depreciation

 

 

1,721

 

 

 

1,549

 

Amortization of intangible assets

 

 

1,109

 

 

 

891

 

Amortization of actuarial losses

 

 

391

 

 

 

421

 

Amortization of debt issuance costs

 

 

 

 

 

119

 

Equity-based compensation expense

 

 

778

 

 

 

625

 

Change in fair value of contingent consideration

 

 

(726

)

 

 

 

Deferred income taxes

 

 

2

 

 

 

1,162

 

(Increase) decrease in operating assets, net of acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

15,387

 

 

 

(4,947

)

Unbilled revenue

 

 

(12,746

)

 

 

4,620

 

Inventories

 

 

1,886

 

 

 

(734

)

Prepaid expenses and other current and non-current assets

 

 

(1,738

)

 

 

(1,343

)

Income taxes receivable

 

 

(124

)

 

 

(489

)

Operating lease assets

 

 

643

 

 

 

589

 

Prepaid pension asset

 

 

(117

)

 

 

(144

)

Increase (decrease) in operating liabilities, net of acquisition:

 

 

 

 

 

 

Accounts payable

 

 

1,505

 

 

 

(6,451

)

Accrued compensation, accrued expenses and other current and non-current
   liabilities

 

 

(4,801

)

 

 

5

 

Customer deposits

 

 

14,485

 

 

 

13,503

 

Income taxes payable

 

 

(634

)

 

 

 

Operating lease liabilities

 

 

(623

)

 

 

(529

)

Long-term portion of accrued compensation, accrued pension and
   postretirement benefit liabilities

 

 

4

 

 

 

 

Net cash provided by operating activities

 

 

22,649

 

 

 

11,898

 

Investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(6,464

)

 

 

(3,312

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

38

 

Acquisition of P3 Technologies, LLC

 

 

(170

)

 

 

 

Net cash used by investing activities

 

 

(6,634

)

 

 

(3,274

)

Financing activities:

 

 

 

 

 

 

Principal repayments on debt

 

 

 

 

 

(1,020

)

Repayments on financing lease obligations

 

 

(157

)

 

 

(147

)

Issuance of common stock

 

 

334

 

 

 

225

 

Purchase of treasury stock

 

 

(854

)

 

 

(57

)

Net cash used by financing activities

 

 

(677

)

 

 

(999

)

Effect of exchange rate changes on cash

 

 

41

 

 

 

(82

)

Net increase in cash and cash equivalents

 

 

15,379

 

 

 

7,543

 

Cash and cash equivalents at beginning of period

 

 

16,939

 

 

 

18,257

 

Cash and cash equivalents at end of period

 

$

32,318

 

 

$

25,800

 

 

See Notes to Condensed Consolidated Financial Statements.

 

6


 

GRAHAM CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

(Dollar amounts in thousands)

 

(Unaudited)

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

 

 

 

Par

 

 

Excess of

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

 

 

Shares

 

 

Value

 

 

Par Value

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance at April 1, 2024

 

 

10,993

 

 

$

1,099

 

 

$

32,015

 

 

$

81,999

 

 

$

(7,013

)

 

$

(2,534

)

 

$

105,566

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,966

 

 

 

122

 

 

 

 

 

 

3,088

 

Issuance of shares

 

 

50

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of equity-based
  compensation expense

 

 

 

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

344

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(810

)

 

 

(810

)

Balance at June 30, 2024

 

 

11,043

 

 

 

1,104

 

 

 

32,354

 

 

 

84,965

 

 

 

(6,891

)

 

 

(3,344

)

 

 

108,188

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3,281

 

 

 

281

 

 

 

 

 

 

3,562

 

Issuance of shares

 

 

21

 

 

 

2

 

 

 

332

 

 

 

 

 

 

 

 

 

 

 

 

334

 

Recognition of equity-based
  compensation expense

 

 

 

 

 

 

 

 

434

 

 

 

 

 

 

 

 

 

 

 

 

434

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

(44

)

Balance at September 30, 2024

 

 

11,064

 

 

$

1,106

 

 

$

33,120

 

 

$

88,246

 

 

$

(6,610

)

 

$

(3,388

)

 

$

112,474

 

 

 

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

 

 

 

Par

 

 

Excess of

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

 

 

Shares

 

 

Value

 

 

Par Value

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance at April 1, 2023

 

 

10,774

 

 

$

1,075

 

 

$

28,061

 

 

$

77,443

 

 

$

(7,463

)

 

$

(2,183

)

 

$

96,933

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,640

 

 

 

(88

)

 

 

 

 

 

2,552

 

Issuance of shares

 

 

53

 

 

 

8

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of shares

 

 

(9

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of equity-based
  compensation expense

 

 

 

 

 

 

 

 

293

 

 

 

 

 

 

 

 

 

 

 

 

293

 

Issuance of treasury stock

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

 

 

 

(294

)

 

 

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57

)

 

 

(57

)

Balance at June 30, 2023

 

 

10,818

 

 

 

1,082

 

 

 

28,641

 

 

 

80,083

 

 

 

(7,551

)

 

 

(2,534

)

 

 

99,721

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

411

 

 

 

106

 

 

 

 

 

 

517

 

Issuance of shares

 

 

28

 

 

 

2

 

 

 

223

 

 

 

 

 

 

 

 

 

 

 

 

225

 

Recognition of equity-based
  compensation expense

 

 

 

 

 

 

 

 

332

 

 

 

 

 

 

 

 

 

 

 

 

332

 

Balance at September 30, 2023

 

 

10,846

 

 

$

1,084

 

 

$

29,196

 

 

$

80,494

 

 

$

(7,445

)

 

$

(2,534

)

 

$

100,795

 

 

 

See Notes to Condensed Consolidated Financial Statements.

7


 

GRAHAM CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

(Unaudited)

 

 

NOTE 1 – BASIS OF PRESENTATION:

Graham Corporation's (the "Company's") Condensed Consolidated Financial Statements include its wholly-owned subsidiaries located in Arvada, Colorado, Suzhou, China and Ahmedabad, India at September 30 and March 31, 2024, and its recently acquired wholly-owned subsidiary, P3 Technologies, LLC ("P3"), located in Jupiter, Florida (see Note 2). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, each as promulgated by the U.S. Securities and Exchange Commission. The Company's Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2024 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2024. For additional information, please refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 ("fiscal 2024"). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company's Condensed Consolidated Financial Statements.

The Company's results of operations and cash flows for the three and six months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2025 ("fiscal 2025").

 

NOTE 2 – ACQUISITION:

On November 9, 2023, the Company completed its acquisition of P3, a privately-owned custom turbomachinery engineering, product development, and manufacturing business located in Jupiter, Florida that serves the space, new energy, defense, and medical industries. The Company believes this acquisition advances its growth strategy, further diversifies its market and product offerings, and broadens its turbomachinery solutions. P3 will be managed through the Company's Barber-Nichols, LLC ("BN") subsidiary and is highly complementary to BN's technology and enhances its turbomachinery solutions.

This transaction was accounted for as a business combination which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price of $11,238 was comprised of 125 shares of the Company's common stock, representing a value of $1,930, and cash consideration of $7,268. The cash consideration was funded through borrowings on the Company's line of credit. The purchase agreement included a contingent earn-out dependent upon certain financial measures of P3 post-acquisition, in which the sellers are eligible to receive up to $3,000 in additional cash consideration. A rollforward of the P3 contingent earn-out liability since the date of acquisition is as follows:

 

Balance at November 9, 2023

 

$

2,040

 

Change in fair value

 

 

80

 

Payments

 

 

 

Balance at March 31, 2024

 

 

2,120

 

Change in fair value

 

 

(130

)

Payments

 

 

 

Balance at June 30, 2024

 

 

1,990

 

Change in fair value

 

 

(596

)

Payments

 

 

 

Balance at September 30, 2024

 

$

1,394

 

The change in fair value of the contingent earn-out liability was included in other operating income in the Condensed Consolidated Statements of Operations.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition and the amount exceeding the fair value of $1,997 was recorded as goodwill, which is deductible for tax purposes. Goodwill generated in the acquisition is related to P3’s assembled workforce, synergies between the Company’s other operations and P3 that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to leverage each other’s technology solutions, and the Company’s ability to utilize acquired management knowledge in providing complementary product

8


 

offerings to the Company’s customers. The following table summarizes the final purchase price allocation of the assets acquired and liabilities assumed:

 

 

 

November 9,

 

 

 

2023

 

Assets acquired:

 

 

 

  Cash and cash equivalents

 

$

286

 

  Trade accounts receivable, net of allowances

 

 

465

 

  Unbilled revenue

 

 

302

 

  Inventories

 

 

808

 

  Prepaid expenses and other current assets

 

 

93

 

  Property, plant & equipment, net

 

 

542

 

  Operating lease assets

 

 

130

 

  Goodwill

 

 

1,997

 

  Customer relationships

 

 

4,400

 

  Technology and technical know-how

 

 

2,500

 

  Tradename

 

 

300

 

Total assets acquired

 

 

11,823

 

Liabilities assumed:

 

 

 

  Accrued compensation

 

 

62

 

  Customer deposits

 

 

389

 

  Operating lease liabilities

 

 

134

 

Total liabilities assumed

 

 

585

 

Purchase price

 

$

11,238

 

The fair value of acquisition-related intangible assets includes customer relationships, technology and technical know-how, and tradename. The tradename is included in the line item other intangible assets, net in the Condensed Consolidated Balance Sheets. The fair value of customer relationships was calculated using an income approach, specifically the Multi Period Excess Earnings method, which incorporates assumptions regarding retention rate, new customer growth and customer related costs. The fair value of tradename and technology and technical know-how were both calculated using a Relief from Royalty method, which develops a market based royalty rate used to reflect the after tax royalty savings attributable to owning the intangible asset.

Customer relationships and tradename are amortized in selling, general and administrative expense on a straight line basis over their estimated useful lives of eight years and three years respectively. Technology and technical know-how is amortized in cost of products sold on a straight line basis over its estimated useful life of ten years.

During the three months ended June 30, 2024, the seller received $170 for tax liabilities owed in accordance with the purchase agreement.

The Condensed Consolidated Statement of Operations for the three and six months ended September 30, 2024 includes net sales for P3 of $859 and $2,437, respectively and net (loss) income of ($200) and $276, respectively. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the P3 acquisition had occurred at the beginning of each of the fiscal periods presented:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

53,563

 

 

$

46,833

 

 

$

103,514

 

 

$

95,833

 

Net income

 

 

3,281

 

 

 

945

 

 

 

6,247

 

 

 

3,811

 

Income per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.09

 

 

$

0.57

 

 

$

0.35

 

Diluted

 

$

0.30

 

 

$

0.09

 

 

$

0.57

 

 

$

0.35

 

 

The unaudited pro forma information presents the combined operating results of the Company and P3 with the results prior to the acquisition date adjusted to include the pro forma impact of the adjustment of depreciation of fixed assets based on the preliminary purchase price allocation, the adjustment to interest expense reflecting the cash paid in connection with the acquisition, including acquisition-related expenses, at the Company’s weighted average interest rate, amortization expense related to the fair value adjustments for intangible assets, non-recurring acquisition-related costs, and the impact of income taxes on the pro forma adjustments utilizing the applicable statutory tax rate.

9


 

The unaudited pro forma results are presented for illustrative purposes only. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of each of the periods presented, nor does the pro forma data intend to be a projection of results that may be obtained in the future.

 

NOTE 3 – REVENUE RECOGNITION:

The Company recognizes revenue on contracts when or as it satisfies a performance obligation by transferring control of the product to the customer. For contracts in which revenue is recognized upon shipment, control is generally transferred when products are shipped, title is transferred, significant risks of ownership have transferred, the Company has rights to payment, and rewards of ownership pass to the customer. For contracts in which revenue is recognized over time, control is generally transferred as the Company creates an asset that does not have an alternative use to the Company and the Company has an enforceable right to payment for the performance completed to date.

The following table presents the Company’s revenue disaggregated by product line and geographic area:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

Market

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Refining

 

$

8,416

 

 

$

7,289

 

 

$

16,658

 

 

$

14,156

 

Chemical/Petrochemical

 

 

5,422

 

 

 

4,365

 

 

 

10,205

 

 

 

10,406

 

Defense

 

 

30,897

 

 

 

25,118

 

 

 

59,991

 

 

 

47,935

 

Space

 

 

3,416

 

 

 

2,775

 

 

 

7,363

 

 

 

7,597

 

Other

 

 

5,412

 

 

 

5,529

 

 

 

9,297

 

 

 

12,551

 

Net sales

 

$

53,563

 

 

$

45,076

 

 

$

103,514

 

 

$

92,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

4,274

 

 

$

2,980

 

 

$

9,576

 

 

$

8,882

 

Canada

 

 

1,665

 

 

 

1,092

 

 

 

2,661

 

 

 

1,991

 

Middle East

 

 

794

 

 

 

669

 

 

 

1,777

 

 

 

1,718

 

South America

 

 

314

 

 

 

172

 

 

 

369

 

 

 

199

 

U.S.

 

 

45,460

 

 

 

38,604

 

 

 

86,390

 

 

 

76,745

 

All other

 

 

1,056

 

 

 

1,559

 

 

 

2,741

 

 

 

3,110

 

Net sales

 

$

53,563

 

 

$

45,076

 

 

$

103,514

 

 

$

92,645

 

A performance obligation represents a promise in a contract to provide a distinct good or service to a customer. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferred products. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. In certain cases, the Company may separate a contract into more than one performance obligation, while in other cases, several products may be part of a fully integrated solution and are bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods underlying each performance obligation. The Company has made an accounting policy election to exclude from the measurement of the contract price all taxes assessed by government authorities that are collected by the Company from its customers. The Company does not adjust the contract price for the effects of a financing component if the Company expects, at contract inception, that the period between when a product is transferred to a customer and when the customer pays for the product will be one year or less. Shipping and handling fees billed to the customer are recorded in revenue and the related costs incurred for shipping and handling are included in cost of products sold.

The Company recognizes revenue over time when contract performance results in the creation of a product for which the Company does not have an alternative use and the contract includes an enforceable right to payment in an amount that corresponds directly with the value of the performance completed. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor hours incurred to date to management’s estimate of the total labor hours to be incurred on each contract, an input method based upon a ratio of total contract costs incurred to date to management’s estimate of the total contract costs to be incurred or an output method based upon completion of operational milestones, depending upon the nature of the contract. The Company has established the systems and procedures essential to developing the estimates required to account for performance obligations over time. These procedures include monthly review by management of costs incurred, progress towards completion, identified risks and opportunities, sourcing determinations, changes in estimates of costs yet to be incurred, availability of materials, and execution by subcontractors. Sales and earnings are adjusted in current accounting

10


 

periods based on revisions in the contract value due to pricing changes and estimated costs at completion. Losses on contracts are recognized immediately when evident to management. Revenue on the majority of the Company's contracts, as measured by number of contracts, is recognized upon shipment to the customer. Revenue on larger contracts, which are fewer in number but represent the majority of revenue, is recognized over time. The following table presents the Company's revenue percentages disaggregated by revenue recognized over time or upon shipment:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue recognized over time

 

 

79

%

 

 

75

%

 

 

80

%

 

 

78

%

Revenue recognized at shipment

 

 

21

%

 

 

25

%

 

 

20

%

 

 

22

%

The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable, unbilled revenue (contract assets) and customer deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Unbilled revenue represents revenue on contracts that is recognized over time and exceeds the amount that has been billed to the customer. Unbilled revenue is separately presented in the Condensed Consolidated Balance Sheets. The Company may have an unconditional right to payment upon billing and prior to satisfying the performance obligations. The Company will then record a contract liability and an offsetting asset of equal amount until the deposit is collected and the performance obligations are satisfied. Customer deposits are separately presented in the Condensed Consolidated Balance Sheets. Customer deposits are not considered a significant financing component as they are generally received less than one year before the product is completed or used to procure specific material on a contract, as well as related overhead costs incurred during design and construction.

Net contract assets (liabilities) consisted of the following:

 

 

 

September 30, 2024

 

 

March 31, 2024

 

 

Change

 

 

 

Change due to revenue recognized

 

 

Change due to invoicing customers/
additional deposits