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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-12 · 134 added, 187 removed, 151 unchanged (68% 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, (the “SEC”), on March 10, 2021.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated 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 year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, as amended by Form 10-K/A for the year ended December 31, 2021 (collectively, “2021 Form 10-K”).

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

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In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections captioned “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

FORWARD-LOOKING STATEMENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management.

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You should read this report with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations include:

• the impacts on our business due to component shortages, disruptions in transportation or other supply chain related constraints including as a result of the COVID-19 pandemic;

Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of this Quarterly Report on Form 10-Q.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Summary Risk Factors

Our business is subject to a number of risks that if realized could materially and adversely affect our business, financial conditions, results of operations, cash flows and access to liquidity.

These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

Our principal risks include the following:

• we may be unable to successfully integrate the business of STI (as defined below) into our business or achieve the anticipated benefits of the STI Acquisition (as defined below);

• the capped call transactions may affect the value of our Convertible Notes (as defined below) and the market price of our common stock;

• the fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to acquire us;

• if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, our business will suffer;

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• a loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment, could harm our business and negatively impact revenue, results of operations and cash flow;

• a failure to retain key personnel a failure to attract additional qualified personnel may affect our ability to achieve our anticipated level of growth adversely affect our business;

• a drop in the price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition, results of operations and prospects;

• defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;

• developments in alternative technologies may have a material adverse effect on demand for our offerings;

• an increase in interest rates, or a reduction in the availability of tax equity or project debt capital in the global financial markets could make it difficult for customers to finance the cost of a solar energy system and could reduce the demand for our products;

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trade environment, including the imposition of import tariffs, could adversely affect the amount or timing of our revenues, results of operations or cash flows;

• a negative determination by the U.S.

Department of Commerce in its investigation of alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in southeast Asia could adversely affect the demand for our products;

• the impact of the ongoing conflict in Ukraine on our supply chain and cost of logistics;

• the reduction, elimination or expiration of government incentives for, or regulations mandating the use of, renewable energy and solar energy specifically could reduce demand for solar energy systems and harm our business;

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Disruptions to transportation and logistics, including increases in shipping costs, could adversely impact our financial condition and results of operations;

• the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers;

• we face risks related to actual or threatened health epidemics, such as the COVID-19 pandemic, and other outbreaks, which could significantly disrupt our manufacturing and operations;

• 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.

• the determination to restate prior period financial statement could negatively affect investor confidence and raise reputational issues;

• our substantial indebtedness could adversely affect our financial condition;

• the ongoing COVID-19 pandemic has materially and adversely affected our business and results of operations.

The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.

We are one of the world’s largest manufacturers of ground-mounting systems used in solar energy projects.

Our principal product is an integrated system of steel supports, electric motors, gearboxes and electronic controllers commonly referred to as a single-axis “tracker.” Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increases their energy production.

Solar energy projects that use trackers generate up to 25% more energy than projects that use “fixed tilt” mounting systems, which do not move.

Solar energy projects that use trackers generate more energy and deliver a lower LCOE than projects that use “fixed tilt” mounting systems, which do not move.

The vast majority of ground mounted solar systems in the United States use trackers.

Our trackers use a patented design that allows one motor to drive multiple rows of solar panels through articulated driveline joints.

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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 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.

During the three months ended March 31, 2022, we derived 83% and 17% of our revenues from customers in the United States and the rest of the world, respectively.

We are a U.S.

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

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

Recent Developments

As of March 31, 2022, we had 1,348 full-time employees, up from 471 as of December 31, 2021, with the increase primarily due to the acquisition of STI.

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 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.

On January 11, 2022 (the “Closing Date”) the Company closed the acquisition of Soluciones Técnicas Integrales Norland, S.L.

and its subsidiaries (collectively, “STI”) (the “STI Acquisition”).

In accordance with the Purchase Agreement, the Company paid closing consideration to STI consisting of $410.5 million in cash (the “Cash Consideration”) and 13,894,800 shares of the Company’s common stock (the “Stock Consideration”).

The fair value of the purchase consideration was $610.8 million and resulted in the Company owning 100% of the interests in STI.

The STI Acquisition will provide the Company with an immediate presence in Brazil and Western Europe.

Update on the Impact of COVID-19

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We expect persistent waves of COVID-19 to remain a headwind into the near future.

Refer to “Risk Factors - The ongoing COVID-19 pandemic has materially and adversely affected our business and results of operations.

The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material,” as disclosed in Part II, “Item 1A.

Risk Factors.”

The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.

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.

Impact of Potential Solar Module Supply Chain Disruptions

In February 2022, Auxin Solar Inc., a U.S.

producer of crystalline silicon PV products, petitioned the U.S.

Department of Commerce (“USDOC”) to investigate alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam.

On March 28, 2022, the USDOC announced that it would investigate the circumvention alleged in the petition.

The investigation has created uncertainty related to the supply of solar modules and is expected to disrupt the solar panel supply chain in the near-term, which could negatively impact the global solar market as well as the timing and viability of solar projects to which we sell our products.

This negative impact on the global solar market could, as a result, have a material adverse effect on our business, financial condition and results of operations.

Additionally, certain suppliers could be blocked from importing solar panels to the United States under the Uyghur Forced Labor Prevention Act (“UFLPA”).

UFLPA seeks to block the import of products made with forced labor in certain areas of China.

An inter-agency task force was established to produce a report by June 21, 2022 which, among other things, will include a list of entities that are believed to be using or benefiting from forced labor.

Array is monitoring whether UFLPA will affect supplies of solar modules for any of the projects to which we sell our products.

While we do not sell solar modules, the degree of our exposure is dependent on, among other things, the impact of the investigation on the projects that are also intended to use our products, with such impact being largely out of our control.

To date, the Company has seen a number of projects in our order book delayed as a result of the USDOC investigation;

however, the ultimate severity or duration of the expected solar panel supply chain disruption or its effects on our clients’ solar project development and construction activities is uncertain.

Impact of the Ongoing Conflict in Ukraine

The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products.

We do not know ultimate severity or duration of the conflict in Ukraine, but we are continuously monitoring the situation and evaluating our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations.

Performance Measures

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We also utilize metrics related to price and cost of goods sold per MW, including average selling price (“ASP”) and cost per watt (“CPW”).

ASP is calculated by dividing total applicable revenues by total applicable MWs, whereas CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs.

ASP is calculated by dividing total applicable revenues by total applicable MWs, while CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs.

These metrics enable us to evaluate trends in pricing, manufacturing cost and customer profitability.

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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.

continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

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.

Cost of Revenue and Gross Profit

Cost of revenue consists primarily of product costs, including purchased components, as well as costs related to shipping, tariffs, customer support, product warranty, personnel and depreciation of test and manufacturing equipment.

Personnel costs in cost of revenue includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer.

Personnel costs in cost of revenue includes both direct labor costs as well as costs attributable to

any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer.

Our product costs are affected by the underlying cost of raw materials, including steel and aluminum;

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economies of scale resulting in lower component costs, and improvements in production processes and automation.

In 2021, our business was impacted by the Covid-19 pandemic by increased raw materials and shipping costs and delays which have resulted in reduced margins and in certain instances have incurred remediation costs and liquidated damages owed to the customer.

We have modified our processes in order to decrease the impact on our margins of these cost increases;

however, we do not know how long the current operating environment will persist.

We do not currently hedge against changes in the price of raw materials.

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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 193 at September 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 210 as of December 31, 2021 to approximately 382, due to the acquisition of STI, as of March 31, 2022, and we expect to continue to hire new employees to support our growth.

The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.

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The majority of our sales in 2022 were in the U.S.;

however, during the year we expanded our international presence with additional global sales staff.

however, with the STI Acquisition, we continue to expand our international presence with additional global sales staff.

We currently have a sales presence in the U.S., Australia, the U.K.

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Contingent Consideration

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.

Fair value of the earn-out liability is measured based upon the expected return of investment of Former Parent, among other things.

Cash payments related to the earn-out liability are required to be evaluated upon the occurrence of certain events, including the consummation of an initial public offering;

the sale, transfer, assignment, pledge, encumbrance, distribution or disposition of shares of Former Parent held by Oaktree Power Opportunities Fund IV (Delaware) Holdings, L.P.

and Oaktree ATI Investors, L.P.

to a third party;

the sale of equity securities or assets of Former Parent, ATI Investment Sub, Inc.

(“Investment Sub”) or the Company to a third-party;

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

Our initial public offering of common stock (“IPO”), the cash distribution of $589 million that we paid to ATI Investment Parent, LLC upon the closing of our IPO and our Follow-on Offering of common stock in December 2020 (the “2020 Follow-on Offering”) required the Company to make a cash payment of $9.1 million in October 2020 and $15.9 million in December 2020.

As a result of these payments our earn-out liability has been paid in full.

Contingent consideration consists of the changes in fair value of the Taxes Receivable Agreement (“TRA”) entered into with Ron P.

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

The TRA liability was recorded at fair value at 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 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.

Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility and our 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”) issued in December 2021.

Income Tax Expense

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

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

Three Months Ended March 31, Increase/Decrease

2022 2021 $ %

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Other income (expense), net 743 (78) (821) (1053) %

Foreign currency gain 3,863 — 3,863 100 %

Interest expense (6,942) (9,009) (2,067) (23) %

Total other expense (2,336) (9,087) (6,751) (74) %

Income (loss) before income tax expense (29,540) (5,809) (23,731) 409 % (26,641) 86,976 (113,617) (131) %

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

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 $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 $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 $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 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 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 $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 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.

Income (loss) before income tax expense (benefit) (34,497) 6,274 (40,771) (650) %

Income tax expense (benefit) (12,443) 1,698 (14,141) (833) %

Net income (loss) $ (22,054) $ 4,576 $ (26,630) (582) %

Comparison of the three months ended March 31, 2022 and 2021

Revenue increased by $52.3 million, or 21%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the acquisition of STI which had revenue of $49.9 million.

Additionally, in the first quarter of 2021 the Company had $40.5 million of ITC related revenue for which there was no comparable revenue in the first quarter of 2022.

Excluding the impact of the ITC related revenue and the STI Acquisition, the Company had an increase of $43 million, or 21%.

Cost of Revenue and Gross Profit

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.

Cost of revenue increased by $71.9 million, or 36%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to the STI Acquisition and the cost of raw materials and logistics increasing over that period.

Gross profit as a percentage of revenue decreased from 18.6% for the three months ended March 31, 2021 to 8.8% for the three months ended March 31, 2022.

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

Operating Expenses:

General and Administrative

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.

General and administrative expenses increased by $15.2 million, or 61%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase in expense was primarily due to the STI Acquisition.

Additionally, increased consulting costs and other professional fees as well as our growing internal headcount lead to higher payroll and related costs.

Contingent Consideration

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.

Contingent consideration expense decreased by $3.9 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The decrease was primarily due to a decrease in the fair value of our TRA obligation due to a change in interest rates and other assumptions used to value the estimate.

Depreciation expense for the three months ended March 31, 2022 was similar to the three months ended March 31, 2021 as we did not add any significant capital assets.

Amortization of Intangibles

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.

Amortization of intangibles for the three months ended March 31, 2022 increased $16.6 million compared to the three months ended March 31, 2021, due to the STI Acquisition and additional amortizable intangibles acquired.

Other Expense, Net

Other income (expense) increased by $0.8 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to the acquisition of STI.

Foreign Currency Gain

Foreign currency gain increased by $3.9 million, or 100%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to the foreign currency translation gain of $3.9 million, due to the STI Acquisition.

Interest Expense

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.

Interest expense decreased by $2.1 million, or 23%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to our lower average balance of our Term Loan Facility and no write off of fees in the current period.

In the three months ended March 31, 2021, we paid off a portion of our Term Loan Facility and therefore expensed the associated fees that were capitalized with no corresponding expense in the current period.

As of March 31, 2022, we had $328.0 million outstanding under the Term Loan Facility and $52.0 million outstanding under the Revolving Senior Facility.

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.

Income tax expense decreased by $14.1 million, or 833%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Our effective tax rate was 36.1% for three months ended March 31, 2022 and 27.1% for the three months ended March 31, 2021.

The increase in the effective tax rate is primarily related to the mix of earnings in foreign jurisdictions for the three months ended March 31, 2022.

Liquidity and Capital Resources

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (50,097) $ (42,148)

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Net cash provided by (used in) financing activities 100,736 (36,590)

Effect of exchange rate changes on cash and cash equivalents 7,355 —

Net change in cash and cash equivalents $ (318,179) $ (89,308)

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Our ability to generate positive cash flow from operations is dependent on the strength of our gross margins as well as our ability to quickly turn our working capital.

In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China.

In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China.

Since then, COVID-19 has spread to multiple countries, including the United States.

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.

Due to economic conditions our industry has seen rapid commodity price increases and strained logistics, causing us to experience temporary decreased margins and thus decreased cash from operations.

Due to economic conditions our industry has seen rapid commodity price increases and strained logistics, adversely impacting our business and causing us to experience decreased margins and thus decreased cash from operations.

Due to strained logistics issues, we have experienced an increase in our unbilled revenues and also in some instances, liquidated damages owed to our customers.

Unbilled receivables, which represent temporary timing differences between shipments made and billing milestones achieved, were $135.0 million and $111.2 million of the accounts receivable balances as of March 31, 2022 and December 31, 2021, respectively.

These amounts have not been billed because we are waiting for agreed upon billing stipulations such as billing on a specified date of the month or upon completion of MW deliveries.

The unbilled balance has increased as of March 31, 2022 due to global challenges with supply chain logistics and labor shortages in some instances causing delays in delivering specific components to complete a MW delivery.

These will be invoiced once the commercial criteria have been met, at which point we will invoice and expect payment within 30 to 60 days.

We have taken mitigating steps to overcome the economic challenges and, therefore, believe the impact to be temporary, but cannot be certain the timing of when we will achieve better margins.

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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.

In January 2022, we issued 50,000 of Series A Redeemable Perpetual Preferred Stock, and 1,125,000 shares of our Common Stock, par value $0.001 per share, in the Additional Closing for an aggregate purchase price of $49,376,125.

As of March 31, 2022, our cash and cash equivalents were $49.5 million.

Net working capital as of March 31, 2022 was $383.9 million.

As of March 31, 2022, we had outstanding borrowings of $377.7 million and a $200.0 million commitment under our Revolving Credit Facility, of which $52.0 million balance is outstanding and $114.8 million was available to borrow to fund operations.

Due to covenant requirements, we do not expect to maximize the available balance.

Operating Activities

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.

For the three months ended March 31, 2022, cash used in operating activities was $50.1 million, primarily due to an increase in inventories and accounts receivable of $46.3 million and $44.3 million respectively.

This increase was offset in part by an increase in accounts payable of $59.6 million.

For the three months ended March 31, 2021, cash used in operating activities was $42.1 million, due to a decrease in deferred revenue of $59.9 million, for which we made payments to our suppliers for products that we received the cash for in 2020, a decrease in income tax receivables of $22.0 million and increase in accrued expenses of $5.1 million.

Investing Activities

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.

For the three months ended March 31, 2022, net cash used in investing activities was $376.2 million, primarily due to cash used in the STI Acquisition.

For the three months ended March 31, 2021, net cash used in investing activities was $10.6 million, due to a $10.0 million investment in equity securities.

Financing Activities

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.

For the three months ended March 31, 2022, net cash provided by financing activities was $100.7 million, of which $52.0 million related to proceeds under the Revolving Facility and $48.4 million related to proceeds from the Additional Closing in January 2022.

For the three months ended March 31, 2021, net cash used by financing activities was $36.6 million, which was attributable to $30.0 million principal payments on the Term Loan Facility and $6.6 million on debt issuance costs related to the first and second amendment of the Senior Secured Credit 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.

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 .

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 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.

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 issued and sold to the Purchaser 776,235 shares of Common Stock for an aggregate purchase price of $776.

For more information related to the Series A Redeemable Perpetual Preferred Stock, see Note 13 – Redeemable Perpetual Preferred , to the accompanying condensed consolidated financial statements.

Registration Rights Agreement

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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.

The Company has presented the Preferred Shares in temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method.

Such accretion totaled $5.4 million for the three months ended March 31, 2022.

The Company accreted the dividends at a rate of 6.25% to the liquidation preference amount of the Series A Redeemable Perpetual Preferred Stock, or $6.3 million in dividends, for the three months ended March 31, 2022.

Debt Obligations

Senior Secured Credit Facility

On October 14, 2020, we entered into a senior secured credit facility which was amended on February 23, 2021 by the first amendment and on February 26, 2021 by the second amendment.

The senior secured facility consisted originally of (i) a $575.0 million senior secured seven-year term loan facility (the “Term Loan Facility”) and (ii) a $150.0 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”).

On February 23, 2021, we entered into the first amendment (“First Amendment”) to our Senior Secured Credit Facility.

The First Amendment, in the case of 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 our current rate on the Term Loan Facility decreasing to 3.75% down from 5% prior to the First Amendment.

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

Interest Rate

The interest rates applicable to the loans under the Term Loan Facility equal, 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.

The interest rates applicable to the loans under the Revolving Facility equal, 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.

The 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 Revolving Credit Facility.

Off-Balance Sheet Arrangements

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.

For a discussion of our debt obligations see Note 10 – Senior Secured Credit Facility and Note 11 – Convertible Debt in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of March 31, 2022, we posted surety bonds in the total amount of approximately $168.5 million.

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

These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.

Critical Accounting Policies and Significant Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

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.

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

Actual results may differ from those estimates and assumptions.

Refer to the accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, where we discuss our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements.

Equity-Based Compensation

The Company granted restricted stock units (RSU’s) to employees and Performance Stock Units (PSUs) to certain executives.

The PSUs contain performance and market conditions.

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 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 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 fiscal year ended December 31, 2020.

As of March 31, 2022, there were the following changes in the application of our critical accounting policies or estimation procedures from those presented in our 2021 Form 10-K.

Business Combinations

The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 Business Combinations (“ASC 805”).

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples amongst other items.

The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach.

The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires the following significant estimates:

revenue, expenses, capital spending and other costs, and discount rates based on the respective risks of the cash flows.

Under the acquisition method of accounting, the aggregate amount of consideration we pay for a company is allocated to net tangible assets and intangible assets based on their

estimated fair values as of the acquisition date.

The excess of the purchase price over the value of the net tangible assets and intangible assets is recorded to goodwill.

Goodwill is evaluated for impairment annually.

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