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Item 7. Management’s Discussion and Analysis

2023-03-22 compared with 2022-04-06 · 285 added, 291 removed, 132 unchanged (81% of the section changed)

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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 of this Form 10-K captioned “Forward-Looking Statements” and “Risk Factors.”

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.

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

Our principal products are a portfolio of integrated solar tracking systems comprised 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.

The vast majority of ground mounted solar systems in the U.S.

use trackers.

Our flagship tracker uses 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.

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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 year ended December 31, 2021, we derived 97% and 3% of our revenues from customers in the United States and 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 December 31, 2021, we had 471 full-time employees.

Acquisition of STI

On January 11, 2022 (the “Closing Date”), the Company completed the previously announced STI Acquisition, pursuant to that certain definitive agreement (the “Purchase Agreement”), dated as of November 10, 2021, by and among Array Tech, Inc, a wholly-owned subsidiary of the Company, Amixa Capital, S.L.

and Aurica Trackers, S.L., each a company duly organized under the laws of the Kingdom of Spain, and Mr.

Javier Reclusa Etayo.

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 cash and common stock consideration was $610.7 million and resulted in the Company owning 100% of the interests in STI.

The Company is in the process of performing a valuation of the acquisition assets and liabilities and the related accounting impact.

The purchase price will be increased by the amount that is four times the audited Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of the target less €47.0 million ($53.5 million at current

exchange rates), such that the amount of contingent consideration is subject to a cap of €45.0 million ($52.0 million at current exchange rates).

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

The Company was able, however, to finance the transaction and related fees and expenses with cash on hand, borrowings under its senior credit facilities, proceeds from our option to require the holders of our Series A Redeemable Perpetual Preferred Stock to purchase additional shares of Series A Redeemable Perpetual Preferred Stock, and through the proceeds of its Convertible Notes Offering.

Series A Redeemable Perpetual Preferred Stock

On August 10, 2021, the Company entered into the Securities Purchase Agreement with an investment vehicle of funds affiliated with Blackstone Inc.

(the “Purchaser”).

Pursuant to the Securities Purchase Agreement, on August 11, 2021, the Company issued and sold to the Purchaser 350,000 shares of Series A Redeemable Perpetual Preferred Stock, having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of the Company’s Common Stock, for an aggregate purchase price of $346.0 million.

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

For more information related to the Series A Redeemable Perpetual Preferred Stock, see Note 11 - Redeemable Perpetual Preferred, to the accompanying consolidated financial statements.

In connection with the Stock Purchase Agreement and the Certificate of Designations governing the Series A Redeemable Perpetual Preferred Stock (see Note 11 - Redeemable Perpetual Preferred), 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 Common Stock in an Additional Closing for an aggregate purchase price of $49,376,125.

With our acquisition of STI in January 2022, we added a dual-row tracker design to our product portfolio.

This tracker uses one motor to drive two connected rows and is ideally suited for sites with irregular and highly angled boundaries or fragmented project areas.

To offer a comprehensive set of solutions to the growing market, in September of 2022, we also introduced a third tracker product requiring significantly less grading and civil works permitting prior to installation in addition to accommodating uneven terrain.

This suite of products extends our target applications and ability to deliver the best utility-scale solar tracker solutions to the market.

We sell our products to 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 year ended December 31, 2022, we derived 79% and 21% of our revenues from customers in the U.S.

and rest of the world, respectively.

As of December 31, 2022, we had shipped more than 58 gigawatts of trackers to customers worldwide, including STI.

STI Acquisition

On January 11, 2022, the Company completed the STI Acquisition pursuant to a purchase agreement (“the “Purchase Agreement”), dated November 10, 2021.

At closing, the Company paid consideration of $410.5 million in cash and 13,894,800 shares of the Company’s common stock in accordance with the Purchase Agreement.

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

STI was founded in 1996 and is headquartered in Pamplona, Spain.

With manufacturing facilities in both Spain and Brazil, STI generates revenue through the design, manufacture and sale of its utility-scale solar tracker systems to customers in global markets including Spain, Brazil, U.S.

and South Africa.

Its dual-row tracker system is designed for irregular terrain and regions with low wind and/or snow load requirements.

The integration of STI provides us the opportunity to accelerate our international growth and better address rising global demand for utility-scale solar projects, particularly in developing countries in South America and Africa.

We financed the transaction and related fees and expenses with cash on hand, proceeds from the December 2021 issuance of $425 million of our 1.00% Convertible Senior Notes and proceeds from the issuance of 50,000 shares of our Series A Shares pursuant to the Delayed Draw provision of our SPA.

For further discussion of the STI Acquisition, see Note 3 – Acquisition of STI in the accompanying consolidated financial statements.

Update on the Impact of COVID-19

In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or 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.

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.

Refer to “Risk Factors - The ongoing COVID-19 pandemic has materially and adversely affected our business and results of operations resulting in reduced margins due to the rise in steel and other commodity costs and as well as logistics delays and costs.

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

Risk Factors.”

We continue to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where we operate.

At this time, the extent to which the pandemic may affect our business, operations and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change, but overall, the pandemic appears to be having a lessening impact on our business and the markets in which we operate.

On January 31, 2023, the Biden administration announced its plan to let the coronavirus public health emergency expire in May 2023.

Inflationary pressures, while somewhat moderating recently, are expected to persist, at least in the near-term, and may continue to negatively impact our results of operation.

To mitigate the inflationary pressures on our business, we have implemented selective price increases in certain markets, accelerated productivity initiatives and expanded our supplier base, while continuing to execute on overhead cost containment practices.

Impact of Potential Solar Module Supply Chain Disruptions

On April 1, 2022, the USDOC initiated anti-circumvention inquiries of the U.S.

Solar 1 Orders covering merchandise from Vietnam, Malaysia, Thailand, and Cambodia pursuant to Section 781 of the Tariff Act of 1930.

The USDOC issued preliminary determinations in these inquiries on December 1, 2022, affirmatively finding that certain photovoltaic solar cells and modules produced in Vietnam, Malaysia, Thailand, and Cambodia using parts and components from China from certain producers/exporters, are circumventing the Solar 1 Orders and therefore should be subject to the antidumping and countervailing duty liabilities arising from those orders.

The USDOC is expected to issue final determinations in May 2023.

As a result of the USDOC’s investigation, the Company saw a number of projects in its order book initially delayed;

however, on June 6, 2022, President Biden issued an emergency declaration delaying the imposition of any cash deposit or duty payment obligations on merchandise subject to these inquiries until the earlier of (i) the expiration of the order on June 6, 2024, or (ii) the President terminating the emergency declaration.

Merchandise from the four subject countries covered under the scope of these inquiries should therefore not be subject to any antidumping or countervailing duty liabilities under the Solar 1 Orders until the termination of the emergency declaration as long as the importer(s) and exporter(s) follow proper certification procedures that will be implemented by the USDOC.

The affirmative determinations could have an adverse effect on the global solar energy marketplace, and as such, an adverse effect on our business, financial condition, and results of operations.

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 remains uncertain.

More broadly, legislation has been proposed that would make it easier for domestic companies to obtain affirmative determinations in antidumping and countervailing duties investigations.

The proposed USICA/America COMPETES Act, if enacted, could result in future successful petitions that limit imports from Asia and other regions.

Solar panel imports to the U.S.

may also be impacted by the UFLPA that was signed into law by President Biden on December 23, 2021.

According to U.S.

Customs and Border Protection, “it establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the U.S.

The presumption applies unless the Commissioner of U.S.

Customs and Border Protection determines that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor.” There continues to be uncertainty in the market around achieving full compliance with UFLPA, whether related to sufficient traceability of materials or other factors.

This has created a significant compliance burden and constrained solar panel imports.

We cannot currently predict what, if any, impact the UFLPA will have on the overall future supply of solar panels into the U.S.

and the related timing and cost of our clients’ solar project, development and construction activities.

While we do not import or sell solar panels, project delays caused by solar panel constraints may negatively impact our product delivery schedules and future sales, and therefore our business, financial condition, and results of operations.

Impact of the Ongoing Conflict in Ukraine

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

We do not know the ultimate severity or duration of this conflict, 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.

Uncertainty in the Banking System

On March 10, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank.

If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.

Foreign Currency Translation

subsidiaries that operate in a local currency environment, assets and liabilities are translated into U.S.

dollars 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 net parent investment.

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 sales 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.

Performance Measures

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

MWs is measured for each individual project and is calculated based on the projects expected megawatt output once installed and fully operational.

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

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The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in product mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

Our revenue growth is dependent on continued growth in the amount of solar energy projects installed each year as well as our ability to increase our share of demand in each of the geographies where we compete, expand our global footprint to new evolving markets, grow our production capabilities to meet demand and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

Our revenue growth is dependent on continued growth in the size and number of solar energy projects installed each year as well as our ability to increase our market share in each of the geographies where we compete, expand our global footprint to new and evolving markets, grow our production capabilities to meet demand and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

Cost of Revenue and Gross Profit

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

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

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 has been impacted by the Covid-19 pandemic by increased raw materials and shipping costs and delays which has resulting 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.

Cost of revenue consists primarily of product costs, including raw materials, purchased components, salaries, wages and benefits of manufacturing personnel, freight, tariffs, customer support, product warranty, and depreciation of manufacturing and testing equipment.

Our product costs are affected by (i) the underlying cost of raw materials, including steel and aluminum, (ii) component costs, including electric motors and gearboxes, (iii) technological innovation, and (iv) economies of scale and improvements in production processes and automation.

In 2021 and to a lesser extent in 2022, our business was impacted by the COVID-19 pandemic.

We experienced disruptions to our supply chain and increased material and freight costs.

When possible, we

modified our production schedules and processes to mitigate the impact of these disruptions and cost increases on our margins.

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

Gross profit may vary from quarter to quarter and is primarily affected by our volume, 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 150 as of December 31, 2019 to approximately 177 as of December 31, 2020 to approximately 210 at December 31, 2021, and we expect to continue to hire new employees to support our growth.

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

We expect to continue to invest substantial resources to support our growth and continued technological advancement and anticipate that general and administrative and depreciation expenses will increase in absolute dollar amounts for the foreseeable future.

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 2021 were in the United States;

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

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

General and administrative expense consist primarily of salaries, benefits and equity-based compensation related to our executive, sales, engineering, finance, human resources, information technology and legal personnel, as well as travel, facility costs, marketing, bad debt provision and professional fees.

We expect to increase 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, in January 2022, we expanded our international operations with the STI Acquisition.

We currently have a sales presence in the U.S., Spain, Brazil, South Africa, Australia and the U.K.

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 and development spend.

We also anticipate an increase in spend related to product development and innovation as we hire additional engineering resources and increase our R&D spend.

Further, as a relatively new public company, we may incur additional audit, accounting, tax, 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.

Contingent Consideration

Contingent consideration consists of the changes in fair value of the earn-out and the TRA entered into with Ron P.

Corio, a former indirect stockholder, concurrent with the acquisition of Patent LLC by ATI Investment Parent, LLC (“Former Parent”).

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

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

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

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

and Oaktree ATI Investors, L.P.

to a third-party;

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

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

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

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

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

The TRA liability was recorded at fair value at the Acquisition Date and subsequent changes in the fair value are recognized in earnings.

Contingent consideration consists of the changes in fair value of the TRA and earn-out entered into with Ron P.

Corio, a former indirect stockholder, concurrent with the acquisition of Patent LLC by Former Parent.

The TRA liability was recorded at fair value as of July 8, 2016 (the “Patent 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.

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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 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 of intangibles consist of developed technology, customer relationships and internal-use software modifications over their expected period of use.

The earn-out liability was recorded at fair value at the Patent Acquisition Date and subsequent changes in the fair value are recognized in earnings.

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

The $589 million cash special distribution paid to Former Parent upon the closing of our IPO, and the Company’s December 2020 offering required the Company to make a cash payment of $9.1 million in October 2020 and $15.9 million in December 2020.

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

Depreciation and Amortization

Depreciation expense consists of costs associated with property, plant and equipment 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 may require some additional property, plant and equipment to support this growth resulting in additional depreciation expense.

Amortization of intangibles consists of developed technology, customer relationships, contractual backlog and the STI trade name expensed 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 (as defined below) and our Senior ABL Facility, interest on the Senior Secured Promissory Note (as defined below), and interest on our Prior Term Loan Facility (as defined below), which was fully repaid on February 2, 2020.

Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility, the Convertible Notes, and the credit lines assumed by us with the STI Acquisition.

Income Tax Expense

We are subject to federal and state income taxes in the United States and certain foreign markets.

We are subject to U.S.

federal, state and non-U.S.

income taxes.

As we expand into additional foreign markets, we may be subject to additional foreign tax.

Reportable Segments

Subsequent to the acquisition of STI, the Company began reporting its results of operations in two segments;

Array Legacy Operations and STI Operations.

The segment amounts included in this Item 7.

Man a gement ’ s Discussion and Analysis are presented on a basis consistent with our internal management reporting.

Additional information on our reportable segments is contained in Note 20 – Segment and Geographic Information in the accompanying notes to the consolidated financial statements.

Results of Operations

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

The following table sets forth our consolidated statement of operations ( in thousands ):

Year Ended December 31, Increase (Decrease)

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Total operating expenses 245,409 107,600 137,809 128 %

(Loss) income from operations (24,741) 95,212 (119,953) (126) %

Other expense

Other expense, net (905) (2,305) (1,400) (61) %

Income (loss) from operations (18,133) (24,741) 6,608 (27) %

Other income (expense)

Other income (expense), net 2,789 (905) 3,694 408 %

Legal settlement 42,750 — 42,750 100 %

Foreign currency gain 1,155 — 1,155 100 %

Interest expense (33,513) (35,475) 1,962 6 %

Total other expense (36,380) (17,434) 18,946 109 %

Income (loss) before income tax expense (benefit) (61,121) 77,778 (138,899) (179) %

Income tax expense (benefit) (10,718) 18,705 (29,423) (157) %

Net (loss) income $ (50,403) $ 59,073 $ (109,476) (185) %

Comparison of the years ended December 31, 2021 and 2020

Revenue decreased by $19.3 million, or 2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Total MW delivered increased by approximately 19% for the year ended December 31, 2021 due to increased demand for our products.

Total other income (expense) 13,181 (36,380) 49,561 136 %

Income (loss) before income tax benefit (4,952) (61,121) 56,169 (92) %

Income tax (benefit) expense (9,384) (10,718) 1,334 (12) %

Net income (loss) $ 4,432 $ (50,403) $ 54,835 109 %

The following table provides details on our operating results by reportable segment for the respective periods ( in thousands ):

Year Ended December 31, Increase/Decrease

2022 2021 $ %

Array Legacy Operations $ 1,267,883 $ 853,318 $ 414,565 49 %

STI Operations 369,663 — 369,663 100 %

Total Revenue $ 1,637,546 $ 853,318 $ 784,228 92 %

Gross Profit:

Array Legacy Operations $ 168,170 $ 82,859 $ 85,311 103 %

STI Operations 59,106 — 59,106 100 %

Total Gross Profit $ 227,276 $ 82,859 $ 144,417 174 %

Fiscal Year 2022 Compared with Fiscal Year 2021

Consolidated revenue increased $784.2 million, or 92%, driven by strong organic growth in the Array Legacy Operations segment, where revenue increased $414.6 million, or 49%, resulting from a 22% increase in MWs shipped due to increased customer demand for our products and a 21% year-over-year increase in ASP, which is reflective of higher pass-through pricing to our customers.

Additionally, the STI Acquisition in January 2022 added $369.7 million in consolidated revenue over the prior year.

Cost of Revenue and Gross Profit

Cost of revenue increased by $100.6 million, or 15%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the cost of raw materials and logistics increasing in 2021.

Gross profit as a percentage of revenue decreased from 23.2% for the year ended December 31, 2020 to 9.7% for the year ended December 31, 2021.

The decrease in Gross Profit as percentage of revenue reflects the higher commodity and logistics prices which we did not fully pass through to our customers via price increases.

Operating Expenses:

Consolidated cost of revenue increased $639.8 million, or 83%, driven by the STI acquisition, increased MWs shipped, combined with higher raw material and logistics costs as compared to the prior year.

Consolidated gross profit as a percentage of revenue increased from 9.7% for the year ended December 31, 2021 to 13.9% for the year ended December 31, 2022.

Array Legacy Operations gross profit percentage increased year-over-year from 9.7% to 13.3% during the same period due primarily to improved pass through pricing of commodity costs.

Gross profit as a percent of revenue for the STI Operations was 16.0% for the year ended December 31, 2022.

General and Administrative

General and administrative expenses increased by $25.3 million, or 46%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase in general and administrative expense

relates to a $11.5 million expense increase in equity-based compensation during the year ended December 31, 2021 compared to the prior year due to the acceleration of the Class B awards that occurred in 2021.

Further, in 2021, we had higher legal and professional fees of approximately $7 million due to higher capital markets activity, M&A activity, as well as on-going securities litigation.

In addition, in 2021 we had higher insurance costs of approximately $4 million as this was our first full year as a public company.

Finally, we added headcount in 2021 to support growth, innovation, and to ensure operational execution;

however, the increased costs related to these additions was largely offset by a reduction in variable compensation

Consolidated general and administrative expense increased $69.8 million, or 86%.

As a percent of revenue, general and administrative expense was 9.2% in fiscal year 2022 versus 9.5% in 2021.

The STI Acquisition, completed in January 2022, accounted for almost $25.0 million of the total increase.

The balance was attributable to Array Legacy where payroll and related expenses rose $16.9 million, driven largely by additional headcount to support organic revenue growth, product development and Environmental, Social, Governance and digital transformation initiatives.

L egal and professional fees increased $14.6 million, driven by the integration of STI as well as higher audit and litigation costs.

An approximate $8.3 million increase was driven by additional costs for marketing, travel, contract services, insurance, rent and computer related expenses, all which were incurred to support our growth and increased capacity.

Contingent Consideration

Contingent consideration expense decreased by $23.7 million, or 90%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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

Depreciation expense for the year ended December 31, 2021 was similar to the year ended December 31, 2020 as we did not add any significant capital assets.

Amortization of intangibles

Amortization of intangibles for the year ended December 31, 2021 was similar to the year ended December 31, 2020 as we did not add any significant intangible assets.

Contingent consideration expense decreased by $7.2 million, or 267%, as a result of a decreased valuation of the TRA liability, which was driven by higher discount rates resulting from a trend in higher overall interest rates.

Depreciation and Amortization

Consolidated depreciation and amortization expense increased $75.2 million, or 314%, due primarily to the amortization of intangible assets, including developed technology, customer relationships, contractual backlog and the STI trade name acquired in the STI Acquisition.

Amortization of the contractual backlog recorded in connection with the STI Acquisition, all of which is amortized over a single year, accounted for $50.0 million of the $75.2 million increase.

Legal Settlement

Legal settlement income in 2022 resulted from the settlement of litigation related to trade secret misappropriation, for which the Company received a $42.8 million settlement.

The settlement is related to Nextracker’s acknowledgment that an Array employee was hired in violation of his non-compete agreement, certain Array confidential information was improperly obtained, and Nextracker’s behavior was wrongful.

The parties concluded the matter and plan to continue their shared missions of mainstreaming clean energy worldwide.

As part of the settlement, the parties agreed to treat the settlement terms as confidential except to the extent required or necessitated by law, regulation, or the corporate parties’ shareholder disclosure standards.

There was no similar settlement in 2021.

Foreign Currency Gain

Consolidated foreign currency gain increased $1.2 million as compared with the prior year due to the foreign currency translation gain resulting from the STI Acquisition in January 2022.

Interest Expense

Interest expenses increased by $20.3 million, or 134%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to interest on the higher average balance of our Term Loan Facility and Revolving Facility which were not outstanding during the year ended December 31, 2020.

In addition, $9.6 million in capitalized fees and discount was written off in 2021 in connection with unscheduled principal payoffs that occurred in February and August of 2021.

As of December 31, 2021, we had $326.8 million outstanding under the Term Loan and no balance outstanding under the Revolving Senior Facility, as it was paid off in August 2021.

The Convertible Notes issued in December of 2021 have a balance of $425.0 million as of December 31, 2021.

Income tax expense (benefit)

Income tax expense decreased by $29.4 million, or 157% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Our effective tax rate was 17.5% for year ended December 31, 2021 and 24.0% for the year ended December 31, 2020.

The reduction in the effective tax rate is primarily related to unfavorable non-deductible costs for equity-based compensation and our 2021 Follow-on Offering for the year ended December 31, 2021, a favorable tax benefit related to an NOL carryback as a result of the CARES Act in the year ended December 31, 2020, and the level of earnings in each period.

Consolidated interest expense decreased by $2.0 million, or 6%.

The decrease was the result of a $9.6 million write-off in 2021 of capitalized fees and discounts related to unscheduled Term Loan principal payoffs that occurred in February and August of 2021 that had no equivalent in 2022.

This decrease was partially offset by $4.2 million of interest expense related to the first full year of interest incurred on the Convertible Notes issued in December 2021 and $2.4 million of interest expense related to the debt obligations assumed by the Company in connection with the STI Acquisition.

Income Tax (Benefit) Expense

Income tax benefit decreased by $1.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Our effective tax rate was a benefit of 189.5% and a benefit of 17.5% for the years ended December 31, 2022 and 2021, respectively.

The decrease in the benefit is primarily related to a favorable mix of income and non-U.S.

tax incentives.

Net Income (Loss)

As a result of the factors discussed above, our net income decreased by $109.5 million, or 185%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Comparison of the years ended December 31, 2020 and 2019

A discussion and analysis covering the comparison of the year ended December 31, 2020 to the year ended December 31, 2019 is included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2021.

Consolidated net income (loss) increased $54.8 million, or 109%, driven by a $784.2 million increase in consolidated revenue, a 4% increase in consolidated gross profit margin and a $42.8 million legal settlement, which were partially offset by a $69.8 million increase in consolidated general and administrative expense and an increase of $75.2 million in consolidated depreciation and amortization.

Fiscal Year 2021 Compared with Fiscal Year 2020

A discussion and analysis covering the comparison of the year ended December 31, 2021 to the year ended December 31, 2020 is included in our annual report on Form 10-K filed with the Securities and Exchange Commission on April 6, 2022.

Restatement of Quarterly Financial Data

The Company has restated its unaudited interim financial statements for the three months ended March 31, 2021, the three and six months ended June 30, 2021 and the three and nine months ended September 30, 2021.

Detailed restatements of the Company's consolidated quarterly financial statements are provided in Note 22.

The Company has restated its previously issued unaudited interim financial statements for the three months ended March 31, 2022, the three and six months ended June 30, 2022 and the three and nine months ended September 30, 2022 (the “Non-Reliance Periods”).

Detailed restatements of the Company's consolidated quarterly financial statements are provided in Note 21 – Restatement (Unaudited) in the accompanying notes to the consolidated financial statements.

The following unaudited quarterly statements of operations data for each of the four quarters in the period ended December 31, 2022 have been prepared on a basis consistent with our audited annual financial statements included in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for the fair presentation of the financial information contained in those statements.

Our historical results are not necessarily indicative of the results that may be expected in the future.

The following quarterly financial data should be read in conjunction with our audited financial statements and the related notes included in this Annual Report on Form 10-K.

The Company restated previously issued interim statements for the three months ended March 31, 2021, June 30, 2021, September 30, 2021 and for the six months ended June 30, 2021 and the for the nine months ended September 30, 2021 (the “Non-Reliance Periods”).

See Note 22, “Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements,” for the impact of these adjustments on each of the first three quarters of fiscal 2021.

The following should be read in conjunction with our audited financial statements and the related notes included in this Annual Report on Form 10-K.

Three Months Ended

2 unchanged sentences

Gross profit 26,587 39,946 80,223 80,520

Operating expenses 64,931 53,278 63,029 64,171

Income (loss) from operations (38,344) (13,332) 17,194 16,349

Income (loss) before income tax expense (benefit) (40,680) (23,460) 50,640 8,548

1 unchanged sentence

Net income (loss) (25,937) (5,024) 40,644 (5,251)

Dividends and accretion — — (5,479) (10,236)

Preferred dividends and accretion 11,606 12,182 12,257 12,009

Net income (loss) to common stockholders $ (37,543) $ (17,206) $ 28,387 $ (17,260)

Earnings (loss) per share basic and diluted $ 0.04 $ (0.04) $ (0.25) $ (0.24)

Income (loss) per common share

Basic $ (0.25) $ (0.11) $ 0.19 $ (0.11)

Diluted $ (0.25) $ (0.11) $ 0.19 $ (0.11)

Liquidity and Capital Resources

Historical Cash Flow

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

Financing Transactions

Series A Shares

On August 10, 2021, the Company entered into a SPA with BCP Helios Aggregator L.P., a Delaware limited partnership (the “Investor”), an investment vehicle of funds affiliated with Blackstone Inc.

Pursuant to the SPA,

on August 11, 2021, the Company issued and sold to certain investors (the “Purchasers”) 350,000 shares of the Series A Shares, par value $0.001 per share, 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, for an aggregate purchase price of $346.0 million (the “Initial Closing”).

Further, pursuant to the SPA, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $0.01 million.

The Company used the 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 (as defined below).

The SPA gives the Company the option to require the Purchasers to purchase up to an additional 150,000 shares of the Series A Shares 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”).

In January 2022, we issued 50,000 Series A Shares, and 1,125,000 shares of our common stock in an Additional Closing for an aggregate purchase price of $49.4 million.

Registration Rights Agreement

In connection with the SPA, the Company and the Investor entered into a Registration Rights Agreement pursuant to which, the Company granted the Investor certain registration rights with respect to Common Stock purchased, including customary shelf registration rights and “piggyback” registration rights.

For more information related to the Series A Shares, see Note 11 – Redeemable Perpetual Preferred Stock , to the accompanying consolidated financial statements.

1.00% Convertible Senior Notes due 2028

On December 3, 2021 and December 9, 2021, the Company completed a $425.0 million private offering (the “Convertible Notes Offering”) ($375 million and $50 million, respectively), of its 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $413.3 million ($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 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 Convertible Notes were not convertible as of December 31, 2022 and as such have no dilutive impact to earnings per share.

Senior Secured Credit Facility

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

On February 23, 2021, we entered into the First Amendment to our Senior Secured Credit Facility.

The First Amendment lowered the London interbank offered rate floor on Eurocurrency borrowings to 50 basis points from 100 basis points and lowered the applicable margin to 325 basis points from 400 basis points per annum.

On February 26, 2021, we entered into a Second Amendment to the Senior

Secured Credit Facility pursuant to which the Revolving Credit Facility was increased from $150 million to $200 million.

At December 31, 2022, the outstanding balance of the Term Loan Facility was $312.5 million and we were in compliance with all covenants.

At December 31, 2022, under the Revolving Credit Facility, the Company had:

(i) no outstanding balance, (ii) issued $38.8 million in standby letters of credit and (iii) availability of $161.2 million.

For more information related to our Senior Secured Credit Facility, see Note 10 – Debt , in the accompanying notes to the consolidated financial statements.

We 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.

As of December 31, 2022, we posted surety bonds totaling approximately $199.3 million.

Cash Flows (in thousands)

Year Ended December 31,

2021 2020 2019

Net cash provided by (used in) operating activities $ 141,493 $ (263,187)

Net cash used in investing activities (384,437) (15,332)

Net cash provided by (used in) financing activities 537,748 (129,273) (63,945)

Net cash provided by financing activities 8,440 537,748

Effect of exchange rate changes on cash and cash equivalent balances 735 —

Net change in cash and cash equivalents $ (233,769) $ 259,229

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

Historically, we have financed our operations with the proceeds from operating cash flows, capital contributions 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, or 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 $111.2 million and $18.1 million of the accounts receivable balances as of December 31, 2021 and 2020, 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 mega-watt deliveries.

The unbilled balance has increased as of December 31, 2021 due to global challenges with supply chain logistics and labor shortages in some instances causing delays in delivering specific components to complete a mega-watt 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 but cannot be certain the timing of when we will achieve better margins.

Due to recent macroeconomic conditions, our industry has seen rapid changes in commodity prices, global tightening of supply chains, and strained logistics.

These factors can adversely impact our business and can put pressure on our margins.

We have taken steps to overcome the economic challenges but cannot be certain of the timing of when we will achieve better margins.

Furthermore, high volatility and uncertainty in the capital markets resulting from macroeconomic conditions, including rising inflation rates and interest rates, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, has had, and could continue to have, a negative impact on the price of our common stock and could adversely impact our ability to raise additional funds.

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.

As of December 31, 2021, our cash was $367.7 million.

Net working capital as of December 31, 2021 was $606.7 million.

In December of 2021, we issued $425.0 million in aggregate principal amount of 1.00% Convertible Senior Notes due 2028, as further discussed below.

In August of 2021, we issued 350,000 shares of Series A Redeemable Perpetual Preferred Stock and 7,098,765 shares of common stock, par value $0.001 per share, for an aggregate purchase price of $346 million, as further described below.

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 an Additional Closing for an aggregate purchase price of $49,376,125.

As of March 31, 2022, we estimate our cash on hand to be $40.4 million and the balance available to be drawn on the Revolving Credit Facility was $114.8 million, however, we had limited ability to draw on the available balance due to debt covenants.

As of December 31, 2021, we had outstanding borrowings of $326.8 million under the Term Loan Facility and $186.4 available of our $200.0 million commitment under our Revolving Credit Facility.

Operating Activities

For the year ended December 31, 2021, cash used by operating activities was $263.2 million primarily due to lower gross profit on projects delivered due to rapid increases in commodity and logistic costs which we were not able to fully pass on to our customers.

Additionally, the cash used in operating activities reflects $96.6 million in cash used to build inventory due to growth in demand coupled with longer shipping lead-times leading the Company to carry more safety stock.

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

As of December 31, 2022, our cash balance was $133.9 million, of which $29.2 million was held outside the U.S., and net working capital was $365.9 million.

We had outstanding borrowings of $312.5 million under our $575 million Term Loan Facility and $161.2 million available to us under our $200.0 million Revolving Credit Facility.

Also, through June 30, 2023, we have the option to require our Series A Shares investors to purchase

an additional 100,000 shares of our Series A Shares and 2,250,000 shares of our common stock for an aggregate purchase price of approximately $100.0 million.

The Company continually monitors and reviews its liquidity position and funding needs.

Management believes that the Company’s ability to generate operating cash flows in the future and available borrowing capacity under its Senior Secured Credit Facility will be sufficient to meet its future liquidity needs.

Cash Flows from Operating Activities

The Company generated $141.5 million in cash from operating activities during the year ended December 31, 2022, of which, $97.2 million was generated from net income as adjusted for the impact of non-cash expenses, primarily consisting of depreciation and amortization and equity-based compensation.

The remaining $44.3 million was generated by changes in net working capital, including a $59.0 million increase in deferred revenue from deposits received from customers in 2022 for projects due in the first half of 2023, a $13.7 million increase in accounts payable and accrued expenses resulting from improved payables management, and a $20.9 million decrease in inventory levels as we burned down historically high raw material quantities from prior year, all of which were partially offset by a $77.0 million increase in accounts receivable driven primarily by a year-over-year increase in revenue.

For the year ended December 31, 2021, cash used in operating activities was $263.2 million primarily due to lower gross profit on projects delivered due to rapid increases in commodity and logistic costs which we were not able to fully pass on to our customers.

Additionally, cash used in operating activities reflects $96.6 million in cash used to build inventory due to growth in demand coupled with longer shipping lead-times leading the Company to carry more strategic inventory.

Finally, the increase in accounts receivable used $118.4 million in cash during 2021 driven by increased sales coupled with a number of large projects not reaching billing milestones at the end of the year.

For the year ended December 31, 2020 cash provided by operating activities was $122.2 million, primarily due to payments to our suppliers for products that were paid for by customers in 2019, but that we did not ship until 2020.

In order for our customers to take advantage of the ITC credit, we received payment on these projects in the fourth quarter of 2019.

Investing Activities

For the year ended December 31, 2021, net cash used in investing activities was $15.3 million primarily attributable to a $12 million investment in equity securities.

For the year ended December 31, 2020, net cash used in investing activities was $1.3 million primarily attributable to the purchase of property and equipment.

Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities was $537.7 million of which $225.0 million was proceeds from the offering of our Series A Redeemable Perpetual Preferred Stock and $120.6 million from the proceeds of the sale of common stock, each of which that closed on August 11, 2021, $413.3 million in proceeds from the issuance of the Convertible Notes, $126.0 million was from proceeds under the Revolving Facility, offset by a $133.2 million payment on the Term Loan Facility, a $126.0 million payment of the Revolving Credit Facility, $11.1 million in equity issuance costs associated with the Series A and $6.6 million in fees paid on the Senior Secured Credit Facility and to increase the limit on the Revolving Facility by $50.0 million.

For the year ended December 31, 2020, net cash used by financing activities was $129.3 million.

Net proceeds from the Term Loan Facility and IPO were $460.0 million and $139.1 million, respectively.

The Company also paid a special distribution to its members prior to our IPO of $589.0 million (the “Special Distribution”) along with $57.7 million and $45.6 million payments of the Term Loan and Senior Secured Promissory Note, respectively.

Acquisition of STI

and Aurica Trackers, S.L., each a company duly organized under the laws of the Kingdom of Spain, and Mr.

Javier Reclusa Etayo.

The fair value of the purchase consideration was $610.7 million and resulted in the

Company owning 100% of the interests in STI.

The Company is in the process of performing a valuation of the acquisition assets and liabilities and the related accounting impact.

The purchase price will be increased by the amount that is four times the audited EBITDA of the target less €47.0 million ($53.5 million at current exchange rates), such that the amount of contingent consideration is subject to a cap of €45.0 million ($52.0 million at current exchange rates).

Subsequent to December 31, 2021, it was determined that the targets were not met.

The Company financed the STI Acquisition and related fees and expenses with cash on hand, the sale and proceeds from the Convertible Notes, and $50.0 million in proceeds from the Delayed Draw.

1.00% Convertible Senior Notes due 2028

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 (the “Indenture”), 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 will 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.

Series A Redeemable Perpetual Preferred Stock

On August 10, 2021, the Company entered into the Securities Purchase Agreement with an investment vehicle of funds affiliated with Blackstone Inc.

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

Further, pursuant to the Securities Purchase Agreement, and subject to the terms and conditions set forth therein, including the expiry or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Company has agreed to issue and sell to the Purchaser 776,235 shares of Common Stock for an aggregate purchase price of $776.

For more information related to the Series A Redeemable Perpetual Preferred Stock, see Note 11 - Redeemable Perpetual Preferred, to the accompanying consolidated financial statements.

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 Series A Redeemable Perpetual Preferred Stock 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 Series A Redeemable Perpetual Preferred Stock in temporary equity and accreting the carrying, amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method.

Such accretion totaled $7.4 million for the year ended December 31, 2021.

The Company accreted the regular cash rate of dividends of 5.75% to the liquidation preference amount of the Series A Redeemable Perpetual Preferred Stock, or $8.2 million in dividends, for the year ended December 31, 2021.

Cash Flows from Investing Activities

For the year ended December 31, 2022, cash used in investing activities was $384.4 million primarily related to the STI Acquisition;

net of cash acquired, the Company paid $373.8 million in cash as part of the purchase price consideration.

Additionally, the Company utilized $10.6 million for the purchase of property, plant and equipment.

For the year ended December 31, 2021, the Company utilized $15.3 million in investing activities including $12.0 million for investment in equity securities and $3.4 million for the purchase of property, plant and equipment.

Cash Flows from Financing Activities

For the year ended December 31, 2022, net cash provided by financing activities was $8.4 million, which included $49.0 million related to proceeds from the sale of Series A Shares and common shares in January 2022 offset by a dividend payment of $18.7 million on the Series A Shares.

For the year ended December 31, 2021, net cash provided by financing activities was $537.7 million of which $225.0 million was proceeds from the offering of our Series A Shares and $120.6 million from the proceeds of the sale of common stock, each of which that closed on August 11, 2021, $413.3 million in proceeds from the issuance of the Convertible Notes, $126.0 million was from proceeds under the Revolving Facility, offset by a $133.2 million payment on the Term Loan Facility, a $126.0 million payment of the Revolving Credit Facility, $11.1 million in equity issuance costs associated with the Series A Shares and $6.6 million in fees paid on the Senior Secured Credit Facility and to increase the limit on the Revolving Facility by $50.0 million.

Discussion of 2020 Historical Cash Flows

A discussion and analysis covering historical cash flows for the year ended December 31, 2019 is included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2021.

Debt Obligations

1.00% Convertible Senior Notes due 2028

On December 3, 2021 and December 9, 2021, the Company completed a private offering (the “Convertible Notes Offering”) of $375 million and $50 million over allotment, respectively, in aggregate principal amount of 1.00% Convertible Senior Notes due 2028 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 (the “Indenture”), 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 Convertible Notes were not convertible during the quarter ended December 31, 2021 and none have been converted to date.

Also, given the average market price of the common stock has not exceeded the exercise price since inception, there was no impact to the diluted earnings per share for the quarter ended December 31,2021.

Senior Secured Credit Facility

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

The senior secured facility consisted originally of (i) a $575 million senior secured seven-year term loan facility (the “Term Loan Facility”) and (ii) a $150 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”).

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

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

This results in our current rate on the Term Loan Facility decreasing to 3.75% down from 5% prior to the First Amendment.

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

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

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

The debt discount and issuance costs are being amortized using the effective interest method and the rate as of December 31, 2021 is 4.9%.

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

The balance of the Term Loan Facility is presented in the accompanying consolidated balance sheets net of debt discount and issuance costs of $23.3 million at December 31, 2021.

As of December 31, 2021, the Term Loan Facility had a balance of $326.8 million.

We are in compliance with all covenants as of December 31, 2021.

Letters of Credit

Under the Revolving Credit Facility, the Company had no outstanding balance, $13.6 million in standby letters of credit and availability of $186.4 million under the Revolving Credit Facility as of December 31, 2021;

however, we had limited ability to draw on the available balance due to debt covenants..

Interest Rate

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

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

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

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

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

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

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

There is no scheduled amortization under the Revolving Credit Facility.

Guarantees and Security

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

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

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

Prepayments and Amortization

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

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

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

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

There is no scheduled amortization under the Revolving Credit Facility.

Restrictive Covenants and Other Matters

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

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

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

The Senior Secured Credit Facility also includes customary events of default, including the occurrence of a change of control.

As of December 31, 2021, the Company was in compliance with all the required covenants.

As of December 31, 2021, we posted surety bonds in the total amount of approximately $160.4 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.

A discussion and analysis covering historical cash flows for the year ended December 31, 2020 is included in our annual report on Form 10-K filed with the Securities and Exchange Commission on April 6, 2022.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

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

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

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

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Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers (“ASC 606), the Company recognizes revenues from the sale of solar tracking systems and parts and determines its revenue recognition through the following steps:

In accordance with Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers (“ ASC 606”) the Company recognizes revenues from the sale of solar tracking systems and parts and determines its revenue recognition through the following steps:

(i) identification of the contract or contracts with a customer;

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The Company uses the expected cost-plus margin approach to estimate the standalone selling price of each performance obligation.

In contracts with one performance obligation, the Company’s performance obligation is satisfied over-time as control is transferred to the customer by measuring the progress toward complete satisfaction of the performance obligation using an input (i.e., “cost to cost”) method.

“cost to cost”) method.

Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

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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, when product is still in our custody, and title and risk of loss has passed to the customer (known as bill-and-hold arrangement), revenue will be recognized when all the specific requirements for transfer of control under a bill-and-hold arrangement have been met.

Infrequently, in certain situations, when product is still in our custody,

and title and risk of loss has passed to the customer (known as bill-and-hold arrangement), revenue will be recognized when all the specific requirements for transfer of control under a bill-and-hold arrangement have been met.

In assessing the recognition of revenue, the Company also evaluates whether two or more contracts should be combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period.

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

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

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the consolidated balance sheet, recorded on a contract-by-contract basis at the end of each reporting period.

The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project.

Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets.

The changes in contract assets (i.e.

unbilled receivables) and the corresponding amounts recorded in revenue relate to fluctuations in the timing and

volume of billings for the Company’s revenue recognized over-time.

As of December 31, 2021 and December 31, 2020, contract assets consisting of unbilled receivables totaling $111.2 million and $18.1 million, respectively, were recorded within accounts receivable on the consolidated balance sheet.

The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities.

The changes in contract liabilities (i.e.

deferred revenue) relate to advanced orders and payments received by the Company and are the result of customers looking to take advantage of certain U.S.

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

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

As of December 31, 2021 and December 31, 2020, contract liabilities consisting of deferred revenue was presented separately on the consolidated balance sheets.

Business Combinations

The Company completed one business combination for an aggregate purchase price of $610.8 million during the year ended December 31, 2022.

In accordance with Topic 805 Business Combinations, total consideration was first allocated to the fair value of assets acquired and liabilities assumed, with the excess being recorded as goodwill.

The 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.

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.

Intangible assets have been recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity.

Determining these fair values required us to make significant estimates and assumptions, particularly with respect to acquired intangible assets.

The determination of fair value required considerable judgment and was sensitive to changes in underlying assumptions, estimates and market factors.

The Company’s estimates are inherently uncertain and subject to refinement.

During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Estimating fair value required us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions.

These assumptions and estimates include, but are not limited to:

backlog, discount rate and customer attrition rate.

The fair values of the intangible assets will be amortized over their useful lives.

If actual results are materially different than the assumptions we used to determine fair value of the assets acquired and liabilities assumed through a business combination, it is possible that adjustments to the carrying

values of such assets and liabilities will have a material impact on our financial position and results of operations .

See Note 3 – Acquisition of STI to the consolidated financial statements for more information.

Goodwill is assessed using either a qualitative assessment or quantitative approach to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount.

The qualitative assessment evaluates factors including macroeconomic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance.

If the Company determines that is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed.

Otherwise, no further assessment is required.

The quantitative approach compares the estimated fair value of the reporting unit to its carrying amount, including goodwill.

Impairment is indicated if the estimated fair value or the reporting unit is less than the carrying amount of the reporting unit, and an impairment charge is recognized for the differential.

The Company has two reporting units:

1) Array Legacy Operations, and 2) STI Operations.

At March 31, 2022, the Company determined that the decrease in its stock price from December 31, 2021 and the continuing negative impact of the price of raw materials to the gross margin of the Array Legacy Operations reporting unit during the quarter were events indicating that the fair value of the Array Legacy Operations reporting unit may be less than its carrying amount.

Based on the Company’s quantitative goodwill impairment analysis of the Array Legacy Operations reporting unit at March 31, 2022, the fair value exceeded the carrying value by a substantial margin.

Accordingly, no impairment was recorded.

As for the STI Operations reporting unit, the Company noted no such events or circumstances occurred from the date acquisition through March 31, 2022 and concluded an interim goodwill impairment test was not considered necessary at the time.

The Company completed its annual goodwill impairment test using a qualitative approach and concluded goodwill was not impaired as of December 31, 2022.

Product Warranty

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These estimates are re-evaluated on an ongoing basis using best-available information and revisions to estimates are made as necessary.

Inventory Valuation

Inventories consist of raw materials and finished goods.

Inventories are stated at the lower of cost or estimated net realizable value using the weighted average method.

Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values which require estimates by management.

Contingent Consideration

Tax Receivable Agreement

Concurrent with Former Parent’s acquisition of Patent LLC, Array Tech, Inc.

(f/k/a Array Technologies, Inc.) entered into the TRA with Ron P.

Concurrent with the Former Parent’s acquisition of Patent LLC, Array Tech, Inc.

entered into the TRA with Ron P.

Corio, a former indirect stockholder.

The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in general and administrative in the Company’s consolidated statement of operations.

The TRA obligations were recorded at acquisition-date fair value at inception and is classified as a liability.

The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in general and administrative expense within the Company’s consolidated statement of operations.

The TRA obligation was recorded at acquisition-date fair value at inception and is classified as a liability.

The TRA will generally provide for the payment by Array Tech, Inc.

(f/k/a Array Technologies, Inc.) to Ron P.

Corio, our indirect stockholder, for certain federal, state, local and non-U.S.

Corio for certain federal, state, local and non-U.S.

tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc.

(f/k/a Array Technologies, Inc.) from the use of certain deductions generated by the increase in the tax value of the developed technology.

from the use of certain deductions generated by the increase in the tax value of the developed technology.

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 Ron P.

The significant fair value inputs used to estimate the future expected TRA payments to Mr.

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.

As of December 31, 2021 and December 31, 2020, the estimated fair value of the TRA is $14.6 million and $19.7 million, respectively, which has been recorded as a liability.

December 31, 2022 and December 31, 2021, the estimated fair value of the TRA was $8.6 million and $14.6 million, respectively, which was recorded as a liability.

Subsequent changes in fair value of the TRA will be recognized in earnings.

Equity-Based Compensation

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

The Company granted restricted stock units (“RSUs”) to employees and Performance Stock Units (“PSUs”) to certain executives.

The PSUs contain performance and market conditions.

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

The Series A Redeemable Preferred Stock issued in connection with the Securities Purchase Agreement, as described in Note 11 - Redeemable Perpetual Preferred in the accompanying notes to our consolidated financial statements included in this Annual Report on Form 10-K, is classified as temporary equity in the accompanying consolidated financial statements.

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

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

The Series A Shares issued in connection with the SPA, as described in Note 1 1 – Redeemable Perpetual Preferred Stock in the accompanying notes to our consolidated financial statements, is classified as temporary equity in the accompanying consolidated financial statements.

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

Such adjustments are included in preferred undeclared dividends and accretion on Series A Shares in the Company’s consolidated statements of changes in equity and treated similarly to a dividend on preferred stock for U.S.

GAAP purposes.

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis