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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-12 · 121 added, 115 removed, 217 unchanged (52% of the section changed)

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto as of and for the years ended December 31, 2020, 2019 and 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies and Significant Judgements and Estimates, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission, or the SEC, on March 10, 2021.

Each of the terms the “Company,” “Array,” “we,” or “us” as used herein refers collectively to Array Technologies, Inc.

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• certain provisions in our certificate of incorporation and our bylaws may delay or prevent a change of control;

• difficulties related to the integration of the Company and STI as a result of the Acquisition;

• the effect of the acquisition on our relationships with customers, employees, regulators or suppliers.

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.

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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.

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.

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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.

In the six months ended June 30, 2021, we derived 99% and 1% of our revenues from customers in the U.S.

In the nine months ended September 30, 2021, we derived 99% and 1% of our revenues from customers in the U.S.

and rest of the world, respectively.

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company and our headquarters and principal manufacturing facility are in Albuquerque, New Mexico.

As of June 30, 2021, we had 387 full-time employees.

Securities Purchase Agreement

As of September 30, 2021, we had 387 full-time employees.

Recent Developments

Acquisition of STI

On November 11, 2021, the Company entered into a definitive agreement with Amixa Capital, S.L.

and Aurica Trackers, S.L.

to acquire 100% of the share capital of Soluciones Técnicas Integrales Norland, S.L.

and its subsidiaries (collectively, “STI”), for a purchase price of €579.0 million ($662.7 million at current exchange rates), €228.0 million ($264.0 million at current exchange rates), of which will be paid at closing in common stock of the Company with the remaining €351.0 million in cash ($401.7 million at current exchange rates) to be paid in cash.

The purchase price will be increased by the amount that is four times the audited Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of the target less €47.0 million ($53.5 million at current exchange rates), such that the amount of contingent consideration is subject to a cap of €55.0 million ($63.0 million at current exchange rates).

The transaction is expected to close in the first quarter of 2022, following receipt of required regulatory approvals and satisfaction of other customary closing conditions.

In connection with the entry into the Purchase Agreement, the Company entered into a debt commitment letter dated November 10, 2021 pursuant to which third party financial institutions have committed, subject to the satisfaction of standard conditions, to provide the Company with a bridge loan facility in aggregate principal amount of up to $300 million.

The Company currently intends to finance the transaction and related fees and expenses with cash on hand, borrowings under its senior credit facilities, proceeds from our option to require the holders of our Series A Perpetual Preferred Stock (the “Preferred Shares”) to purchase additional Preferred Shares, and through one or more debt capital markets transactions, subject to market conditions and other factors, and, only to the extent necessary, borrowings under the bridge loan facility.

Series A Perpetual Preferred Stock

On August 10, 2021, the Company 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 Company issued and sold to the Purchaser 350,000 shares of a newly designated Series A Perpetual Preferred Stock of the Company, par value $0.001 per share (the “Series A Perpetual Preferred Stock”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations (as defined below), and 7,098,765 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), for an aggregate purchase price of $346.0 million (the “Initial Closing”).

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 has agreed to issue and sell to the Purchaser 776,235 shares of Common Stock for an aggregate purchase price of $776 .

The Company intends to use the net proceeds from the Initial Closing to repay all of the outstanding amounts under the Company’s existing revolving credit facility and to prepay at least $100 million under the Company’s term loan and for general corporate purposes.

Pursuant to the Securities Purchase Agreement, the Purchaser is entitled to designate one representative (the “Series A Director”) 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 Purchaser and its Permitted Transferees (as defined in the Securities Purchase Agreement) no longer beneficially own shares of the Series A Perpetual Preferred Stock with at least $100 million aggregate Liquidation Preference (as defined below).

On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Perpetual Preferred Stock either in cash at the then-applicable Cash Regular Dividend Rate, through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate (the “Permitted Accrued Dividends”), or a combination thereof.

Folloing the fifth anniversary of the Initial Closing, dividends shall be payable only in cash.

To the extent the Comany does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, such dividends shall accrue to the Liquidation Preference (“Default Accrued Dividends”, and together with Permitted Accrued Dividends, “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 holder of the Series A Perpetual Preferred Stock (each a “holder”), will pay 100% of the amount of Default Accrued Dividends by delivering to the Holder a number of shares of 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 Common Stock (“Non-Cash Dividend”).

As used herein, “Cash Regular Dividend Rate” with respect to the Series A Perpetual Preferred Stock 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” with respect to the Series A Perpetual Preferred Stock means 6.25% per annum on the Liquidation Preference.

Additional Closings

Pursuant to the Securities Purchase Agreement, until June 30, 2023, the Company, subject to the terms and conditions set forth therein, shall have the option to require the Purchaser to purchase, in the aggregate, in one or more additional closings (the “Additional Closings”), up to 150,000 shares (the “Delayed Draw Commitment”) of the Series A Perpetual Preferred Stock 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 million.

Until June 30, 2023, the Company will pay the Purchaser a cash commitment premium on the unpurchased portion of Delayed Draw Commitment as follows:

• 0% through the six-month anniversary of the Initial Closing;

• 1.5% from the six-month anniversary of the Initial Closing through the 12-month anniversary of the initial closing;

• 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.

Registration Rights Agreement

In connection with the Securities Purchase Agreement, on August [9], 2021, the Company and the Purchaser entered into a Registration Rights Agreement pursuant 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.

Pursuant to the Securities Purchase Agreement, on August 11, 2021, the Company issued and sold to the Purchaser 350,000 shares of a newly designated Series A Perpetual Preferred Stock of the Company, par value $0.001 per share (the “Series A Redeemable Perpetual Preferred Stock”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), for an aggregate purchase price of $346.0 million.

Further, pursuant to the Securities Purchase Agreement, the Company has issue and sold to the Purchaser 776,235 shares of Common Stock for an aggregate purchase price of $776 on September 27, 2021 .

For more information related to the Series A Redeemable Perpetual Preferred Stock, see Note 9, Redeemable Perpetual Preferred, to the accompanying unaudited condensed consolidated financial statements.

Update on the Impact of COVID-19

With the second wave of the pandemic including follow-on variants of COVID-19, we continue to closely monitor the situation in all the locations where we operate.

With the second wave of the pandemic including variants of COVID-19, we continue to closely monitor the situation in all the locations where we operate.

Our priority remains the welfare of our employees.

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Risk Factors.”

We are continuously evaluating our capital structure in response to the current environment and expect that our current financial condition, including our liquidity sources are adequate to fund future commitments.

We are continuously evaluating our capital structure 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.

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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 is measured for each individual project and is calculated based on the expected output of that project once installed and fully operational.

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”).

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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, expand our global footprint to new evolving markets, grow our production capabilities to meet demand and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

continue 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

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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 150 as of December 31, 2019 to approximately 177 as of December 31, 2020 and 175 at June 30, 2021, and we expect to continue to hire new employees to support our growth.

Our full-time employee headcount in our general and administrative departments has grown from approximately 150 as of December 31, 2019 to approximately 177 as of December 31, 2020 and 193 at September 30, 2021, 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.

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

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Contingent Consideration

Contingent consideration consists of the changes in fair value of the earn-out and the Tax Receivable Agreement (“TRA”) entered into with Ron P.

Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC (“Patent LLC”) by ATI Investment Parent, LLC (“Former Parent”) Former Parent’s acquisition of Patent LLC.

Contingent consideration consists of the changes in fair value of the earn-out and 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 (“Patent LLC”) by ATI Investment Parent, LLC (“Former Parent”) Former Parent’s acquisition of Patent LLC.

The earn-out liability was recorded at fair value as of July 8, 2016 (the “Acquisition Date”), and subsequent changes in the fair value are recognized in earnings.

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Interest Expense

Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility and our Senior ABL Facility, interest on the Senior Secured Promissory Note, and interest on our Prior Term Loan Facility (as defined below), which was fully repaid on February 2, 2020.

Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility and our Senior ABL Facility, interest on the Senior Secured Promissory Note, and interest on our term loan facility under the term loan agreement with Jefferies Finance LLC, dated June 23, 2016, (the “ Prior Term Loan Facility”), which was fully repaid on February 2, 2020.

Income Tax Expense

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The following tables set forth our consolidated statement of operations (dollars in thousands):

Three Months Ended June 30, Increase/Decrease Six Months Ended June 30, Increase/Decrease

Three Months Ended September 30, Increase/Decrease Nine Months Ended September 30, Increase/Decrease

2021 2020 $ % 2021 2020 $ %

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Total operating expenses 25,413 31,838 (6,425) (20) % 77,299 69,897 7,402 11 %

Income from operations 5,706 1,211 4,495 371 % 18,759 102,559 (83,800) (82) %

Income (loss) from operations (16,134) (5,107) (11,027) 216 % 2,625 97,452 (94,827) (97) %

Other expense

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Income tax (benefit) expense (3,988) 1,423 (5,411) (380) % (3,959) 18,131 (22,090) (122) %

Net (loss) income $ (17) $ 2,392 $ (2,409) (101) % $ 2,870 $ 76,077 $ (73,207) (96) %

Comparison of three months ended June 30, 2021 and 2020

Revenue increased by $87.9 million, or 76%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Total MW delivered increased by approximately 74% for the three months ended June 30, 2021 mostly attributable to a higher proportion of our volume occurring in the first quarter of 2020 vs the second quarter of 2020 due to certain customers electing to take deliveries ahead of build schedules to take advantage of the ITC rate before it stepped down in 2020.

Net income (loss) income $ (25,552) $ (7,232) $ (18,320) 253 % $ (22,682) $ 68,845 $ (91,527) (133) %

Comparison of three months ended September 30, 2021 and 2020

Revenue increased by $52.6 million, or 38%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Total MW delivered increased by approximately 76% for the three months ended September 30, 2021, driven by increased demand for our product and in addition to a higher proportion of our volume occurring in the first quarter of 2020 versus the second and third quarter of 2020 due

to certain customers electing to take deliveries ahead of build schedules to take advantage of the federal investment tax credit (“ITC”) rate for solar energy projects before it stepped down in 2020.

Cost of Revenue and Gross Profit

Cost of revenue increased by $83.3 million, or 90%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the increase in the number of MW delivered.

Gross profit as a percentage of revenue decreased from 19.3% for the three months ended June 30, 2020 to 13.2% for the three months ended June 30, 2021.

The decrease in Gross Profit as a percentage of revenue reflects higher commodity prices and higher logistics costs.

Cost of revenue increased by $70.1 million, or 62%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in the number of MW delivered and increased input costs from commodities and logistics.

Gross profit as a percentage of revenue decreased from 19.2% for the three months ended September 30, 2020 to 4.8% for the three months ended September 30, 2021.

The decrease in Gross Profit as a percentage of revenue reflects the higher commodity prices and higher logistics costs.

Operating Expenses:

General and Administrative

General and administrative expenses increased by $3.9 million, or 35%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The increase in expense was primarily due to a $2.5 million increase in equity-based compensation due to a mark-to-market of a cash-settled award.

T he increase in expense also represents additional headcount driven by the growth of the company over the last twelve months.

General and administrative expenses increased by $6.6 million, or 56%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The increase in expense was primarily due to additional headcount and professional fees for legal and accounting driven by the growth of the company in addition to higher costs associated with being a public company.

Contingent Consideration

Contingent consideration expense decreased by $3.4 million, or 100%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Contingent consideration expense decreased by $12.7 million, or 93%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The decrease was primarily due to the prior period having a $13.6 million increase in the fair value of contingent consideration for which there is no increase in the current quarter.

Depreciation expense for the three months ended June 30, 2021 was similar to the three months ended June 30, 2020 as we did not add any significant capital assets.

Depreciation expense for the three months ended September 30, 2021 was similar to the three months ended September 30, 2020 as we did not add any significant capital assets.

Amortization of Intangibles

Amortization of intangibles for the three months ended June 30, 2021 was similar to the three months ended June 30, 2020 as we did not add any significant intangible assets.

Amortization of intangibles for the three months ended September 30, 2021 was similar to the three months ended September 30, 2020 as we did not add any significant intangible assets.

Interest Expense

Interest expenses increased by $4.2 million, or 176%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to interest on the higher average balance of our Term Loan Facility and Revolving Facility which were not outstanding during the three months ended June 30, 2020.

As of June 30, 2021, we had $429.0 million outstanding under the Term Loan and $102.0 million outstanding under the Revolving Senior Secured Credit Facility.

Interest expenses increased by $12.4 million, or 1848%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to interest on the higher average balance of our Term Loan Facility and Revolving Facility, which were not outstanding during the three months ended September 30, 2020.

As of September 30, 2021, we had $328.0 million outstanding under the Term Loan and no balance outstanding under the Revolving Senior Secured Credit Facility, as it was paid off in August 2021.

We expect interest expense to be higher for the remainder of 2021 compared to 2020 as a result of the debt outstanding under the Senior Secured Credit Facility along with the amortization of the related discount and issuance costs.

Income Tax Benefit

Income tax benefit decreased by $4.8 million, or 82% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Our effective tax rate was 98.4% for the three months ended June 30, 2021 and 169.5% for the three months ended June 30, 2020.

The tax benefit decrease is primarily related to unfavorable non-deductible equity based compensation and Follow-on offering costs for the three months ended June 30, 2021 and a favorable tax benefit related to an NOL carryback as a result of the CARES Act for the three months ended June 30, 2020.

Comparison of the six months ended June 30, 2021 and 2020

Revenue decreased by $103.9 million, or 19%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Total MW delivered decreased by approximately 2% for the six months ended June 30, 2021 driven by heavier volume in the first half of 2020 due to certain customers electing to take deliveries ahead of build schedules to take advantage of the ITC, partially offset by lower ASPs in 2021.

Income tax benefit increased by $5.4 million, or 380% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Our effective tax rate benefit was (13.5)% for the three months ended September 30, 2021 and (24.5)% for the three months ended September 30, 2020.

The tax benefit decrease is primarily related to unfavorable non-deductible equity based compensation and the 2021 Follow-on offering costs for the three months ended September 30, 2021 and a favorable tax benefit

related to an NOL carryback as a result of the CARES Act for the three months ended September 30, 2020.

Comparison of the nine months ended September 30, 2021 and 2020

Revenue decreased by $51.3 million, or 7%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower ASPs driven by higher module wattages.

Total MW delivered increased by approximately 14% for the nine months ended September 30, 2021 due to increased demand for our product.

Cost of Revenue and Gross Profit

Cost of revenue decreased by $33.9 million, or (8)%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to the decrease in the number of MW delivered.

Gross profit as a percentage of revenue decreased from 25.4% for the six months ended June 30, 2020 to 15.7% for the six months ended June 30, 2021.

The decrease in Gross Profit as percentage of revenue reflects higher commodity and logistics prices.

Cost of revenue increased by $36.1 million, or 7%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the cost of raw materials and logistics increasing in 2021.

Gross profit as a percentage of revenue decreased from 24.2% for the nine months ended September 30, 2020 to 12.5% for the nine months ended September 30, 2021.

The decrease in Gross Profit as percentage of revenue reflects the higher commodity and logistics prices.

Operating Expenses:

General and Administrative

General and administrative expenses increased by $16.9 million, or 74%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase in expense was primarily due to a $4.1 million recovery of an account receivable that was previously reserved during the six months ended June 30, 2020 for which there was no similar credit in the 2021 period.

The increase in general and administrative expense also relates to a $8.7 million expense in the six months ended June 30, 2021 for equity-based compensation with no comparable expense in 2020.

Finally, in 2021 we increased our internal headcount leading to higher payroll and related costs, but we were able to partially offset those increases with a reduction in third-party spend related to business process outsourcing, consulting costs, and other professional fees.

General and administrative expenses increased by $23.5 million, or 68%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in expense was primarily due to a $4.1 million recovery of an account receivable that was previously reserved during the nine months ended September 30, 2020 for which there was no similar credit in the 2021 period.

The increase in general and administrative expense also relates to a $11.7 million expense in the nine months ended September 30, 2021 for equity-based compensation with no comparable expense in 2020.

Finally, in 2021 we increased our internal headcount leading to higher payroll and related costs, which we partially offset with a reduction in third-party spend related to business process outsourcing, consulting costs, and other professional fees.

Contingent Consideration

Contingent consideration expense decreased by $2.3 million, or 94%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The decrease was primarily due to an increase in the fair value of our Tax Receivable Agreement obligation in the prior year period for which there was no corresponding increase in the current year period.

Depreciation expense for the six months ended June 30, 2021 was similar to the six months ended June 30, 2020 as we did not add any significant capital assets.

Contingent consideration expense decreased by $14.9 million, or 93%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The decrease was primarily due to an increase in the fair value of our earn-out obligation in the prior year period for which there was no corresponding increase in the current year period.

Depreciation expense for the nine months ended September 30, 2021 was similar to the nine months ended September 30, 2020 as we did not add any significant capital assets.

Amortization of Intangibles

Amortization of intangibles for the six months ended June 30, 2021 was similar to the six months ended June 30, 2020 as we did not add any significant intangible assets.

Amortization of intangibles for the nine months ended September 30, 2021 was similar to the nine months ended September 30, 2020 as we did not add any significant intangible assets.

Interest Expense

Interest expenses increased by $8.0 million, or 105%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to interest on the higher average balance of our Term Loan Facility and Revolving Facility which was not outstanding during six months ended June 30, 2020.

As of June 30, 2021, we had $429.0 million outstanding under the Term Loan and $102.0 million outstanding under the Revolving Senior Facility.

Interest expenses increased by $20.5 million, or 246%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to interest on the higher average balance of our Term Loan Facility and Revolving Facility which were not outstanding during nine months ended

September 30, 2020.

As of September 30, 2021, we had $328.0 million outstanding under the Term Loan and no balance outstanding under the Revolving Senior Facility, as it was paid off in August 2021.

Income Tax Expense

Income tax expense decreased by $16.7 million, or 100% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Our effective tax rate was 1.0% for six months ended June 30, 2021 and 18.0% for the six months ended June 30, 2020.

The reduction in the effective tax rate is primarily related to unfavorable non-deductible equity-based compensation and Follow-on offering costs for the six months ended June 30, 2021, a favorable tax benefit related to an NOL carryback as a result of the CARES Act in the six months ended June 30, 2020, and the level of earnings in each period.

Income Tax Benefit

Income tax expense decreased by $22.1 million, or 122%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Our effective tax rate was (14.9%) for nine months ended September 30, 2021 and 20.8% for the nine months ended September 30, 2020.

The reduction in the effective tax rate is primarily related to unfavorable non-deductible equity-based compensation and the 2021 Follow-on offering costs for the nine months ended September 30, 2021, a favorable tax benefit related to an NOL carryback as a result of the CARES Act in the nine months ended September 30, 2020, and the level of earnings in each period.

Liquidity and Capital Resources

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The following table compares the historical cash flow (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities $ (165,837) $ (226,500)

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Net cash provided by (used in) financing activities 188,014 (107,003)

Net decrease in cash, cash equivalents and restricted cash $ (90,759) $ (323,273)

Net change in cash and cash equivalents $ 7,950 $ (334,113)

We have historically financed our operations primarily with the proceeds from capital contributions, operating cash flows and short and long-term borrowings.

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In response to the recent challenging environment, we continuously evaluate our ability to meet our obligations over the next 12 months.

We have sufficient financing options available to do so and we expect to have sufficient liquidity to fund current and future commitments.

As of June 30, 2021, our cash and cash equivalents were $17.7 million.

Net working capital as of June 30, 2021 was $162.1 million.

As of June 30, 2021, we had outstanding borrowings of $429.0 million and a $200.0 million commitment under our Revolving Credit Facility, of which $102.0 million is outstanding and $87.0 million was available to borrow to fund operations.

We have sufficient liquidity as well as financing options available to fund current and future commitments.

As of September 30, 2021, our cash and cash equivalents were $116.4 million.

Net working capital as of September 30, 2021 was $277.1 million.

As of September 30, 2021, we had outstanding borrowings of $328.0 million and a $200.0 million commitment under our Revolving Credit Facility, of which no balance is outstanding and $185.5 million was available to borrow to fund operations.

Operating Activities

For the six months ended June 30, 2021, cash used in operating activities was $134.1 million primarily due a decrease in deferred revenue of $98.4 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 receivable of $33.2 million, an increase in inventories of $20.5 million offset by net income and other add-backs to reconcile to net income.

For the six months ended June 30, 2020 cash used in operating activities was $247.9 million, due to a decrease in deferred revenue of $308.0 million, a decrease in accounts payable of $99.4 million, offset by a decrease in inventory of $42.5 million, a decrease in income tax payable of $35.8 million and net income of $76.1 million.

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 receivable of $58.2 million, and an increase in inventories of $55.4 million.

For the nine months ended September 30, 2020, cash used in operating activities was $226.5 million, due to a decrease in deferred revenue of $284.0 million, a decrease in accounts payable of $82.3 million, offset by a decrease in inventory of $49.0 million.

Investing Activities

For the six months ended June 30, 2021, net cash used in investing activities was $13.2 million, primarily attributable to a $12.0 million investment in equity securities.

For the six months ended June 30, 2020, net cash used in investing activities was $0.3 million, due to additions to property, plant and equipment.

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.

For the nine months ended September 30, 2020, net cash used in investing activities was $0.6 million, due to additions to property, plant and equipment.

Financing Activities

For the six months ended June 30, 2021, net cash provided by financing activities was $56.5 million, of which $102.0 million was from proceeds under the Revolving Facility, offset by $31.1 million payment on the Term Loan Facility and $6.6 million in fees paid on the Senior Secured Credit Facility and to increase the limit on the Revolving Facility by $50.0 million.

For the six months ended June 30, 2020, net cash used by financing activities was $75.1 million, which was attributable to $57.7 million principal payments on the Term Loan Facility and $21.7 million on the related party loan.

S ecurities Purchase Agreement

For the nine months ended September 30, 2021, net cash provided 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 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 Facility by $50.0 million.

For the nine months ended September 30, 2020, net cash used by financing activities was $107.0 million, which was attributable to $57.7 million principal payments on the Term Loan Facility and $45.6 million on the related party loan.

Acquisition of STI

On November 11, 2021, the Company entered into a definitive agreement with Amixa Capital, S.L.

and Aurica Trackers, S.L.

to acquire 100% of the share capital of Soluciones Técnicas Integrales Norland, S.L.

The transaction is expected to close in the first quarter of 2022, following receipt of required regulatory approvals and satisfaction of other customary closing conditions.

The Company currently intends to finance the transaction and related fees and expenses with cash on hand, borrowings under its senior credit facilities, proceeds from our option to require the holders of our Series A Redeemable Perpetual Preferred Stock (the “Preferred Shares”) to purchase additional Preferred Shares, and through one or more debt capital markets transactions, subject to market conditions and other factors, and, only to the extent necessary, borrowings under the bridge loan facility.

Series A Redeemable Perpetual Preferred Stock

Pursuant to the Securities Purchase Agreement, on August 11, 2021, the Company 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 Redeemable Perpetual Preferred Stock”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of the Company’s common stock, par value $0.001 per share (“Common Stock” and, together with the Series A Redeemable Perpetual Preferred Stock, the “Securities”), for an aggregate purchase price of $346.0 million.

Folloing the fifth anniversary of the Initial Closing, dividends shall be payable only in cash.

As used herein, “Cash Regular Dividend Rate” with respect to the Series A Perpetual Preferred Stock means (i)

The “Accrued Regular Dividend Rate” with respect to the Series A Perpetual Preferred Stock means 6.25% per annum on the Liquidation Preference.

Additional Closings

Until June 30, 2023, the Company will pay the Purchaser a cash commitment premium on the unpurchased portion of Delayed Draw Commitment as follows:

• 0% through the six-month anniversary of the Initial Closing;

• 1.5% from the six-month anniversary of the Initial Closing through the 12-month anniversary of the initial closing;

• 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.

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 pursuant 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 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 $2.7 million for the three and nine months ended September 30, 2021.

The Company accreted the regular cash rate of dividends of 5.75% to the liquidation preference amount of the Series A Preferred, or $2.8 million in dividends, for the three and nine months ended September 30, 2021.

Debt Obligations

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

The debt discount and issuance costs are being amortized using the effective interest method and the rate as of June 30, 2021 is 5.01%.

The debt discount and issuance costs are being

amortized using the effective interest method and the rate as of September 30, 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.

The balance of the Term Loan Facility is presented in the accompanying consolidated balance sheets net of debt discount and issuance costs of $34.0

million at June 30, 2021.

As of June 30, 2021, the Term Loan Facility had a balance of $430.0 million.

We are in compliance with all covenants as of June 30, 2021.

The balance of the Term Loan Facility is presented in the accompanying consolidated balance sheets net of debt discount and issuance costs of $31.9 million at September 30, 2021.

As of September 30, 2021, the Term Loan Facility had a balance of $328.0 million.

We are in compliance with all covenants as of September 30, 2021.

Revolving Credit Facility

Under the Revolving Credit Facility, the Company had $102.0 million outstanding, $11.0 million in standby letters of credit and availability of $87.0 million under the Revolving Credit Facility.

Under the Revolving Credit Facility, the Company had no balance outstanding, $14.5 million in standby letters of credit and availability of $185.5 million under the Revolving Credit Facility.

Interest Rate

8 unchanged sentences

Off-Balance Sheet Arrangements

As of June 30, 2021, we posted surety bonds in the total amount of approximately $131.0 million.

As of September 30, 2021, we posted surety bonds in the total amount of approximately $181.0 million.

We are required to provide surety bonds to various parties for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations.

3 unchanged sentences

Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets.

We have made estimates and assumptions taking into consideration certain possible impacts due to COVID-19.

We have made estimates and assumptions taking into consideration certain possible

impacts due to COVID-19.

These estimates may change, as new events occur, and additional information is obtained.

8 unchanged sentences

The Class B Units fully accelerated vesting upon the completion 2021 Follow-on Offering and the Company recognized the remaining unamortized compensation expense of $6.3 million.

As of June 30, 2021, there were no other significant changes in the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the year ended December 31, 2020.

As of September 30, 2021, there were no other significant changes in the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Temporary Equity

Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer.

Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable, or probable of becoming redeemable.

The Series A Redeemable Preferred Stock issued in connection with the Securities Purchase Agreement as described in Note 9 is classified as temporary equity in the accompanying condensed consolidated financial statements.

The Company elected the accreted redemption value method under which is accretes changes in redemption value over the period from the date of issuance of the Series A Redeemable Preferred Stock to the earliest costless redemption date (the fifth anniversary) using the effective interest method.

Such adjustments are included in preferred undeclared dividends and accretion on Series A Redeemable Preferred Stock on the Company’s condensed consolidated statements of changes in equity and treated similarly to a dividend on preferred stock for GAAP purposes.

Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to the market risk disclosures set forth in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to the market risk disclosures set forth in Item 7A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 2. Management’s Discussion and Analysis