Array Technologies, Inc. 10-Q

Item 1. Financial Statements. Array Technologies, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands, except per share and share amounts) September 30, 2022 December 31, 2021 ASSETS Current assets Cash and cash equivalents $ 62,778 $ 367,670 Accounts receivable, net 485,174 236,009 Inventories, net 269,775 205,653 Income tax receivables 12,765 9,052 Prepaid expenses and other 41,309 33,649 Total current assets 871,801 852,033 Property, plant and equipment, net 20,024 10,692 Goodwill 359,629 69,727 Other intangible assets, net 384,084 174,753 Deferred tax assets 18,785 9,345 Other assets 27,502 26,429 Total assets $ 1,681,825 $ 1,142,979 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable $ 199,358 $ 91,392 Accounts payable - related party 478 610 Accrued expenses and other 91,102 38,494 Accrued warranty reserve 4,237 3,192 Income tax payable 10,587 60 Deferred revenue 154,692 99,575 Current portion of contingent consideration — 1,773 Current portion of debt 47,686 4,300 Other current liabilities 4,981 5,909 Total current liabilities 513,121 245,305 Long-term liabilities Deferred tax liability 74,139 — Contingent consideration, net of current portion 7,113 12,804 Other long-term liabilities 9,113 5,557 Long-term warranty 3,852 — Long-term debt, net of current portion 725,109 711,056 Total long-term liabilities 819,326 729,417 Total liabilities 1,332,447 974,722 1 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (continued) (in thousands, except per share and share amounts) September 30, 2022 December 31, 2021 Commitments and contingencies (Note 16) Series A Redeemable Perpetual Preferred Stock of $ 0.001 par value - 500,000 authorized; 400,000 and 350,000 shares issued as of September 30, 2022 and December 31, 2021, respectively; liquidation preference of $ 400.0 million and $ 350.0 million as of September 30, 2022 and December 31, 2021, respectively 287,561 237,462 Stockholders’ equity (deficit) Preferred stock of $ 0.001 par value - 4,500,000 shares authorized; none issued as of September 30, 2022 and December 31, 2021 — — Common stock of $ 0.001 par value - 1,000,000,000 shares authorized; 150,334,261 and 135,026,940 shares issued as of September 30, 2022 and December 31, 2021, respectively 150 135 Additional paid-in capital 392,862 202,562 Accumulated deficit ( 258,360 ) ( 271,902 ) Accumulated other comprehensive income ( 72,835 ) — Total stockholders’ equity (deficit) 61,817 ( 69,205 ) Total liabilities, redeemable perpetual preferred stock and stockholders’ equity $ 1,681,825 $ 1,142,979 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue $ 515,024 $ 188,686 $ 1,235,475 $ 633,442 Cost of revenue 434,801 182,789 1,088,719 560,872 Gross profit 80,223 5,897 146,756 72,570 Operating expenses General and administrative 38,911 18,493 107,881 58,279 Contingent consideration ( 572 ) 936 ( 5,981 ) 1,071 Depreciation and amortization 23,364 5,984 70,405 17,949 Total operating expenses 61,703 25,413 172,305 77,299 Income (loss) from operations 18,520 ( 19,516 ) ( 25,549 ) ( 4,729 ) Other income (expense) Other expense, net ( 399 ) ( 297 ) ( 27 ) ( 497 ) Legal settlement 42,750 — 42,750 — Foreign currency gain (loss) ( 159 ) — 1,968 — Interest expense ( 8,746 ) ( 13,109 ) ( 23,709 ) ( 28,769 ) Total other income (expense) 33,446 ( 13,406 ) 20,982 ( 29,266 ) Income (loss) before income tax (benefit) expense 51,966 ( 32,922 ) ( 4,567 ) ( 33,995 ) Income tax (benefit) expense 11,144 ( 5,361 ) ( 18,109 ) ( 5,493 ) Net income (loss) 40,822 ( 27,561 ) 13,542 ( 28,502 ) Preferred dividends and accretion 12,257 5,479 36,045 5,479 Net income (loss) to common shareholders $ 28,565 $ ( 33,040 ) $ ( 22,503 ) $ ( 33,981 ) Income (loss) per common share Basic $ 0.19 $ ( 0.25 ) $ ( 0.15 ) $ ( 0.26 ) Diluted $ 0.19 $ ( 0.25 ) $ ( 0.15 ) $ ( 0.26 ) Weighted average number of common shares Basic 150,322 130,955 149,604 128,315 Diluted 151,382 130,955 149,604 128,315 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ 40,822 $ ( 27,561 ) $ 13,542 $ ( 28,502 ) Change in foreign currency translation adjustments ( 34,106 ) — ( 72,835 ) — Comprehensive income (loss) $ 6,716 $ ( 27,561 ) $ ( 59,293 ) $ ( 28,502 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands) Three Months Ended September 30, 2022 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Balance at June 30, 2022 413 $ 293,974 — $ — 150,279 $ 150 $ 401,614 $ ( 299,182 ) $ ( 38,729 ) $ 63,853 Equity-based compensation — — — — 55 — 4,097 — — 4,097 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees — — — — — — ( 592 ) — — ( 592 ) Preferred cumulative dividends plus accretion — 12,257 — — — — ( 12,257 ) — — ( 12,257 ) Dividends paid ( 13 ) ( 18,670 ) — — — — — — — — Net income — — — — — — — 40,822 — 40,822 Other comprehensive loss — — — — — — — — ( 34,106 ) ( 34,106 ) Balance at September 30, 2022 400 $ 287,561 — $ — 150,334 $ 150 $ 392,862 $ ( 258,360 ) $ ( 72,835 ) $ 61,817 5 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued) (unaudited) (in thousands) Three Months Ended September 30, 2021 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Balance at June 30, 2021 — $ — — $ — 126,994 $ 127 $ 149,893 $ ( 222,440 ) $ ( 72,420 ) Equity-based compensation — — — — — — 2,160 — 2,160 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 350 229,799 — — — — — — — Issuance of common stock, net — — — — 7,875 8 104,756 — 104,764 Preferred cumulative dividends plus accretion — 5,479 — — — — ( 5,479 ) — ( 5,479 ) Net loss — — — — — — — ( 27,561 ) ( 27,561 ) Balance at September 30, 2021 350 $ 235,278 — $ — 134,869 $ 135 $ 251,330 $ ( 250,001 ) $ 1,464 6 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued) (unaudited) (in thousands) Nine Months Ended September 30, 2022 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Balance at December 31, 2021 350 $ 237,462 — $ — 135,026 $ 135 $ 202,562 $ ( 271,902 ) $ — $ ( 69,205 ) Equity-based compensation — — — — 161 — 11,454 — — 11,454 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 50 32,724 — — — — ( 1,172 ) — — ( 1,172 ) Issuance of common stock, net — — — — 15,147 15 216,063 — — 216,078 Preferred cumulative dividends plus accretion 13 36,045 — — — — ( 36,045 ) — — ( 36,045 ) Dividends paid ( 13 ) ( 18,670 ) — — — — — — — — Net income — — — — — — — 13,542 — 13,542 Other comprehensive loss — — — — — — — — ( 72,835 ) ( 72,835 ) Balance at September 30, 2022 400 $ 287,561 — $ — 150,334 $ 150 $ 392,862 $ ( 258,360 ) $ ( 72,835 ) $ 61,817 7 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued) (unaudited) (in thousands) Nine Months Ended September 30, 2021 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Balance at December 31, 2020 — $ — — $ — 126,994 $ 127 $ 140,473 $ ( 221,499 ) $ ( 80,899 ) Equity-based compensation — — — — — — 11,580 — 11,580 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 350 229,799 — — — — — — — Issuance of common stock, net — — — — 7,875 8 104,756 — 104,764 Preferred cumulative dividends plus accretion — 5,479 — — — — ( 5,479 ) — ( 5,479 ) Net loss — — — — — — — ( 28,502 ) ( 28,502 ) Balance at September 30, 2021 350 $ 235,278 — $ — 134,869 $ 135 $ 251,330 $ ( 250,001 ) $ 1,464 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net income (loss) $ 13,542 $ ( 28,502 ) Adjustments to reconcile net income (loss) to net cash provided by, (used in) operating activities: Provision for (recovery of) bad debts 660 ( 574 ) Deferred tax expense ( 30,928 ) ( 7,036 ) Depreciation and amortization 71,207 19,454 Amortization of debt discount and issuance costs 5,003 13,653 Equity-based compensation 11,677 11,706 Contingent consideration ( 5,981 ) 1,071 Warranty provision 4,341 305 Provision for inventory obsolescence ( 2,333 ) 654 Changes in operating assets and liabilities, net of business acquisition Accounts receivable ( 139,036 ) ( 50,840 ) Inventories ( 14,273 ) ( 55,321 ) Income tax receivables ( 3,610 ) 9,676 Prepaid expenses and other 11,146 ( 5,770 ) Accounts payable 42,205 1,948 Accounts payable - related party ( 132 ) ( 1,622 ) Accrued expenses and other 41,271 1,683 Warranty payments ( 373 ) — Income tax payable 2,951 ( 8,185 ) Lease liabilities 1,914 337 Deferred revenue 34,772 ( 68,474 ) Net cash provided by, (used in) operating activities 44,023 ( 165,837 ) Cash flows from investing activities Purchase of property, plant and equipment ( 6,690 ) ( 2,252 ) Acquisition of STI, net of cash acquired ( 373,816 ) — Investment in equity security — ( 11,975 ) Net cash used in investing activities ( 380,506 ) ( 14,227 ) Cash flows from financing activities Proceeds from Series A issuance 33,098 224,987 Proceeds from common stock issuance 15,885 120,645 Series A equity issuance costs ( 1,167 ) ( 7,195 ) Common stock issuance costs ( 450 ) ( 3,873 ) Dividends paid on Series A Preferred ( 18,670 ) — Payments on revolving credit facility ( 116,000 ) ( 102,000 ) Proceeds from issuance of other debt 39,219 — Proceeds from revolving credit facility 116,000 102,000 9 Array Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (continued) (in thousands) Nine Months Ended September 30, 2022 2021 Principal payments on debt ( 33,286 ) ( 132,150 ) Contingent consideration ( 1,483 ) ( 7,810 ) Debt issuance costs — ( 6,590 ) Net cash provided by financing activities 33,146 188,014 Effect of exchange rate changes on cash and cash equivalent balances ( 1,555 ) — Net change in cash and cash equivalents ( 304,892 ) 7,950 Cash and cash equivalents, beginning of period 367,670 108,441 Cash and cash equivalents, end of period $ 62,778 $ 116,391 Supplemental Cash Flow Information Stock consideration paid for acquisition of STI $ 200,224 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 10 Array Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Business Array Technologies, Inc. (the “Company”), formerly ATI Intermediate Holdings, LLC, is a Delaware corporation formed in December 2018 as a wholly owned subsidiary of ATI Investment Parent, LLC (“Former Parent”). On October 14, 2020, the Company converted from a Delaware limited liability company to a Delaware corporation and changed the Company’s name to Array Technologies, Inc. The Company is headquartered in Albuquerque, New Mexico, and manufactures and supplies solar tracking systems and related products for customers across the United States and internationally. The Company, through its wholly-owned subsidiary, ATI Investment Sub, Inc. owns subsidiaries through which it conducts substantially all operations. Acquisition of STI On January 11, 2022 (the “Acquisition Date”), the Company acquired 100 % of the share capital of Soluciones Técnicas Integrales Norland, S.L.U., a Spanish private limited liability Company, and its subsidiaries (collectively, “STI”) with cash and common stock of the Company (the “STI Acquisition”). The STI Acquisition was accounted for as a business combination. See Note 3 – Acquisition of STI . After the acquisition of STI, the Company began operating as two reportable operating segments: the Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI. 2. Summary of Significant Accounting Policies Basis of Accounting and Presentation The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of results for the interim periods reported. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or any other interim periods, or any future year or period. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 6, 2022, as amended by the Form 10-K/A filed with the SEC on April 6, 2022 (the “2021 Annual Report”). Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. 11 Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include evaluation for any impairment of goodwill, impairment of long-lived assets, fair value of contingent consideration, Series A Redeemable Perpetual Preferred Stock and the related future tranche, allowance for credit losses, reserve for excess or obsolete inventories, valuation of deferred tax assets and warranty reserve. Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements; however, management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur. Impact of COVID-19 Pandemic The Company continues to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where it operates. The Company’s priority remains the welfare of its employees. The Company expects persistent waves of COVID-19, including variants of the virus, to remain a headwind into the near future. The duration and extent to which it will continue to adversely impact the Company’s business and results of operations remain uncertain and could be material. The Company believes it has sufficient liquidity and financing options available and expects to have sufficient liquidity to operate for the next 12 months. The Company expects to use cash generated from operations and if needed, can access funds from the Revolving Credit Facility (as defined below). The Company also has $ 100 million in delayed draw ability under the Series A Redeemable Perpetual Preferred Stock (as defined below) future draw commitment; however, such a draw would increase the Company’s dividend obligations and outstanding common stock and failure to draw the delayed commitments will result in interest expense payable by the Company. See Note 13 – Redeemable Perpetual Preferred Stock . The Revolving Credit Facility has $ 166.6 million of availability. Impact of the Ongoing Conflict in Ukraine The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know ultimate severity or duration of the conflict in Ukraine, but we continue to monitor the situation and evaluate our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations. Inflation The Company could see an impact from elevated inflation and other operating costs. Interest rates have increased quickly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation, while government deficits and debt remain at high levels in many global markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecast period. 12 Business Combinations The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 Business Combinations (“ASC 805”). The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, amongst other items. Foreign Currency Translation For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities are translated into the U.S. dollar at period end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. Translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income in equity. For non-U.S. subsidiaries that use a U.S. dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S. dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period end exchange rates. Inventories charged to cost of revenue and depreciation are remeasured at historical rates, and all other income and expense items are translated at average exchange rates prevailing during the period. Gains and losses which result from remeasurement are included in earnings. Recent Accounting Pronouncements Adopted In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ ASU 2021-08”). ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ ASC 606”). At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the recent update, such amounts were recognized by the acquiring company at fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company early adopted ASU 2021-08 as of January 1, 2022. See Note 3 – Acquisition of STI for further information and disclosures related to the STI Acquisition. The standard was applied to the acquisition accounting for STI. A review of the deferred revenue of the acquiree of $ 20.3 million was reviewed for consistency in application with the Company’s policies and U.S. GAAP and the contract liability balance was carried over at its carrying value. 3. Acquisition of STI On the Acquisition Date, the Company completed the STI Acquisition pursuant to the purchase agreement, dated November 10, 2021, by and among Amixa Capital, S.L. and Aurica Trackers, S.L., each a company duly organized under the laws of the Kingdom of Spain (together, the “Sellers”) and Mr. Javier Reclusa Etayo (the “STI Purchase Agreement”). The STI Acquisition was funded primarily with borrowings from the Convertible Notes (as defined below) and the issuance of Series A redeemable perpetual preferred stock of the Company, par value $ 0.001 per share (the “Series A Redeemable Perpetual Preferred Stock”). The STI Acquisition provided the Company with an immediate presence in Brazil, Western Europe and South Africa. Transaction 13 expenses incurred in connection with the acquisition are $ 5.6 million recorded in the general and administrative line item on the condensed consolidated statement of operations for the nine months ended September 30, 2022. In accordance with the STI Purchase Agreement, the Company paid closing consideration to the Sellers consisting of $ 410.5 million in cash and 13,894,800 shares of the Company’s common stock. The fair value of the purchase consideration was $ 610.8 million and resulted in the Company owning 100 % of the interests in STI. The Company has performed a valuation of the acquisition assets and liabilities and determined the related accounting impact. The purchase price consideration to acquire STI consisted of the following (in thousands): Cash consideration for STI $ 409,647 Cash consideration for transaction expenses of STI 896 Total cash consideration 410,543 Non-cash equity consideration 200,224 Total consideration transferred 610,767 Total purchase price consideration $ 610,767 The STI Acquisition was accounted for as a business combination applying ASC 805. The equity consideration transferred consisted of the Company’s common stock and was measured at fair value based on the closing stock price on the Acquisition Date. The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the Acquisition Date. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were the expected synergies of the combined entities that are expected to be realized from the STI Acquisition. None of the goodwill is expected to be deductible for income tax purposes. 14 The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed as of the Acquisition Date (in thousands): Preliminary Fair Value of Net Assets Acquired and Liabilities Assumed: Acquisition Date Measurement Adjustment September 30, 2022 Cash and cash equivalents $ 36,725 $ — $ 36,725 Accounts receivable 110,789 — 110,789 Inventories 47,517 — 47,517 Prepaid expenses and other 23,399 — 23,399 Property, plant and equipment 4,434 — 4,434 Other intangible assets 318,365 — 318,365 Other assets 325 — 325 Total assets acquired $ 541,554 $ — $ 541,554 Accounts payable 65,761 — 65,761 Deferred revenue 20,345 — 20,345 Short-term debt 44,338 — 44,338 Other liabilities 10,115 — 10,115 Income tax payable 7,576 — 7,576 Deferred tax liability 93,823 7,611 101,434 Other long-term liabilities 4,524 — 4,524 Long-term debt 12,053 — 12,053 Total liabilities assumed $ 258,535 $ 7,611 $ 266,146 Preliminary fair value of net assets acquired 283,019 275,408 Preliminary allocation to goodwill $ 327,748 $ 335,359 The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as the twelve months following the Acquisition Date). The preliminary estimates of the fair values of the assets acquired and liabilities assumed were estimated to approximate carrying values since they are short term in nature, and they are receivable or payable on demand. These assets and liabilities were cash and cash equivalents, accounts receivable, prepaid expenses and other, accounts payable, other liabilities, and deferred revenue. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed as well as the tax impact. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the Acquisition Date throughout the remainder of the measurement period. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting. For assets and liabilities excluded from the scope of the intangible asset and property, plant and equipment valuation, the Company considered net book value to be a reasonable proxy as of the Acquisition Date. 15 The preliminary purchase price allocation includes $ 318.4 million of acquired identifiable intangible assets. Estimated Fair Value Estimated Weighted Average Useful Life in Years (in thousands, except useful lives) Backlog $ 51,165 1 Customer relationships 238,770 10 Trade name 28,430 20 Total $ 318,365 The preliminary fair value of the identifiable intangible assets has been estimated using the Excess Earnings Method (customer relationships and backlog) and Relief from Royalty Method (trade name). Significant inputs using the Excess Earnings Method and Level 3 inputs in the fair value hierarchy include estimated revenue, expenses based on actuals and forecast, and a discount rate based on a weighted average cost of capital for customer relationships of 15 % for Spain, 16.5 % for Brazil and 14.0 % for Spain foreign sourced projects and for order backlog of 8.5 % for Spain, 9.5 % for Brazil and 7.5 % for Spain foreign sourced projects. Significant inputs to the Relief from Royalty method model include estimates of future revenue, economic life, estimated royalty rate of 1.25 %, and a discount rate based on a weighted average cost of capital 15.2 %. The weighted average cost of capital was determined based on the Company’s capital structure, cost of capital, inherent business risk profile and long-term growth expectations. The intangible assets are being amortized over their estimated useful lives on a straight-line basis that reflects the economic benefit of the asset. The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the STI Acquisition. The amounts of revenue and net loss of STI included in the Company’s consolidated statement of operations from the Acquisition Date through September 30, 2022 are $ 237.2 million and $ 14.1 million, respectively. Pro Forma Financial Information (Unaudited) The following unaudited pro forma financial information presents the combined results of operations of the Company and STI as if the acquisition had occurred on January 1, 2021, after giving effect to certain unaudited pro forma adjustments. The unaudited pro forma adjustments reflected herein include only those adjustments that are directly attributable to the STI Acquisition including amortization of intangibles, debt financing expenses and tax benefits. The unaudited pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the STI Acquisition and is not necessarily indicative of the operating results that would have actually occurred had the STI Acquisition been consummated on January 1, 2021. Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2022 2021 2022 2021 Revenue $ 515.0 $ 480.1 $ 1,243.0 $ 764.8 Net income (loss) $ 52.1 $ ( 22.7 ) $ 48.7 $ ( 44.6 ) 16 4. Accounts Receivable Accounts receivable consists of the following (in thousands): September 30, 2022 December 31, 2021 Accounts receivable $ 485,869 $ 236,149 Less: allowance for doubtful accounts ( 695 ) ( 140 ) Accounts receivable, net $ 485,174 $ 236,009 5. Inventories Inventories consist of the following (in thousands): September 30, 2022 December 31, 2021 Raw materials $ 166,260 $ 85,470 Finished goods 108,597 127,598 Reserve for excess or obsolete inventory ( 5,082 ) ( 7,415 ) Total $ 269,775 $ 205,653 6. Property, Plant and Equipment Property, plant and equipment consisted of the following (in thousands, except useful lives): Estimated Useful Lives (Years) September 30, 2022 December 31, 2021 Land N/A $ 1,563 $ 1,340 Buildings and land improvements 15 - 39 7,318 2,451 Manufacturing equipment 7 17,893 13,924 Furniture, fixtures and equipment 5 - 7 3,341 476 Vehicles 5 527 161 Hardware and software 3 - 5 2,487 1,683 Assets in progress 3,684 1,880 Total 36,813 21,915 Less: accumulated depreciation ( 16,789 ) ( 11,223 ) Property, plant and equipment, net $ 20,024 $ 10,692 Depreciation expense was $ 0.7 million and $ 0.6 million for the three months ended September 30, 2022 and 2021, respectively, of which $ 0.4 million and $ 0.5 million, respectively, was allocated to cost of revenue and $ 0.3 million and $ 0.1 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021. Depreciation expense was $ 1.8 million and $ 1.8 million for the nine months ended September 30, 2022 and 2021, respectively, of which $ 1.2 million and $ 1.5 million, respectively, was allocated to cost of revenue and $ 0.6 million and $ 0.3 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021. 17 7. Goodwill and Other Intangible Assets Goodwill Prior to the STI Acquisition, goodwill, related to Former Parent’s acquisition of the Company, was recorded as $ 121.6 million and was subsequently impaired. Total accumulated impairment as of September 30, 2022 was $ 51.9 million. The Company recorded an additional $ 335.4 million of goodwill as a result of the STI Acquisition and the Company’s reporting units became Array Legacy Operations and the newly acquired STI Operations, which had goodwill of $ 69.7 million and $ 289.9 million, respectively, at September 30, 2022 and $ 69.7 million and zero , respectively, at December 31, 2021. Goodwill is not deductible for tax purposes. Changes in the carrying amount of goodwill by operating segment during the nine months ended September 30, 2022 are shown below (in thousands): Array Legacy Operations Segment STI Operations Segment Total Beginning Balance $ 69,727 $ — $ 69,727 Acquisition of STI — 335,359 $ 335,359 Foreign currency impact — ( 45,457 ) $ ( 45,457 ) Ending Balance $ 69,727 $ 289,902 $ 359,629 Each quarter the Company evaluates if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. During the quarter ended March 31, 2022, the Company determined it was necessary to perform an interim goodwill impairment test for the Array Legacy Operations reporting unit. The Company performed a quantitative goodwill impairment test and determined the estimated fair value of the reporting unit exceeded the carrying value assigned to that reporting unit; as a result, goodwill was not impaired. 18 Other Intangible Assets Other intangible assets consisted of the following (in thousands, except useful lives): Estimated Useful Lives (Years) September 30, 2022 December 31, 2021 Amortizable: Costs: Developed technology 14 $ 203,800 $ 203,800 Customer relationships 10 295,405 89,500 Backlog 1 44,132 — Trade name 20 24,518 — Total amortizable intangibles 567,855 293,300 Accumulated amortization: Developed technology 90,709 79,790 Customer relationships 70,606 49,057 Backlog 31,794 — Trade name 962 — Total accumulated amortization 194,071 128,847 Total amortizable intangibles, net 373,784 164,453 Non-amortizable costs: Trade name 10,300 10,300 Total other intangible assets, net $ 384,084 $ 174,753 Amortization expense related to intangible assets amounted to $ 23.2 million and $ 5.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 69.8 million and $ 17.6 million for the nine months ended September 30, 2022 and 2021, respectively. Estimated future annual amortization expense for the above amortizable intangible assets for the remaining periods through September 30, as follows (in thousands): Amount 2022 $ 22,365 2023 46,633 2024 45,328 2025 45,328 2026 41,021 Thereafter 173,109 $ 373,784 19 Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. During the quarter ended March 31, 2022, the Company determined it was necessary to review long-lived assets, including intangible assets related to the Array Legacy Operations reporting unit, for impairment. The Company determined the undiscounted cash flows expected to result from the use of the asset group and its eventual disposition were greater than the carrying amount and therefore concluded there was no impairment. 8. Investment in Equity Security The Company made a $ 10.0 million and $ 2.0 million investment in preferred stock of a private company in February 2021 and April 2021, respectively. The investment is accounted for in accordance with ASC Topic 321 Investments—Equity Securities at its cost, less any impairment. The investment balance as of September 30, 2022 was $ 12.0 million and is recorded in other assets on the condensed consolidated balance sheets. There is no impairment recorded for the nine months ended September 30, 2022. 9. Income Taxes The Company follows guidance under ASC Topic 740-270 Income Taxes , which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income (loss). At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The tax effect of discrete items is recorded in the quarter in which the discrete events occur. The Company recorded income tax expense (benefit) of $ 11.1 million and $( 5.4 ) million for the three months ended September 30, 2022 and 2021, respectively, and income tax expense (benefit) of $( 18.1 ) million and $ 5.5 million for the nine months ended September 30, 2022 and 2021, respectively. The tax expense in the three months ended September 30, 2022 includes tax expense of $ 8.7 million on the legal settlement income which was recorded discretely in the quarter. The tax, excluding the legal settlement, was favorably impacted by non-taxable contingent income, and mix of income by jurisdiction. The tax benefit in the three months ended September 30, 2021 was unfavorably impacted by non-deductible amounts for equity-based compensation and follow-on offering costs. The tax benefit in the nine months ended September 30, 2022 includes tax expense of $ 8.7 million on the legal settlement which was recorded discretely in the quarter. The tax on the loss, excluding the legal settlement, was favorably impacted by mix of earnings by jurisdictions offset by non-deductible amounts for officers’ compensation and transaction costs. The tax benefit in the nine months ended September 30, 2021 was unfavorably impacted by non-deductible equity based compensation as well as initial public offering and secondary offering costs. For the three and nine months ended September 30, 2022 and 2021, no reserves for uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period. In August 2022, the U.S. Inflation Reduction Act (“IRA”) was enacted into law. The IRA contains a number of revisions to the Internal Revenue Code that generally take effect in tax years beginning after December 31, 2022. The Company is in the process of evaluating provisions included under the IRA and its impact to the Company’s consolidated financial statements. 20 10. Senior Secured Credit Facility Long-term senior secured credit facility consisted of the following (in thousands): September 30, 2022 December 31, 2021 Term loan facility $ 323,550 $ 326,775 Revolving credit facility — — 323,550 326,775 Less discount and issuance costs ( 20,169 ) ( 23,291 ) Long-term portion, net of debt discount and issuance costs 303,381 303,484 Less current portion of credit facility ( 4,300 ) ( 4,300 ) Long-term senior secured facility debt, net of current portion, debt discount and issuance costs $ 299,081 $ 299,184 Senior Secured Credit Facility On October 14, 2020, the Company entered into a senior secured credit facility, which was amended on February 23, 2021 (the “First Amendment”) and again on February 26, 2021 (the “Second Amendment”). The senior secured facility consisted originally of (i) a $ 575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $ 150 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”). The First Amendment, in the case of Eurocurrency borrowings, lowered the London interbank offered rate floor to 50 basis points from 100 basis points and lowered the applicable margin to 325 basis points from 400 basis points per annum. This resulted in the current rate on the Term Loan Facility decreasing to 3.75 % down from 5 % prior to the First Amendment. The Second Amendment increased the $ 150.0 million Revolving Credit Facility from $ 150.0 million to $ 200.0 million. Revolving Credit Facility Under the Revolving Credit Facility, the Company had no outstanding balance as of both September 30, 2022 and December 31, 2021, respectively, $ 33.4 million and $ 13.6 million in standby letters of credit at September 30, 2022 and December 31, 2021, respectively, and availability of $ 166.6 million and $ 186.4 million at September 30, 2022 and December 31, 2021, respectively. The Revolving Credit Facility pays interest depending on the contracted rate for the loan which is either for the Eurocurrency Rate Loans at LIBOR plus 3.25 % and for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1 % above the Federal Funds Rate or the Eurocurrency rate for the Dollar deposits for one month interest period, after giving effect to any floor plus 1 %, plus 2.25 %. Term Loan Facility The Term Loan Facility had a balance of $ 323.6 million and $ 326.8 million as of September 30, 2022 and December 31, 2021, respectively. The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $ 20.2 million and $ 23.3 million as of September 30, 2022 and December 31, 2021, respectively. The debt discount and issuance costs are being amortized using the effective interest method and the rate as of September 30, 2022 is 6.75 %. The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula did not result in requiring the Company to make an advance principal payment for the year ended December 31, 2021. 21 11. Convertible Debt Convertible debt consisted of the following (in thousands): September 30, 2022 December 31, 2021 1.00 % Senior unsecured convertible notes $ 425,000 $ 425,000 Less: unamortized discount and issuance costs ( 11,721 ) ( 13,137 ) 1.00 % Senior unsecured convertible notes, net (1) $ 413,279 $ 411,863 (1) Effective interest rate for the Convertible Notes as of September 30, 2022 and December 31, 2021 was 1.5 %. On December 3, 2021 and December 9, 2021, the Company completed a private offering of $ 375 million and $ 50 million over allotment, respectively, in aggregate principal amount of 1.00 % Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $ 364.7 million and $ 48.6 million, respectively, after deducting the original issue discount of 2.75 %. The Convertible Notes were issued pursuant to an indenture, dated December 3, 2021, between the Company and U.S. Bank National Association, as trustee. The Convertible Notes are senior unsecured obligations of the Company and will mature on December 1, 2028, unless earlier converted, redeemed, or repurchased. The Convertible Notes bear interest at a rate of 1.00 % per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022. The conversion rate for the Notes was initially 41.9054 shares of the Company’s common stock per $1,000 principal amount of Notes, which was equivalent to an initial conversion price of approximately $ 23.86 per share of common stock or 10.1 million shares of common stock. The Convertible Notes were not convertible during the nine months ended September 30, 2022 and none have been converted to date. Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the nine months ended September 30, 2022. Capped Calls In connection with the issuances of the Convertible Notes, the Company paid $ 52.9 million, in aggregate, to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Convertible Notes. Specifically, upon the exercise of the capped call instruments issued pursuant to the agreements (the “Capped Calls”), the Company would receive shares of its common stock equal to approximately 17.8 million shares (a) multiplied by (i) the lower of $ 36.0200 or the then-current market price of its common stock, less (ii) the applicable exercise price, $ 23.86 , and (b) divided by the then-current market price of its common stock. The results of this formula are that the Company would receive more shares as the market price of its common stock exceeds the exercise price and approaches the cap, which was initially $ 36.0200 per share. Consequently, if the Convertible Notes are converted, then the number of shares to be issued by the Company would be effectively partially offset by the shares of common stock received by the Company under the Capped Calls as they are exercised. The formula above would be adjusted in the event of certain specified extraordinary events affecting the Company, including a merger; a tender offer; nationalization, insolvency or delisting of the Company’s common stock; changes in law; failure to deliver; insolvency filing; stock splits, combinations, dividends, repurchases or similar events; or an announcement of certain of the preceding actions. 22 The Company can also elect to receive the equivalent value of cash in lieu of shares of common stock upon settlement, except in certain circumstances. The Capped Calls expire on December 1, 2028 and terminate upon the occurrence of certain extraordinary events such as a merger, tender offer, nationalization, insolvency, delisting, event of default, a change in law, failure to deliver, an announcement of certain of these events, or an early conversion of the Convertible Notes. Although intended to reduce the net number of shares of common stock issued after a conversion of the Convertible Notes, the Capped Calls were separately negotiated transactions, are not a part of the terms of the Convertible Notes, and do not affect the rights of the holders of the Convertible Notes. The Capped Calls meet the criteria for equity classification because they are indexed to the Company’s common stock and the Company has discretion to settle the Capped Calls in shares or cash. As a result, the amount paid for the Capped Calls was recorded as a reduction to additional paid-in capital. The Capped Calls are excluded from the calculation of diluted net income (loss) per share attributable to common stockholders as their effect is antidilutive. 12. Other Debt In connection with the STI Acquisition, the Company assumed debt obligations of STI. As of September 30, 2022, related debt balances were $ 43.3 million in short-term debt and $ 12.7 million in long-term debt. Interest rates on the acquired debt range from 0.55 % to 2.76 % annually and maturities for the short-term portion of loans range from December 2022 to March 2023. Maturities for the long-term portion of loans are $ 4.9 million due in 2024 and $ 7.8 million due in March 2027. 13. Redeemable Perpetual Preferred Stock Series A Redeemable Perpetual Preferred Stock On August 10, 2021, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) pursuant to which, on August 11, 2021, the Company issued and sold to certain investors (the “Purchasers”) 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $ 346.0 million (the “Initial Closing”). Further, pursuant to the Securities Purchase Agreement, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $ 776.0 (the “Prepaid Forward Contract”). The Company used net proceeds from the Initial Closing to repay the entire $ 102.0 million amount outstanding under its existing Revolving Credit Facility and prepay $ 100.0 million under the Company’s Term Loan Facility. Additionally, the Securities Purchase Agreement entitles the Purchasers to designate one representative to be appointed to the Company’s board of directors (the “Board”) and to appoint three non-voting observers to the Board, in each case until such time as the Purchasers no longer beneficially own shares of the Series A Redeemable Perpetual Preferred Stock with at least $ 100 million aggregate Liquidation Preference (as defined below). The Series A Redeemable Perpetual Preferred Stock has no maturity date. On January 7, 2022, the Company issued and sold to the Purchasers 50,000 shares of Series A Redeemable Perpetual Preferred Stock and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $ 49.4 million (the “Additional Closing”). 23 Additional Closings The Securities Purchase Agreement gives the Company the option to require the Purchasers to purchase, in one or more additional closings, up to 150,000 shares of Series A Redeemable Perpetual Preferred Stock until June 30, 2023 and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments) (subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction) for an aggregate purchase price up to $ 148.0 million (the “Delayed Draw Commitment”). This commitment has been reduced by the Additional Closing. The Company evaluated the accounting for the instruments issued in the Securities Purchase Agreement and determined the Series A Redeemable Perpetual Preferred Stock and common stock issued in the Initial Closing, as well as the Prepaid Forward Contract, and Delayed Draw Commitment are freestanding instruments accounted for in equity. The Series A Redeemable Perpetual Preferred Stock is recorded in temporary equity on the condensed consolidated balance sheets as it has redemption features upon certain triggering events that are outside the Company’s control, such as a fundamental change. The proceeds of the Series A Redeemable Perpetual Preferred Stock, transactions costs and discount of $ 334.6 million have been allocated to each instrument based on its relative fair value. At the Initial Closing date, $ 229.8 million was allocated to the Series A Redeemable Perpetual Preferred Stock, $ 105.4 million to common stock, $ 12.4 million to the Delayed Draw Commitment, which was recorded as a debit to additional paid-in capital, and $ 11.7 million to the Prepaid Forward Contract. The Additional Closing carried issuance and original issuance discount costs of $ 1.3 million. The net proceeds were allocated amongst the Series A Redeemable Perpetual Preferred Stock and common stock based on the proceeds of $ 33.1 million and $ 15.9 million, respectively. Dividends On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Redeemable Perpetual Preferred Stock either in cash at the then-applicable Cash Regular Dividend Rate (as defined below), through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate (as defined below) of 6.25 % (the “Permitted Accrued Dividends”) or a combination thereof. Following the fifth anniversary of the Initial Closing, dividends are payable only in cash. To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points. In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Redeemable Perpetual Preferred Stock, will pay 100 % of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95 % of the 30-day VWAP of the Company’s common stock. As used herein, “Liquidation Preference” means, with respect to any shares of the Series A Redeemable Perpetual Preferred Stock, the initial liquidation preference of $ 1000 per share plus any accrued dividends of such share as the time of the determination. 24 The “Cash Regular Dividend Rate” of the Series A Redeemable Perpetual Preferred Stock means (i) initially, 5.75 % per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing. The “Accrued Regular Dividend Rate” on the Series A Redeemable Perpetual Preferred Stock means 6.25 % per annum on the Liquidation Preference. There are no Permitted Accrued Dividends accrued as of September 30, 2022 with dividends paid for the nine months ended September 30, 2022 $ 18.7 million (the “Q3 Dividend Payment”). Permitted Accrued Dividends resulted in 13 shares of the Series A Redeemable Perpetual Preferred Stock being issued as of September 30, 2022 which were settled with the Q3 Dividend Payment and no longer outstanding. Dividends declared and paid as of December 31, 2021 were $ 8.2 million. The shares of Series A Redeemable Perpetual Preferred Stock have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock . As a result, the discount on Series A Redeemable Perpetual Preferred Stock is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Redeemable Perpetual Preferred Stock by a corresponding amount. The discount of $ 120.2 million is therefore being amortized over five years using the effective yield method. The amortization in each period is the amount which, together with the stated dividend in the period, results in a constant rate of effective cost with regard to the carrying amount of the Series A Redeemable Perpetual Preferred Stock. The Company has presented the Series A Redeemable Perpetual Preferred Stock in temporary equity and is accreting the discount on the increasing rate dividends using the effective interest method. Such accretion totaled $ 17.2 million for the nine months ended September 30, 2022. The Company paid the cash dividend for the three months ended September 30, 2022 of $ 6.3 million in dividends at a rate of 5.75 % as of September 30, 2022. Fees Until June 30, 2023, the Company will pay the Purchasers a cash commitment premium on the unpurchased portion of Delayed Draw Commitment as follows: a. 0 % through the six-month anniversary of the Initial Closing; b. 1.5 % from the six-month anniversary of the Initial Closing through the 12-month anniversary of the Initial Closing; and c. 3.0 % from the 12-month anniversary of the Initial Closing through June 30, 2023. The Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion. 25 14. Revenue Based on ASC 606 provisions, the Company disaggregates its revenue from contracts with customers by those sales recorded over-time and sales recorded at a point in time. The following table presents the Company’s revenue disaggregated by sales recorded over-time and sales recorded at a point in time (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Over-time revenue $ 458,405 $ 128,183 $ 991,561 $ 360,581 Point in time revenue 56,619 60,503 243,914 272,861 Total revenue $ 515,024 $ 188,686 $ 1,235,475 $ 633,442 As discussed in the consolidated financial statements included in the 2021 Annual Report, contracts related to the Company’s federal investment tax credit (“ITC”) were determined to have multiple performance obligations satisfied at a point in time instead of one performance obligation satisfied over time. The disaggregated revenue information above for the nine months ended September 30, 2021 has been restated to correct this error, which resulted in $ 223.2 million of revenue being reclassified from over-time revenue to point in time revenue for the nine months ended September 30, 2021. Revenue recognized for the ITC-related contracts and standalone system component sales is recorded at a point in time and recognized when obligations under the terms of the contract with the Company’s customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms. In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers. When this occurs, the customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC. Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody. The material is bundled or palletized in the Company’s warehouses, identified separately as belonging to the respective customer and is ready for immediate transport to the customer project upon customer request. Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer. As of September 30, 2022, the Company had no contracts with customers for the sale of goods and services that contained bill-and-hold obligations such as storage, handling and other custodial duties for the three and nine months ended September 30, 2022. Any losses incurred on point-in-time projects are recognized as the goods are delivered . Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets (i.e., unbilled receivables) and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings for the Company’s revenue recognized over-time. 26 Contract assets consisting of unbilled receivables are recorded within accounts receivable on the condensed consolidated balance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands): September 30, 2022 December 31, 2021 Unbilled receivables $ 136,953 $ 111,224 The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities (i.e., deferred revenue) relate to advanced orders and payments received by the Company. Contract liabilities consisting of deferred revenue recorded on a contract-by-contract basis at the end of each reporting period were as follows (in thousands): September 30, 2022 December 31, 2021 Deferred revenue $ 154,692 $ 99,575 During the nine months ended September 30, 2022, the Company converted $ 73.1 million in deferred revenue to revenue, which represented 73 % of the prior year’s deferred revenue balance. Remaining Performance Obligations As of September 30, 2022, the Company had $ 386.3 million of remaining performance obligations. The Company expects to recognize revenue on 100 % of these performance obligations in the next twelve months . 15. Income (Loss) Per Share The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ 40,822 $ ( 27,561 ) $ 13,542 $ ( 28,502 ) Preferred dividends and accretion 12,257 5,479 36,045 5,479 Net income (loss) to common shareholders $ 28,565 $ ( 33,040 ) $ ( 22,503 ) $ ( 33,981 ) Basic: Weighted average shares 150,322 130,955 149,604 128,315 Income (loss) per share $ 0.19 $ ( 0.25 ) $ ( 0.15 ) $ ( 0.26 ) Diluted: Effect of Restricted Stock and Performance Awards 1,060 — — — Weighted average shares 151,382 130,955 149,604 128,315 Income (loss) per share $ 0.19 $ ( 0.25 ) $ ( 0.15 ) $ ( 0.26 ) Potentially dilutive common shares issuance pursuant to equity-based awards of 108,111 were not included as their effect was anti-dilutive for the three months ended September 30, 2022. Potentially dilutive common shares issuable pursuant to equity-based awards of 2,504,046 and 1,203,520 were not included for the nine 27 months ended September 30, 2022 and 2021, respectively, and 1,203,520 for the three months ended September 30, 2021, as their potential effect was anti-dilutive since the Company generated a net loss to common stock holders. There were no potentially dilutive common shares issuable pursuant to the Convertible Notes, as the stock price is below the strike price. 16. Commitments and Contingencies Litigation The Company, in the normal course of business, is subject to claims and litigation. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss. On August 30, 2017, the Company filed its first amended complaint in the U.S. District Court for the District of New Mexico against Nextracker LLC, Daniel S. Shugar, Marco Garcia, Flextronics International U.S.A., Inc., Scott Graybeal and Colin Mitchell (collectively, the “Defendants”) asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”). On July 15, 2022, the Company settled its claims against Defendants for $ 42.8 million and received payment on August 4, 2022. On May 14, 2021, a putative class action was filed in the U.S. District Court for the Southern District of New York (the “Southern District of New York” or the “Court”) against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering (“IPO”), the Company’s December 2020 offering (the “2020 Follow-On Offering”), and the Company’s March 2021 offering (the “2021 Follow-On Offering”) during the putative class period of October 14, 2020 through May 11, 2021. On June 30, 2021, a second putative class action was filed in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11 and 15 of the Securities Exchange Act of 1933 (“Keippel Action”). The Keippel Action similarly alleged misstatements and/or omissions in certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering during the putative class period of October 14, 2020 through May 11, 2021. On July 6, 2021, the Court entered an order that the Keippel Action was in all material respects substantially similar to the Plymouth Action that both actions arise out of the same or similar operative facts, and that the parties are substantially the same parties. The Court accordingly consolidated the Keippel Action with the Plymouth Action for all pretrial purposes and, ordered all filings to be made in the Plymouth Action. On July 16, 2021, a verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“First SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934. 28 On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second SDNY Derivative Action was consolidated with the First SDNY Derivative Action, the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action. On September 21, 2021, the Court in the Plymouth Action appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiff. On December 7, 2021, an amended class action complaint was filed by lead plaintiff in the Plymouth Action against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Exchange Act of 1933, on behalf of a putative class of persons and entities that purchased or otherwise acquired the Company’s securities during the period from October 14, 2020 through May 11, 2021 (the “Consolidated Amended Complaint”). The Consolidated Amended Complaint alleges misstatements and/or omissions in: (1) certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering; (2) in the Company’s Annual Report on Form 10-K and associated press release announcing results for the fourth quarter and full fiscal year 2020; and (3) in the Company’s November 5, 2020 and March 9, 2021 earnings calls. On August 17, 2022, the Court in the Plymouth Action set a briefing schedule for any motion to dismiss with the opening motion and supporting memorandum to be filed on or before October 17, 2022, any opposition to be filed on or before December 16, 2022, and any reply in support of the motion to be filed on or before January 16, 2023. The Company and other defendants in the Plymouth Action filed a joint motion to dismiss the Consolidated Amended Complaint on October 17, 2022. On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company, asserting claims for: (1) breach of fiduciary duty and (2) unjust enrichment (“First Delaware Derivative Action”). On August 11, 2022, a second verified derivative complaint was filed against certain officers and directors of the Company Court of Chancery, asserting claims for: (1) breach of fiduciary duty; (2) aiding and abetting breaches of fiduciary duty; (3) waste of corporate assets; (4) unjust enrichment; (5) insider selling; and (6) aiding and abetting insider selling (“Second Delaware Derivative Action”). On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action, the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the 29 Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action. At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the defenses. The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of September 30, 2022 or December 31, 2021. Contingent Consideration Tax Receivable Agreement Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, Array Tech, Inc. entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc. to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array, from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration in the condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, the fair value of the TRA was $ 7.1 million and $ 14.6 million, respectively. Estimating the amount of payments that may be made under the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to the former owners include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA. Payments made under the TRA consider tax positions taken by the Company and are due within 125 days following the filing of the Company’s U.S. federal and state income tax returns under procedures described in the agreement. The current portion of the TRA liability is based on tax returns. The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA. The following table summarizes the liability related to the estimated TRA (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Beginning balance $ 7,686 $ 12,016 $ 14,577 $ 19,691 Payments — — ( 1,483 ) ( 7,810 ) Fair value adjustment ( 573 ) 936 ( 5,981 ) 1,071 Ending balance $ 7,113 $ 12,952 $ 7,113 $ 12,952 The TRA liability requires significant judgment and is classified as Level 3 in the fair value hierarchy. Surety Bonds 30 As of September 30, 2022, the Company posted surety bonds in the total amount of approximately $ 175.2 million. The Company is required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact the Company’s liquidity or capital resources. 17. Fair Value of Financial Instruments The carrying values and the estimated fair values of debt financial instruments were as follows (in thousands): September 30, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Convertible Notes $ 413,279 $ 381,625 $ 411,863 $ 410,771 The carrying values of the Revolving Credit Facility recorded in long-term debt on the condensed consolidated balance sheets approximate fair value due to the variable interest rate. The fair value of the Convertible Notes is estimated using Level 2 inputs, as they are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers. 18. Equity-Based Compensation 2020 Plan On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan. During the nine months ended September 30, 2022, the Company granted an aggregate of 1,433,829 restricted stock units (“RSUs”) to employees and board of director members and 466,916 performance stock units (“PSUs”) to certain executives. The fair value of the RSUs is determined using the market value of common stock on the grant date. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (TSR) compared to a certain index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method with a volatility assumption of 66 % - 79 %, risk free interest rate of 0.28 % - 2.79 % based on the United States Treasury Constant Maturity rates and no dividends paid assumption. 31 Activity under the 2020 Plan was as follows: RSUs Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2021 930,409 $ 21.66 Granted 1,433,829 $ 10.16 Vested ( 278,792 ) $ 18.68 Forfeited ( 127,325 ) $ 18.50 Unvested, September 30, 2022 1,958,121 $ 13.97 PSUs Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2021 147,687 $ 27.75 Granted 466,916 $ 10.88 Vested — $ — Forfeited ( 68,678 ) $ 30.74 Unvested, September 30, 2022 545,925 $ 12.95 Class B Units and Class C Units of Former Parent The Company accounted for equity grants to employees of Class B Units and Class C Units (collectively, the “Units”) of Former Parent as equity-based compensation under ASC 718, Compensation-Stock Compensation . The Units contain vesting provisions as defined in the agreement. Vested Units do not forfeit upon termination and represent a residual interest in Former Parent. Equity-based compensation cost is measured at the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those Units with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent. However, the amount of equity-based compensation at any date is equal to the portion of the grant date value of the award that is vested. The Units issued to employees are measured at fair value on the grant date using an option pricing model. The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards. Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage. The risk-free rates are based on the yields of U.S. Treasury instruments with comparable terms. Actual results may vary depending on the assumptions applied within the model. On November 19, 2019 and May 19, 2020, Former Parent issued 22,326,653 and 4,344,941 , respectively, Class B Units to certain employees of the Company. On March 28, 2020, Former Parent issued 1,000 Class C Units to a member of the board of directors of Array Technologies, Inc. 32 On March 23, 2021, in connection with the closing of the 2021 Follow-On Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of equity-based compensation of $ 8.9 million for the nine months ended September 30, 2021. For the three months ended September 30, 2022 and 2021, the Company recognized $ 4.2 million and $ 2.2 million in equity-based compensation, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized $ 11.7 million and $ 14.3 million in equity-based compensation, respectively. As of September 30, 2022, the Company had $ 23.0 million of unrecognized compensation costs related to RSUs and PSUs which is expected to be recognized over a period of 2 years. There were 76,936 and 196,003 forfeitures during the three and nine months ended September 30, 2022 and 18,772 and 79,277 forfeitures during the three and nine months ended September 30, 2021, respectively. 19. Related Party Transactions Accounts Payable-Related Party The Company had $ 0.5 million and $ 0.6 million as of September 30, 2022 and December 31, 2021, respectively, of accounts payable-related party with the former shareholders of Array. The payables relate to a federal tax refund related to the pre-acquisition periods and restricted cash related to Former Parent’s acquisition of the Company which were due to the sellers of Array upon release of the restriction offset by a receivable related to a sales/use tax audit from the pre-acquisition period for which the seller provided the Company with indemnification. Tax Receivable Agreement See Note 16 – Commitments and Contingencies – Tax Receivable Agreement. 20 Segment Reporting ASC 280 Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Historically, the Company managed its business on the basis of one operating and reportable segment. During the nine months ended September 30, 2022, the Company changed its reportable segments as a result of the STI Acquisition; the Company now operates as two segments; Array Legacy Operations and STI Operations. The following table provides a reconciliation of certain financial information for the Company’s reportable segments to information presented in its condensed consolidated financial statements for the three and nine 33 months ended September 30, 2022 and 2021 and as of September 30, 2022 and December 31, 2021 (in thousands): Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Array Legacy Operations STI Operations Total Array Legacy Operations Revenue $ 400,463 $ 114,561 $ 515,024 $ 188,686 Gross Profit $ 63,921 $ 16,302 $ 80,223 $ 5,897 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Array Legacy Operations STI Operations Total Array Legacy Operations Revenue $ 998,292 $ 237,183 $ 1,235,475 $ 633,442 Gross Profit $ 119,029 $ 27,727 $ 146,756 $ 72,570 34