Array Technologies, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. and its wholly owned subsidiaries, unless otherwise stated. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections captioned “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q and our 2021 Form 10-K. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” "seek," “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect. Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of this Quarterly Report 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: 30 • we may be unable to successfully integrate the business of STI (as defined below) into our business or achieve the anticipated benefits of the STI Acquisition (as defined below); • the capped call transactions may affect the value of our Convertible Notes (as defined below) and the market price of our common stock; • the fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to acquire us; • if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, our business will suffer; • the viability and demand for solar energy are impacted by many factors outside of our control, which makes it difficult to predict our future prospects; • 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; • existing electric utility industry policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems, which may significantly reduce demand for our products or harm our ability to compete; • the interruption of the flow of materials from international vendors could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports; • changes in the U.S. 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; 31 • if we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed; • we may need to defend ourselves against third-party claims that we are infringing, misappropriating or otherwise violating others’ intellectual property rights, which could divert management’s attention, cause us to incur significant costs and prevent us from selling or using the technology to which such rights relate; • significant changes in the cost of raw materials could adversely affect our financial performance; • we are dependent on transportation and logistics providers to deliver our products in a cost efficient manner. Disruptions to transportation and logistics, including increases in shipping costs, could adversely impact our financial condition and results of operations; • 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; and • 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. Overview 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 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. To avoid infringing on our U.S. patent, our competitors must use designs that we believe are inherently less efficient and reliable. For example, our largest competitor’s design requires one motor for each row of solar panels. As a result, we believe our products have greater reliability, lower installation costs, reduced maintenance requirements and competitive manufacturing costs. Our core U.S. patent on a linked-row, rotating gear drive system does not expire until February 5, 2030. We sell our products to engineering, procurement and construction firms (“EPCs”) that build solar energy projects and to large solar developers, independent power producers and utilities, often under master supply agreements or multi-year procurement contracts. During the 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 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. 32 Acquisition of STI 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 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. We expect persistent waves of COVID-19 to remain a headwind into the near future. 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. 33 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 In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products from year to year is megawatts (“MWs”) shipped generally and the change in MW shipped from period to period specifically. MWs are measured for each individual project and calculated based on the expected output of that project once installed and fully operational. We also utilize metrics related to price and cost of goods sold per MW, including average selling price (“ASP”) and cost per watt (“CPW”). ASP is calculated by dividing total applicable revenues by total applicable MWs, while CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs. These metrics enable us to evaluate trends in pricing, manufacturing cost and customer profitability. Key Components of Our Results of Operations The following discussion describes certain line items in our consolidated statements of operations. Revenue We generate revenue from the sale of solar tracking systems and parts. Our customers include EPCs, utilities, solar developers and independent power producers. For each individual solar project, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for the tracker system and parts can vary from days to several months. Contracts can range in value from hundreds of thousands to tens of millions of dollars. Our revenue is affected by changes in the volume and ASPs of solar tracking systems purchased by our customers. The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in product mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products. Our revenue growth is dependent on continued growth in the amount of solar energy projects installed each year as well as our ability to increase our share of demand in each of the geographies where we compete, 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 34 any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including steel and aluminum; component costs, including electric motors and gearboxes; technological innovation; economies of scale resulting in lower component costs, and improvements in production processes and automation. In 2021, our business was impacted by the Covid-19 pandemic by increased raw materials and shipping costs and 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. Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume. Gross profit may vary from quarter to quarter and is primarily affected by our ASPs, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs and seasonality. Operating Expenses Operating expenses consist of general and administrative costs, contingent consideration, as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, benefits, payroll taxes and commissions. Our full-time employee headcount in our general and administrative departments has grown from approximately 210 as of December 31, 2021 to approximately 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. We expect to continue to invest substantial resources to support our growth and continued technological advancement and anticipate that general and administrative and depreciation expenses will increase in absolute dollar amounts for the foreseeable future. General and administrative expenses General and administrative expenses consist primarily of salaries, equity-based compensation, employee benefits and payroll taxes related to our executives, sales, finance, human resources, information technology, engineering and legal organizations, as well as travel, facilities costs, marketing, bad debt and fees for professional services. Professional services consist of audit, legal, tax, insurance, information technology and other costs. We expect an increase in the number of sales and marketing personnel in connection with the expansion of our global sales and marketing footprint, enabling us to penetrate new markets. The majority of our sales in 2022 were in the U.S.; however, with the STI Acquisition, we continue to expand our international presence with additional global sales staff. We currently have a sales presence in the U.S., Australia, the U.K. and Brazil. We intend to continue to expand our sales presence and marketing efforts to additional countries. We also expect that as a public company we will incur additional audit, tax, accounting, legal and other costs related to compliance with applicable securities and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company. We also anticipate an increase in our spend related to product innovation as we hire additional engineering resources and increase our external research & development spend. Contingent Consideration Contingent consideration consists of the changes in fair value of the Taxes Receivable Agreement (“TRA”) entered into with Ron P. Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC (“Patent LLC”) by ATI Investment Parent, LLC (“Former Parent”) Former Parent’s acquisition of Patent LLC. 35 The TRA liability was recorded at fair value at the Acquisition Date and subsequent changes in the fair value are recognized in earnings. The TRA will generally provide for the payment by Array Tech, Inc. (f/k/a Array Technologies, Inc.) to Ron P. Corio for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc. from the use of certain deductions generated by the increase in the tax value of the developed technology. Estimating fair value of the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to Ron P. Corio include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA. Depreciation Depreciation in our operating expense consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing of our products. We expect that as we continue to grow both our revenue and our general and administrative personnel we will require some additional PP&E to support this growth resulting in additional depreciation expense. Amortization Amortization of intangibles consist of developed technology, customer relationships and internal-use software modifications over their expected period of use. Non-Operating Expenses Interest Expense Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility and our 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”) issued in December 2021. Income Tax Expense We are subject to federal and state income taxes in the United States. As we expand into foreign markets, we may be subject to foreign tax. 36 Results of Operations The following tables set forth our consolidated statement of operations (dollars in thousands): Three Months Ended March 31, Increase/Decrease 2022 2021 $ % Revenue $ 300,586 $ 248,240 $ 52,346 21 % Cost of revenue 273,999 202,074 71,925 36 % Gross profit 26,587 46,166 (19,579) (42) % Operating expenses General and administrative 39,827 24,673 15,154 61 % Contingent consideration (3,731) 148 (3,879) (2621) % Depreciation and amortization 22,652 5,984 16,668 279 % Total operating expenses 58,748 30,805 27,943 91 % Income (loss) from operations (32,161) 15,361 (47,522) (309) % Other expense 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 (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 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 $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. 37 Operating Expenses: General and Administrative 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 $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 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 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 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 $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. 38 Liquidity and Capital Resources Historical Cash Flow The following table compares the historical cash flow (in thousands): Three Months Ended March 31, 2022 2021 Net cash used in operating activities $ (50,097) $ (42,148) Net cash used in investing activities (376,173) (10,570) 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) We have historically financed our operations primarily with the proceeds from capital contributions, operating cash flows and short and long-term borrowings. 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 (“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, 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. In response to the recent challenging environment, we continuously evaluate our ability to meet our obligations over the next 12 months. We have sufficient liquidity as well as financing options available to fund current and future commitments. 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. 39 Operating Activities 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 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 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 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 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. 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. 40 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 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 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. Surety Bonds 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 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 41 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.