What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-16 · 273 added, 383 removed, 191 unchanged (77% of the section changed)

Financial Statements.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

September 30, 2020 December 31, 2019

(in thousands, except per share and share amounts)

March 31, 2021 December 31, 2020

Current assets

Cash $ 27,144 $ 310,262

Restricted cash — 50,995

Cash and cash equivalents $ 19,133 $ 108,441

Accounts receivable, net 121,921 118,694

8 unchanged sentences

Total assets $ 583,276 $ 656,024

Liabilities and Members' Equity

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

6 unchanged sentences

Current portion of contingent consideration 9,567 8,955

Revolving loan 102 70

Current portion of term loan and related party loans — 97,679

Current portion of term loan 4,300 4,313

Other current liabilities 6,288 —

Total current liabilities 232,339 289,103

2 unchanged sentences

Contingent consideration, net of current portion 10,272 10,736

Other long-term liabilities 6,055 —

Long-term debt, net of current portion, debt discount and issuance costs 391,682 423,970

Total long-term liabilities 421,052 447,820

1 unchanged sentence

Commitments and contingencies (Note 12)

Member’s Equity 377,260 305,151

Total Liabilities and Members’ Equity $ 552,272 $ 923,581

March 31, 2021 December 31, 2020

Preferred stock of 0.001 par value - 5,000,000 shares authorized;

none issued as of March 31, 2021 and December 31, 2020

Common stock of $ 0.001 par value - 1,000,000,000 shares authorized;

126,994,467 shares issued as of March 31, 2021 and December 31, 2020

Additional paid-in capital 148,370 140,473

Accumulated deficit ( 218,612 ) ( 221,499 )

Total stockholders’ deficit ( 70,115 ) ( 80,899 )

Total liabilities and stockholders’ deficit $ 583,276 $ 656,024

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per unit amounts)

(in thousands, except per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Revenues $ 139,462 $ 197,772 $ 692,096 $ 423,189

Revenue $ 245,932 $ 437,718

Cost of revenue 202,074 319,302

5 unchanged sentences

Total operating expenses 30,805 17,068

Income (Loss) from Operations ( 5,107 ) 28,349 97,452 42,915

Income from operations 13,053 101,348

Other expense

Other income (expense), net ( 29 ) ( 8 ) ( 2,163 ) 106

Other (expense) income, net ( 78 ) 108

Interest expense ( 9,009 ) ( 5,229 )

Total other expense ( 9,087 ) ( 5,121 )

Income (Loss) Before Income Tax Expense ( 5,809 ) 23,849 86,976 29,142

Income before income tax expense 3,966 96,227

Income tax expense 1,079 22,542

Net Income (Loss) $ ( 7,232 ) $ 18,191 $ 68,845 $ 12,965

Earnings (Loss) per Unit

Basic and Diluted $ ( 0.06 ) $ 0.15 $ 0.57 $ 0.11

Weighted Average Number of Units

Basic and Diluted 119,994 119,994 119,994 119,994

Net income $ 2,887 $ 73,685

Earnings per share

Basic $ 0.02 $ 0.61

Diluted $ 0.02 $ 0.61

Weighted average number of shares

Basic 126,994 119,994

Diluted 127,298 119,994

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Condensed Consolidated Statements of Changes in Member’s Equity (unaudited)

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Member’s Equity/Stockholders’ Deficit

(in thousands)

For the Three Months Ended September 30, 2020 and 2019

Balance, June 30, 2019 1 $ 259,381

Net income — 18,191

Balance, September 30, 2019 1 $ 277,572

Balance, June 30, 2020 1 $ 383,639

Equity based compensation — 853

Net loss — ( 7,232 )

Balance, September 30, 2020 1 $ 377,260

For the Nine Months Ended September 30, 2020 and 2019

For the Three Months Ended March 31, 2021

Preferred Stock Common Stock Additional

Shares Amount Shares Amount paid-in capital Retained earnings Total Stockholders’ Deficit

Balance, December 31, 2020 — $ — 126,994 $ 127 $ 140,473 $ ( 221,499 ) $ ( 80,899 )

Capital contribution — 133

Equity based compensation — — — — 7,897 — 7,897

Net Income — — — — — 2,887 2,887

Balance, September 30, 2019 1 $ 277,572

Balance, March 31, 2021 — $ — 126,994 $ 127 $ 148,370 $ ( 218,612 ) $ ( 70,115 )

For the Three Months Ended March 31, 2020

Units (*) Total Members’ Equity

Balance, December 31, 2019 1 $ 305,151

1 unchanged sentence

Net Income — 73,685

Balance, September 30, 2020 1 $ 377,260

Balance, March 31, 2020 1 $ 380,594

(*) See note 2 - Summary of Significant Accounting Policies - corporate conversion and stock split

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows used in operating activities

2 unchanged sentences

Provision for (recovery of) bad debts ( 535 ) 89

Deferred tax (benefit) expense ( 3,666 ) 14,539

Deferred tax benefit ( 71 ) ( 2,272 )

Depreciation and amortization 6,481 6,861

4 unchanged sentences

Warranty provision 302 597

Provision for inventory obsolescence 2,517 2,201

Changes in operating assets and liabilities

7 unchanged sentences

Income tax payable 1,410 23,236

Lease liabilities 247 —

Deferred revenue ( 59,941 ) ( 301,152 )

2 unchanged sentences

Purchase of property, plant and equipment ( 570 ) ( 168 )

Investment in equity security ( 10,000 ) —

Net cash used in investing activities ( 10,570 ) ( 168 )

Cash flows from financing activities

Proceeds from (payments on) revolving loan 32 ( 5,807 )

Principal payments on term loan ( 57,702 ) ( 20,000 )

Payments on related party loans ( 45,558 ) —

Deferred offering costs ( 3,775 ) —

Capital contribution — 133

Proceeds from revolving credit facility — 10

Principal payments on term loan facility ( 30,000 ) ( 57,702 )

Debt issuance costs ( 6,590 ) —

Net cash used in financing activities ( 36,590 ) ( 57,692 )

Net Decrease in Cash and Restricted Cash ( 334,113 ) ( 37,978 )

Cash and Restricted Cash, beginning of year 361,257 40,826

Cash and Restricted Cash, end of year $ 27,144 $ 2,848

Net decrease in cash, cash equivalents and restricted cash ( 89,308 ) ( 258,436 )

Cash, cash equivalents and restricted cash, beginning of period 108,441 361,257

Cash, cash equivalents, and restricted cash, end of period $ 19,133 $ 102,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Array Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Organization and Business

ATI Intermediate Holdings, LLC, (the “Company”) is a Delaware limited liability company formed in December 2018 as a wholly owned subsidiary of ATI Investment Parent, LLC (“Parent”).

On October 14, 2020, we converted from a Delaware limited liability company to a Delaware corporation and changed our name to Array Technologies, Inc.

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.

1 unchanged sentence

(“ATI Investment”) owns two other subsidiaries through which it conducts substantially all operations;

Array Technologies, Inc.

and Array Technologies Patent Holdings Co., LLC (“Array”).

Parent acquired Array on July 8, 2016.

Array Tech, Inc.

and Array Technologies Patent Holdings Co., LLC (collectively “AT”).

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2020 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 10-K filed with SEC on March 10, 2021.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Summary of Significant Accounting Policies

Basis of Accounting and Presentation

The accompanying consolidated financial statements were prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S.

Recently Adopted Accounting Pronouncements

On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) No.

2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements in ASC Topic 840, “Leases” .

Under ASU No.

2016-02, lessees are required to recognize assets and liabilities on the consolidated balance sheets for most leases and provide enhanced disclosures.

For companies that are not emerging growth companies (“EGCs”), the ASU was effective for fiscal years beginning after December 15, 2018.

For EGCs, the ASU is effective for fiscal years beginning after December 15, 2021.

The Company early adopted the new standard using the modified retrospective method by recording and right-of-use asset of $ 13.2 million, short-term portion of lease liabilities of $ 6.3 million and long-term portion of lease liabilities of $ 7.2 million as of the effective date.

Prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

The Company applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

The adoption did not have a material impact on its consolidated statements of

operations or its consolidated statements of cash flows.

See Note 13, Leases, for further information and disclosures related to the adoption of this standard.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU No.

2019-12”), which is intended to simplify various aspects of the accounting for income taxes.

2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application.

This standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Company has adopted the pronouncement and it did not have a material impact on its consolidated financial statements and related disclosures.

Corporate Conversion and Stock Split

3 unchanged sentences

Principles of Consolidation

The consolidated financial statements include the accounts of ATI Intermediate Holdings, LLC and its Subsidiaries, which include HDF, ATI Investment and Array.

The consolidated financial statements include the accounts of Array Technologies, Inc.

and its Subsidiaries.

All intercompany accounts and transactions have been eliminated upon consolidation.

Unaudited Interim Financial Information

The accompanying balance sheet as of September 30, 2020, the statements of operations, the statements of member’s equity and statements of cash flows for the three and nine months ended September 30, 2020 and 2019 are unaudited.

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 the Company’s financial position as of September 30, 2020 and the results of its operations and its cash flows for the three and nine months ended September 30, 2020 and 2019.

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2019 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 final prospectus dated October 14, 2020 and filed with Securities and Exchange Commission on October 16, 2020.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

12 unchanged sentences

In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic.

Deferred Offering Costs

Deferred offering costs consist primarily of legal and accounting fees, which are direct and incremental fees related to the IPO.

The deferred offering costs will be offset against the IPO proceeds, which will be recorded in the fourth quarter of 2020.

As of September 30, 2020, the Company had incurred $ 3.3 million in deferred offering costs, which are reported as Other assets - long-term on the condensed consolidated balance sheets.

Additionally, as of September 30, 2020, the Company had incurred debt issuance costs of $ 0.5 million associated with a new senior secured credit facility that was obtained in October 2020.

Revenue Recognition

The Company recognized revenues from the sale of solar tracking systems and parts and determines its revenue recognition through the following steps (i) identification of the contract or contracts with a customer, (ii) identification of the performance obligations within the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations within the contract, and (v) recognition of revenue when, or as the performance obligation has been satisfied.

Performance Obligations

The Company’s contracts with customers are predominately accounted for as one performance obligation, as the majority of tasks and services is part of a single project or capability.

As these contracts are typically a customized assembly for a customer-specific solution, the Company uses the expected cost-plus margin approach to estimate the standalone selling price of each performance obligation.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.

In assessing the recognition of revenue, the Company also evaluates whether two or more contracts should be

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period.

Change orders may include changes in specifications or design, manner of performance, equipment, materials, scope of work, and/or the period of completion of the project.

The Company analyzes its change orders to determine if they should be accounted for as a modification to an existing contract or a new stand-alone contract.

The Company’s change orders are generally modifications to existing contracts and are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized.

The majority of the Company’s contracts do not contain variable consideration provisions as a continuation of the original contract.

The Company’s performance obligations are satisfied predominately over-time as work progresses for its custom assembled solar systems, utilizing an output measure of completed products and based on the timing of the product’s shipments considering the shipping terms described in the contract.

Revenue recognized for the Company’s part sales are recorded at a point in time and recognized when obligations under the terms of the contract with our customer are satisfied.

Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.

Contract Estimates

Accounting for contracts utilizing the over-time method and their expected cost-plus margins is based on various assumptions to project the outcome of future events that can exceed a year.

These assumptions include labor productivity and availability;

the complexity of the work to be performed;

the cost and availability of materials;

and the availability and timing of funding from the customer.

The Company reviews and updates its contract-related estimates each reporting period.

The Company recognizes adjustments in estimated expected cost-plus on contracts under the cumulative catch-up method.

Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified.

Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.

If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the period it is identified.

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 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.

As of September 30, 2020 and December 31, 2019, contract assets consisting of unbilled receivables totaling $ 34.8 million and $ 16.1 million, respectively, are recorded within accounts receivable on the consolidated balance sheets on a contract-by-contract basis at the end of the reporting period.

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 and are the result of customers looking to take advantage of certain U.S.

federal tax incentives set to decrease at the end of 2019.

Based on the terms of the tax incentives the customer must pay for the goods prior to December 31, 2019 which accounts for the increase in the advanced orders and payments and the resulting deferred revenue at December 31, 2019 and subsequent reduction for deliveries which occurred

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

during the nine months ended September 30, 2020.

As of September 30, 2020 and December 31, 2019, contract liabilities consisting of deferred revenue were $ 44.8 million and $ 328.8 million, respectively and were recorded on a contract-by-contract basis at the end of each reporting period.

During the nine months ended September 30, 2020 and 2019, the Company converted $ 20.5 million and $ 328.8 million deferred revenue to revenue, respectively, which represented 99.2 % and 100 % of the prior years deferred revenue balance.

Remaining Performance Obligations

As of September 30, 2020, the Company had $ 227.0 million of remaining performance obligations.

The Company expects to recognize revenue on 100 % of these performance obligations in the next twelve months.

Equity-Based Compensation

The Company recognizes equity-based compensation expense based on the equity award’s grant date fair value.

The determination of the fair value of equity awards issued to employees of the Company is based upon the underlying share price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends.

On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective.

Under the 2020 Plan, the Company grants (i) restricted stock units (RSU’s) to its employees and non-employee directors in connection with their service on the board of directors, and (ii) performance stock units (“PSUs”) to certain of its executive officers and members of management.

The PSUs contain performance and market conditions.

The RSUs are valued at the closing stock price on the date of grant and recognized on a straight-line basis over vesting term.

The PSU grants were valued using the Monte Carlo simulation method and the assigned fair value on grant date will be recognized on a straight-line basis over the vesting term of the awards.

The probability of the awards meeting the performance related vested conditions is not included in the grant date fair value, but rather will be estimated quarterly and the Company will true-up the expense recognition accordingly upon any probability to vest revision.

The Company accounts for forfeitures as they occur.

The grant date fair value of each unit is amortized on a straight-line basis over the requisite service period.

Earnings per Unit (“EPU”)

Basic earnings (loss) per unit, or EPU, is computed by dividing net income (loss) available to unit holders by the weighted average units outstanding during the period.

Diluted EPU takes into account the potential dilution that could occur if securities or other contracts to issue units, such as stock options and unvested restricted stock units, were exercised and converted into units.

Diluted EPU is computed by dividing net income (loss) available to unit holders by the weighted average units outstanding during the period, increased by the number of additional units that would have been outstanding if the potential units had been issued and were dilutive.

CARES Act Payroll Tax Deferral

The CARES Act permits employers to defer the payment of the employer share of social security taxes due for the period beginning March 27, 2020 and ending December 31, 2020.

Of the amounts deferred, 50% are required to be paid by December 31, 2021 and the remaining 50% are required to be paid by December 31, 2022.

The Company began deferring payment of the employer share of social security taxes in April 2020.

As of September 30, 2020, the Company had deferred payment of $ 0.7 million of such taxes.

Credit Concentration

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, restricted cash and accounts receivable.

The Company has no significant off balance sheet concentrations of credit risk.

The Company maintains its cash and restricted cash with financial institutions that are believed to be of high credit quality and has not experienced any material losses relating to any cash and restricted cash.

As of September 30, 2020 and December 31, 2019, $ 26.6 million and $ 360.9 million, respectively, of the Company’s bank balances were uninsured and uncollateralized and exposed to custodial credit risk.

The Company’s customer base consists primarily of solar contractors and utilities.

The Company does not require collateral on its trade receivables.

For the nine months ended September 30, 2020, the Company’s largest customer and five largest customers constituted 14.3 % and 45.9 % of total revenues, respectively.

Two customers made up 24.5 % of revenue and are the only customers greater than 10% of total revenue for the nine months ended September 30, 2020.

For the nine months ended September 30, 2019, the Company’s largest customer and five largest customers constituted 21.1 % and 55.2 % of total revenues, respectively.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three customers made up 43.1 % of revenue and are the only customers constituting greater than 10% of total revenue for the nine months ended September 30, 2019.

The loss of any one of the Company’s top five customers could have a materially adverse effect on the revenues and profits of the Company.

Further, the Company’s trade accounts receivable are from companies within the solar industry and, as such, the Company is exposed to normal industry credit risks.

As of September 30, 2020, the Company’s largest customer and five largest customers constituted 21.7 % and 23.9 % of trade accounts receivable, respectively.

As of December 31, 2019, the Company’s largest customer and five largest customers constituted 29.5 % and 69.0 % of trade accounts receivable, respectively.

The Company continually evaluates its reserves for potential credit losses and establishes reserves for such losses.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company follows a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Three levels of inputs may be used to measure fair value, as follows:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity that are significant to the fair value of the assets or liabilities.

Assets valued using Level 1 inputs are determined by quoted market prices derived from an active market and Level 2 inputs are based primarily on quoted prices for similar assets in active or inactive markets.

Level 3 inputs are valued by management’s assumptions about the assumptions the market participants would utilize in pricing the asset.

The fair values of the Company’s cash, restricted cash, accounts receivable, and accounts payable approximate their carrying values due to their short maturities.

The carrying value of the Company’s notes payable and related party loans approximates their fair values, as they are based on current market rates at which the Company could borrow funds with similar terms.

The Company follows the provisions of FASB ASC Topic 820-10 for nonfinancial assets and liabilities measured at fair value on a non-recurring basis.

As it relates to the Company, this applies to certain nonfinancial assets and liabilities acquired in business combinations and measurement of goodwill impairment and non-amortizable intangibles and is thereby measured at fair value.

The Company has determined such fair value primarily by third-party valuations.

In the case of Class B units (the “Class B Units”) and Class C units (the “Class C Units” and, together with the Class B Units, the “Units”) of the Former Parent granted to certain employees and directors of the Company, the determination of the fair value of equity awards issued to employees of the Company was based upon the underlying share price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends.

The Class B Units fully vested upon the completion of the Company’s follow-on offering of its common stock in March 2021 (the “2021 Follow-on Offering”) as it was considered a sale of the Former Parent and the Company recognized the remaining unamortized compensation expense of $ 6.3 million.

New Accounting Standards

To be adopted

In February 2016, the FASB issued ASU No.

2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements in ASC Topic 840, “Leases” .

Under ASU No.

2016-02, lessees are required to recognize assets and liabilities on the consolidated balance sheets for most leases and provide enhanced disclosures.

Leases will continue to be classified as either finance or operating.

For companies that are not emerging growth companies (“EGCs”), the ASU is effective for fiscal years beginning after December 15, 2018.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

For EGCs, the ASU is effective for fiscal years beginning after December 15, 2021.

The Company plans to adopt the new standard using the modified retrospective method, under which the Company will apply Topic 842 to existing and new leases as of the effective date, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

The Company anticipates that the adoption will not have a material impact on its consolidated statements of operations or its consolidated statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

In June 2016, the FASB issued ASU No.

5 unchanged sentences

The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The standard is effective for the fiscal year beginning after December 15, 2022, or December 15, 2021 if we were to lose EGC’s status in 2021.

The standard is effective for EGCs the fiscal year beginning after December 15, 2022, or December 15, 2021 if we were to lose EGC status in 2021.

The Company will continue to assess the possible impact of this standard, but currently does not expect the adoption of this standard will have a significant impact on its consolidated financial statements and its limited history of bad debt expense relating to trade accounts receivable.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU No.

2019-12”), which is intended to simplify various aspects of the accounting for income taxes.

2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement against or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

The Company adopted ASU 2018-13 as of January 1, 2020.

The Company’s disclosures related to its Level 3 financial statements did not materially change for the periods presented.

See Note 11 - Commitments and Contingencies for more information.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Inventories consist of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Raw materials $ 33,150 $ 39,051

4 unchanged sentences

Property, plant and equipment consisted of the following (in thousands):

Estimated Useful Lives (Years) September 30, 2020 December 31, 2019

Estimated Useful Lives (Years) March 31, 2021 December 31, 2020

Land N/A $ 1,340 $ 1,340

4 unchanged sentences

Hardware and software 3 - 5

Machinery in progress 82 —

Total 19,128 18,557

1 unchanged sentence

Property, plant and equipment, net $ 9,740 $ 9,774

Depreciation expense was $ 0.6 million and $ 0.5 million for the three months ended September 30, 2020 and 2019, respectively, of which $ 0.5 million and $ 0.4 million, respectively, has been allocated to cost of revenue and $ 0.1 million and $ 0.1 million, respectively, is included in depreciation and amortization in the accompanying consolidated statements of operations for the three months ended September 30, 2020 and 2019.

Depreciation expense was $ 1.7 million and $ 1.6 million for the nine months ended September 30, 2020 and 2019, respectively, of which $ 1.5 million and $ 1.4 million, respectively, has been allocated to cost of revenue and $ 0.2 million and $ 0.2 million, respectively, is included in depreciation and amortization in the accompanying consolidated statements of operations for the nine months ended September 30, 2020 and 2019.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Depreciation expense was $ 0.6 million and $ 0.5 million for the three months ended March 31, 2021 and 2020, respectively, of which $ 0.5 million and $ 0.4 million, respectively, has been allocated to cost of revenue and $ 0.1 million and $ 0.1 million, respectively, is included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020.

Goodwill and Other Intangible Assets

Goodwill relates to Parent’s acquisition of Array.

At the acquisition date, July 8, 2016, goodwill was $ 121.6 million.

At December 31, 2019 and September 30, 2020 goodwill totaled $ 69.7 million, net of accumulated impairment of $ 51.9 million and is not deductible for tax purposes.

Goodwill relates to the Former Parent’s acquisition of AT (the “Acquisition”) in 2016.

As of July 8, 2016 (the “Acquisition Date”), goodwill was $ 121.6 million.

As of March 31, 2021 and December 31, 2020 goodwill totaled $ 69.7 million, net of accumulated impairment of $ 51.9 million and is not deductible for tax purposes.

Other Intangible Assets

Other intangible assets consisted of the following (in thousands):

Estimated Useful Lives (Years) September 30, 2020 December 31, 2019

Estimated Useful Lives (Years) March 31, 2021 December 31, 2020

Developed technology 14 $ 203,800 $ 203,800

Customer relationship 10 89,500 89,500

Customer relationships 10 89,500 89,500

Internal-use software modification 2.5 4,356 4,356

2 unchanged sentences

Developed technology 68,872 65,233

Customer relationship 37,869 31,157

Customer relationships 42,345 40,107

Internal-use software modification costs 4,356 4,356

4 unchanged sentences

Total other intangible assets, net $ 192,383 $ 198,260

Amortization expense related to intangible assets amounted to $ 6.3 million for the three months ended September 30, 2020 and 2019 and $ 18.9 million for the nine months ended September 30, 2020 and 2019, respectively.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Estimated future annual amortization expense for the above amortizable intangible assets for the remaining periods through December 31, as follows (in thousands):

Thereafter 93,932

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic.

Among other things, the CARES Act provided the ability for taxpayers to carryback a net operating loss (“NOL”) arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 to each of the five years preceding the year of the loss.

The Company generated a significant NOL during its tax year ended March 31, 2019 and filed a carryback claim in June 2020 for this NOL.

As a result of the carryback claim, the Company recorded an income tax benefit of $ 6.6 million on its condensed consolidated statement of operations for the nine months ended September 30, 2020, resulting from the difference in the current U.S.

federal tax rate of 21% and the tax rate of 35% applicable in the carryback year.

The Company’s 2017 federal income tax return was selected for examination by the IRS in 2018.

As a result of the examination, an adjustment related to the value allocated to the developed technology for tax purposes was potentially required.

During 2019, the Company settled the 2017 examination and agreed to a reduction in the developed technology value from $ 210 million to $ 188 million for federal income tax purposes.

As a result of this change in the value of the acquired developed technology, the Company has reduced its NOL carryforwards by approximately $ 2.8 million for previously taken amortization and increased the deferred tax liability related to the revised developed technology tax basis by approximately $ 4.6 million.

In addition, the Company will no longer receive the tax basis upon payment of the Tax Receivable Agreement (“TRA”) liability, as the related deferred tax asset of $ 4.7 million for the TRA was also written off during 2019.

The adjustments resulting from the change in developed technology value have been recorded as an income tax expense for the nine months ended September 30, 2019.

Amortization expense related to intangible assets amounted to $ 5.9 million for the three months ended March 31, 2021 and 2020, respectively.

Investment in Equity Security

The Company made a $ 10.0 million investment in preferred stock of a private company in the three months ended March 31, 2021.

The investment is accounted for in accordance with ASC 321 at its cost less any impairment.

The investment balance as of March 31, 2021 is $ 10.0 million and is recorded in other assets on the condensed consolidated balance sheet.

There is no impairment recorded for the three months ended March 31, 2021.

The Company follows guidance under ASC Topic 740-270, Interim Reporting, which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income.

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.

For the three months ended March 31, 2021 and 2020 the Company recorded total income tax expense of $ 1.1 million and $ 22.5 million, respectively.

The effective tax rate was higher than the statutory tax rate of 21% primarily due to state income taxes, non-deductible equity-based compensation, Follow-on Offering costs and other non-deductible expenses for tax reporting purposes.

As of the three months ended March 31, 2021 and March 31, 2020, no reserves for uncertain tax positions have been recorded.

The Company will continue to monitor this position each interim period.

Term and Revolving Loan

The Company had a Term Loan Credit and Guarantee Agreement (the “Term Loan”) as amended.

The Term Loan was secured by assets of ATI Investment.

The Term Loan was payable in quarterly installments of $ 5 million.

As of December 31, 2019, the Term Loan had a balance of $ 57.7 million.

The Term Loan accrued interest equal to applicable margin of 6.25 % plus base rate (the “Base Rate Loan”) ( 8.96 % at December 31, 2019).

The balance of the Term loan is presented in the accompanying consolidated balance sheets net of debt discount and issuance costs of $ 1.8 million at December 31, 2019.

The Term Loan had an annual excess cash flow calculation which could require the Company to make advance principal payments.

At December 31, 2019, the excess cash flow calculation resulted in the Term Loan be classified as current on the accompanying

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

condensed consolidated balance sheet.

The Company paid the outstanding amount due on the Term Loan on February 2, 2020 and settled all obligations with respect to the Term Loan.

The Company had a credit facility (the “Revolving Loan”) as amended, which had a commitment of $ 100.0 million.

As of September 30, 2020 and December 31, 2019, the Revolving Loan had an outstanding balance of $ 0.1 million and $ 70 thousand, respectively.

The Revolving Loan had $ 30.7 million in letters of credit outstanding and availability of $ 68.9 million at September 30, 2020.

The Revolving Loan accrues interest at base rate plus applicable margin ( 4.0 % at September 30, 2020).

The Revolving Loan and Term Loan subjected the Company to a number of restrictive covenants, including financial covenants.

These financial covenants include a minimum fixed charge coverage ratio, net leverage ratio, EBITDA, and excess cash flow percentage, as defined in the Revolving Loan and Term Loan Credit Facility.

As of September 30, 2020, the Company was in compliance with all the required covenants.

In connection with the IPO and New Senior Secured Credit Facility the Company paid the remaining balance and settled all obligations related to the Revolving Loan.

See Note 14 – Subsequent Events for discussion of New Senior Secured Credit Facility.

March 31, December 31,

Term loan facility $ 430,000 $ 460,000

Revolving credit facility — —

430,000 460,000

Less discount and issuance costs

( 34,018 ) ( 31,717 )

Long term debt, net of debt discount and issuance costs 395,982 428,283

Less current portion of long-term debt ( 4,300 ) ( 4,313 )

Long-term debt, net of current portion, debt discount and issuance costs $ 391,682 $ 423,970

Senior Secured Credit Facility

On October 14, 2020, the Company entered into a senior secured credit facility consisting of (i) a $ 575 million senior secured seven-year term loan facility (the “Term Loan Facility”) and (ii) a $ 150 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”).

As of March 31, 2021, the Term Loan Facility had a balance of $ 430 million.

On February 23, 2021 the Company entered into the First Amendment (“First Amendment”) to it’s Senior Secured Credit Facility.

The First Amendment, in the case of the Eurocurrency borrowings, lowers the London interbank offered rate floor to 50 basis points from 100 basis points and lowers the applicable margin to 325 basis points from 400 basis points per annum.

This results in the current rate on the Term Loan Facility of 3.75 %.

On February 26, 2021, we entered into the incremental facility amendment No.

2 (the “Second Amendment”) to the Senior Secured Credit Facility.

The Second Amendment increases the $ 150.0 million Revolving Credit Facility from $ 150.0 million to $ 200.0 million.

The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets net of debt discount and issuance costs of $ 34.0 million at March 31, 2021.

The debt discount and issuance costs are being amortized using the effective interest method and the rate as of March 31, 2021 is 5.01 %.

The Term Loan Facility has an annual excess cash flow calculation beginning with the year ended December 31, 2021 which could require the Company to make advance principal payments.

Letters of Credit

Under the Revolving Credit Facility, the Company had no outstanding balance, $ 39.7 million in standby letters of credit and availability of $ 160.3 million under the Revolving Credit Facility as of March 31, 2021.

Related Party Loan

On August 22, 2018, the Company entered into a $ 38.6 million senior secured promissory note, as amended (the “Senior Secured Loan”) with a unit holder of Parent that bears interest at a stated rate of 12 % per year.

Interest payments on the Senior Secured Loan are due quarterly and were based on the division of the Senior Secured Loan into two tranches:

a $ 22.5 million tranche (“Tranche A”) that requires cash interest payments and;

a $ 16.1 million tranche (“Tranche B”) that provides for payments in kind (“PIK”) through the addition of accrued interest to the principal balance.

The balance of the Senior Secured Loan, presented in the accompanying condensed consolidated balance sheets net of debt discount and issuance costs, is $ 41.8 million at December 31, 2019.

The Company paid the remaining outstanding balance and accrued interest on July 31, 2020 to settle the obligation with respect to the Senior Secured Loan.

For the three months ended September 30, 2020 and 2019, interest expense totaled $ 0.3 million and $ 0.5 million, respectively, which consisted of cash interest, PIK interest and amortization of the debt discount.

For the nine months ended September 30, 2020 and 2019, interest expense totaled $ 3.8 million and $ 4.1 million, respectively, which consisted of cash interest, PIK interest and amortization of the debt discount.

The Company had a senior secured promissory note, as amended, with a unit holder of Former Parent that had a balance, net of debt discount and issuance costs as of March 31, 2020 of $ 41.8 million for which the Company paid interest expense for the three months ended March 31, 2020 of $ 1.7 million, which consisted of cash interest, PIK interest and amortization of the debt discount.

The note was no longer outstanding as of March 31, 2021 and had no balance or interest expense for the three months ended March 31, 2021.

Based on Topic 606 provisions, the Company disaggregates its revenue from contracts with customers by those sales recorded over-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 time (in thousands):

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Over-time Revenues $ 112,329 $ 170,283 $ 620,447 $ 383,135

Point in time Revenues 27,133 27,489 71,649 40,054

Over-time revenue $ 231,888 $ 417,961

Point in time revenue 14,044 19,757

Total revenue $ 245,932 $ 437,718

Earnings (Loss) per Unit

The following table sets forth the computation of basic and diluted earnings (loss) per unit (in thousands, except per unit amounts):

Contract Balances

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 consolidated balance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands):

March 31, 2021 December 31, 2020

Unbilled receivables $ 87,179 $ 18,073

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):

March 31, 2021 December 31, 2020

Deferred revenue $ 89,881 $ 149,821

During the three months ended March 31, 2021, the Company converted $ 101.8 million deferred revenue to revenue which represented 68.0 % of the prior years deferred revenue balance.

Remaining Performance Obligations

As of March 31, 2021, the Company had $ 394.4 million of remaining performance obligations.

The Company expects to recognize revenue on 100 % of these performance obligations in the next twelve months .

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Basic and Diluted:

Net income (loss) $ ( 7,232 ) $ 18,191 $ 68,845 $ 12,965

Weighted-average units 119,994 119,994 119,994 119,994

Basic and diluted net earnings (loss) per unit $ ( 0.06 ) $ 0.15 $ 0.57 $ 0.11

There are 26,671,594 Class B units and 1,000 Class C units of Parent issued to certain employees or directors of the Company which were not included in the calculation of basic or diluted EPS for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 and 2019, as the Class B and Class C units do not represent potential units of the Company.

Net income $ 2,887 $ 73,685

Weighted-average shares 126,994 119,994

Earnings per share $ 0.02 $ 0.61

Weighted-average shares 126,994 119,994

Equity compensation dilutive securities 304 —

Weighted average dilutive shares 127,298 119,994

Earnings per share $ 0.02 $ 0.61

There were 26,671,594 Class B units and 1,000 Class C Units of Former Parent issued to certain employees or directors of the Company which were not included in the calculation of basic or diluted EPS for the three months ended March 31, 2021 and 2020, as the Units do not represent potential units of the Company.

Commitments and Contingencies

2 unchanged sentences

Contingent Consideration

Concurrent with Parent’s acquisition of Array Technologies Patent Holdings Co., LLC (the “Patent LLC”), Array Tech, Inc.

Concurrent with the Acquisition, Array Tech, Inc.

(f/k/a Array Technologies, Inc.) entered into a TRA with the former majority shareholder of Array.

1 unchanged sentence

The TRA provides for the payment by Array Tech, Inc.

(f/k/a Array Technologies, Inc.) to the former owners for certain federal, state, local and non-U.S.

to the former owners for certain federal, state, local and non-U.S.

tax benefits deemed realized in post-closing taxable periods by Array, 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 general and administrative in the accompanying consolidated statements of operations.

At September 30, 2020 and December 31, 2019, the fair value of the TRA was $ 18.3 million and $ 17.8 million, respectively.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2021 and December 31, 2020, the fair value of the TRA was $ 19.8 million and $ 19.7 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.

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.

2 unchanged sentences

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.

As of September 30, 2020, the undiscounted future expected payments through December 31, under the TRA are as follows (in thousands):

2025 and thereafter 10,931

Earn-Out Liability

The Company is required to pay the selling stockholders of Array future contingent consideration consisting of earn-out payments in the form of cash upon the occurrence of certain events, including the sale, transfer, assignment, pledge, encumbrance, distribution or disposition of shares held by the acquirer to a third party;

initial public offering of the equity securities of Parent, acquirer or the Company;

the sale of equity securities or assets of Parent, acquirer or the Company to a third-party;

or a merger, consolidation, recapitalization or reorganization of Parent, acquirer or the Company.

The maximum aggregate earn-out consideration is $ 25.0 million.

The earn-out liability is included in contingent consideration in the accompanying consolidated balance sheets in the amount of $ 15.9 million and $ 0.4 million at September 30, 2020 and December 31, 2019, respectively.

The Company had a liability during the three months ended March 31, 2020 to the selling stockholders of Array for contingent consideration consisting of earn-out payments in the form of cash upon the occurrence of certain events, including the sale, transfer, assignment, pledge, encumbrance, distribution or disposition of shares held by the acquirer to a third party;

initial public offering of the equity securities of Former Parent, acquirer or the Company;

the sale of equity securities or assets of Former Parent, acquirer or the Company to a third-party;

or a merger, consolidation, recapitalization or reorganization of Former Parent, acquirer or the Company.

The maximum aggregate earn-out consideration was $ 25.0 million.

The earn-out liability was paid off in the fourth quarter of the fiscal year ended December 31, 2020.

The fair value of the earn-out liability was initially determined as of the Acquisition Date using unobservable inputs.

These inputs include the estimated amount and timing of future cash flows, the probability of a qualifying event occurring, and a risk-free rate used to adjust the probability-weighted cash flows to their present value.

Subsequent to the acquisition date, at each reporting period, the earn-out liability is re-measured to fair value with changes in fair value recorded in general and administrative in the accompanying consolidated statements of operations.

Subsequent to the Acquisition Date, at each reporting period, the earn-out liability is re-measured to fair value with changes in fair value recorded in general and administrative in the accompanying condensed consolidated statements of operations.

The following table summarizes the liability related to the estimated contingent consideration (in thousands):

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

TRA Earn-Out Liability Contingent Consideration

Balance, June 30, 2019 $ 15,378 $ 442 $ 15,820

Fair value adjustment 1,968 — 1,968

Balance, September 30, 2019 $ 17,346 $ 442 $ 17,788

Balance, June 30, 2020 $ 18,845 $ 1,822 $ 20,667

Fair value adjustment ( 521 ) 14,112 13,591

Balance, September 30, 2020 $ 18,324 $ 15,934 $ 34,258

TRA Earn-Out Liability Contingent Consideration

Balance, December 31, 2020 $ 19,691 $ — $ 19,691

IRS Settlement ( 2,727 ) — ( 2,727 )

Fair value adjustment 148 — 148

Balance, September 30, 2019 $ 17,346 $ 442 $ 17,788

Balance, March 31, 2021 $ 19,839 $ — $ 19,839

Balance, December 31, 2019 $ 17,808 $ 442 $ 18,250

Fair value adjustment ( 695 ) ( 318 ) ( 1,013 )

Balance, September 30, 2020 $ 18,324 $ 15,934 $ 34,258

Balance, March 31, 2020 $ 17,113 $ 124 $ 17,237

The TRA and earn-out liabilities require significant judgment and are classified as Level 3 in the fair value hierarchy.

Equity-Based Compensation

The Company accounts for equity grants to employees (Class B units and Class C units, “the Units”, of Parent) as equity based compensation under ASC 718, Compensation-Stock Compensation .

The Units contain vesting provisions as defined in the agreement.

Vested units do not forfeit upon termination and represent a residual interest in Parent.

Equity based compensation cost is measured at 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 Parent.

Equity Incentive Plan

On October 14, 2020, the Company’s 2020 Plan became effective.

The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.

In March 2021, the Company granted an aggregate of 226,819 RSU’s to employees and 150,462 Performance Stock Units (PSUs) to certain executives.

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) compared a certain Index which modifies the number of PSUs that vest.

Activity under the 2020 Plan was as follows:

Number of Shares Weighted Average Grant Date Fair Value

Unvested, December 31, 2020 500,006 $ 22.00

Granted 226,819 37.85

Forfeited — —

Unvested, March 31, 2021 726,825 $ 26.95

PSU Number of Shares Weighted Average Grant Date Fair Value

Unvested, December 31, 2020 — $ —

Granted 150,462 30.74

Forfeited — —

Unvested, March 31, 2021 150,462 $ 30.74

Class B Units

The Company accounted for equity grants to employees of Class B Units of Former Parent (the “Units”) as equity-based compensation under ASC 718, Compensation-Stock Compensation .

The Units contained vesting provisions as defined in the agreement.

Equity-based compensation cost was measured at the grant date fair value and 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 of the award that is vested.

The Units issued to employees are measured at fair value on the grant date using an option pricing model.

The Units issued to employees were 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.

3 unchanged sentences

Actual results may vary depending on the assumptions applied within the model.

On November 19, 2019 and May 19, 2020, Parent issued 22,326,653 and 4,344,941 , respectively, Class B units to certain employees of the Company.

On March 28, 2020, Parent issued 1,000 Class C units to a member of the board of directors of Array Technologies, Inc.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the three and nine months ended September 30, 2020, the Company recognized $ 0.9 million and $ 3.3 million in equity based compensation, respectively.

At September 30, 2020, the Company had $ 7.5 million of unrecognized compensation costs related to Class B units which is expected to be recognized over a period of 3.25 years.

There were no forfeitures during 2020.

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 the remaining unamortized compensation expense of $ 6.3 million in the three months ended March 31, 2021.

For the three months ended March 31, 2021 and 2020, the Company recognized $ 7.9 million and $ 1.8 million in equity-based compensation.

As of March 31, 2021, the Company had $ 22.3 million of unrecognized compensation costs which is expected to be recognized over a period of 2.8 years.

There were no forfeitures during the three months ending March 31, 2021 and 2020.

Effective January 1, 2021, the Company adopted ASC 842 Leases using the modified retrospective approach.

The Company elected the use of the package of practical expedients permitted under the transition guidance which allows the Company not to reassess whether a contract contains a lease, carry forward the historical lease classification and not reassess initial direct lease costs.

The Company also elected to apply the short-term measurement and recognition exemption in which the right-of-use (“ROU”) assets and lease liabilities are not recognized for short-term leases.

Adoption of this standard resulted in recording of net operating lease ROU assets and corresponding operating lease liabilities of $ 13.2 million and $ 13.5 million, respectively.

The standard did not materially affect the condensed consolidated statements of income and had no impact on the condensed consolidated statements of cash flows.

The following table summarizes the balances as it relates to leases at the end of the period (in thousands):

(*) As of March 31, 2021

ROU Asset Other assets $ 12,082

Lease liability, current portion Other current liabilities $ 6,288

Lease liability, long-term portion Other long-term liabilities 6,041

Total lease liability $ 12,329

(*) Location on the condensed consolidated balance sheet

The Company determines if an arrangement is a lease at its inception.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Operating lease ROU assets also include any initial direct costs and prepayments less lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

As the Company’s leases generally do not provide an implicit rate, the Company uses its collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of lease payments.

Lease expense for these leases is recognized on a straight-line basis over the lease term.

Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the right-of-use assets are included in other assets and the corresponding lease liabilities, depending on their maturity, are included in accrued liabilities or other long-term liabilities in the condensed consolidated balance sheets.

The details of the Company’s operating leases are as follows (in thousands):

Three Months Ended

March 31, 2021

Operating lease expense $ 1,651

Variable lease expense 91

Short-term lease expense —

Total lease expense $ 1,742

The following table presents the maturities of lease liabilities as of March 31, 2021 (in thousands):

Fiscal year ending March 31, Operating Leases

Total lease payments 12,976

Imputed lease interest ( 647 )

Total lease liabilities 12,329

The following table represents future minimum lease obligations under non-cancelable operating leases as of December 31, 2020 (in thousands):

Fiscal year ending December 31, Operating Leases

Total $ 14,435

The Company’s weighted-average remaining lease-term and weighted-average discount rate are as follows (in thousands):

Three Months Ended

March 31, 2021

Weighted average remaining lease-term 2.2 years

Weighted average discount rate 5 %

Supplemental cash flow and other information related to operating leases are as follows:

Three Months Ended

March 31, 2021

Operating cash flows from operating leases $ 1,465

Non cash investing activities:

Lease liabilities arising from obtaining right-of-use assets as of January 1, 2021 $ 13,464

Related Party Transactions

Accounts Payable-Related Party

The Company had $ 2.2 million and $ 5.9 million at September 30, 2020 and December 31, 2019, respectively, of accounts payable - related party with the former shareholders of Array and current unit holder of Parent.

The Company had $ 2.6 million and $ 2.2 million as of March 31, 2021 and December 31, 2020, respectively, of accounts payable - related party with the former shareholders of Array and current unit holder of Former Parent.

The payables relate to a federal tax refund related to the pre-Acquisition periods, restricted cash at Acquisition Date 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.

Consent Fees-Related Party

The Company incurred $ 2.2 million in consent fees with the former majority shareholder of Array to allow a carryback of post-acquisition net operating losses to pre-acquisition periods under the CARES Act.

The consent fee is included in accounts payable – related party and other income (expense), net in the accompanying condensed consolidated financial statements at September 30, 2020 and for the three and nine months ended September 30, 2020, respectively.

Related Party Loans - see Note 9

Contingent Consideration - see Note 12

Subsequent Events

New Senior Secured Credit Facility

On October 14, 2020, the Company entered into a new credit senior credit facility consisting of (i) a $ 575 million senior secured seven-year term loan facility (the “New Term Loan Facility”) and (ii) a $ 150 million senior secured 5-year revolving credit facility (the “New Revolving Credit Facility” and, together with the New Term Loan Facility, the “New Senior Secured Credit Facility”).

We used $ 105 million of our initial public offering (“IPO”) proceeds to pay down the balance of the New Term Loan Facility to $ 470 million, and the remaining proceeds for general corporate purposes, including working capital, operating expenses and capital expenditure.

Interest Rate

The interest rates applicable to the loans under the New Term Loan Facility equals, at our option, either, (i) in the case of ABR borrowings, the highest of (a) the Federal Funds Rate as of such day plus 50 basis points, (b) the prime rate and (c) the adjusted LIBOR rate as of such day for a deposit in U.S.

dollars with a maturity of one month plus 100 basis points, provided that in no event shall the ABR be less than 150 basis points, plus, in each case, the applicable margin of 300 basis points per annum;

or (ii) in the case of Eurocurrency borrowings, the greater of (a) the London interbank offered rate for the relevant currency, adjusted for statutory reserve requirements, and (b) 100 basis points, plus, in each case, the applicable margin of 400 basis points per annum.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

The interest rates applicable to the loans under the New Revolving Facility equals, at our option, either, (i) in the case of ABR borrowings, the highest of (a) the Federal Funds Rate as of such day plus 50 basis points, (b) the prime rate and (c) the adjusted LIBOR rate as of such day for a deposit in U.S.

dollars with a maturity of one month plus 100 basis points, provided that in no event shall the ABR be less than 150 basis points, plus, in each case, the applicable margin of 225 basis points per annum;

or (ii) in the case of Eurocurrency borrowings, the greater of (a) the London interbank offered rate for the relevant currency, adjusted for statutory reserve requirements, and (b) 50 basis points, plus, in each case, the applicable margin of 325 basis points per annum.

Guarantees and Security

The obligations under the New Senior Secured Credit Facility are guaranteed by ATI Investment Sub, Inc.

and its wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries.

The obligations under the New Senior Secured Credit Facility are secured by a first priority security interest in substantially all of Array Tech, Inc.’s and the guarantors’ existing and future property and assets, including accounts receivable, inventory, equipment, general intangibles, intellectual property, investment property, other personal property, material owned real property, cash and proceeds of the foregoing, subject to customary exceptions.

Prepayments and Amortization

Loans under the New Revolving Credit Facility may be voluntarily prepaid in whole, or in part, in each case without premium or penalty.

Loans under the New Term Loan Facility may be voluntarily prepaid in whole, or in part, in each case without premium or penalty (other than a 1 % premium with respect to prepayments on account of certain “repricing events,” subject to exceptions, occurring within 12 months of the closing date of the New Senior Secured Credit Facility), subject to certain customary conditions.

Subject to certain customary exceptions, the New Senior Secured Credit Facility requires mandatory prepayments, but not permanent reductions of commitments thereunder, for excess cash flow, asset sales, subject to a right of reinvestment, and refinancing facilities.

The New Term Loan Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00 % per annum of the original principal amount of the loans funded thereunder.

There is no scheduled amortization under the New Revolving Credit Facility.

Restrictive Covenants and Other Matters

The New Senior Secured Credit Facility contains affirmative and negative covenants that are customary for financings of this type, including covenants that restrict our incurrence of indebtedness, incurrence of liens, dispositions, investments, acquisitions, restricted payments, transactions with affiliates, as well as other negative covenants customary for financings of this type.

The New Revolving Credit Facility also includes a springing financial maintenance covenant that is tested on the last day of each fiscal quarter if the outstanding loans and certain other credit extensions under the New Revolving Credit Facility exceed 35 % of the aggregate amount of commitments thereunder, subject to customary exclusions and conditions.

If the financial maintenance covenant is triggered, the first lien net leverage ratio will be tested for compliance not to exceed 7.10 to 1.00.

The New Senior Secured Credit Facility also includes customary events of default, including the

occurrence of a change of control.

ATI Intermediate Holdings, LLC and Subsidiaries

(a wholly-owned Subsidiary of ATI Investment Parent, LLC)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Special Distribution to Parent

On October 14, 2020, the Company issued a special distribution of $ 589 million to Parent (the “Special Distribution”).

Proceeds for the New Senior Secured Credit facility and cash on hand were used to fund the special distribution.

Corporate Conversion and Stock Split

On October 14, 2020, prior to the issuance of any of our shares of common stock in our IPO, we converted from a Delaware limited liability company to a Delaware corporation.

In connection with the corporate conversion we converted all 1,000 of our outstanding member units into 100,000,000 shares of common stock and then completed a stock split of 1.19994 -for-1.

The corporate conversion and stock split representing 119,994,467 shares of common stock have been adjusted retroactively for the purposes of calculating basic and diluted earnings per share.

Authorized Shares of Common and Preferred Stock

On October 14, 2020, in connection with the IPO, a new Certificate of Incorporation became effective for the Company, which authorized capital stock of 1,000,000,000 shares of common stock, $ 0.001 par value, and 5,000,000 shares of preferred stock, $ 0.001 par value.

On October 19, 2020, we closed the IPO and sold 7,000,000 shares of common stock at a public offering price of $ 22.00 per share.

We received net proceeds of $ 140.2 million after deducting underwriting discounts and commissions of $ 8.5 million and other offering costs of $ 5.3 million.

We used $ 105 million of the IPO proceeds to pay down the balance of the New Term Loan Facility to $ 470 million.

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.

Effective October 14, 2020, the Company granted an aggregate of 29,398 restricted stock units (RSU’s) to its non-employee directors in connection with their service on the board of directors and 470,608 RSU’s to certain executives and members of management.

The RSU’s were granted under the 2020 Plan at the IPO price of $ 22.00 per share.

Each share has a vesting commencement date of and is subject to a two to three-year vesting schedule, vesting annually on the anniversary date of the vesting commencement date.

Earn-out Payment

On October 14, 2020, as a result of certain qualifying events, the Special Distribution and shares sold in the IPO by the selling stockholders, a payment of $ 9.1 million was made to holders of the earn-out.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements