UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022March 31, 2023
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: 001-39613
ARRAY TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | | | | | | | | | | |
Delaware | | | | 83-2747826 |
(State or Other Jurisdiction) | | (I.R.S. Employer Identification No.) |
| | | | | |
3901 Midway Place NE | Albuquerque | | New Mexico | | 87109 |
(Address of principal executive offices) | | (Zip Code) |
| | | | | | | | |
(Registrant’s telephone number, including area code) | (505) | 881-7567 |
(Former name, former address and former fiscal year, if changed since last report) N/A
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, $0.001 par value | | ARRY | | Nasdaq Global Market |
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of November 7, 2022,May 5, 2023, there were 150,490,517150,853,116 shares of common stock, par value $0.001 per share, issued and outstanding.
Array Technologies, Inc.
Index to Form 10-Q
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except per share and share amounts)
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | ASSETS |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 62,778 | | | $ | 367,670 | | Cash and cash equivalents | $ | 147,756 | | | $ | 133,901 | |
Accounts receivable, net | Accounts receivable, net | 485,174 | | | 236,009 | | Accounts receivable, net | 414,712 | | | 421,183 | |
Inventories, net | 269,775 | | | 205,653 | | |
Inventories | | Inventories | 254,624 | | | 233,159 | |
Income tax receivables | Income tax receivables | 12,765 | | | 9,052 | | Income tax receivables | 3,163 | | | 3,532 | |
Prepaid expenses and other | Prepaid expenses and other | 41,309 | | | 33,649 | | Prepaid expenses and other | 46,381 | | | 39,434 | |
Total current assets | Total current assets | 871,801 | | | 852,033 | | Total current assets | 866,636 | | | 831,209 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 20,024 | | | 10,692 | | Property, plant and equipment, net | 25,864 | | | 23,174 | |
Goodwill | Goodwill | 359,629 | | | 69,727 | | Goodwill | 428,173 | | | 416,184 | |
Other intangible assets, net | Other intangible assets, net | 384,084 | | | 174,753 | | Other intangible assets, net | 379,374 | | | 386,364 | |
Deferred tax assets | 18,785 | | | 9,345 | | |
Deferred income tax assets | | Deferred income tax assets | — | | | 16,466 | |
Derivative assets | | Derivative assets | 63,320 | | | — | |
Other assets | Other assets | 27,502 | | | 26,429 | | Other assets | 30,802 | | | 32,655 | |
Total assets | Total assets | $ | 1,681,825 | | | $ | 1,142,979 | | Total assets | $ | 1,794,169 | | | $ | 1,706,052 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | |
LIABILITIES, REDEEMABLE PERPETUAL PREFERRED STOCK AND STOCKHOLDERS' EQUITY | | LIABILITIES, REDEEMABLE PERPETUAL PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 199,358 | | | $ | 91,392 | | Accounts payable | $ | 200,585 | | | $ | 170,430 | |
Accounts payable - related party | 478 | | | 610 | | |
Accrued expenses and other | Accrued expenses and other | 91,102 | | | 38,494 | | Accrued expenses and other | 58,795 | | | 54,895 | |
Accrued warranty reserve | Accrued warranty reserve | 4,237 | | | 3,192 | | Accrued warranty reserve | 1,443 | | | 3,690 | |
Income tax payable | Income tax payable | 10,587 | | | 60 | | Income tax payable | 11,833 | | | 6,881 | |
Deferred revenue | Deferred revenue | 154,692 | | | 99,575 | | Deferred revenue | 151,343 | | | 178,922 | |
Current portion of contingent consideration | Current portion of contingent consideration | — | | | 1,773 | | Current portion of contingent consideration | 1,811 | | | 1,200 | |
Current portion of debt | Current portion of debt | 47,686 | | | 4,300 | | Current portion of debt | 34,382 | | | 38,691 | |
Other current liabilities | Other current liabilities | 4,981 | | | 5,909 | | Other current liabilities | 10,393 | | | 10,553 | |
Total current liabilities | Total current liabilities | 513,121 | | | 245,305 | | Total current liabilities | 470,585 | | | 465,262 | |
Long-term liabilities | | |
Deferred tax liability | 74,139 | | | — | | |
| Deferred income tax liabilities | | Deferred income tax liabilities | 73,051 | | | 72,606 | |
Contingent consideration, net of current portion | Contingent consideration, net of current portion | 7,113 | | | 12,804 | | Contingent consideration, net of current portion | 6,914 | | | 7,387 | |
Other long-term liabilities | Other long-term liabilities | 9,113 | | | 5,557 | | Other long-term liabilities | 13,939 | | | 14,808 | |
Long-term warranty | Long-term warranty | 3,852 | | | — | | Long-term warranty | 4,469 | | | 1,786 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | 725,109 | | | 711,056 | | Long-term debt, net of current portion | 705,827 | | | 720,352 | |
Total long-term liabilities | 819,326 | | | 729,417 | | |
Total liabilities | Total liabilities | 1,332,447 | | | 974,722 | | Total liabilities | 1,274,785 | | | 1,282,201 | |
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands, except per share and share amounts)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Commitments and contingencies (Note 16) | | | |
Series A Redeemable Perpetual Preferred Stock of $0.001 par value - 500,000 authorized; 400,000 and 350,000 shares issued as of September 30, 2022 and December 31, 2021, respectively; liquidation preference of $400.0 million and $350.0 million as of September 30, 2022 and December 31, 2021, respectively | 287,561 | | | 237,462 | |
Stockholders’ equity (deficit) | | | |
Preferred stock of $0.001 par value - 4,500,000 shares authorized; none issued as of September 30, 2022 and December 31, 2021 | — | | | — | |
Common stock of $0.001 par value - 1,000,000,000 shares authorized; 150,334,261 and 135,026,940 shares issued as of September 30, 2022 and December 31, 2021, respectively | 150 | | | 135 | |
Additional paid-in capital | 392,862 | | | 202,562 | |
Accumulated deficit | (258,360) | | | (271,902) | |
Accumulated other comprehensive income | (72,835) | | | — | |
Total stockholders’ equity (deficit) | 61,817 | | | (69,205) | |
Total liabilities, redeemable perpetual preferred stock and stockholders’ equity | $ | 1,681,825 | | | $ | 1,142,979 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Commitments and contingencies (Note 12) | | | |
Series A Redeemable Perpetual Preferred Stock of $0.001 par value - 500,000 authorized; 412,739 and 406,389 shares issued as of March 31, 2023 and December 31, 2022, respectively; liquidation preference of $412.7 million and $406.4 million at respective dates | 312,054 | | | 299,570 | |
Stockholders’ equity | | | |
Preferred stock of $0.001 par value - 4,500,000 shares authorized; none issued at respective dates | — | | | — | |
Common stock of $0.001 par value - 1,000,000,000 shares authorized; 150,822,974 and 150,513,104 shares issued at respective dates | 150 | | | 150 | |
Additional paid-in capital | 426,221 | | | 383,176 | |
Accumulated deficit | (241,338) | | | (267,470) | |
Accumulated other comprehensive income | 22,297 | | | 8,425 | |
Total stockholders’ equity | 207,330 | | | 124,281 | |
Total liabilities, redeemable perpetual preferred stock and stockholders’ equity | $ | 1,794,169 | | | $ | 1,706,052 | |
TheSee accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Condensed Consolidated Financial Statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Revenue | Revenue | $ | 515,024 | | | $ | 188,686 | | | $ | 1,235,475 | | | $ | 633,442 | | Revenue | | $ | 376,773 | | | $ | 300,586 | |
Cost of revenue | Cost of revenue | 434,801 | | | 182,789 | | | 1,088,719 | | | 560,872 | | Cost of revenue | | 275,594 | | | 273,999 | |
Gross profit | Gross profit | 80,223 | | | 5,897 | | | 146,756 | | | 72,570 | | Gross profit | | 101,179 | | | 26,587 | |
| Operating expenses | Operating expenses | | Operating expenses | | |
General and administrative | General and administrative | 38,911 | | | 18,493 | | | 107,881 | | | 58,279 | | General and administrative | | 38,142 | | | 45,425 | |
Contingent consideration | (572) | | | 936 | | | (5,981) | | | 1,071 | | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | | 1,338 | | | (3,731) | |
Depreciation and amortization | Depreciation and amortization | 23,364 | | | 5,984 | | | 70,405 | | | 17,949 | | Depreciation and amortization | | 14,241 | | | 23,237 | |
Total operating expenses | Total operating expenses | 61,703 | | | 25,413 | | | 172,305 | | | 77,299 | | Total operating expenses | | 53,721 | | | 64,931 | |
| Income (loss) from operations | Income (loss) from operations | 18,520 | | | (19,516) | | | (25,549) | | | (4,729) | | Income (loss) from operations | | 47,458 | | | (38,344) | |
| Other income (expense) | Other income (expense) | | Other income (expense) | | |
Other expense, net | (399) | | | (297) | | | (27) | | | (497) | | |
Legal settlement | 42,750 | | | — | | | 42,750 | | | — | | |
Other income, net | | Other income, net | | 194 | | | 743 | |
Foreign currency gain (loss) | Foreign currency gain (loss) | (159) | | | — | | | 1,968 | | | — | | Foreign currency gain (loss) | | (194) | | | 3,863 | |
Change in fair value of derivative assets | | Change in fair value of derivative assets | | (1,950) | | | — | |
Interest expense | Interest expense | (8,746) | | | (13,109) | | | (23,709) | | | (28,769) | | Interest expense | | (9,500) | | | (6,942) | |
Total other income (expense) | 33,446 | | | (13,406) | | | 20,982 | | | (29,266) | | |
Total other (expense) | | Total other (expense) | | (11,450) | | | (2,336) | |
| Income (loss) before income tax (benefit) expense | Income (loss) before income tax (benefit) expense | 51,966 | | | (32,922) | | | (4,567) | | | (33,995) | | Income (loss) before income tax (benefit) expense | | 36,008 | | | (40,680) | |
Income tax (benefit) expense | Income tax (benefit) expense | 11,144 | | | (5,361) | | | (18,109) | | | (5,493) | | Income tax (benefit) expense | | 9,876 | | | (14,743) | |
Net income (loss) | Net income (loss) | 40,822 | | | (27,561) | | | 13,542 | | | (28,502) | | Net income (loss) | | 26,132 | | | (25,937) | |
Preferred dividends and accretion | Preferred dividends and accretion | 12,257 | | | 5,479 | | | 36,045 | | | 5,479 | | Preferred dividends and accretion | | 12,484 | | | 11,606 | |
Net income (loss) to common shareholders | Net income (loss) to common shareholders | $ | 28,565 | | | $ | (33,040) | | | $ | (22,503) | | | $ | (33,981) | | Net income (loss) to common shareholders | | $ | 13,648 | | | $ | (37,543) | |
| Income (loss) per common share | Income (loss) per common share | | Income (loss) per common share | | |
Basic | Basic | $ | 0.19 | | | $ | (0.25) | | | $ | (0.15) | | | $ | (0.26) | | Basic | | $ | 0.09 | | | $ | (0.25) | |
Diluted | Diluted | $ | 0.19 | | | $ | (0.25) | | | $ | (0.15) | | | $ | (0.26) | | Diluted | | $ | 0.09 | | | $ | (0.25) | |
Weighted average number of common shares | | | | | | | | |
Weighted average number of common shares outstanding | | Weighted average number of common shares outstanding | | | | |
Basic | Basic | 150,322 | | | 130,955 | | | 149,604 | | | 128,315 | | Basic | | 150,607 | | | 148,288 | |
Diluted | Diluted | 151,382 | | | 130,955 | | | 149,604 | | | 128,315 | | Diluted | | 151,795 | | | 148,288 | |
TheSee accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Condensed Consolidated Financial Statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | $ | 40,822 | | | $ | (27,561) | | | $ | 13,542 | | | $ | (28,502) | | Net income (loss) | | $ | 26,132 | | | $ | (25,937) | |
Change in foreign currency translation adjustments(1) | Change in foreign currency translation adjustments(1) | (34,106) | | | — | | | (72,835) | | | — | | Change in foreign currency translation adjustments(1) | | 13,872 | | | 56,675 | |
| Comprehensive income (loss) | $ | 6,716 | | | $ | (27,561) | | | $ | (59,293) | | | $ | (28,502) | | |
Comprehensive income | | Comprehensive income | | $ | 40,004 | | | $ | 30,738 | |
(1) The tax effect on other comprehensive income is not significant.
The
See accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Condensed Consolidated Financial Statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit)
(unaudited)
(in thousands)
Three Months Ended September 30, 2022March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity | |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity (Deficit) | |
Balance at June 30, 2022 | 413 | | | $ | 293,974 | | | | — | | | $ | — | | | 150,279 | | | $ | 150 | | | $ | 401,614 | | | $ | (299,182) | | | $ | (38,729) | | | $ | 63,853 | | |
Equity-based compensation | — | | | — | | | | — | | | — | | | 55 | | | — | | | 4,097 | | | — | | | — | | | 4,097 | | |
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees | — | | | — | | | | — | | | — | | | — | | | — | | | (592) | | | — | | | — | | | (592) | | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred cumulative dividends plus accretion | — | | | 12,257 | | | | — | | | — | | | — | | | — | | | (12,257) | | | — | | | — | | | (12,257) | | |
Dividends paid | (13) | | | (18,670) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | 40,822 | | | — | | | 40,822 | | |
Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (34,106) | | | (34,106) | | |
Balance at September 30, 2022 | 400 | | | $ | 287,561 | | | | — | | | $ | — | | | 150,334 | | | $ | 150 | | | $ | 392,862 | | | $ | (258,360) | | | $ | (72,835) | | | $ | 61,817 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity | |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity | |
Balance at December 31, 2022 | 406 | | | $ | 299,570 | | | | — | | | $ | — | | | 150,513 | | | $ | 150 | | | $ | 383,176 | | | $ | (267,470) | | | $ | 8,425 | | | $ | 124,281 | | |
Equity-based compensation | — | | | — | | | | — | | | — | | | 310 | | | — | | | 3,366 | | | — | | | — | | | 3,366 | | |
Correction of the Capped Call and Put Option errors (see Note 1) | — | | | — | | | | — | | | — | | | — | | | — | | | 52,914 | | | — | | | — | | | 52,914 | | |
Preferred cumulative dividends plus accretion | 7 | | | 12,484 | | | | — | | | — | | | — | | | — | | | (13,235) | | | — | | | — | | | (13,235) | | |
Net income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | 26,132 | | | — | | | 26,132 | | |
Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 13,872 | | | 13,872 | | |
Balance at March 31, 2023 | 413 | | | $ | 312,054 | | | | — | | | $ | — | | | 150,823 | | | $ | 150 | | | $ | 426,221 | | | $ | (241,338) | | | $ | 22,297 | | | $ | 207,330 | | |
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)
(unaudited)
(in thousands)
Three Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
Balance at June 30, 2021 | — | | | $ | — | | | | — | | | $ | — | | | 126,994 | | | $ | 127 | | | $ | 149,893 | | | $ | (222,440) | | | $ | (72,420) | |
Equity-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | 2,160 | | | — | | | 2,160 | |
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees | 350 | | | 229,799 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock, net | — | | | — | | | | — | | | — | | | 7,875 | | | 8 | | | 104,756 | | | — | | | 104,764 | |
Preferred cumulative dividends plus accretion | — | | | 5,479 | | | | — | | | — | | | — | | | — | | | (5,479) | | | — | | | (5,479) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (27,561) | | | (27,561) | |
Balance at September 30, 2021 | 350 | | | $ | 235,278 | | | | — | | | $ | — | | | 134,869 | | | $ | 135 | | | $ | 251,330 | | | $ | (250,001) | | | $ | 1,464 | |
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)
(unaudited)
(in thousands)
Nine Months Ended September 30,March 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity | |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity (Deficit) | |
Balance at December 31, 2021 | 350 | | | $ | 237,462 | | | | — | | | $ | — | | | 135,026 | | | $ | 135 | | | $ | 202,562 | | | $ | (271,902) | | | $ | — | | | $ | (69,205) | | |
Equity-based compensation | — | | | — | | | | — | | | — | | | 161 | | | — | | | 11,454 | | | — | | | — | | | 11,454 | | |
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees | 50 | | | 32,724 | | | | — | | | — | | | — | | | — | | | (1,172) | | | — | | | — | | | (1,172) | | |
Issuance of common stock, net | — | | | — | | | | — | | | — | | | 15,147 | | | 15 | | | 216,063 | | | — | | | — | | | 216,078 | | |
Preferred cumulative dividends plus accretion | 13 | | | 36,045 | | | | — | | | — | | | — | | | — | | | (36,045) | | | — | | | — | | | (36,045) | | |
Dividends paid | (13) | | | (18,670) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | 13,542 | | | — | | | 13,542 | | |
Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (72,835) | | | (72,835) | | |
Balance at September 30, 2022 | 400 | | | $ | 287,561 | | | | — | | | $ | — | | | 150,334 | | | $ | 150 | | | $ | 392,862 | | | $ | (258,360) | | | $ | (72,835) | | | $ | 61,817 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity |
Balance at December 31, 2021 | 350 | | | $ | 237,462 | | | | — | | | $ | — | | | 135,027 | | | $ | 135 | | | $ | 202,562 | | | $ | (271,902) | | | $ | — | | | $ | (69,205) | |
Equity-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | 4,413 | | | — | | | — | | | 4,413 | |
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees | 50 | | | 32,724 | | | | — | | | — | | | 15,147 | | | 15 | | | 215,863 | | | — | | | — | | | 215,878 | |
Preferred cumulative dividends plus accretion | — | | | 11,606 | | | | — | | | — | | | — | | | — | | | (11,606) | | | — | | | — | | | (11,606) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (25,937) | | | — | | | (25,937) | |
Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 56,675 | | | 56,675 | |
Balance at March 31, 2022 | 400 | | | $ | 281,792 | | | | — | | | $ | — | | | 150,174 | | | $ | 150 | | | $ | 411,232 | | | $ | (297,839) | | | $ | 56,675 | | | $ | 170,218 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)
(unaudited)
(in thousands)
Nine Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Temporary Equity | | | Permanent Equity |
| Series A Redeemable Perpetual Preferred Stock | | | Preferred Stock | | Common Stock | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
Balance at December 31, 2020 | — | | | $ | — | | | | — | | | $ | — | | | 126,994 | | | $ | 127 | | | $ | 140,473 | | | $ | (221,499) | | | $ | (80,899) | |
Equity-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | 11,580 | | | — | | | 11,580 | |
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees | 350 | | | 229,799 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock, net | — | | | — | | | | — | | | — | | | 7,875 | | | 8 | | | 104,756 | | | — | | | 104,764 | |
Preferred cumulative dividends plus accretion | — | | | 5,479 | | | | — | | | — | | | — | | | — | | | (5,479) | | | — | | | (5,479) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | (28,502) | | | (28,502) | |
Balance at September 30, 2021 | 350 | | | $ | 235,278 | | | | — | | | $ | — | | | 134,869 | | | $ | 135 | | | $ | 251,330 | | | $ | (250,001) | | | $ | 1,464 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from operating activities | | | | |
Operating activities: | | Operating activities: | | | |
Net income (loss) | Net income (loss) | $ | 13,542 | | | $ | (28,502) | | Net income (loss) | $ | 26,132 | | | $ | (25,937) | |
Adjustments to reconcile net income (loss) to net cash provided by, (used in) operating activities: | | |
Provision for (recovery of) bad debts | 660 | | | (574) | | |
Adjustments to net income (loss): | | Adjustments to net income (loss): | |
Provision for bad debts | | Provision for bad debts | 233 | | | 145 | |
Deferred tax expense | Deferred tax expense | (30,928) | | | (7,036) | | Deferred tax expense | 4,555 | | | 4,349 | |
Depreciation and amortization | Depreciation and amortization | 71,207 | | | 19,454 | | Depreciation and amortization | 14,533 | | | 23,608 | |
Amortization of debt discount and issuance costs | Amortization of debt discount and issuance costs | 5,003 | | | 13,653 | | Amortization of debt discount and issuance costs | 2,826 | | | 1,710 | |
Equity-based compensation | Equity-based compensation | 11,677 | | | 11,706 | | Equity-based compensation | 3,366 | | | 4,508 | |
Contingent consideration | Contingent consideration | (5,981) | | | 1,071 | | Contingent consideration | 1,338 | | | (3,731) | |
Warranty provision | Warranty provision | 4,341 | | | 305 | | Warranty provision | 436 | | | 594 | |
Provision for inventory obsolescence | (2,333) | | | 654 | | |
Write-down of inventories | | Write-down of inventories | 1,847 | | | 409 | |
Change in fair value of derivative assets | | Change in fair value of derivative assets | 1,950 | | | — | |
Changes in operating assets and liabilities, net of business acquisition | Changes in operating assets and liabilities, net of business acquisition | | Changes in operating assets and liabilities, net of business acquisition | |
Accounts receivable | Accounts receivable | (139,036) | | | (50,840) | | Accounts receivable | 6,238 | | | (44,268) | |
Inventories | Inventories | (14,273) | | | (55,321) | | Inventories | (23,312) | | | (46,250) | |
Income tax receivables | Income tax receivables | (3,610) | | | 9,676 | | Income tax receivables | 369 | | | (21,924) | |
Prepaid expenses and other | Prepaid expenses and other | 11,146 | | | (5,770) | | Prepaid expenses and other | (6,947) | | | 11,558 | |
Accounts payable | Accounts payable | 42,205 | | | 1,948 | | Accounts payable | 30,155 | | | 59,419 | |
Accounts payable - related party | (132) | | | (1,622) | | |
Accrued expenses and other | Accrued expenses and other | 41,271 | | | 1,683 | | Accrued expenses and other | 3,900 | | | 7,027 | |
Warranty payments | (373) | | | — | | |
Income tax payable | Income tax payable | 2,951 | | | (8,185) | | Income tax payable | 4,952 | | | (8,760) | |
Lease liabilities | Lease liabilities | 1,914 | | | 337 | | Lease liabilities | 824 | | | 6,085 | |
Deferred revenue | Deferred revenue | 34,772 | | | (68,474) | | Deferred revenue | (27,579) | | | (18,639) | |
Net cash provided by, (used in) operating activities | 44,023 | | | (165,837) | | |
Cash flows from investing activities | | | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 45,816 | | | (50,097) | |
Investing activities: | | Investing activities: | | | |
Purchase of property, plant and equipment | Purchase of property, plant and equipment | (6,690) | | | (2,252) | | Purchase of property, plant and equipment | (3,883) | | | (2,357) | |
Acquisition of STI, net of cash acquired | Acquisition of STI, net of cash acquired | (373,816) | | | — | | Acquisition of STI, net of cash acquired | — | | | (373,816) | |
Investment in equity security | — | | | (11,975) | | |
Net cash used in investing activities | Net cash used in investing activities | (380,506) | | | (14,227) | | Net cash used in investing activities | (3,883) | | | (376,173) | |
Cash flows from financing activities | | | | |
Financing activities: | | Financing activities: | | | |
Proceeds from Series A issuance | Proceeds from Series A issuance | 33,098 | | | 224,987 | | Proceeds from Series A issuance | — | | | 33,098 | |
Proceeds from common stock issuance | Proceeds from common stock issuance | 15,885 | | | 120,645 | | Proceeds from common stock issuance | — | | | 15,885 | |
Series A equity issuance costs | Series A equity issuance costs | (1,167) | | | (7,195) | | Series A equity issuance costs | (750) | | | (175) | |
Common stock issuance costs | Common stock issuance costs | (450) | | | (3,873) | | Common stock issuance costs | — | | | (450) | |
Dividends paid on Series A Preferred | (18,670) | | | — | | |
Payments on revolving credit facility | (116,000) | | | (102,000) | | |
Proceeds from revolving credit facility | | Proceeds from revolving credit facility | — | | | 52,000 | |
Proceeds from issuance of other debt | Proceeds from issuance of other debt | 39,219 | | | — | | Proceeds from issuance of other debt | 6,469 | | | 6,229 | |
Proceeds from revolving credit facility | 116,000 | | | 102,000 | | |
Principal payments on term loan facility | | Principal payments on term loan facility | (11,075) | | | (4,368) | |
Principal payments on other debt | | Principal payments on other debt | (17,206) | | | — | |
Contingent consideration payments | | Contingent consideration payments | (1,200) | | | (1,483) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | (23,762) | | | 100,736 | |
Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
(in thousands)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Principal payments on debt | (33,286) | | | (132,150) | | |
Contingent consideration | (1,483) | | | (7,810) | | |
Debt issuance costs | — | | | (6,590) | | |
Net cash provided by financing activities | 33,146 | | | 188,014 | | |
Effect of exchange rate changes on cash and cash equivalent balances | Effect of exchange rate changes on cash and cash equivalent balances | (1,555) | | | — | | Effect of exchange rate changes on cash and cash equivalent balances | (4,316) | | | 7,355 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (304,892) | | | 7,950 | | Net change in cash and cash equivalents | 13,855 | | | (318,179) | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 367,670 | | | 108,441 | | Cash and cash equivalents, beginning of period | 133,901 | | | 367,670 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 62,778 | | | $ | 116,391 | | Cash and cash equivalents, end of period | $ | 147,756 | | | $ | 49,491 | |
| Supplemental Cash Flow Information | Supplemental Cash Flow Information | | Supplemental Cash Flow Information | |
Cash paid for interest | | Cash paid for interest | $ | 7,980 | | | $ | 3,039 | |
Cash paid for income taxes | | Cash paid for income taxes | $ | 2,522 | | | $ | — | |
| Non-cash Investing and Financing Activities | | Non-cash Investing and Financing Activities | |
Dividends accrued on Series A Preferred | | Dividends accrued on Series A Preferred | $ | 6,350 | | | $ | 6,189 | |
Stock consideration paid for acquisition of STI | Stock consideration paid for acquisition of STI | $ | 200,224 | | | $ | — | | Stock consideration paid for acquisition of STI | $ | — | | | $ | 200,224 | |
|
TheSee accompanying notes are an integral part of these condensed consolidated financial statements.Notes to Condensed Consolidated Financial Statements.
Array Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization, Business and BusinessOut-of-Period Adjustments
Array Technologies, Inc. (the “Company”), formerly ATI Intermediate Holdings, LLC, is a Delaware corporation formed in December 2018 as a wholly owned subsidiary of ATI Investment Parent, LLC (“Former Parent”). On October 14, 2020, the Company converted from a Delaware limited liability company to a Delaware corporation and changed the Company’s name to Array Technologies, Inc. The Company is headquartered in Albuquerque, New Mexico, and manufactures and supplies solar tracking systems and related products for customers across the United States and internationally. The Company, through its wholly-owned subsidiary, ATI Investment Sub, Inc. owns subsidiaries through which it conducts substantially all operations.
Acquisition of STI Norland
On January 11, 2022 (the “Acquisition Date”), the Company acquired 100% of the share capital of Soluciones Técnicas Integrales Norland, S.L.U., a Spanish private limited liability Company, and its subsidiaries (collectively, “STI”) with cash and common stock of the Company (the “STI Acquisition”). The STI Acquisition was accounted for as a business combination. See Note 3 – Acquisition of STI.
AfterUpon completion of the acquisition of STI Acquisition, the Company began operating as two reportable operating segments: the Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI.
Out-of-Period Adjustment for the Correction of Errors
During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the three months ended March 31, 2023. The Company has concluded that the errors are not material to the previously issued financial statements and the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the three months ended March 31, 2023. Below is a summary of each of the errors corrected and a summary of the cumulative impact.
Capped Calls
As discussed in Note 8 – Debt, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023, in November 2021, the Company paid $52.9 million to enter into capped call option agreements (the “Capped Calls”) to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Company’s Convertible Notes (as defined below). The Company originally concluded that the Capped Calls met the criteria for equity classification because the Capped Calls are indexed to the Company’s common stock, and the Company has discretion to settle the Capped Calls in shares or cash. As a result, the Company originally recorded the amount paid for the Capped Calls as a reduction to additional paid-in capital of $52.9 million, offset by $12.4 million of income taxes.
When the Company entered into the Capped Calls, the Company executed certain side letters (the “Side Letters”) with the counterparties that replaced some of the terms described in the primary contract including the volatility inputs used to value the Capped Calls under certain circumstances. Upon further evaluation, the Company has concluded that the modification to the volatility inputs precludes the Capped Calls from being
Array Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
indexed to its own stock because there is the possibility that the Capped Calls will settle at an amount that exceeds fair value and, therefore, prevents the Capped Calls from being classified as equity.
In addition, the Side Letters also provide for certain adjustments to settlement amounts on the basis of holder-specific taxes which are impermissible inputs to the valuation that also prevents the Capped Calls from being indexed to the Company’s own stock, and therefore, prevents the Capped Calls from being classified as equity. As a result, for the three months ended March 31, 2023, the Company has concluded that the cash paid for the Capped Calls should have been recorded as an asset of $52.9 million with the asset being subsequently marked to market at the end of each accounting period.
Additional Closing Purchased Put Option
As discussed in Note 9 – Redeemable Perpetual Preferred Stock, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023, in August 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain Purchasers (as defined below), which gives the Company the option to require the Purchasers to purchase up to an additional 150,000 shares of Series A Shares (as defined below) and up to 3,375,000 shares of common stock for $148.0 million until June 30, 2023 (the “Put Option”). Upon issuance of the Put Option, the Company recorded a reduction to additional paid-in-capital of approximately $12.4 million because the Company originally concluded that the Put Option should be classified as equity.
During the first quarter of 2023, the Company reconsidered the provisions of this option. Because the Series A Shares underlying the Put Option could potentially require redemption under the Certificate of Designations governing the Series A Shares, the Put Option should not have been equity classified. As a result, during the three months ended March 31, 2023, the Company has concluded that the value of the Put Option at inception should have been recorded as an asset of $12.4 million, with the asset being subsequently marked to market at the end of each accounting period.
Correction of the Capped Calls and Put Option
The adjustments to correct the Capped Calls and the Put Option at January 1, 2023 resulted in an increase in Derivative assets of $55.7 million, a decrease in Deferred income tax assets of $11.0 million, an increase in additional paid-in-capital of $52.9 million, and a decrease in net income of $8.1 million.
Goodwill
In connection with the acquisition of STI, the Company had understated goodwill by $2.0 million and overstated inventory by the same amount that was sold during fiscal 2022. The Company corrected the goodwill balance during the current period resulting in an increase in goodwill and a decrease in cost of goods sold.
2. Summary of Significant Accounting Policies
Basis of Accounting and Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary for the fair statement of results for the interim periods reported. The results for the three and nine months ended September 30, 2022March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 20222023 or any other interim periods, or any future year or period. The balance sheet as of December 31, 20212022 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 6, 2022, as amended by the Form 10-K/A filed with the SEC on April 6, 2022March 22, 2023, (the “2021“2022 Annual Report”).
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, andthe disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenuerevenues and expenses during the reporting period. Significant estimates include evaluation for any impairment of goodwill, impairment of long-lived assets, fair value of contingent consideration, Series A Redeemable Perpetual Preferred Stock and the related future tranche, allowance for credit losses, reserve for excess or obsolete inventories, valuation of deferred tax assets and warranty reserve.
Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements; however, management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.
Impact of COVID-19 Pandemic
The Company continues to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where it operates. The Company’s priority remains the welfare of its employees. The Company expects persistent waves of COVID-19, including variants of the virus, to remain a headwind into the near future. The duration and extent to which it will continue to adversely impact the Company’s business and results of operations remain uncertain and could be material.
The Company believes it has sufficient liquidity and financing options available and expects to have sufficient liquidity to operate for the next 12 months. The Company expects to use cash generated from operations and if needed, can access funds from the Revolving Credit Facility (as defined below). The Company also has $100 million in delayed draw ability under the Series A Redeemable Perpetual Preferred Stock (as defined below) future draw commitment; however, such a draw would increase the Company’s dividend obligations and outstanding common stock and failure to draw the delayed commitments will result in interest expense payable by the Company. See Note 13 – Redeemable Perpetual Preferred Stock. The Revolving Credit Facility has $166.6 million of availability.
Impact of the Ongoing Conflict in Ukraine
The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know ultimate severity or duration of the conflict in Ukraine, but we continue to monitor the situation and evaluate our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations.
Inflation
The Company could see anInflationary pressures, while somewhat moderating recently, are expected to persist, at least in the near-term, and may negatively impact from elevated inflationour results of operation. To mitigate the inflationary pressures on our business, we have implemented selective price increases in certain markets, accelerated productivity initiatives and other operating costs. Interest rates have increased quickly and substantially as central banks in developed countries raise interest rates in an effortexpanded our supplier base, while continuing to subdue inflation, while government deficits and debt remain at high levels in many global markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higherexecute on overhead cost of capital during our forecast period.containment practices.
Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 Business Combinations (“ASC 805”). The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, amongst other items.
Foreign Currency Translation Exposure
For non-U.S.The functional currencies of certain of our foreign subsidiaries that operate in aare their local currency environment,currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities are translated into the U.S. dollar at period end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. Translationperiod to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments for these subsidiaries are accumulated as a separate component of accumulated“Accumulated other comprehensive income in(loss)” within stockholders’ equity. For non-U.S.
Certain of our foreign subsidiaries that use a U.S. dollar functional currency, local currency inventorieshave assets and liabilities (primarily cash, receivables, inventory, property, plant and equipment, intangible assets, trade payables, accrued expenses, operating lease liabilities, and long-term debt) that are translated into U.S. dollars atdenominated in currencies other than the subsidiaries’ functional currencies. Changes in the exchange rates prevailing when acquired,between the functional currencies of our subsidiaries and allthe other currencies in which these assets and liabilities are translateddenominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows.
Derivative Financial instruments
Recent Accounting Pronouncements
Adopted
In October 2021,March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In December 2022, the FASB issued ASU No. 2021-08,2022-06, Business CombinationsReference Rate Reform (Topic 805)848): Accounting for Contract Assets and Contract LiabilitiesDeferral of the Sunset Date of Topic 848, to provide entities with relief during the transition period by deferring the effective date of reference rate reform from Contracts with Customers (“December 31, 2022 to December 31, 2024. ASU 2021-08”). ASU 2021-08 requires2022-06 is effective upon issuance. During the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Atthree months ended March 31, 2023, the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the recent update, such amounts were recognized by the acquiring company at fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company early adopted ASU 2021-082020-04 and ASU 2022-06. Simultaneously, the Company elected to apply the debt accounting optional expedient, under which the reporting entity will account for amendments to debt agreements, which sole intent are the replacement of a discontinued reference rate(s), as being not substantial and thus a continuation of January 1, 2022. See the existing contractNote 3 – Acquisition of STI. for further information and disclosuresThere was no significant impact to the Company’s condensed consolidated financial statements related to the STI Acquisition.adoption of ASU 2020-04 and ASU 2022-06. The standard was appliedCompany continues to evaluate the acquisition accounting for STI. A reviewimpact of the deferred revenue ofASU 2020-04 guidance and may apply other elections as applicable as additional changes in the acquiree of $20.3 million was reviewed for consistency in application with the Company’s policies and U.S. GAAP and the contract liability balance was carried over at its carrying value.market occur.
3.Acquisition of STI
On the Acquisition Date,In March 2023, the Company completedamended an existing debt agreement to replace the STI Acquisition pursuant to the purchase agreement, dated November 10, 2021, by and among Amixa Capital, S.L. and Aurica Trackers, S.L., eachLondon Interbank Offered Rate (“LIBOR”) interest rate provisions with interest rate provisions based on a company duly organized under the laws of the Kingdom of Spain (together, the “Sellers”) and Mr. Javier Reclusa Etayo (the “STI Purchase Agreement”). The STI Acquisition was funded primarily with borrowings from the Convertible Notes (as defined below) and the issuance of Series A redeemable perpetual preferred stock of the Company, par value $0.001 per share (the “Series A Redeemable Perpetual Preferred Stock”). The STI Acquisition provided the Company with an immediate presence in Brazil, Western Europe and South Africa. Transaction
expenses incurred in connection with the acquisition are $5.6 million recorded in the general and administrative line item on the condensed consolidated statement of operations for the nine months ended September 30, 2022. In accordance with the STI Purchase Agreement, the Company paid closing consideration to the Sellers consisting of $410.5 million in cash and 13,894,800 shares of the Company’s common stock. The fair value of the purchase consideration was $610.8 million and resulted in the Company owning 100% of the interests in STI. The Company has performed a valuation of the acquisition assets and liabilities and determined the related accounting impact.
The purchase price consideration to acquire STI consisted of the following (in thousands):
| | | | | | | | |
Cash consideration for STI | | $ | 409,647 | |
Cash consideration for transaction expenses of STI | | 896 | |
Total cash consideration | | 410,543 | |
Non-cash equity consideration | | 200,224 | |
Total consideration transferred | | 610,767 | |
Total purchase price consideration | | $ | 610,767 | |
The STI Acquisition was accounted for as a business combination applying ASC 805. The equity consideration transferred consisted of the Company’s common stock and was measured at fair valueforward-looking term rate based on the
closing stock price on the Acquisition Date. The purchase price was allocatedsecured overnight funding rate (“SOFR”) (see Note 8 – Debt). There were no other changes to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the Acquisition Date. Goodwillagreement. There was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributingno significant impact to the recognition of goodwill were the expected synergies of the combined entities that are expected to be realized from the STI Acquisition. None of the goodwill is expected to be deductible for income tax purposes.Company’s condensed consolidated financial statements.
The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed as of the Acquisition Date (in thousands):
| | | | | | | | | | | | | | | | | | | | |
Preliminary Fair Value of Net Assets Acquired and Liabilities Assumed: | | Acquisition Date | | Measurement Adjustment | | September 30, 2022 |
Cash and cash equivalents | | $ | 36,725 | | | $ | — | | | $ | 36,725 | |
Accounts receivable | | 110,789 | | | — | | | 110,789 | |
Inventories | | 47,517 | | | — | | | 47,517 | |
Prepaid expenses and other | | 23,399 | | | — | | | 23,399 | |
Property, plant and equipment | | 4,434 | | | — | | | 4,434 | |
Other intangible assets | | 318,365 | | | — | | | 318,365 | |
Other assets | | 325 | | | — | | | 325 | |
Total assets acquired | | $ | 541,554 | | | $ | — | | | $ | 541,554 | |
| | | | | | |
Accounts payable | | 65,761 | | | — | | | 65,761 | |
Deferred revenue | | 20,345 | | | — | | | 20,345 | |
Short-term debt | | 44,338 | | | — | | | 44,338 | |
Other liabilities | | 10,115 | | | — | | | 10,115 | |
Income tax payable | | 7,576 | | | — | | | 7,576 | |
Deferred tax liability | | 93,823 | | | 7,611 | | | 101,434 | |
Other long-term liabilities | | 4,524 | | | — | | | 4,524 | |
Long-term debt | | 12,053 | | | — | | | 12,053 | |
Total liabilities assumed | | $ | 258,535 | | | $ | 7,611 | | | $ | 266,146 | |
| | | | | | |
Preliminary fair value of net assets acquired | | 283,019 | | | | | 275,408 | |
Preliminary allocation to goodwill | | $ | 327,748 | | | | | $ | 335,359 | |
The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as the twelve months following the Acquisition Date). The preliminary estimates of the fair values of the assets acquired and liabilities assumed were estimated to approximate carrying values since they are short term in nature, and they are receivable or payable on demand. These assets and liabilities were cash and cash equivalents, accounts receivable, prepaid expenses and other, accounts payable, other liabilities, and deferred revenue. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed as well as the tax impact. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the Acquisition Date throughout the remainder of the measurement period. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting. For assets and liabilities excluded from the scope of the intangible asset and property, plant and equipment valuation, the Company considered net book value to be a reasonable proxy as of the Acquisition Date.
The preliminary purchase price allocation includes $318.4 million of acquired identifiable intangible assets.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Weighted Average Useful Life in Years |
(in thousands, except useful lives) | | |
Backlog | | $ | 51,165 | | | 1 |
Customer relationships | | 238,770 | | | 10 |
Trade name | | 28,430 | | | 20 |
Total | | $ | 318,365 | | | |
The preliminary fair value of the identifiable intangible assets has been estimated using the Excess Earnings Method (customer relationships and backlog) and Relief from Royalty Method (trade name). Significant inputs using the Excess Earnings Method and Level 3 inputs in the fair value hierarchy include estimated revenue, expenses based on actuals and forecast, and a discount rate based on a weighted average cost of capital for customer relationships of 15% for Spain, 16.5% for Brazil and 14.0% for Spain foreign sourced projects and for order backlog of 8.5% for Spain, 9.5% for Brazil and 7.5% for Spain foreign sourced projects. Significant inputs to the Relief from Royalty method model include estimates of future revenue, economic life, estimated royalty rate of 1.25%, and a discount rate based on a weighted average cost of capital 15.2%. The weighted average cost of capital was determined based on the Company’s capital structure, cost of capital, inherent business risk profile and long-term growth expectations. The intangible assets are being amortized over their estimated useful lives on a straight-line basis that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the STI Acquisition.
The amounts of revenue and net loss of STI included in the Company’s consolidated statement of operations from the Acquisition Date through September 30, 2022 are $237.2 million and $14.1 million, respectively.
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma financial information presents the combined results of operations of the Company and STI as if the acquisition had occurred on January 1, 2021, after giving effect to certain unaudited pro forma adjustments. The unaudited pro forma adjustments reflected herein include only those adjustments that are directly attributable to the STI Acquisition including amortization of intangibles, debt financing expenses and tax benefits. The unaudited pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the STI Acquisition and is not necessarily indicative of the operating results that would have actually occurred had the STI Acquisition been consummated on January 1, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Revenue | $ | 515.0 | | | $ | 480.1 | | | $ | 1,243.0 | | | $ | 764.8 | |
Net income (loss) | $ | 52.1 | | | $ | (22.7) | | | $ | 48.7 | | | $ | (44.6) | |
4.3. Accounts Receivable, Net
Accounts receivable consists of the following (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Accounts receivable | Accounts receivable | $ | 485,869 | | | $ | 236,149 | | Accounts receivable | $ | 416,785 | | | $ | 423,071 | |
Less: allowance for doubtful accounts | (695) | | | (140) | | |
Less: allowance for credit losses | | Less: allowance for credit losses | (2,073) | | | (1,888) | |
Accounts receivable, net | Accounts receivable, net | $ | 485,174 | | | $ | 236,009 | | Accounts receivable, net | $ | 414,712 | | | $ | 421,183 | |
5.4. Inventories
Inventories consist of the following (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Raw materials | Raw materials | $ | 166,260 | | | $ | 85,470 | | Raw materials | $ | 88,348 | | | $ | 66,574 | |
Finished goods | Finished goods | 108,597 | | | 127,598 | | Finished goods | 166,276 | | | 166,585 | |
Reserve for excess or obsolete inventory | (5,082) | | | (7,415) | | |
Total | Total | $ | 269,775 | | | $ | 205,653 | | Total | $ | 254,624 | | | $ | 233,159 | |
6.5. Property, Plant and Equipment, Net
Property, plant and equipment consistedconsist of the following (in thousands, except useful lives):
| | | Estimated Useful Lives (Years) | | September 30, 2022 | | December 31, 2021 | | Estimated Useful Lives (Years) | | March 31, 2023 | | December 31, 2022 |
Land | Land | N/A | | $ | 1,563 | | | $ | 1,340 | | Land | N/A | | $ | 1,587 | | | $ | 1,583 | |
Buildings and land improvements | Buildings and land improvements | 15-39 | | 7,318 | | | 2,451 | | Buildings and land improvements | 15-39 | | 7,540 | | | 7,411 | |
Manufacturing equipment | Manufacturing equipment | 7 | | 17,893 | | | 13,924 | | Manufacturing equipment | 7 | | 18,533 | | | 18,983 | |
Furniture, fixtures and equipment | Furniture, fixtures and equipment | 5-7 | | 3,341 | | | 476 | | Furniture, fixtures and equipment | 5-7 | | 3,653 | | | 3,583 | |
Vehicles | Vehicles | 5 | | 527 | | | 161 | | Vehicles | 5 | | 592 | | | 585 | |
Hardware and software | Hardware and software | 3-5 | | 2,487 | | | 1,683 | | Hardware and software | 3-5 | | 3,831 | | | 3,706 | |
Assets in progress | Assets in progress | | 3,684 | | | 1,880 | | Assets in progress | N/A | | 8,229 | | | 5,142 | |
Total | Total | | 36,813 | | | 21,915 | | Total | | 43,965 | | | 40,993 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (16,789) | | | (11,223) | | Less: accumulated depreciation | | (18,101) | | | (17,819) | |
Property, plant and equipment, net | Property, plant and equipment, net | | $ | 20,024 | | | $ | 10,692 | | Property, plant and equipment, net | | $ | 25,864 | | | $ | 23,174 | |
Depreciation expense was $0.7 million and $0.6 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, of which $0.4$0.3 million and $0.5 million, respectively, was allocated to cost of revenue and $0.3$0.4 million and $0.1 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2022March 31, 2023 and 2021.
Depreciation expense was $1.8 million and $1.8 million for the nine months ended September 30, 2022 and 2021, respectively, of which $1.2 million and $1.5 million, respectively, was allocated to cost of revenue and $0.6 million and $0.3 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021.2022.
7.6. Goodwill and Other Intangible Assets
Goodwill
Prior to the STI Acquisition, goodwill, related to Former Parent’s acquisition of the Company, was recorded as $121.6 million and was subsequently impaired. Total accumulated impairment as of September 30, 2022 was $51.9 million.
The Company recorded an additional $335.4 million of goodwill as a result of the STI Acquisition and the Company’s reporting units became Array Legacy Operations and the newly acquired STI Operations, which had goodwill of $69.7 million and $289.9 million, respectively, at September 30, 2022 and $69.7 million and zero, respectively, at December 31, 2021. Goodwill is not deductible for tax purposes.
Changes in the carrying amount of goodwill by operating segment during the ninethree months ended September 30, 2022March 31, 2023 are shown below (in thousands):
| | | | | | | | | | | | | | | | | |
| Array Legacy Operations Segment | | STI Operations Segment | | Total |
Beginning Balance | $ | 69,727 | | | $ | — | | | $ | 69,727 | |
Acquisition of STI | — | | | 335,359 | | | $ | 335,359 | |
Foreign currency impact | — | | | (45,457) | | | $ | (45,457) | |
Ending Balance | $ | 69,727 | | | $ | 289,902 | | | $ | 359,629 | |
| | | | | | | | | | | | | | | | | |
| Array Legacy Operations(1) | | STI Operations | | Total |
Beginning balance | $ | 69,727 | | | $ | 346,457 | | | $ | 416,184 | |
Correction to goodwill (see Note 1) | — | | | 2,000 | | | 2,000 | |
Foreign currency translation | — | | | 9,989 | | | 9,989 | |
Ending balance | $ | 69,727 | | | $ | 358,446 | | | $ | 428,173 | |
(1) Goodwill attributable to Array Legacy Operations is net of accumulated impairment of $51.9 million.
Each quarter the Company evaluates if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. During the quarter endedour most recent evaluation, we concluded there were no indicators of impairment as of March 31, 2022, the Company determined it was necessary to perform an interim goodwill impairment test for the Array Legacy Operations reporting unit. The Company performed a quantitative goodwill impairment test and determined the estimated fair value of the reporting unit exceeded the carrying value assigned to that reporting unit; as a result, goodwill was not impaired.
Other Intangible Assets
Other intangible assets consisted of the following (in thousands, except useful lives):
| | | Estimated Useful Lives (Years) | | September 30, 2022 | | December 31, 2021 | | Estimated Useful Lives (Years) | | March 31, 2023 | | December 31, 2022 |
Amortizable: | Amortizable: | | | | | Amortizable: | | | | |
Costs: | Costs: | | Costs: | |
Developed technology | Developed technology | 14 | | $ | 203,800 | | | $ | 203,800 | | Developed technology | 14 | | $ | 204,442 | | | $ | 203,800 | |
Customer relationships | Customer relationships | 10 | | 295,405 | | | 89,500 | | Customer relationships | 10 | | 327,397 | | | 321,935 | |
Backlog | Backlog | 1 | | 44,132 | | | — | | Backlog | 1 | | 52,545 | | | 51,015 | |
Trade name | Trade name | 20 | | 24,518 | | | — | | Trade name | 20 | | 26,314 | | | 25,682 | |
Total amortizable intangibles | Total amortizable intangibles | | 567,855 | | | 293,300 | | Total amortizable intangibles | | 610,698 | | | 602,432 | |
Accumulated amortization: | Accumulated amortization: | | | | | Accumulated amortization: | | | | |
Developed technology | Developed technology | | 90,709 | | | 79,790 | | Developed technology | | 98,318 | | | 94,347 | |
Customer relationships | Customer relationships | | 70,606 | | | 49,057 | | Customer relationships | | 89,155 | | | 81,268 | |
Backlog | Backlog | | 31,794 | | | — | | Backlog | | 52,545 | | | 49,507 | |
Trade name | Trade name | | 962 | | | — | | Trade name | | 1,606 | | | 1,246 | |
Total accumulated amortization | Total accumulated amortization | | 194,071 | | | 128,847 | | Total accumulated amortization | | 241,624 | | | 226,368 | |
Total amortizable intangibles, net | Total amortizable intangibles, net | | 373,784 | | | 164,453 | | Total amortizable intangibles, net | | 369,074 | | | 376,064 | |
| Non-amortizable costs: | Non-amortizable costs: | | Non-amortizable costs: | |
Trade name | Trade name | | 10,300 | | | 10,300 | | Trade name | | 10,300 | | | 10,300 | |
Total other intangible assets, net | Total other intangible assets, net | | $ | 384,084 | | | $ | 174,753 | | Total other intangible assets, net | | $ | 379,374 | | | $ | 386,364 | |
Amortization expense related to intangible assets amounted to $23.2was $13.8 million and $5.9$22.0 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $69.8 million and $17.6 million for the nine months ended September 30, 2022 and 2021, respectively.
Estimated future annual amortization expense for the above amortizableof intangible assets for the remaining periods through September 30,as of March 31, is as follows (in thousands):
| | | | | |
| Amount |
2022 | $ | 22,365 | |
2023 | 46,633 | |
2024 | 45,328 | |
2025 | 45,328 | |
2026 | 41,021 | |
Thereafter | 173,109 | |
| $ | 373,784 | |
| | | | | |
| Amount |
Remainder of 2023 | $ | 34,846 | |
2024 | 46,970 | |
2025 | 46,970 | |
2026 | 42,664 | |
2027 | 38,020 | |
Thereafter | 159,604 | |
| $ | 369,074 | |
Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.
During the quarter ended March 31, 2022, the Company determined it was necessary to review long-lived assets, including intangible assets related to the Array Legacy Operations reporting unit, for impairment. The Company determined the undiscounted cash flows expected to result from the use of the asset group and its eventual disposition were greater than the carrying amount and therefore concluded there was no impairment.
8.Investment in Equity Security
The Company made a $10.0 million and $2.0 million investment in preferred stock of a private company in February 2021 and April 2021, respectively. The investment is accounted for in accordance with ASC Topic 321 Investments—Equity Securities at its cost, less any impairment. The investment balance as of September 30, 2022 was $12.0 million and is recorded in other assets on the condensed consolidated balance sheets. There is no impairment recorded for the nine months ended September 30, 2022.
9.7. Income Taxes
The Company follows guidance under ASC Topic 740-270 Income Taxes, which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income (loss). At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The tax effect of discrete items is recorded in the quarter in which the discrete events occur.
The Company recorded income tax expense (benefit) of $11.1$9.9 million and $(5.4)a benefit of $14.7 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and income tax expense (benefit) of $(18.1) million and $5.5 million for the nine months ended September 30, 2022 and 2021, respectively. The tax expense infor the three months ended September 30, 2022 includesMarch 31, 2023 was unfavorably impacted by higher income reported in non-U.S. jurisdictions and an out of period increase in income tax expense of $8.7$1.4 million onrelated to the legal settlement income which wasPut Option (see Note 1 – Organization, Business and Out-of-Period Adjustments), partially offset by benefits related to excess equity-based compensation deductions recorded discretely induring the quarter. The tax excludingbenefit for the legal settlement,three months ended March 31, 2022 was favorably impacted by non-taxable contingent income, and mix of income by jurisdiction. Thelosses in non-U.S. jurisdictions which have higher tax benefit inrates than the three months ended September 30, 2021 was unfavorably impacted by non-deductible amounts for equity-based compensation and follow-on offering costs.
The tax benefit in the nine months ended September 30, 2022 includes tax expense of $8.7 million on the legal settlement which was recorded discretely in the quarter. The tax on the loss, excluding the legal settlement, was favorably impacted by mix of earnings by jurisdictionsU.S., partially offset by non-deductible amounts for officers’ compensation and transaction costs. The tax benefit in the nine months ended September 30, 2021 was unfavorably impacted by non-deductible equity based compensation as well as initial public offering and secondary offering costs.expenses.
For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, no reserves for uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.
In August 2022, the U.S. Inflation Reduction Act (“IRA”) was enacted into law. The IRA contains a number of revisions to the Internal Revenue Code that generally take effect in tax years beginning after December 31, 2022. The Company is in the process of evaluating provisions included under the IRA and its impact to the Company’s consolidated financial statements.
10.8. Senior Secured Credit FacilityDebt
Long-term senior secured credit facility consisted ofThe following table summarizes the followingCompany’s total debt (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Term loan facility | $ | 323,550 | | | $ | 326,775 | |
Revolving credit facility | — | | | — | |
| 323,550 | | | 326,775 | |
Less discount and issuance costs | (20,169) | | | (23,291) | |
Long-term portion, net of debt discount and issuance costs | 303,381 | | | 303,484 | |
Less current portion of credit facility | (4,300) | | | (4,300) | |
Long-term senior secured facility debt, net of current portion, debt discount and issuance costs | $ | 299,081 | | | $ | 299,184 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Senior Secured Credit Facility | | | |
Term loan facility | $ | 301,400 | | | $ | 312,475 | |
Revolving credit facility | — | | | — | |
| 301,400 | | | 312,475 | |
Unamortized discount and issuance costs | (17,544) | | | (19,135) | |
Carrying amount | 283,856 | | | 293,340 | |
| | | |
Convertible Debt | | | |
1% Senior Notes | 425,000 | | | 425,000 | |
Unamortized discount and issuance costs | (10,785) | | | (11,248) | |
Carrying amount | 414,215 | | | 413,752 | |
| | | |
Other Debt | 42,138 | | | 51,951 | |
| | | |
Total Debt | 768,538 | | | 789,426 | |
Unamortized discount and issuance costs, total | (28,329) | | | (30,383) | |
Carrying amount | 740,209 | | | 759,043 | |
Current portion of debt | (34,382) | | | (38,691) | |
Total long-term debt, net of current portion | $ | 705,827 | | | $ | 720,352 | |
Senior Secured Credit Facility
On October 14, 2020, the Company entered into a senior secured credit facility (the “Credit Agreement”), which was amended on February 23, 2021 (the “First Amendment”) and again, on February 26, 2021 (the “Second Amendment”) and again on March 2, 2023 (the “Third Amendment”). The senior secured facility consisted originallyconsists of (i) a $575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $150$200 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”). The Firstsingle purpose of the Third Amendment in March 2023 was to replace the case of Eurocurrency borrowings, lowered the London interbank offered rate floor to 50 basis points from 100 basis points and lowered the applicable margin to 325 basis points from 400 basis points per annum. This resulted in the current rate on the Term Loan Facility decreasing to 3.75% down from 5% prior to the First Amendment. The Second Amendment increased the $150.0 million Revolvingformer discontinued Senior Secured Credit Facility from $150.0 million to $200.0 million.reference rate of LIBOR, with the comparable active reference rate, SOFR. There were no other changes as a result of the Third Amendment.
Revolving Credit Facility
Under the Revolving Credit Facility, the Company had no outstanding balance as of both September 30, 2022March 31, 2023 and December 31, 2021, respectively, $33.42022, $40.4 million and $13.6$38.8 million in standby letters of credit at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and availability of $166.6$159.6 million and $186.4$161.2 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. TheIn accordance with the Third Amendment, the Revolving Credit Facility pays interest depending onat the contracted rateCompany’s election, at either (x) for the loan which is either for the Eurocurrency RateSOFR Loans at LIBORAdjusted Term SOFR plus 3.25% and(as defined) or (y) for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1% above the Federal Funds Rate or the Eurocurrency rate for the Dollar depositsAdjusted Term SOFR (as defined) for one month interest period, after giving effect to any floor plus 1%, plus 2.25%.
Term Loan Facility
The Term Loan Facility had a balance of $323.6$301.4 million and $326.8$312.5 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $20.2$17.5 million and $23.3$19.1 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. In accordance with the Third Amendment, the Term Loan Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (subject to a floor of 0.50%) plus 3.25% (as defined) or (y) for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1% above the Federal Funds Rate or the Adjusted Term SOFR(as defined) for one-month interest period, after giving effect to any floor plus 1%, plus 2.25%. The debt discount and issuance costs are being amortized using the effective interest method and the rate as of September 30, 2022March 31, 2023 is 6.75%9.22%. The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula did not result in requiring the Company to make an advance principal payment for the year ended December 31, 2021.
2022.
11. Convertible Debt
Convertible debt consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
1.00% Senior unsecured convertible notes | $ | 425,000 | | | $ | 425,000 | |
Less: unamortized discount and issuance costs | (11,721) | | | (13,137) | |
1.00% Senior unsecured convertible notes, net (1) | $ | 413,279 | | | $ | 411,863 | |
(1) Effective interest rate for the Convertible Notes as of September 30, 2022 and December 31, 2021 was 1.5%.
Debt
On December 3, 2021 and December 9, 2021, the Company completed a $425.0 million private offering of $375($375 million and $50 million, over allotment, respectively, in aggregate principal amountrespectively), of its 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $364.7$413.3 million ($364.7 million and $48.6 million, respectively,respectively), after deducting the original issue discount of 2.75%. The Convertible Notes were issued pursuant to an indenture, dated December 3, 2021, between the Company and U.S. Bank National Association, as trustee.
The Convertible Notes are senior unsecured obligations of the Company and will mature on December 1, 2028, unless earlier converted, redeemed, or repurchased. The Convertible Notes bear interest at a rate of 1.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022.
The conversion rate for the Notes was initially 41.9054 shares of the Company’s common stock per $1,000 principal amount of Notes, which was equivalent to an initial conversion price of approximately $23.86 per share of common stock or 10.1 million shares of common stock. The Convertible Notes were not convertible during the ninethree months ended September 30, 2022March 31, 2023 and none have been converted to date. Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the ninethree months ended September 30, 2022.March 31, 2023.
Capped Calls
In connection with the issuances of the Convertible Notes, the Company paid $52.9 million, in aggregate, to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Convertible Notes. Specifically, upon the exercise of the capped call instruments issued pursuant to the agreements (the “Capped Calls”), the Company would receive shares of its common stock equal to approximately 17.8 million shares (a) multiplied by (i) the lower of $36.0200 or the then-current market price of its common stock, less (ii) the applicable exercise price, $23.86, and (b) divided by the then-current market price of its common stock. The results of this formula are that the Company would receive more shares as the market price of its common stock exceeds the exercise price and approaches the cap, which was initially $36.0200 per share.
Consequently, if the Convertible Notes are converted, then the number of shares to be issued by the Company would be effectively partially offset by the shares of common stock received by the Company under the
Capped Calls as they are exercised. The formula above would be adjusted in the event of certain specified extraordinary events affecting the Company, including a merger; a tender offer; nationalization, insolvency or delisting of the Company’s common stock; changes in law; failure to deliver; insolvency filing; stock splits, combinations, dividends, repurchases or similar events; or an announcement of certain of the preceding actions.
The Company can also elect to receive the equivalent value of cash in lieu of shares of common stock upon settlement, except in certain circumstances. The Capped Calls expire on December 1, 2028 and terminate upon the occurrence of certain extraordinary events such as a merger, tender offer, nationalization, insolvency, delisting, event of default, a change in law, failure to deliver, an announcement of certain of these events, or an early conversion of the Convertible Notes. Although intended to reduce the net number of shares of common stock issued after a conversion of the Convertible Notes, the Capped Calls were separately negotiated transactions, are not a part of the terms of the Convertible Notes, and do not affect the rights of the holders of the Convertible Notes. The Capped Calls meetSee Note 2 – Summary of Significant Accounting Policies for information regarding the criteria for equity classification because they are indexed to the Company’s common stock and the Company has discretion to settle the Capped Calls in shares or cash. As a result, the amount paidaccounting for the Capped Calls was recorded as a reduction
Other Debt
Other debt consists of the debt obligations of STI. Interest rates on other debt range from 0.55% to additional paid-in capital. The Capped Calls are excluded from4.52% annually. Of the calculation of diluted net income (loss) per share attributable to common stockholders as their effect$42.1 million other debt balance, approximately $32.6 million is antidilutive.denominated in Euros and $9.5 million denominated in Brazilian Real.
12. Other Debt
In connection with the STI Acquisition, the Company assumed debt obligations of STI. As of September 30, 2022, related debt balances were $43.3 million in short-term debt and $12.7 million in long-term debt. Interest rates on the acquired debt range from 0.55% to 2.76% annually and maturities for the short-term portion of loans range from December 2022 to March 2023. Maturities for the long-term portion of loans are $4.9 million due in 2024 and $7.8 million due in March 2027.
13.9. Redeemable Perpetual Preferred Stock
Series A Redeemable Perpetual Preferred Stock
On August 10, 2021, theThe Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”“SPA”) with certain investors (the “Purchasers”) pursuant to which, on August 11, 2021, the Company issued and sold to certain investors (the “Purchasers”) 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock (the “Series A Shares”) and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $346.0 million (the “Initial Closing”). Further, pursuant to the Securities Purchase Agreement,SPA, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $776.0$0.01 million (the “Prepaid Forward Contract”). The Company used the net proceeds from the Initialinitial Closing to repay the entire $102.0 million amount outstanding balance under its existing Revolving Credit Facility and prepay $100.0 million underof the Company’s Term Loan Facility. Additionally,The Series A Shares have no maturity date.
The SPA gives the Securities Purchase Agreement entitlesCompany the option to require the Purchasers to designate one representativepurchase, up to be appointed to the Company’s board of directors (the “Board”) and to appoint three non-voting observers to the Board, in each case until such time as the Purchasers no longer beneficially ownan additional 150,000 shares of the Series A Redeemable Perpetual Preferred Stock with at least $100Shares until June 30, 2023 and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments), subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction, for an aggregate purchase price up to $148.0 million aggregate Liquidation Preference (as defined below)(the “Delayed Draw Commitment” or the “Put Option”). The Series A Redeemable Perpetual Preferred Stock has no maturity date.Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion.
On January 7, 2022, pursuant to the Delayed Draw Commitment, the Company issued and sold to the Purchasers, 50,000 shares of Series A Redeemable Perpetual Preferred StockShares and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $49.4 million (the “Additional Closing”).
Additional Closings
The Securities Purchase Agreement gives the Company the option to require the Purchasers to purchase, in one or more additional closings, up to 150,000 shares of Series A Redeemable Perpetual Preferred Stock until June 30, 2023 and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments) (subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction) for an aggregate purchase price up to $148.0 million (the “Delayed Draw Commitment”). This commitment has been reduced by the Additional Closing.
The Company evaluatedhas classified the Series A Shares as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method. Such accretion totaled $6.1 million and $5.4 million for the three months ended March 31, 2023 and 2022, respectively. Refer to Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the instruments issued in the Securities Purchase Agreement and determined the Series A Redeemable Perpetual Preferred Stock and common stock issued in the Initial Closing, as well as the Prepaid Forward Contract, and Delayed Draw Commitment are freestanding instruments accounted for in equity.
Put Option.
The Series A Redeemable Perpetual Preferred Stock is recorded in temporary equity on the condensed consolidated balance sheets as it has redemption features upon certain triggering events that are outside the Company’s control, such as a fundamental change. The proceeds of the Series A Redeemable Perpetual Preferred Stock, transactions costs and discount of $334.6 million have been allocated to each instrument based on its relative fair value. At the Initial Closing date, $229.8 million was allocated to the Series A Redeemable Perpetual Preferred Stock, $105.4 million to common stock, $12.4 million to the Delayed Draw Commitment, which was recorded as a debit to additional paid-in capital, and $11.7 million to the Prepaid Forward Contract.
The Additional Closing carried issuance and original issuance discount costs of $1.3 million. The net proceeds were allocated amongst the Series A Redeemable Perpetual Preferred Stock and common stock based on the proceeds of $33.1 million and $15.9 million, respectively.
Dividends
On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Redeemable Perpetual Preferred StockShares either in (i) cash at the then-applicable Cash Regular Dividend Rate (as defined below), (ii) through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate (as defined below) of 6.25% (the “Permitted Accrued Dividends”), or (iii) a combination thereof. Following the fifth anniversary of the Initial Closing, dividends are payable only in cash. To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points. In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Redeemable Perpetual Preferred Stock,Shares, will pay 100% of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95% of the 30-day VWAP of the Company’s common stock.stock (“Non-Cash Dividend”).
As used herein, “Liquidation Preference” means, with respect to any shares of the Series A Redeemable Perpetual Preferred Stock, the initial liquidation preference of $1000 per share plus any accrued dividends of such share as the time of the determination.
The “Cash Regular Dividend Rate” of the Series A Redeemable Perpetual Preferred StockShares means (i) initially, 5.75% per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing. The “Accrued Regular Dividend Rate” on the Series A Redeemable Perpetual Preferred StockShares means 6.25% per annum on the Liquidation Preference.
There are no Permitted Accrued Dividends accrued as of September 30, 2022As used herein, “Liquidation Preference” means, with dividends paid for the nine months ended September 30, 2022 $18.7 million (the “Q3 Dividend Payment”). Permitted Accrued Dividends resulted in 13respect to any shares of the Series A Redeemable Perpetual Preferred Stock being issuedShares, the initial liquidation preference of $1,000 per share plus any accrued dividends of such share as the time of September 30, 2022 which were settled with the Q3determination.
During the three months ended March 31, 2023, the Company accrued dividends on the Series A Shares at the Accrued Regular Dividend Paymentrate of 6.25% totaling $6.3 million. As of March 31, 2023, the Company has accrued and no longer outstanding. Dividends declared and paid asunpaid dividends of December 31, 2021 were $8.2$12.7 million.
The shares of Series A Redeemable Perpetual Preferred StockShares have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. As a result, the discount on Series A Redeemable Perpetual Preferred StockShares is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Redeemable Perpetual Preferred StockShares by a corresponding amount. TheAccordingly, the discount of $120.2 million is therefore being amortized over five years using the effective yield method. The amortization in each period is the amount which, together with the stated dividend in the period, results in a constant rate of effective cost with regard to the carrying amount of the Series A Redeemable Perpetual Preferred Stock.
The Company has presented the Series A Redeemable Perpetual Preferred Stock in temporary equity and is accreting the discount on the increasing rate dividends using the effective interest method. Such accretion totaled $17.2 million for the nine months ended September 30, 2022.
The Company paid the cash dividend for the three months ended September 30, 2022 of $6.3 million in dividends at a rate of 5.75% as of September 30, 2022.
Fees
Until June 30, 2023, the Company will pay the Purchasers a cash commitment premium on the unpurchased portion of Delayed Draw Commitment as follows:
a.0% through the six-month anniversary of the Initial Closing;
b.1.5% from the six-month anniversary of the Initial Closing through the 12-month anniversary of the Initial Closing; and
c.3.0% from the 12-month anniversary of the Initial Closing through June 30, 2023.
The Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion.
14.10. Revenue
Based on ASC 606 provisions, theThe Company disaggregates its revenue from contracts with customers by those sales recorded over-timeover time and sales recorded at a point in time. The following table presents the Company’s revenue disaggregated by sales recorded over-time and sales recorded at a point in timerevenues (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Over-time revenue | $ | 458,405 | | | $ | 128,183 | | | $ | 991,561 | | | $ | 360,581 | | |
Over time revenue | | Over time revenue | | $ | 248,219 | | | $ | 208,071 | |
Point in time revenue | Point in time revenue | 56,619 | | | 60,503 | | | 243,914 | | | 272,861 | | Point in time revenue | | 128,554 | | | 92,515 | |
Total revenue | Total revenue | $ | 515,024 | | | $ | 188,686 | | | $ | 1,235,475 | | | $ | 633,442 | | Total revenue | | $ | 376,773 | | | $ | 300,586 | |
As discussedContract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets (i.e., unbilled receivables) and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings.
Contract assets consisting of unbilled receivables are recorded within accounts receivable on the condensed consolidated financial statements includedbalance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Unbilled receivables | $ | 122,003 | | | $ | 101,513 | |
The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities (i.e., deferred revenue) relate to advanced orders and payments received by the 2021 Annual Report, contracts related toCompany.
Contract liabilities consisting of deferred revenue recorded on a contract-by-contract basis at the Company’s federal investment tax credit (“ITC”)end of each reporting period were determined to have multiple performance obligations satisfied at a point in time instead of one performance obligation satisfied over time. The disaggregated revenue information above foras follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Deferred revenue | $ | 151,343 | | | $ | 178,922 | |
During the ninethree months ended September 30, 2021 has been restated to correct this error, which resultedMarch 31, 2023, the Company converted $125.2 million in $223.2 million of revenue being reclassified from over-timedeferred revenue to point in time revenue, forwhich represented 70% of the nine months ended September 30, 2021.prior year’s deferred revenue balance.
Bill-and-Hold Arrangements
Revenue recognized for the ITC-related contracts and standalone system component sales is recorded at a point in time and recognized when obligations under the terms of the contract with the Company’s customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms.
In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers. When this occurs, the customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC. Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody. The material is bundled or palletized in the Company’s warehouses, identified separately as belonging to the respective customer and is ready for immediate transport to the customer project upon customer request. Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer. As of September 30, 2022,During the three months ended March 31, 2023, the Company had no contracts with customersrecognized $17.6 million in revenue from a single customer for the sale of goods and services that contained bill-and-hold obligations such as storage, handling and other custodial duties for the three and nine months ended September 30, 2022. Any losses incurred on point-in-time projects are recognized as the goods are delivered.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets (i.e., unbilled receivables) and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings for the Company’s revenue recognized over-time.
Contract assets consisting of unbilled receivables are recorded within accounts receivable on the condensed consolidated balance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Unbilled receivables | $ | 136,953 | | | $ | 111,224 | |
The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities (i.e., deferred revenue) relate to advanced orders and payments received by the Company. Contract liabilities consisting of deferred revenue recorded on a contract-by-contract basis at the end of each reporting period were as follows (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Deferred revenue | $ | 154,692 | | | $ | 99,575 | |
During the nine months ended September 30, 2022, the Company converted $73.1 million in deferred revenue to revenue, which represented 73% of the prior year’s deferred revenue balance.duties.
Remaining Performance Obligations
As of September 30, 2022,March 31, 2023, the Company had $386.3$571.5 million of remaining performance obligations. The Company expects to recognize revenue on 100% of these performance obligations in the next twelve months.
15. Income (Loss)11. Earnings Per Share
The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | | | | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | | Three Months Ended March 31, |
| | | | | | | | | | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | $ | 40,822 | | | $ | (27,561) | | | $ | 13,542 | | | $ | (28,502) | | Net income (loss) | | $ | 26,132 | | | $ | (25,937) | |
Preferred dividends and accretion | Preferred dividends and accretion | 12,257 | | | 5,479 | | | 36,045 | | | 5,479 | | Preferred dividends and accretion | | 12,484 | | | 11,606 | |
Net income (loss) to common shareholders | Net income (loss) to common shareholders | $ | 28,565 | | | $ | (33,040) | | | $ | (22,503) | | | $ | (33,981) | | Net income (loss) to common shareholders | | $ | 13,648 | | | $ | (37,543) | |
Basic: | Basic: | | | | | | | | Basic: | | | | |
Weighted average shares | Weighted average shares | 150,322 | | | 130,955 | | | 149,604 | | | 128,315 | | Weighted average shares | | 150,607 | | | 148,288 | |
Income (loss) per share | Income (loss) per share | $ | 0.19 | | | $ | (0.25) | | | $ | (0.15) | | | $ | (0.26) | | Income (loss) per share | | $ | 0.09 | | | $ | (0.25) | |
Diluted: | Diluted: | | | | | | | | Diluted: | | | | |
Effect of Restricted Stock and Performance Awards | 1,060 | | | — | | | — | | | — | | |
Effect of restricted stock and performance awards | | Effect of restricted stock and performance awards | | 1,188 | | | — | |
Weighted average shares | Weighted average shares | 151,382 | | | 130,955 | | | 149,604 | | | 128,315 | | Weighted average shares | | 151,795 | | | 148,288 | |
Income (loss) per share | Income (loss) per share | $ | 0.19 | | | $ | (0.25) | | | $ | (0.15) | | | $ | (0.26) | | Income (loss) per share | | $ | 0.09 | | | $ | (0.25) | |
Potentially dilutive common shares issuance pursuant to equity-based awards of 108,111 were not included as their effect was anti-dilutive for the three months ended September 30, 2022.
Potentially dilutive common shares issuable pursuant to equity-based awards of 2,504,046 and 1,203,520654,277 were not included for the nine
months ended September 30, 2022 and 2021, respectively, and 1,203,520 for the three months ended September 30, 2021,March 31, 2022, as their potential effect was anti-dilutive since the Company generated a net loss to common stock holders. shareholders.
There were no potentially dilutive common shares issuable pursuant to the Convertible Notes for the three months ended March 31, 2023 and 2022, as the par value of the Convertible Notes is required to be paid in cash upon conversion and the stock price is belowhas not exceeded the strike price.conversion price on the Convertible Notes.
16.12. Commitments and Contingencies
LitigationLegal Proceedings
The Company, in the normal course of business, is subject to claims and litigation. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss.
On August 30, 2017, the Company filed its first amended complaint in the U.S. District Court for the District of New Mexico against Nextracker LLC, Daniel S. Shugar, Marco Garcia, Flextronics International U.S.A., Inc., Scott Graybeal and Colin Mitchell (collectively, the “Defendants”) asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”). On July 15, 2022, the Company settled its claims against Defendants for $42.8 million and received payment on August 4, 2022.
On May 14, 2021, a putative class action was filed in the U.S. District Court for the Southern District of New York (the “Southern District of New York” or the “Court”) against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering (“IPO”), the Company’s December 2020 offering (the “2020 Follow-On Offering”), and the Company’s March 2021 offering (the “2021 Follow-On Offering”) during the putative class period of October 14, 2020 through May 11, 2021.
On June 30, 2021, a second putative class action was filed in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11 and 15 of the Securities Exchange Act of 1933 (“Keippel Action”). The Keippel Action similarly alleged misstatements and/or omissions in certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering during the putative class period of October 14, 2020 through May 11, 2021. On July 6, 2021, the Court entered an order that the Keippel Action was in all material respects substantially similar to the Plymouth Action that both actions arise out of the same or similar operative facts, and that the parties are substantially the same parties. The Court accordingly consolidated the Keippel Action with the Plymouth Action for all pretrial purposes and, ordered all filings to be made in the Plymouth Action.
On July 16, 2021, a verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“First SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934.
On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”). The complaint
alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second SDNY Derivative Action was consolidated with the First SDNY Derivative Action, the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action.
On September 21, 2021, the Court in the Plymouth Action appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiff.
On December 7, 2021, an amended class action complaint was filed by lead plaintiff in the Plymouth Action against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Exchange Act of 1933, on behalf of a putative class of persons and entities that purchased or otherwise acquired the Company’s securities during the period from October 14, 2020 through May 11, 2021 (the “Consolidated Amended Complaint”). The Consolidated Amended Complaint alleges misstatements and/or omissions in: (1) certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering; (2) in the Company’s Annual Report on Form 10-K and associated press release announcing results for the fourth quarter and full fiscal year 2020; and (3) in the Company’s November 5, 2020 and March 9, 2021 earnings calls.
On August 17, 2022, the Court in the Plymouth Action set a briefing schedule for any motion to dismiss with the opening motion and supporting memorandum to be filed on or before October 17, 2022, any opposition to be filed on or before December 16, 2022, and any reply in support of the motion to be filed on or before January 16, 2023. The Company and other defendants in the Plymouth Action filed a joint motion to dismiss (the “Motion to Dismiss”) the Consolidated Amended Complaint on October 17, 2022. The lead plaintiff filed a motion opposing the Motion to Dismiss on December 16, 2022, and the Company and other defendants filed a reply in support of the motion to dismiss on January 17, 2023.
On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company, asserting claims for: (1) breach of fiduciary duty and (2) unjust enrichment (“First Delaware Derivative Action”).
On August 11, 2022, a second verified derivative complaint was filed against certain officers and directors of the Company Court of Chancery, asserting claims for: (1) breach of fiduciary duty; (2) aiding and abetting breaches of fiduciary duty; (3) waste of corporate assets; (4) unjust enrichment; (5) insider selling; and (6) aiding and abetting insider selling (“Second Delaware Derivative Action”).
On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action, the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the
Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended
Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action.
At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the Company’s defenses. The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of September 30, 2022 or DecemberMarch 31, 2021.2023.
Contingent Consideration
Tax Receivable Agreement
Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, the Company’s operating subsidiary, Array Tech, Inc. (f/k/a Array Technologies, Inc.), entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc. to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc., from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration in the condensed consolidated statements of operations. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the fair value of the TRA was $7.1$8.7 million and $14.6$8.6 million, respectively.
Estimating the amount of payments that may be made under the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to the former owners include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA.
Payments made under the TRA consider tax positions taken by the Company and are due within 125 days following the filing of the Company’s U.S. federal and state income tax returns under procedures described in the agreement. The current portion of the TRA liability is based on tax returns. The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA.
The following table summarizes the liabilityactivity related to the estimated TRA liability (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Beginning balance | Beginning balance | $ | 7,686 | | | $ | 12,016 | | | $ | 14,577 | | | $ | 19,691 | | Beginning balance | | $ | 8,587 | | | $ | 14,577 | |
Payments | Payments | — | | | — | | | (1,483) | | | (7,810) | | Payments | | (1,200) | | | (1,483) | |
Fair value adjustment | Fair value adjustment | (573) | | | 936 | | | (5,981) | | | 1,071 | | Fair value adjustment | | 1,338 | | | (3,731) | |
Ending balance | Ending balance | $ | 7,113 | | | $ | 12,952 | | | $ | 7,113 | | | $ | 12,952 | | Ending balance | | $ | 8,725 | | | $ | 9,363 | |
The TRA liability requires significant judgment and is classified as Level 3 in the fair value hierarchy.
Surety Bonds
Surety Bonds
As of September 30, 2022,March 31, 2023, the Company posted surety bonds in the total amount of approximately $175.2$208.5 million. The Company is required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact the Company’s liquidity or capital resources.
17.13. Fair Value of Financial Instruments
The carrying values and the estimated fair values of debt financial instruments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Convertible Notes | $ | 413,279 | | | $ | 381,625 | | | $ | 411,863 | | | $ | 410,771 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Convertible Notes | $ | 414,215 | | | $ | 467,084 | | | $ | 413,752 | | | $ | 430,236 | |
| | | | | | | |
| | | | | | | |
The carrying values of the Revolving Credit Facility recorded in long-term debt on the condensed consolidated balance sheets approximate fair value due to the variable interest rate. The fair value of the Convertible Notes is estimated using Level 2 inputs, as they are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers.
The Capped Call is valued using a Black-Sholes model, with the most judgmental non-observable input being the volatility measure. The value of the Capped Call is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy. The fair value of the Capped Call was $59.5 million at March 31, 2023.
18.
The Put Option is exercisable into both Series A Stock and common stock. The value of the put option is based upon the expected future price of the Series A Stock and the company’s common stock, which is then discounted back to current present value. The present value of the Series A Stock is determined using a discounted cash flow method where the interest rate used for discounting is determined using a single-factor short-rate model. The value of the common stock is determined by using a Monte-Carlo simulation and is then discounted back to present value. The value of the Put Option is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy. The fair value of the Put Option was $3.8 million at March 31, 2023.
The fair value of the Term Loans and Other Debt is estimated using Level 2 inputs. The carrying values of the Term Loans outstanding under the Senior Secured Credit facility recorded in consolidated balance sheets approximate fair value due to the variable interest rate.
Other Debt totaling $42.1 million, consists of $25.0 million variable rate obligations and $17.1 million fixed rate obligations. Of the $17.1 million fixed rate obligations, $11.7 million mature in 2023 and $5.4 million mature in 2024. Due to the relative short-term maturity of these obligations, the Company believes current carrying value approximates fair value. The carrying value of the $25.0 million variable rate obligations approximate fair value due to the variable nature of the interest rate.
14. Equity-Based Compensation
2020 Equity Incentive Plan
On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.
DuringRestricted Stock Units
Pursuant to the nine months ended September 30, 2022,2020 Plan, the Company granted an aggregate of 1,433,829grants restricted stock units (“RSUs”) to employees and board of director members and 466,916 performance stock units (“PSUs”) to certain executives.members. The fair value of the RSUs is determined using the market value of common stock on the grant date.
RSU activity under the 2020 Plan during the three months ended March 31, 2023 was as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Outstanding non-vested, December 31, 2022 | 1,700,824 | | | $ | 13.81 | |
Shares granted | 757,334 | | | 17.26 | |
Shares vested | (306,245) | | | 14.21 | |
Shares forfeited | (93,019) | | | 15.61 | |
Outstanding non-vested, March 31, 2023 | 2,058,894 | | | $ | 14.73 | |
Performance Stock Units
The Company has granted performance stock units (“PSUs”) to certain employees. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (TSR)(“TSR”) compared to a certain index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method with a volatility assumptionon the date of 66% - 79%, risk free interest rate of 0.28% - 2.79%grant based on the United StatesU.S. Treasury Constant Maturity rates and no dividends paid assumption.
Activity under the 2020 Plan was as follows:
| | | | | | | | | | | |
RSUs | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested, December 31, 2021 | 930,409 | | | $ | 21.66 | |
Granted | 1,433,829 | | | $ | 10.16 | |
Vested | (278,792) | | | $ | 18.68 | |
Forfeited | (127,325) | | | $ | 18.50 | |
Unvested, September 30, 2022 | 1,958,121 | | | $ | 13.97 | |
| | | |
| | | |
PSUs | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested, December 31, 2021 | 147,687 | | | $ | 27.75 | |
Granted | 466,916 | | | $ | 10.88 | |
Vested | — | | | $ | — | |
Forfeited | (68,678) | | | $ | 30.74 | |
Unvested, September 30, 2022 | 545,925 | | | $ | 12.95 | |
Class B Units and Class C Units of Former Parent
rates. The Company accounted for equity grants to employees of Class B Units and Class C Units (collectively, the “Units”) of Former Parent as equity-based compensation under ASC 718, Compensation-Stock Compensation. The Units contain vesting provisions as definedfollowing assumptions were used in the agreement. Vested Units do not forfeit upon termination and represent a residual interest in Former Parent. Equity-based compensation cost is measured atMonte Carlo simulation for computing the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those Units with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent. However, the amount of equity-based compensation at any date is equal to the portion of the grant date value ofPSUs issued during the award that is vested.three months ended March 31, 2023 and 2022:
The Units issued to employees are measured at fair value on the grant date using an option pricing model. The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards. Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage. The risk-free rates are based on the yields of U.S. Treasury instruments with comparable terms. Actual results may vary depending on the assumptions applied within the model. | | | | | | | | | | | |
| 2023 | | 2022 |
Volatility | 90 | % | | 66 | % |
Risk-free interest rate | 3.74 | % | | 0.28 | % |
Dividend yield | — | % | | — | % |
On November 19, 2019 and May 19,PSU activity under the 2020 Former Parent issued 22,326,653 and 4,344,941, respectively, Class B Units to certain employees ofPlan during the Company. On March 28, 2020, Former Parent issued 1,000 Class C Units to a member of the board of directors of Array Technologies, Inc.
On March 23, 2021, in connection with the closing of the 2021 Follow-On Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of equity-based compensation of $8.9 million for the ninethree months ended September 30, 2021.March 31, 2023 was as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Outstanding non-vested, December 31, 2022 | 464,393 | | | $ | 11.96 | |
Shares granted | 263,594 | | | 19.22 | |
Shares vested | — | | | — | |
Shares forfeited | — | | | — | |
Outstanding non-vested, March 31, 2023 | 727,987 | | | $ | 14.59 | |
For the three months ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized $4.2$3.3 million and $2.2$4.4 million, respectively, in equity-based compensation, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized $11.7 million and $14.3 million in equity-based compensation, respectively. As of September 30, 2022,compensation. At March 31, 2023, the Company had $23.0$32.8 million of unrecognized compensation costs related to RSUs and PSUs, which is expected to be recognized over a period of 2 years. There were 76,936approximately 2.4 years and 196,003 forfeitures during the three and nine months ended September 30, 2022 and 18,772 and 79,277 forfeitures during the three and nine months ended September 30, 2021,2.7 years, respectively.
19. Related Party Transactions
Accounts Payable-Related Party
The Company had $0.5 million and $0.6 million as of September 30, 2022 and December 31, 2021, respectively, of accounts payable-related party with the former shareholders of Array. The payables relate to a federal tax refund related to the pre-acquisition periods and restricted cash related to Former Parent’s acquisition of the Company which were due to the sellers of Array upon release of the restriction offset by a receivable related to a sales/use tax audit from the pre-acquisition period for which the seller provided the Company with indemnification.
Tax Receivable Agreement
2015 Segment Reporting
ASC 280 Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Historically, the Company managed its business on the basis of one operating
and reportable segment. DuringConcurrent with the nine months ended September 30,acquisition of STI in January 2022, the Company changed its reportable segments as a result of the STI Acquisition; the Company now operatesbegan operating as two segments; Array Legacy Operations and STI Operations.
The following table provides a reconciliation of certain financial information for the Company’s reportable segments to information presented in its condensed consolidated financial statements for the three and nine
months ended September 30,March 31, 2023 and 2022 and 2021 and as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 | | | | | | |
| Array Legacy Operations | | STI Operations | | Total | | Array Legacy Operations | | | | | | |
Revenue | $ | 400,463 | | | $ | 114,561 | | | $ | 515,024 | | | $ | 188,686 | | | | | | | |
Gross Profit | $ | 63,921 | | | $ | 16,302 | | | $ | 80,223 | | | $ | 5,897 | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 | | | | | | |
| Array Legacy Operations | | STI Operations | | Total | | Array Legacy Operations | | | | | | |
Revenue | $ | 998,292 | | | $ | 237,183 | | | $ | 1,235,475 | | | $ | 633,442 | | | | | | | |
Gross Profit | $ | 119,029 | | | $ | 27,727 | | | $ | 146,756 | | | $ | 72,570 | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 | | | | | | | |
| Array Legacy Operations | | STI Operations | | Total | | Array Legacy Operations | | STI Operations | | Total | | | | | | | |
Revenue | $ | 305,204 | | | $ | 71,569 | | | $ | 376,773 | | | $ | 250,652 | | | $ | 49,934 | | | $ | 300,586 | | | | | | | | |
Gross Profit | $ | 83,474 | | | $ | 17,705 | | | $ | 101,179 | | | $ | 21,268 | | | $ | 5,319 | | | $ | 26,587 | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information included in Part I, “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q (this “Quarterly Report”), as well as our audited financial statements and notes thereto as of and for the year ended December 31, 20212022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 20212022 (“20212022 Annual Report”). Each of the terms the “Company,” “Array,” “we,” or “us” as used herein refers collectively to Array Technologies, Inc. and its wholly owned subsidiaries, unless otherwise stated. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections captioned “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report and our 20212022 Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.
Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of this Quarterly Report. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Summary Risk Factors
Our business is subject to a number of risks that if realized could materially and adversely affect our business, financial conditions, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report. Our principal risks include the following:
•we may be unable to successfully integrate the business of STI (as defined below) into our business or achieve the anticipated benefits of the STI Acquisition (as defined below);
•the capped call transactions may affect the value of our Convertible Notes (as defined below) and the market price of our common stock;
•the fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to acquire us;
•if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, our business will suffer;
•the viability and demand for solar energy are impacted by many factors outside of our control, which makes it difficult to predict our future prospects;
•competitive pressures within our industry may harm our business, revenues, growth rates and market share;
•we face competition from conventional and renewable energy sources that may offer products and solutions that are less expensive or otherwise perceived to be more advantageous than solar energy solutions, which could materially and adversely affect the demand for and the average selling price of our products and services;
•a loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment, could harm our business and negatively impact revenue, results of operations and cash flow;
•a failure to retain key personnel or a failure to attract additional qualified personnel may affect our ability to achieve our anticipated level of growth and adversely affect our business;
•a drop in the price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition, results of operations and prospects;
•we may be unable to successfully integrate the business of STI (as defined below) into our business or achieve the anticipated benefits of the STI Acquisition (as defined below);
•we have and may continue to face challenges in our ability to consolidate the financial reporting of our acquired foreign subsidiaries;
•the capped call transactions may affect the value of our Convertible Notes (as defined below) and the market price of our common stock;
•the fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to acquire us;
•defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;
•we may experience delays, disruptions or quality control problems in our product development operations;
•our business is subject to the risks of severe weather events, natural disasters and other catastrophic events;
•our continued expansion into new markets could subject us to additional business, financial, regulatory and competitive risks;
•developments in alternative technologies may have a material adverse effect on demand for our offerings;
•ana further increase in interest rates, or a reduction in the availability of tax equity or project debt capital in the global financial markets could make it difficult for customers to finance the cost of a solar energy system and could reduce the demand for our products;
•changes to tax laws and regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects;
•existing electric utility industry policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems, which may significantly reduce demand for our products or harm our ability to compete;
•the interruption of the flow of materials from international vendors could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges or restrictions on imports and exports;
•changes in the U.S.global trade environment, including the imposition of import tariffs or other import restrictions, could adversely affect the amount or timing of our revenues, results of operations or cash flows;
•economic, political and market conditions, including the impact ofRussian-Ukraine conflict, uncertain credit and global financial markets resulting from increasing inflation and interest rates along with recent bank failures, and the ongoing conflict in UkraineCOVID-19 pandemic, have had and could continue to have an adverse effect on our supply chainbusiness, results of operations and cost of logisticsfinancial condition, including our revenue growth and profitability, which in turn could adversely affect the amount or timing of our revenues, results of operations or cash flows;stock price;
•the reduction, elimination or expiration of government incentives for, or regulations mandating the use of, renewable energy and solar energy specifically could reduce demand for solar energy systems and harm our business;
•if we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed;
•we may need to defend ourselves against third-party claims that we are infringing, misappropriating or otherwise violating others’ intellectual property rights, which could divert management’s attention, cause us to incur significant costs and prevent us from selling or using the technology to which such rights relate;
•significant changes in the cost of raw materials could adversely affect our financial performance;
•we rely heavily on our suppliers and our operations could be disrupted if we encounter problems with our suppliers or if there are dependent on transportation and logistics providers to deliverdisruptions in our products in a cost-efficient manner. Disruptions to transportation and logistics, including increases in shipping costs, could adversely impact our financial condition and results of operations;supply chain;
•the determination to restate prior period financial statements could negatively affect investor confidence and raise reputational issues;
•we may be unable to remediate our material weaknesses in a timely manner or at all;
•our substantial indebtedness could adversely affect our financial condition;
•the implementation of the IRA may not deliver as much growth as we are anticipating; and
•the ongoing COVID-19 pandemic has materially and adversely affectedcybersecurity or other data incidents, including unauthorized disclosure of personal or sensitive data or theft of confidential information could harm our business and results of operations. The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.business.
Overview
We are one of the world’s largest manufacturers of ground-mounting tracking systems used in solar energy projects.projects at utility scale. Our principal products are a portfolio of integrated systemsolar tracking systems comprised of steel supports, electric motors, gearboxes and electronic controllers commonly referred to as a single-axis “tracker.” Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increases their energy production. Solar energy projects that use trackers generate more energy and deliver a lower Levelized Cost of Energy than projects that use “fixed tilt” mounting systems, which do not move. The vast majority of ground mounted solar systems in the United States, and an increasing amount outside of the U.S., use trackers.
Our flagship trackerstracker uses a patented design that allows one motor to drive multiple rows of solar panels through articulated driveline joints. To avoid infringing on our U.S. patent, our competitors must use designs that we believe are inherently less efficient and reliable. For example, our largest competitor’s design requires one motor for each row of solar panels. As a result, we believe our products have greater reliability, lower installation costs, reduced maintenance requirements and competitive manufacturing costs. Our core U.S. patent on a linked-row, rotating gear drive system does not expire until February 5, 2030.
Array acquiredWith our acquisition of STI Norland in January 2022, introducingwe added a dual-row tracker design to theour product portfolio. This tracker uses one motor to drive two connected rows and is ideally suited for sites with irregular and highly angled boundaries or fragmented project areas. To offer a comprehensive set of solutions to the growing market, in September of 2022, Arraywe also introduced a third tracker product requiring significantly less grading and civil works permitting prior to installation in addition to accommodating uneven terrain. This suite of products extends Array’sour target applications and bankabilityability to deliver the best utility-scale solar tracker solutions to the market. All of our products are protected by U.S. and international patents, including our core U.S. patent on a linked-row, rotating gear drive system which does not expire until February 5, 2030.
We sell our products to engineering, procurement and construction firms (“EPCs”) that build solar energy projects and to large solar developers, independent power producers and utilities, often under master supply agreements or multi-year procurement contracts. During the ninethree months ended September 30, 2022,March 31, 2023, we derived 79%81% and 21%19% of our revenues from customers in the United States and the rest of the world, respectively. As of March 31, 2023, we had shipped more than 58 gigawatts of trackers to customers worldwide, including STI.
WeOur corporate headquarters are a U.S. company, and our headquarters and principal manufacturing facility arelocated in Albuquerque, New Mexico. As of September 30, 2022,March 31, 2023, we had 1,1181,050 full-time employees, up from 471 as of December 31, 2021, with the increase primarily due to the STI Acquisition (as defined below).employees.
Acquisition of STI Norland
On January 11, 2022, (the “Acquisition Date”), the Company closed thecompleted its acquisition (the “STI Acquisition”) of Soluciones Técnicas Integrales Norland, S.L. and its subsidiaries (collectively, “STI”) pursuant to that certainSTI for purchase agreement, dated November 10, 2021, by and among Amixa Capital, S.L. and Aurica Trackers, S.L., each a company duly organized under the laws of the Kingdom of Spain (together, the “Sellers”) and Mr. Javier Reclusa Etayo (the “STI Purchase Agreement”). In accordance with the STI Purchase Agreement, the Company paid closing consideration to the Sellers consisting of $410.5 million in cash and 13,894,800 shares of the Company’s common stock. The fair value of the purchase consideration was $610.8 million and resulted in the Company owning 100% of the equity interests in STI.
The STI Acquisition provided the Company with an immediate presencewas founded in 1996 and is headquartered in Pamplona, Spain. With manufacturing facilities in both Spain and Brazil, Western Europe and South Africa.
As a result of the STI Acquisition, the Company began reporting its results of operations in two segments: its Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI. The primary source ofgenerates revenue of the STI Operations isthrough the design, manufacture and sale of its utility-scale solar tracker systemsystems to utility scale customers in principalglobal markets tothat include Spain, Brazil, U.S. and South AfricaAfrica. The integration of STI provides us the opportunity to accelerate our international expansion and other international markets.better address rising global demand for utility-scale solar projects, particularly in developing countries in South America and Africa.
Out-of-Period Adjustment for the Correction of Errors
During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the three months ended March 31, 2023. The Company has concluded that the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the three months ended March 31, 2023. A summary of these corrections and a summary of the cumulative impact appears Note 1 – Organization, Business and Out-of-Period Adjustments in Part I of this Quarterly Report.
Update on the Impact of COVID-19
We continue to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where we operate. Our priority remainsAt this time, the welfare of our employees. We expect persistent waves of COVID-19, including variants of the virus, to remain a headwind into the near future. The duration and extent to which it will continuethe pandemic may affect our business, operations and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to adverselychange, but overall, the pandemic appears to be having a lessening impact on our business and results of operations remain uncertain and could be material.the markets in
We are continuously evaluating our capital structurewhich we operate. On January 31, 2023, the Biden administration announced its plan to let the COVID-19 public health emergency expire in response to the current environment and expect that our current financial condition, including our liquidity sources will be adequate to fund future commitments. See additional discussion in the Liquidity and Capital Resources section below.May 2023.
Inflation
The Company could see an impact from elevated inflation and other operating costs. InflationInflationary pressures, while somewhat moderating recently, are expected to persist, at least in the United States peaked at a year-over-year ratenear-term, and may continue to negatively impact our results of 9.1%operation. To mitigate the inflationary pressures on our business, we have implemented selective price increases in June, before moderatingcertain markets, accelerated productivity initiatives and expanded our supplier base, while continuing to a still-elevated 8.2% in September. In Europe, energy price pressures and inflation have remainedexecute on an upward path, with September U.K. inflation rebounding to 10.1% and Euro Area inflation at 9.9%, both on a year-over-year basis. Interest rates have increased quickly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation, while government deficits and debt remain at high levels in many global markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higheroverhead cost of capital during our forecast period.containment practices.
Impact of Potential Solar Module Supply Chain Disruptions
In FebruaryOn April 1, 2022, Auxin Solar Inc., a U.S. producer of crystalline silicon PV products, petitioned the U.S. Department of Commerce (“USDOC”) initiated anti-circumvention inquiries of the U.S. Solar 1 Orders covering merchandise from Vietnam, Malaysia, Thailand, and Cambodia pursuant to investigate alleged circumventionSection 781 of the Tariff Act of 1930. The USDOC issued preliminary determinations in these inquiries on December 1, 2022, affirmatively finding that certain photovoltaic solar cells and modules produced in Vietnam, Malaysia, Thailand, and Cambodia using parts and components from China from certain producers and/or exporters, are circumventing the Solar 1 Orders and therefore should be subject to the antidumping and countervailing duties on Chinese importsduty liabilities arising from those orders. The USDOC is expected to issue final determinations by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam. On March 28, 2022, the USDOC announced that it would investigate the circumvention alleged in the petition. As disclosed in our quarterly report on Form 10-Q for the three months ended March 31, 2022, the investigation created uncertainty related to the supply of solar modules. August 17, 2023.
As a result of the USDOC’s investigation, the Companywe saw a number of projects in itsour order book
initially delayed; however, on June 6, 2022, President Biden suspended, for a periodissued an emergency declaration delaying the imposition of 24 months, certain antidumping and countervailing dutiesany cash deposit or duty payment obligations on crystalline silicon PV cells and module imports assembled and completed in southeast Asia. Duemerchandise subject to these developmentsinquiries until the Company hasearlier of (i) the expiration of the order on June 6, 2024, or (ii) termination of the emergency declaration by the President. Merchandise from the four subject countries covered under the scope of these inquiries should therefore not observed a material decreasebe subject to any antidumping or countervailing duty liabilities under the Solar 1 Orders until the termination of the emergency declaration as long as the importer(s) and exporter(s) follow proper certification procedures that will be implemented by the USDOC. On May 3, 2023, however, the U.S. Senate voted to repeal President Biden’s emergency declaration. Unless vetoed, the repeal of the President’s emergency declaration, and any affirmative determinations made once the suspension is lifted in customer demand for our product, and unless the duties are reinstated, the Company does not currently believe the investigation is reasonably likely toany event, could have a materialan adverse effect on future periods.the global solar energy marketplace, and as such, an adverse effect on our business, financial condition, and results of operations.
While we do not sell solar modules, the degree of our exposure is dependent on, among other things, the impact of the investigation on the projects that are also intended to use our products, with such impact being largely out of our control. To date, the Company haswe have seen a number of projects in our order book delayed as a result of the USDOC investigation.investigation; however, the ultimate severity or duration of the expected solar panel supply chain disruption or its effects on our clients’ solar project development and construction activities remains uncertain. More broadly, legislation has been proposed that would make it easier for domestic companies to obtain affirmative determinations in antidumping and countervailing duties investigations. The proposed USICA/America COMPETES Act, if enacted, could result in future successful petitions that limit imports from Asia and other regions.
Additionally, certain suppliers could be blocked from importing solar panelsSolar panel imports to the United States underU.S. may also be impacted by the Uyghur Forced Labor Prevention Act (“UFLPA”). UFLPA seeks that was signed into law by President Biden on December 23, 2021. According to block the import of products made with forced labor in certain areas of China. An inter-agency task force produced a report on June 21, 2022 which, among other things, includes a list of entities that are believed to be using or benefiting from forced labor. Some suppliers of solar modules have seen shipments detained by USU.S. Customs and Border Patrol pursuantProtection, “it establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the UFLPA. These detainments haveU.S. The presumption applies unless the Commissioner of U.S. Customs and Border Protection determines that the
importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not directly impactedproduced using forced labor.” There continues to be uncertainty in the market around achieving full compliance with UFLPA, whether related to sufficient traceability of materials or other factors. This has created a significant compliance burden and constrained solar panel imports. We cannot currently predict what, if any, of Array’s projects to date; however, we cannot be certain that future detainments will not directly impact projects that use our products and services. Array is monitoring whetherthe UFLPA will affect supplieshave on the overall future supply of solar modules for anypanels into the U.S. and the related timing and cost of the projects to whichour clients’ solar project, development and construction activities. While we do not import or sell solar panels, project delays caused by solar panel constraints may negatively impact our products.product delivery schedules and future sales, and therefore our business, financial condition, and results of operations.
Impact of the Ongoing Conflict in Ukraine
The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know ultimate severity or duration of the conflict in Ukraine, but we continue to monitor the situation and evaluate our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations.
Uncertainty in the Banking System
Events involving limited liquidity, defaults, non-performance or other adverse developments among several banks and financial institutions recently have created uncertainty in the financial services industry generally. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.
Foreign Currency Translation
For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities are translated into U.S. dollars at period end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. Translation adjustments for these subsidiaries are accumulated as a separate component of net parent investment. For non-U.S. subsidiaries that use a U.S. dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S. dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period end exchange rates.
Inventories charged to cost of sales and depreciation are remeasured at historical rates, and all other income and expense items are translated at average exchange rates prevailing during the period. Gains and losses which result from remeasurement are included in earnings.
Performance Measures
In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products from year to year is megawatts (“MWs”) shipped generally and the change in MW shipped from period to period specifically. MWs are measured for each individual project and calculated based on the expected output of that project once installed and fully operational.
We also utilize metrics related to price and cost of goods sold per MW, including average selling price (“ASP”) and cost per watt (“CPW”). ASP is calculated by dividing total applicable revenues by total applicable MWs,
while CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs. These metrics enable us to evaluate trends in pricing, manufacturing cost and customer profitability.
Key Components of Our Results of Operations
The following discussion describes certain line items in our consolidated statements of operations.
Revenue
Our operating segments generate revenue from the sale of solar tracking systems, parts and services. Our customers include EPCs, utilities, large solar developers and independent power producers. For each individual solar project, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for the tracker system and parts can vary from days to several months. Contracts can range in value from hundreds of thousands to tens of millions of dollars.
Our revenue is affected by changes in the volume and ASPs of solar tracking systems purchased by our customers. The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in product mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.
Our revenue growth is dependent on continued growth in the amount of solar energy projects installed each year as well as our ability to increase our share of demand in each of the geographies where we compete, expanding our global footprint to new evolving markets, growing our production and supply chain capabilities to meet demand, and continuing to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.
Cost of Revenue and Gross Profit
Cost of revenue for both segments consists primarily of product costs, including purchased components, as well as costs related to shipping, tariffs, customer support, product warranty, personnel and depreciation of test and manufacturing equipment. Personnel costs in cost of revenue includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including steel and aluminum; component costs, including electric motors and gearboxes; technological innovation; economies of scale resulting in lower component costs and improvements in production processes and automation. In 2021, our business was impacted by the COVID-19 pandemic by increased raw materials and shipping costs and shipping delays which have resulted in reduced margins and in certain instances have incurred remediation costs and liquidated damages owed to the customer. We have modified our processes in order to decrease the impact on our margins from these cost increases; however, we do not know how long the current operating environment will persist.
We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.
Gross profit may vary from quarter to quarter and is primarily affected by our ASPs, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs and seasonality.
Operating Expenses
Operating expenses consist of general and administrative costs, contingent consideration, as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, benefits, payroll taxes and commissions. Our full-time employee headcount in our general and administrative departments has grown from approximately 210 as of December 31, 2021 to approximately 424, due in part to the STI Acquisition, as of September 30, 2022, and we expect to continue to hire new employees to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue. We expect to continue to invest substantial resources to support our growth and continued technological
advancement and anticipate that general and administrative and depreciation expenses will increase in absolute dollar amounts for the foreseeable future.
General and administrative expenses
General and administrative expenses consist primarily of salaries, equity-based compensation, employee benefits and payroll taxesequity-based compensation related to our executives,executive, sales, engineering, finance, human resources, information technology engineering and legal organizations,personnel, as well as travel, facilitiesfacility costs, marketing, bad debt provision and fees for professional services. Professional services consist of audit, legal, tax, insurance, information technology and other costs.fees. We expect an to
increase in the number of sales and marketing personnel in connection with the expansion of our global sales and marketing footprint, enabling us to penetrate new markets. The majority of our sales in 2022 were in the U.S.; however, with the STI Acquisition, we continue to expand our international presence with additional global sales staff. We currently have a sales presence in the U.S., Spain, Brazil, South Africa, Australia and the U.K., Spain, South Africa and Brazil. We intend to continue to expand our sales presence and marketing efforts to additional countries. We also expect thatanticipate increased spending related to product development and innovation as we hire additional engineering resources and increase our research and development (“R&D”) spend. Further, as a relatively new public company, we willmay incur additional audit, accounting, tax, accounting, legal and other costs related to compliance with applicable securities laws and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company. We also anticipate an increase in our spend related to product innovation as we hire additional engineering resources and increase our external research & development spend.
Contingent Consideration
Contingent consideration consists of the changes in fair value of the Taxes Receivable Agreement (“TRA”) entered into with Ron P. Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC by our Former Parent.Parent, ATI Investment Parent, LLC.
The TRA liability is recorded at fair value and changes in the fair value are recognized in earnings. The TRA will generally provide for the payment by our operating company, Array Tech, Inc. (f/k/a Array Technologies, Inc.), to Ron P. Corio for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc. from the use of certain deductions generated by the increase in the tax value of the developed technology. Estimating fair value of the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to Ron P.Mr. Corio include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA.
Depreciation and Amortization
Depreciation in our operating expense consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing of our products. We expect that as we continue to grow both our revenue and our general and administrative personnel, we will require some additional PP&E to support this growth resulting in additional depreciation expense.
Amortization
Amortization of intangibles consists of developed technology, customer relationships, contractual backlog, and the STI trade name amortized over their expected period of use.
Non-Operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility and our 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”) issued in December 2021, as well as other debt assumed by us in connection with the STI Acquisition.
Legal Settlement
Legal settlement income includes a legal settlement awarded and paid from Nextracker LLC, for $42.8 million for the Company asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).
Income Tax Expense
We are subject to United StatesU.S. federal and state income taxes as well as foreignand non-U.S. income taxes. As we expand into additional foreign markets, we may be subject to additional foreign tax.
Results of Operations
The following table sets forth our consolidated statement of operations (dollars in thousands):
| | | Three Months Ended September 30, | | Increase/Decrease | | Nine Months Ended September 30, | | Increase/Decrease | | | Three Months Ended March 31, | | Increase/Decrease |
| | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % | | | 2023 | | 2022 | | $ | | % |
Revenue | Revenue | $ | 515,024 | | | $ | 188,686 | | | $ | 326,338 | | | 173 | % | | $ | 1,235,475 | | | $ | 633,442 | | | $ | 602,033 | | | 95 | % | Revenue | | $ | 376,773 | | | $ | 300,586 | | | $ | 76,187 | | | 25 | % |
Cost of revenue | Cost of revenue | 434,801 | | | 182,789 | | | 252,012 | | | 138 | % | | 1,088,719 | | | 560,872 | | | 527,847 | | | 94 | % | Cost of revenue | | 275,594 | | | 273,999 | | | 1,595 | | | 1 | % |
Gross profit | Gross profit | 80,223 | | | 5,897 | | | 74,326 | | | 1260 | % | | 146,756 | | | 72,570 | | | 74,186 | | | 102 | % | Gross profit | | 101,179 | | | 26,587 | | | 74,592 | | | 281 | % |
| Operating expenses | Operating expenses | | Operating expenses | | |
General and administrative | General and administrative | 38,911 | | | 18,493 | | | 20,418 | | | 110 | % | | 107,881 | | | 58,279 | | | 49,602 | | | 85 | % | General and administrative | | 38,142 | | | 45,425 | | | (7,283) | | | (16) | % |
Contingent consideration | (572) | | | 936 | | | (1,508) | | | (161) | % | | (5,981) | | | 1,071 | | | (7,052) | | | (658) | % | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | | 1,338 | | | (3,731) | | | 5,069 | | | 136 | % |
Depreciation and amortization | Depreciation and amortization | 23,364 | | | 5,984 | | | 17,380 | | | 290 | % | | 70,405 | | | 17,949 | | | 52,456 | | | 292 | % | Depreciation and amortization | | 14,241 | | | 23,237 | | | (8,996) | | | (39) | % |
Total operating expenses | Total operating expenses | 61,703 | | | 25,413 | | | 36,290 | | | 143 | % | | 172,305 | | | 77,299 | | | 95,006 | | | 123 | % | Total operating expenses | | 53,721 | | | 64,931 | | | (11,210) | | | (17) | % |
| Income (loss) from operations | Income (loss) from operations | 18,520 | | | (19,516) | | | 38,036 | | | (195) | % | | (25,549) | | | (4,729) | | | (20,820) | | | 440 | % | Income (loss) from operations | | 47,458 | | | (38,344) | | | 85,802 | | | 224 | % |
| Other income (expense) | Other income (expense) | | Other income (expense) | | |
Other expense, net | (399) | | | (297) | | | 102 | | | (34) | % | | (27) | | | (497) | | | (470) | | | (95) | % | |
Legal settlement | 42,750 | | | — | | 42,750 | | | 100 | % | | 42,750 | | | — | | 42,750 | | | 100 | % | |
Other income, net | | Other income, net | | 194 | | | 743 | | | (549) | | | (74) | % |
Foreign currency gain (loss) | Foreign currency gain (loss) | (159) | | | — | | 159 | | | 100 | % | | 1,968 | | | — | | 1,968 | | | 100 | % | Foreign currency gain (loss) | | (194) | | | 3,863 | | (4,057) | | | (105) | % |
Change in fair value of derivative assets | | Change in fair value of derivative assets | | (1,950) | | | — | | | (1,950) | | | (100) | % |
Interest expense | Interest expense | (8,746) | | | (13,109) | | | (4,363) | | | 33 | % | | (23,709) | | | (28,769) | | | (5,060) | | | (18) | % | Interest expense | | (9,500) | | | (6,942) | | | 2,558 | | | 37 | % |
Total other income (expense) | 33,446 | | (13,406) | | | (46,852) | | | 349 | % | | 20,982 | | (29,266) | | | (50,248) | | | (172) | % | |
Total other (expense) | | Total other (expense) | | (11,450) | | (2,336) | | | 9,114 | | | 390 | % |
Income (loss) before income tax (benefit) expense | Income (loss) before income tax (benefit) expense | 51,966 | | (32,922) | | 84,888 | | | (258) | % | | (4,567) | | (33,995) | | 29,428 | | | (87) | % | Income (loss) before income tax (benefit) expense | | 36,008 | | (40,680) | | 76,688 | | | 189 | % |
Income tax (benefit) expense | Income tax (benefit) expense | 11,144 | | (5,361) | | 16,505 | | | (308) | % | | (18,109) | | (5,493) | | (12,616) | | | 230 | % | Income tax (benefit) expense | | 9,876 | | (14,743) | | 24,619 | | | 167 | % |
Net income (loss) | Net income (loss) | $ | 40,822 | | | $ | (27,561) | | | $ | 68,383 | | | (248) | % | | $ | 13,542 | | | $ | (28,502) | | | $ | 42,044 | | | (148) | % | Net income (loss) | | $ | 26,132 | | | $ | (25,937) | | | $ | 52,069 | | | 201 | % |
|
The following table provides details on our operating results by reportable segment for the respective periods (dollars in thousands):
| | | Three Months Ended September 30, | | Increase/Decrease | Nine Months Ended September 30, | | Increase/Decrease | | | Three Months Ended March 31, | | Increase/Decrease |
Revenue: | Revenue: | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % | Revenue: | | 2023 | | 2022 | | $ | | % |
Array Legacy Operations | Array Legacy Operations | $ | 400,463 | | | $ | 188,686 | | | $ | 211,777 | | | 112 | % | | $ | 998,292 | | | $ | 633,442 | | | $ | 364,850 | | | 58 | % | Array Legacy Operations | | $ | 305,204 | | | $ | 250,652 | | | $ | 54,552 | | | 22 | % |
STI Operations | STI Operations | 114,561 | | | — | | | 114,561 | | | 100 | % | | 237,183 | | | — | | | 237,183 | | | 100 | % | STI Operations | | 71,569 | | | 49,934 | | | 21,635 | | | 43 | % |
Total Revenue | Total Revenue | $ | 515,024 | | | $ | 188,686 | | | $ | 326,338 | | | 173 | % | | $ | 1,235,475 | | | $ | 633,442 | | | $ | 602,033 | | | 95 | % | Total Revenue | | $ | 376,773 | | | $ | 300,586 | | | $ | 76,187 | | | 25 | % |
Gross Profit: | Gross Profit: | | | | | | | | | | | | | Gross Profit: | | | | | | | |
Array Legacy Operations | Array Legacy Operations | $ | 63,921 | | | $ | 5,897 | | | $ | 58,024 | | | 984 | % | | $ | 119,029 | | | $ | 72,570 | | | $ | 46,459 | | | 64 | % | Array Legacy Operations | | $ | 83,474 | | | $ | 21,268 | | | $ | 62,206 | | | 292 | % |
STI Operations | STI Operations | 16,302 | | | — | | | 16,302 | | | 100 | % | | 27,727 | | | — | | | 27,727 | | | 100 | % | STI Operations | | 17,705 | | | 5,319 | | | 12,386 | | | 233 | % |
Total Gross Profit | Total Gross Profit | $ | 80,223 | | | $ | 5,897 | | | $ | 74,326 | | | 1260 | % | | $ | 146,756 | | | $ | 72,570 | | | $ | 74,186 | | | 102 | % | Total Gross Profit | | $ | 101,179 | | | $ | 26,587 | | | $ | 74,592 | | | 281 | % |
Comparison of the three months ended September 30,March 31, 2023 and 2022 and 2021
Revenue
Our consolidatedConsolidated revenue increased by $326.3$76.2 million, or 173%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The increase was partially driven by the STI Acquisition, which added $114.6 million of revenue when compared to the three months ended September 30, 2021.Excluding the impact of the STI Acquisition, revenue was up $211.8 million, or 112%25%, driven by increases in both an increase in the total numberArray Legacy Operations and STI Operations of MWs shipped$54.6 million and an increase in ASP.$21.6 million, respectively.
Revenue forThe 22% revenue increase in Array Legacy Operations increased 112% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Total MWs shipped were up approximately 63% for the three months ended September 30, 2022,was driven by increased customer demand for our product.product as megawatts shipped were up 6% and ASP for the three months ended September 30, 2022 was up 29% compared to the three months ended September 30, 2021, which is reflectiveimproved 15%, as a result of higher pass-through pricing to our customers.
Revenue forThe $21.6 million, or 43% revenue increase in STI Operations increasedwas driven by $114.6 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, due to the STI Acquisition occurring in January 2022 with no activityan increase in the prior period.number of megawatts shipped, most notably in the Brazil region.
Cost of Revenue and Gross Profit
Consolidated cost of revenue increased by $252.0$1.6 million, or 138%1%, driven primarily by higher revenue activity.
Consolidated gross profit increased $74.6 million, or 281%. As a percentage of revenue, consolidated gross profit increased to 27% for the three months ended September 30, 2022March 31, 2023, as compared to 9% for the three months ended September 30, 2021, primarily due to theprior year. The increase in the numbergross profit dollars was driven by both higher volume and an increase in gross profit as a percent of MWs delivered and the STI Acquisition. Grossrevenue in both operating segments.
Array Legacy Operations gross profit asincreased $62.2 million, or 292%. As a percentage of revenue, gross profit at Array Legacy increased to 27% from 3%8% for the three months ended September 30, 2021 to 16% for the three months ended September 30, 2022.March 31, 2023 and 2022, respectively. The increase in gross profit as a percentagepercent of revenue reflects higher pass-throughwas driven by an improvement in pass through pricing of our material andto customers, in addition to a one-time benefit from lower than expected logistics costs.
GrossSTI Operations gross profit asincreased $12.4 million, or 232.9%. As a percentage of revenue, gross profit for the Array LegacySTI Operations increased to 16%25% from 11% for the three months ended September 30,March 31, 2023 and 2022, from 3% for the three months ended September 30, 2021. The increase was due torespectively, driven primarily by improved pass through pricing and a higher proportionreduced impact of our projects with improved pass-through pricing of our material and logistics costs.
lower margin construction related services provided.
Gross profit as a percentage of revenue for the STI segment was 14% for the three months ended September 30, 2022.
Operating Expenses:
General and Administrative
Consolidated general and administrative expense increasedexpenses decreased by $20.4$7.3 million, or 110%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.16%. The decreaseThe increase in expense was primarily due to increased consulting costs, professional fees, legal costs,STI Acquisition related expenses, which were incurred in the first quarter of 2022, as well as costs related to the Chief Executive Officer transition that occurred in the first quarter of 2022 and did not recur in 2023.These reductions more than offset higher payroll related expenses incurred to increase headcount in support of our growth and related costs due to our growing internal headcount and the STI Acquisition, which had $5.7 million in general and administrative expense.innovation strategy.
Contingent Consideration
Consolidated contingent consideration expense decreasedincreased by $1.5$5.1 million, foror 136% as a result of the three months ended September 30, 2022 compared toincreased valuation of the three months ended September 30, 2021. The decreaseTRA liability, which was due todriven by a decrease in the credit spread used in the valuation, consistent with the overall downward trend of the associated liability.credit spreads subsequent to 2022.
Depreciation
Consolidated depreciation expense for the three months ended September 30, 2022 was similar to the three months ended September 30, 2021.
and Amortization of Intangibles
Consolidated amortization of intangibles increaseddecreased by $17.2$9.4 million, or 292%40%, primarily due to a subset of intangibles related to the STI Acquisition having a one-year life. As the STI acquisition occurred on January 11, 2022, nearly the full quarter of amortization expense was recognized for this subset of acquired intangibles during the three months ended September 30,March 23, 2022, compared to a fraction of a quarter of amortization expense that was recognized during the three months ended September 30, 2021, primarily due to intangibles added as a result of the STI Acquisition.March 31, 2023.
Legal Settlement
Legal settlement income increased due tothe Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Company asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).
Interest Expense
Consolidated interest expense decreased by $4.4 million, or 33%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the write-off of fees associated with refinancing our debt that occurred in the three months ended September 30, 2021 for which we have no similar fees in the current period. As of September 30, 2022, we had $425 million outstanding on the Convertible Notes, $323.6 million outstanding under the Term Loan Facility and no balance outstanding under the Revolving Credit Facility. The Credit Facility has variable interest rates that are expected to fluctuate with the Federal Funds rate so interest expense could increase for the Term Loan Facility and the Revolving Credit Facility.
Income Tax Benefit
Consolidated income tax benefit increased by $16.5 million, or 308% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The tax expense in the three months ended September 30, 2022 includes tax expense of $8.7 million on the legal settlement income recorded discreetly in the current period. Our effective tax rate, excluding the legal settlement was 26.5% for the three
months ended September 30, 2022 and 16.3% for the three months ended September 30, 2021. The tax benefit increase, excluding the legal settlement, is primarily related to non-taxable contingent income, and a favorable mix of income for the three months ended September 30, 2022.
Comparison of the nine months ended September 30, 2022 and 2021
Revenue
Consolidated revenue increased by $602.0 million, or 95%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by a revenue increase of $364.9 million, or 58%, resulting from both an increase in the total number of MWs shipped and an increase in ASP excluding the impact of the STI Acquisition. The remainder of the increase in revenue resulted from the STI Acquisition of $237.2 million.
Revenue for Array Legacy Operations increased 58% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Total MWs shipped were up approximately 31% for the nine months ended September 30, 2022, driven by increased customer demand for our product.ASP for the nine months ended September 30, 2022 was up 20% compared to the nine months ended September 30, 2021, which is reflective of higher pass-through pricing to our customers.
Revenue for STI Operations increased by $237.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the STI Acquisition occurring in January 2022 with no activity in the prior period.
Cost of Revenue and Gross Profit
Consolidated cost of revenue increased by $527.8 million, or 94%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the STI Acquisition and the higher cost of raw materials and logistics compared to the prior year period. Gross profit as a percentage of revenue increased from 11% for the nine months ended September 30, 2021 to 12% for the nine months ended September 30, 2022. The increase in gross profit as a percentage of revenue reflects better pass-through pricing to our customers to offset higher commodity prices and logistics costs.
Gross profit as a percentage of revenue increased for Array Legacy Operations to 12% for the nine months ended September 30, 2022 from 11% for the nine months ended September 30, 2021due to improved pass through pricing of commodity costs.
Gross profit as a percentage of revenue was 11% for STI for the nine months ended September 30, 2022.
Operating Expenses:
General and Administrative
Consolidated general and administrative expenses increased by $49.6 million, or 85%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase in expense was primarily due to the STI Acquisition, which resulted in an increase of $11.6 million. Additionally, increased consulting costs and other professional fees, as well as increased headcount, led to higher payroll and related costs.
Contingent Consideration
Consolidated contingent consideration expense decreased by $7.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease was due to a decrease in the valuation of the associated liability.
Depreciation
Consolidated depreciation expense for the nine months ended September 30, 2022 was similar to the nine months ended September 30, 2021.
Amortization of Intangibles
Consolidated amortization of intangibles increased by $52.1 million, or 296%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to intangibles added as a result of the STI Acquisition.
Legal Settlement
Legal settlement income increased due tothe Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Nextracker Litigation.
Other Expense, Net
Consolidated other income (expense) increased by $0.5 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the STI Acquisition.
Foreign Currency Gain
Consolidated foreign currency gain increased by $2.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the foreign currency translation gain resulting from the STI Acquisition.
Interest Expense
Consolidated interest expense decreasedincreased by $5.1$2.6 million, or 18%37%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the write-off of fees associated with refinancing our debt that occurred in the nine months ended September 30, 2021 for which we have no similar fees in the current period. In the nine months ended September 30, 2021, we paid off a portion ofincreased variable interest rates charged on our Term Loan Facility and therefore expensed the associated fees that were capitalized. Our outstanding debt as of September 30, 2022 for which interest expense is associated includes $425.0 million outstanding on the Convertible Notes, $323.6 million outstanding under the Term Loan Facility and no balance outstanding under the Revolving Credit Facility. We expect interest expense to be higher for the remainder of 20222023 compared to 20212022 as a result of the debt outstanding under the Convertible Notes. In addition, the Credit Facility hascontinued higher variable interest rates expected to fluctuate with the Federal Funds rate so interest expense could increase for the Term Loan Facility and the Revolving Credit Facility.rates.
Income Tax BenefitExpense (Benefit)
Consolidated income tax benefit increased by $12.6$24.6 million, or 167%. The Company recorded income tax expense of $9.9 million for the ninethree months ended September 30, 2022March 31, 2023 compared to a benefit of $14.7 million for the ninethree months ended September 30, 2021. The tax expense in the nine months ended September 30, 2022 includes tax expense of $8.7 million on the legal settlement income which was recorded discretely in the quarter.March 31, 2022. Our effective tax rate excluding the legal settlement benefit was 56.7%27.4% for the ninethree months ended September 30, 2022March 31, 2023 and 16.2%36.2% for the ninethree months ended September 30, 2021.March 31, 2022. The benefittax expense for the three months ended March 31, 2023 was unfavorably impacted by higher income reported in non-U.S. jurisdictions and an out of period increase excluding the legal settlement, is primarilyin income tax expense of $1.4 million related to non-taxable contingent consideration and the mix of earnings in foreign jurisdictionsPut Option, partially offset by anbenefits related to excess stock compensation deductions recorded discretely during the quarter. The tax benefit for the three months ended March 31, 2022 was favorably impacted by losses in non-U.S. jurisdictions which have higher tax rates than the U.S., partially offset by non-deductible expenses.
Net Income
Consolidated net income increased $52.1 million, or 201%, driven by a $76.2 million increase in non-deductible officer compensation for the nine months ended September 30, 2022.
consolidated revenue, a 18.0% increase in consolidated gross profit margin and an $11.2 million reduction in operating expenses, partially offset by a $24.6 million increase in income tax expense.
Liquidity and Capital Resources
Historical Cash FlowFlows (in thousands)
The following table compares the historical cash flow (in thousands):
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Net cash used in operating activities | $ | 44,023 | | | $ | (165,837) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | $ | 45,816 | | | $ | (50,097) | |
Net cash used in investing activities | Net cash used in investing activities | (380,506) | | | (14,227) | | Net cash used in investing activities | (3,883) | | | (376,173) | |
Net cash provided by financing activities | 33,146 | | | 188,014 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (23,762) | | | 100,736 | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1,555) | | | — | | Effect of exchange rate changes on cash and cash equivalents | (4,316) | | | 7,355 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | $ | (304,892) | | | $ | 7,950 | | Net change in cash and cash equivalents | $ | 13,855 | | | $ | (318,179) | |
WeHistorically, we have historically financed our operations primarily with the proceeds from capital contributions, operating cash flows, capital contributions and short and long-term borrowings. Our ability to generate positive cash flowflows from operations is dependent on the strength of our gross marginsmargin as well as our ability to quickly turn our working capital. Due to currentrecent macroeconomic conditions,trends, our industry has seen rapid changesfluctuations in commodity prices, the global tightening of supply chains, and strained logistics.logistics networks. These factors have adversely impacted and could continue in the future to adversely impact our business, causing us to experience decreased margins and thus decreased cash from operations. In addition, they led to an increase inputting pressure on our unbilled receivables and in some instances liquidated damages owed to our customers. Unbilled receivables, which represent temporary timing differences between shipments made and billing milestones achieved, were $137.0 million and $111.2 millions of the accounts receivable balances as of September 30, 2022 and December 31, 2021, respectively. These amounts have not been billed because we are waiting for agreed upon billing stipulations such as billing on a specified date of the month or upon completion of MW deliveries. The Company continues to improve its supply chain, logistics, and labor shortage issues to avoid causing any additional delays in delivering specific components to complete a MW delivery. Accordingly, we would expect the unbilled receivable balance as a percentage of revenue to improve once the billing criteria is satisfied and the customers are invoiced. The extent to which macroeconomic concerns, including the COVID-19 pandemic, rising interest rates, elevated inflation levels and the ongoing conflict in Ukraine, may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.margins.
We have taken mitigating steps to overcome the economic challenges and, therefore, believe the impact tobut cannot be temporary, as demonstrated by our sequential margin improvement over the last four quarters. Mitigation efforts to date have generally consistedcertain of the introductiontiming of new supply routes, the use of bulk shipping (to a limited degree), and—with respectwhen we will be able to commodity price increases—changescontinually achieve better margins. Furthermore, high volatility and uncertainty in the Company’s contracting process that are designedcapital markets resulting from macroeconomic conditions, including rising inflation rates and interest rates, and recent and potential future disruptions in access to narrow the timeframe between when a price is agreed uponbank deposits or lending commitments due to when prices for the Company’s most volatile cost inputs are fixed. The Companybank failures, has utilized these strategies in combination over
the last twelve monthshad, and expects tocould continue to do so inhave, a negative impact on the price of our common stock and could adversely impact our ability to raise additional funds. In response to the recent challenging environment. Weenvironment, we continuously evaluate our ability to meet our obligations over the next 12 months andtwelve months. We believe we have sufficient liquidity as well as financing options available to fund current and future commitments.
In January 2022,As of March 31, 2023, our cash balance was $147.8 million, of which $33.6 million was held outside the U.S., and net working capital was $396.1 million. We had outstanding borrowings of $301.4 million under or $575 million Term Loan Facility and $159.6 million available to us under our $200.0 million Revolving Credit Facility. Also, through June 30, 2023, we issued 50,000 ofhave the option to require our Series A Redeemable Perpetual Preferred Stock (as defined below),Shares investors to purchase an additional 100,000 shares of our Series A Shares and 1,125,0002,250,000 shares of our common stock in an Additional Closing (as defined below) for an aggregate purchase price of $49.4approximately $100.0 million.
As of September 30, 2022, ourThe Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company’s ability to generate operating cash flows in the future and cash equivalents were $62.8 million. Net working capital as of September 30, 2022 was $358.7 million.
As of September 30, 2022, we had outstanding borrowings of $323.6 millionavailable borrowing capacity under the Term Loan Facility and a $200.0 million commitment under our Revolvingits Senior Secured Credit Facility of which no balance is outstanding and $166.6 million was availablewill be sufficient to borrow to fund operations.meet its future liquidity needs.
Operating Activities
For the ninethree months ended September 30, 2022,March 31, 2023, cash provided by operating activities was $44.0$45.8 million, of which $57.2 million was generated from net income as adjusted for the impact of non-cash expenses, consisting primarily of depreciation and amortization, deferred tax expense and equity-based compensation and a $30.2 million increase in accounts payable. These increases were partially offset by a $23.3 million increase in inventory and a $27.6 million decrease in deferred revenue.
For the three months ended March 31, 2022, cash used in operating activities was $50.1 million, primarily due to an increase in net incomeinventories and the Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Nextracker Litigation. In addition, accounts payable and accruals increased cash by $42.2 million and $41.3 million, respectively, driven by higher expenses associated with higher sales, offset by a use from accounts receivable of $139.0$46.3 million driven primarilyand $44.3 million, respectively. This increase was offset in part by higher sales.
For the nine months ended September 30, 2021, cash used in operating activities was $165.8 million, primarily due a decrease in deferred revenue of $68.5 million for which we made payments to our suppliers for products that we received the cash for in 2020, but that we did not ship until 2021, an increase in accounts receivablepayable of $58.2 million, and an increase in inventories of $55.4$59.6 million.
Investing Activities
For the ninethree months ended September 30,March 31, 2023, net cash used in investing activities was $3.9 million, all of which was related to the purchase of property, plant and equipment.
For the three months ended March 31, 2022, net cash used in investing activities was $380.5$376.2 million, primarily due to cash used in the STI Acquisition.
For the nine months ended September 30, 2021, net cash used in investing activities was $14.2 million, primarily attributable to a $12.0 million investment in equity securities.
Financing Activities
For the ninethree months ended September 30,March 31, 2023, net cash used by financing activities was $23.8 million, driven primarily by $11.1 million in payments on our Term Loan and a $10.7 million net reduction of other debt.
For the three months ended March 31, 2022, net cash provided by financing activities was $33.1$100.7 million, of which $52.0 million was related to proceeds under the Revolving Facility and $48.4 million related to proceeds from the Series A Additional Closing in January 2022 offset by a dividend payment of $18.4 million on the Series A preferred stock.2022.
For the nine months ended September 30, 2021, net cash used by financing activities was $188.0 million, of which $345.6 million was proceeds from the Series A that closed on August 11, 2021, $102.0 million was from proceeds under the Revolving Credit Facility, offset by a $132.2 million payment on the Term Loan Facility, a $102.0 million payment of the Revolving Credit Facility, $11.1 million in equity issuance costs associated with the Series A and $6.6 million in fees paid on the Senior Secured Credit Facility and to increase the limit on the Revolving Credit Facility by $50.0 million.
Series A Redeemable Perpetual Preferred Stock
On August 10, 2021, the Companywe entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with BCP Helios Aggregator L.P., a Delaware limited partnership (the “Purchaser”), an investment vehicle of funds affiliated with Blackstone Inc. Pursuant to the Securities Purchase Agreement, on August 11, 2021, the Companywe issued and sold to the Purchaser 350,000 shares of a newly designated Series A Redeemable Perpetual Preferred Stock, of the Company, par value $0.001 per share (the “Series A Perpetual Preferred Stock”Shares”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of the Company’sour common stock, par value $0.001 per share, for an aggregate purchase price of $346.0 million. Further, pursuant to the Securities Purchase Agreement, and subject to the terms and conditions set forth therein, including the expiry or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended,
the Company haswe have issued and sold to the Purchaser 776,235 shares of common stock for an aggregate purchase price of $776.
For more information related to the Series A Redeemable Perpetual Preferred Stock, see Note 13 – Redeemable Perpetual Preferred Stock, to the accompanying condensed consolidated financial statements.
In January 2022, we issued 50,000 of Series A Redeemable Perpetual Preferred Stock,Shares, and 1,125,000 shares of our common stock in an Additional Closing for an aggregate purchase price of $49,376,125.
Registration Rights Agreement
In connection with the Securities Purchase Agreement, on August 10, 2021, the Company and the Purchaser entered into a Registration Rights Agreement pursuantFor more information related to which, among other things, the Company granted the Purchaser certain registration rights with respect to common stock purchased pursuant to the Securities Purchase Agreement, including customary shelf registration rights and “piggyback” registration rights.
Direct costs associated with the issuance of the securities were $11.1 million, which along with the $4.4 million discount, have been accounted for as a reduction in the proceeds of the securities. These net proceeds of $334.6 million have been allocated on the balance sheet to the preferred shares of $229.8 million, common stock of $105.4 million and additional paid-in capital of $12.4 million for the committed financing put right. The Company has presented the preferred shares in temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method. Such accretion totaled $5.9 million and $17.2 million for the three and nine months ended September 30, 2022.
Debt Obligations
Surety Bonds
As of September 30, 2022,March 31, 2023, we posted surety bonds in the total amount of approximately $175.2$208.5 million. We are required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’sour performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.
Critical Accounting Policies and Significant Management Estimates
AsOur condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the (“U.S. GAAP”). In connection with the preparation of September 30, 2022,our condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there wereare material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the followingtime the estimate is made, and if different estimates that reasonably could have been used, or changes in the application of our critical accounting policies or estimation procedures from those presented in our 2021 Annual Report.estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements.
Fair Value of Financial Instruments
The Company accounts for its business acquisitions under the acquisition method of accounting in accordanceCapped Call is valued using a Black-Sholes model, with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 Business Combinations (“ASC 805”). The excess ofmost judgmental non-observable input being the purchase price overvolatility measure. Changes in the assumptions around the volatility can cause significant changes in the estimated fair valuesvalue of the net assets acquiredCapped Call.
The Put Option is recorded as goodwill. Determiningexercisable into both Series A Stock and common stock. The value of the put option is based upon the expected future price of the Series A Stock and the company’s common stock, which is then discounted back to current present value. The value is determined based on unobservable inputs and changes in assumptions around interest rates and discount rates can have a significant impact on the estimated fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the usePut Option.
The present value of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples amongst other items. The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach. The income approach includes the use ofSeries A Stock is determined using a discounted cash flow model, which includes discounted cash flow scenarios and requiresmethod where the following significant estimates: revenue, expenses, capital spending and other costs, and discount rates based on the respective risks of the cash flows. Under the acquisition method of accounting, the aggregate amount of consideration we payinterest rate used for discounting is determined using a company is allocated to net tangible assets and intangible assets based on their estimated fair values as of the acquisition date.single-factor short-rate model. The excess of the purchase price over the value of the net tangible assetscommon stock is determined by using a Monte-Carlo simulation and intangible assets is recordedthen discounted back to goodwill. Goodwillpresent value. The value of the Put Option is evaluated for impairment annually.determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy.
Foreign Currency TranslationAdoption of New and Recently Issued Accounting Pronouncements
For non-U.S. subsidiaries that operate in
Refer to Note 2 – Summary of Significant Accounting Policies to our condensed consolidated financial statements for a local currency environment, assetsdiscussion of adoption of new and liabilities are translated into the U.S. dollar at period end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. Translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income in equity. For non-U.S. subsidiaries that use a U.S. dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S. dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period end exchange rates. Inventories charged to cost of revenue and depreciation are remeasured at historical rates, and all other income and expense items are translated at average exchange rates prevailing during the period. Gains and losses which result from remeasurement are included in earnings.recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Customer Financing Exposure
We are also indirectly exposed to interest rate risk because many of our customers depend on debt financings to purchase our product. An increase in interest rates could make it challenging for our customers to obtain the capital necessary to make such purchases on favorable terms, or at all. Such factors could reduce demand or lower the price we can charge for our product, thereby reducing our net sales and gross profit.
Commodity and Component Risk
We are exposed to price risks for the raw materials, components, logistics services, and energy costs used in the manufacturing and transportation of our product. Additionally, some of our raw materials and components are sourced from a limited number of suppliers or a single supplier. We evaluate our suppliers using a robust qualification process. In some cases, we also enter into long-term supply contracts for raw materials and components. Accordingly, we are exposed to price changes in the raw materials and components used in our our product. In addition, the failure of a key supplier could disrupt our supply chain, which could result in higher prices and/or a disruption in our manufacturing process. We may be unable to pass along changes in the costs
of the raw materials and components for our product, or the costs associated with logistics services for the distribution of our product, to our customers and may be in default of our delivery obligations if we experience a manufacturing disruption.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022.March 31, 2023. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weaknesses identified during the three months ended June 30, 2022, in addition to those previously identified and disclosed in our 20212022 Annual Report.Report and listed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’sour annual or interim financial statements will not be prevented or detected on a timely basis.
Management determined that the previously disclosed material weaknesses in its internal control over financial reporting continue to exist at September 30, 2022.March 31, 2023. Specifically:
Control Environment, Risk Assessment and Monitoring Activities – We did not maintain appropriately designed entity-level controls impacting the control environment and effective monitoring controls to prevent or detect material misstatements to the consolidated financial statements. These deficiencies were attributed to (i) a lack of a sufficient number of qualified resources and inadequate oversight and accountability over the performance of control activities, (ii) ineffective identification and (ii)assessment of risks to properly design and implement relevant controls, and (iii) ineffective evaluation and determination as to whether the components of internal control were present and functioning.
Control Activities – These material weaknesses contributed to the following additional material weaknesses within certain business processes:
•Inventory – We did not appropriately design, implement, and implementexecute controls over the existence, accuracy, and cutoff of inventory. As previously reported, we identified a material weakness relating to inventory cut-off and in-transit inventory.
•Revenue Recognition – – (i) We did not appropriately design, implement and maintain effective controls over revenue recognized for certain contractsrecognition, relating to the proper application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. Specifically, we did not maintain effective controls relating to the (1) identification and recognition of performance obligations for customer contracts and (2) evaluation of customer contracts for potential combination.
•Accounts Receivable – We did not fullyappropriately design, implement and maintain effective controls over the existence of accounts receivable. Specifically, we did not design certain controls at an appropriate precision level to identifyensure the identification of material misstatements.
•Sales Order EntryFinancial Reporting, Consolidation and Business Combination – We did not appropriately design, implement and maintain effective controls over the accuracy of revenue, specifically related to the sales order entryfinancial reporting process. WeSpecifically, we did not maintain effective controls related to (i) preparation of consolidated financial statements, (ii) the accounting for the business combination, including management review controls over contract entrythe valuation and purchase price allocation, at an appropriate level of precision to ensure accurate recording indetect a material misstatement, and (iii) consolidation of our information systems.subsidiaries. In addition, we did not maintain sufficient appropriate audit evidence to demonstrate execution of the related controls.
•Consolidation Foreign Currency – We did not appropriately design, implement, and execute controls over foreign currency, including (i) lack of identifying and recording our foreign subsidiaries’ goodwill and intangibles balances in the proper functional currency in our consolidated financial statements, and (ii) performing proper foreign currency translations. This resulted in the restatement of the Company’s interim unaudited condensed consolidated financial statements.
•STI - Although management did not conduct a formal assessment of internal controls over financial reporting of STI as of March 31, 2023, management has identified material weaknesses in internal controls over financial reporting relating to STI as follows:
◦We did not design, implement and maintain effectivemonitor general information technology controls over the consolidation of our foreign subsidiaries which resulted in a classification error of certain personnel costs in the consolidated Companyareas of program change management, user access, and segregation of duties for systems supporting substantially all of STI’s internal control processes.
◦We did not design and implement formal accounting policies, procedures and controls across substantially all of STI’s business processes to achieve timely, complete and accurate financial statements.accounting, reporting, and disclosures.
After giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our condensed consolidated financial statements included in this Quarterly Report were prepared in accordance with U.S. GAAP, our management has concluded that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.
Remediation Plan for Existing Material Weaknesses
We are in the process of, and continue to focus on, designing and implementing effective measures to strengthen our internal controls over financial reporting (“ICFR”) and remediate the material weaknesses. Our planned remediation efforts include the following:
Control Environment, Risk Assessment and Monitoring – – Consistent with the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Internal Control — Integrated Framework (COSO 2013 Framework), Principle 4, attracting, developing, and retaining competent personnel, we hired a Chief Accounting Officer (“CAO”) who is providing an additional level of technical accounting expertise, oversight, and monitoring of the design and performance of both existing and newly implemented controls as noted below. Subsequent to the addition of the new CAO, weWe have hired and will continue to hire additional resources throughout the remainder of 20222023 in accounting and IT to supplement our existing capabilities and capacity,capacity; and we will concentrate on retaining key accounting, IT, and operational personnel. These actionsAdditionally, we will further servecontinue to remediateengage additional resources with specific focus on STI internal controls as well as future business combinations. Finally, we will continue to enhance the material weakness underdesign and operation of monitoring controls and other activities that will allow us to timely assess the COSO 2013 Framework, Principle 16, by enhancing the efforts towards separate evaluations regarding the presence and functionality of the components of internal control, specifically in the areas of inventory, revenue recognition, accounts receivable, sales order entry,design and the consolidation process as noted below.operating effectiveness of controls over financial reporting.
Control Activities:
•Inventory – We are enhancingin the designprocess of implementing planned information system enhancements and the expansion of current information system capabilities, which will result in more reliance on a combination of manual and automated controls. Additionally, we will enhance existing controls and are implementingwill implement new controls over the accounting, processing and recording of inventory. Specifically, we have strengthened the designoperation of the managementcontrol activities over inventory-in-transit, deploying multiple levels of review control over inventory-in-transit. Additionally, we have implemented processes to ensure timely identification and evaluationvalidation of inventory cut-offinformation and are requiring additional accountability from counterparties on the accuracy of incoming and outgoing shipmentsupporting documentation. We have deployedexpect to deploy final phases of information system enhancements and improved the use of current system capabilities in order to improve the accuracy of inventory cut-off, reporting, and reconciliation.2023.
•Revenue Recognition – We have enhanced the design of existing controls and have implemented new controls over the review of the application and recording of revenue for customer contracts under the guidance outlined in ASC 606. We have also designed and implemented more precise reviews and documentation regarding evaluation of contract terms and whether contracts should be combined. These reviews include increased contract analysis from our legal team as well as ensuring qualified
resources are involved and adequate oversight is performed during the internal technical accounting review process.
•Accounts Receivable – We have enhanced the design of existing controls and implemented new controls over the processing and review of accounts receivable billings. We are supplementing our accounting staff with more experienced personnel. In addition, we will continuebegun to evaluate information system capabilities in order to reduce the manual calculations within this business process.
•Sales Order Entry Process – We are enhancing the design of our existing controls over contract value adjustments. Specifically, we have implemented additional procedures for our accounting staff to obtain and review documentation to confirm that contract value changes completed by the sales order entry process are accurate. In addition, Additionally, we will evaluate information system capabilitiescontinue to reduce the manual calculations within this business process.
•Consolidation Process – We are enhancingenhance the design of existing controls to ensure completeness and accuracy of underlying source data for revenue recognition and customer billing. Lastly, we will continue to supplement our accounting staff with more experienced personnel which will enable us to incorporate an additional level of review.
•Foreign Currency – We have begun information system enhancements which will automate this currently manual process. In the interim, we continue to enhance the design of existing controls and processes related to the foreign currency translation process and over the consolidation of foreign entities into the Company’s condensed consolidated financial statements. Additionally, we will strengthen
•Other Areas – We have begun remediation activities, which include enhancing the design and operating effectiveness of controls around our ICFR. We are actively working with an outside firm to assist management with (i) reviewing our current processes, procedures, and systems to assess our ICFR to identify opportunities to enhance the design of controls to address relevant risks identified by management, and (ii) enhancing and implementing protocols to retain sufficient documentary evidence of operating effectiveness of such controls. Additional activities in process include the following:
◦Continuing to enhance and formalize our accounting and business operations policies, procedures, and controls to achieve complete, accurate, and timely financial accounting, reporting and necessary disclosures;
◦Enhancing policies and procedures to retain adequate documentary evidence for relevant management review controlcontrols over certain business processes including precision of review and evidence of review procedures performed to demonstrate effective operation of such controls; and
◦Developing monitoring controls and protocols that will allow us to timely assess the consolidation process include better-documented review criteria, review responsibilitiesdesign and review expectations. In addition, we will evaluate information system capabilitiesthe operating effectiveness of controls over financial reporting and make necessary changes to further automate the partially manual consolidation process.design of controls, if any.
While these actions taken and planned actionscurrently in process are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting and will continue to review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
We acquired STI on January 11, 2022. As a result, we are reviewing the impact of the acquisition to our overall control environment and are making appropriate changes as deemed necessary to our control structure. The scope of management’s assessment of the effectiveness of the Company’s disclosure controls and procedures for fiscal year end 2022 willdid not include the internal control over the financial reporting of STI, in accordance with the SEC’s staff guidance that permits exclusion of acquisitions from their final assessment of internal control over financial reporting for the fiscal year in which the acquisition occurred. Due to the size, breadth and complexity of STI’s global operation,STI will be included in management’s evaluationfinal assessment of internal control over financial reporting for the fiscal year ended December 31, 2022 will exclude the internal control activities of STI. STI represented 15% of total consolidated assets of the Company at September 30, 2022, excluding goodwill and intangible assets which are included within the scope of management’s assessment, and approximately 24% and 20% of total consolidated revenues of the Company for the three and nine months ended September 30, 2022, respectively. Except for the changes in internal control related to the acquisition of STI,end 2023. Other than as discussed above, there have beenwere no other changes to our internal control over financial reporting during the three months ended September 30, 2022,March 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
On August 30, 2017,See Note 12 – Commitments and Contingencies under the Company filed its first amended complaint in the U.S. District Courtheading “Legal Proceedings” of our condensed consolidated financial statements for the District of New Mexico against Nextracker LLC, Daniel S. Shugar, Marco Garcia, Flextronics International U.S.A., Inc., Scott Graybeallegal proceedings and Colin Mitchell (collectively, the “Defendants”) asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).
On July 15, 2022, the Company settled its claims against Defendants for $42.8 million and received payment on August 4, 2022.
On May 14, 2021, a putative class action was filed in the U.S. District Court for the Southern District of New York (the “Southern District of New York” or the “Court”) against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related matters. In addition to the Company’s October 2020 initial public offering (“IPO”), the Company’s December 2020 offering (the “2020 Follow-On Offering”), and the Company’s March 2021 offering (the “2021 Follow-On Offering”) during the putative class period of October 14, 2020 through May 11, 2021.
On June 30, 2021, a second putative class action was filedlawsuits described in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11 and 15 of the Securities Exchange Act of 1933 (“Keippel Action”). The Keippel Action similarly alleged misstatements and/or omissions in certain of the Company’s registrationNote 12 to our condensed consolidated financial statements, and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering during the putative class period of October 14, 2020 through May 11, 2021. On July 6, 2021, the Court entered an order that the Keippel Action was in all material respects substantially similar to the Plymouth Action that both actions arise out of the same or similar operative facts, and that the parties are substantially the same parties. The Court accordingly consolidated the Keippel Action with the Plymouth Action for all pretrial purposes and, ordered all filings to be made in the Plymouth Action.
On July 16, 2021, a verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“First SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934.
On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second SDNY Derivative Action was consolidated with the First SDNY Derivative Action, the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action.
On September 21, 2021, the Court in the Plymouth Action appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiff.
On December 7, 2021, an amended class action complaint was filed by lead plaintiff in the Plymouth Action against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2), and 15
of the Securities Exchange Act of 1933, on behalf of a putative class of persons and entities that purchased or otherwise acquired the Company’s securities during the period from October 14, 2020 through May 11, 2021 (the “Consolidated Amended Complaint”). The Consolidated Amended Complaint alleges misstatements and/or omissions in: (1) certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering; (2) in the Company’s Annual Report on Form 10-K and associated press release announcing results for the fourth quarter and full fiscal year 2020; and (3) in the Company’s November 5, 2020 and March 9, 2021 earnings calls.
On August 17, 2022, the Court in the Plymouth Action set a briefing schedule for any motion to dismiss with the opening motion and supporting memorandum to be filed on or before October 17, 2022, any opposition to be filed on or before December 16, 2022, and any reply in support of the motion to be filed on or before January 16, 2023. The Company and the other defendants in the Plymouth Action filed a join motion to dismiss the Consolidated Amended Complaint on October 17, 2022.
On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company asserting claims for: (1) breach of fiduciary duty and (2) unjust enrichment (“First Delaware Derivative Action”).
On August 11, 2022, a second verified derivative complaint was filed against certain officers and directors of the Company in the Court of Chancery asserting claims for: (1) breach of fiduciary duty; (2) aiding and abetting breaches of fiduciary duty; (3) waste of corporate assets; (4) unjust enrichment; (5) insider selling; and (6) aiding and abetting insider selling (“Second Delaware Derivative Action”).
On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action, the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action.
From time to time we may be involved in litigation relating to claims arising outin the ordinary course of business. To our knowledge, other than the cases described in Note 12 to our condensed consolidated financial statements, no material legal proceedings, governmental actions, investigations or claims are currently pending against us or involve us that, in the opinion of our operations and businesses that cover a wide range of matters, including, among others, intellectual property matters, contract and employment claims, personal injury claims, product liability claims and warranty claims. Currently, there are no claims or proceedings against us that we believe willmanagement, could reasonably be expected to have a material adverse effect on our business and financial condition, results of operations or cash flows. However, the results of any current or future litigation cannot be predicted with certainty and, regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation.condition.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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Number | | Exhibit Description | | Form | | Date | | No. |
3.1 | |
| | 8-K | | 10/19/2020 | | 3.1 |
3.2 | |
| | 8-K | | 10/19/2020 | | 3.2 |
3.3 | |
| | 8-K | | 8/11/2021 | | 3.1 |
10.3 | | | | 8-K | | 01/11/2022 | | 10.1 |
10.17 | | | | 8-K | | 04/05/2022 | | 10.3 |
31.1* | |
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31.2* | |
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32.1** | |
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32.2** | |
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101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document
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101.SCH | | XBRL Taxonomy Extension Schema Document
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document
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Number | | Exhibit Description | | Form | | Date | | No. |
3.1 | | | | 8-K | | 10/19/2020 | | 3.1 |
3.2 | | | | 8-K | | 10/19/2020 | | 3.2 |
3.3 | | | | 8-K | | 8/11/2021 | | 3.1 |
10.1* | | Amendment No. 3, dated March 2, 2023, to the credit agreement by and among Array Tech, Inc. (f/k/a Array Technologies, Inc.), as borrower, ATI Investment Sub, Inc. as guarantor, Goldman Sachs Bank USA, as administrative agent and collateral agent, and the lenders from time to time party thereto | | | | | | |
31.1* | | | | | | | | |
31.2* | | | | | | | | |
32.1** | | | | | | | | |
32.2** | | | | | | | | |
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Number | | Exhibit Description | | Form | | Date | | No. |
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB | | XBRL Taxonomy Extension Presentation Linkbase Document
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document
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104 | | Cover Page Interactive Data Files
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* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Array Technologies, Inc.
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By: | /s/ Kevin G. Hostetler | Date: | November 8, 2022May 10, 2023 |
| Kevin G. Hostetler | | |
| Chief Executive Officer | | |
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By: | /s/ Nipul Patel | Date: | November 8, 2022May 10, 2023 |
| Nipul Patel | | |
| Chief Financial Officer | | |
| | | |