What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 274 added, 445 removed, 341 unchanged (68% of the section changed)

1 unchanged sentence

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except per share and share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets

1 unchanged sentence

Accounts receivable, net 414,712 421,183

Inventories, net 269,775 205,653

Inventories 254,624 233,159

Income tax receivables 3,163 3,532

4 unchanged sentences

Other intangible assets, net 379,374 386,364

Deferred tax assets 18,785 9,345

Deferred income tax assets — 16,466

Derivative assets 63,320 —

Other assets 30,802 32,655

Total assets $ 1,794,169 $ 1,706,052

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES, REDEEMABLE PERPETUAL PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable $ 200,585 $ 170,430

Accounts payable - related party 478 610

Accrued expenses and other 58,795 54,895

6 unchanged sentences

Total current liabilities 470,585 465,262

Long-term liabilities

Deferred tax liability 74,139 —

Deferred income tax liabilities 73,051 72,606

Contingent consideration, net of current portion 6,914 7,387

2 unchanged sentences

Long-term debt, net of current portion 705,827 720,352

Total long-term liabilities 819,326 729,417

Total liabilities 1,274,785 1,282,201

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited) (continued)

(in thousands, except per share and share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Commitments and contingencies (Note 12)

Series A Redeemable Perpetual Preferred Stock of $ 0.001 par value - 500,000 authorized;

400,000 and 350,000 shares issued as of September 30, 2022 and December 31, 2021, respectively;

liquidation preference of $ 400.0 million and $ 350.0 million as of September 30, 2022 and December 31, 2021, respectively

412,739 and 406,389 shares issued as of March 31, 2023 and December 31, 2022, respectively;

liquidation preference of $ 412.7 million and $ 406.4 million at respective dates

312,054 299,570

Stockholders’ equity (deficit)

Stockholders’ equity

Preferred stock of $ 0.001 par value - 4,500,000 shares authorized;

none issued as of September 30, 2022 and December 31, 2021

none issued at respective dates

Common stock of $ 0.001 par value - 1,000,000,000 shares authorized;

150,334,261 and 135,026,940 shares issued as of September 30, 2022 and December 31, 2021, respectively

150,822,974 and 150,513,104 shares issued at respective dates

Additional paid-in capital 426,221 383,176

1 unchanged sentence

Accumulated other comprehensive income 22,297 8,425

Total stockholders’ equity (deficit) 61,817 ( 69,205 )

Total stockholders’ equity 207,330 124,281

Total liabilities, redeemable perpetual preferred stock and stockholders’ equity $ 1,794,169 $ 1,706,052

The accompanying notes are an integral part of these condensed consolidated financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Revenue $ 376,773 $ 300,586

3 unchanged sentences

General and administrative 38,142 45,425

Contingent consideration ( 572 ) 936 ( 5,981 ) 1,071

Change in fair value of contingent consideration 1,338 ( 3,731 )

Depreciation and amortization 14,241 23,237

2 unchanged sentences

Other income (expense)

Other expense, net ( 399 ) ( 297 ) ( 27 ) ( 497 )

Legal settlement 42,750 — 42,750 —

Other income, net 194 743

Foreign currency gain (loss) ( 194 ) 3,863

Change in fair value of derivative assets ( 1,950 ) —

Interest expense ( 9,500 ) ( 6,942 )

Total other income (expense) 33,446 ( 13,406 ) 20,982 ( 29,266 )

Total other (expense) ( 11,450 ) ( 2,336 )

Income (loss) before income tax (benefit) expense 36,008 ( 40,680 )

6 unchanged sentences

Diluted $ 0.09 $ ( 0.25 )

Weighted average number of common shares

Weighted average number of common shares outstanding

Basic 150,607 148,288

Diluted 151,795 148,288

The accompanying notes are an integral part of these condensed consolidated financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income (loss) $ 26,132 $ ( 25,937 )

Change in foreign currency translation adjustments (1)

Comprehensive income (loss) $ 6,716 $ ( 27,561 ) $ ( 59,293 ) $ ( 28,502 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands)

Three Months Ended September 30, 2022

Temporary Equity Permanent Equity

Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit)

Balance at June 30, 2022 413 $ 293,974 — $ — 150,279 $ 150 $ 401,614 $ ( 299,182 ) $ ( 38,729 ) $ 63,853

Equity-based compensation — — — — 55 — 4,097 — — 4,097

Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees — — — — — — ( 592 ) — — ( 592 )

Preferred cumulative dividends plus accretion — 12,257 — — — — ( 12,257 ) — — ( 12,257 )

Dividends paid ( 13 ) ( 18,670 ) — — — — — — — —

Net income — — — — — — — 40,822 — 40,822

Other comprehensive loss — — — — — — — — ( 34,106 ) ( 34,106 )

Balance at September 30, 2022 400 $ 287,561 — $ — 150,334 $ 150 $ 392,862 $ ( 258,360 ) $ ( 72,835 ) $ 61,817

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)

(in thousands)

Three Months Ended September 30, 2021

Temporary Equity Permanent Equity

Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Balance at June 30, 2021 — $ — — $ — 126,994 $ 127 $ 149,893 $ ( 222,440 ) $ ( 72,420 )

Equity-based compensation — — — — — — 2,160 — 2,160

Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 350 229,799 — — — — — — —

Issuance of common stock, net — — — — 7,875 8 104,756 — 104,764

Preferred cumulative dividends plus accretion — 5,479 — — — — ( 5,479 ) — ( 5,479 )

Net loss — — — — — — — ( 27,561 ) ( 27,561 )

Balance at September 30, 2021 350 $ 235,278 — $ — 134,869 $ 135 $ 251,330 $ ( 250,001 ) $ 1,464

13,872 56,675

Comprehensive income $ 40,004 $ 30,738

(1) The tax effect on other comprehensive income is not significant.

See accompanying Notes to Condensed Consolidated Financial Statements.

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity

(in thousands)

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Temporary Equity Permanent Equity

Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity

Balance at December 31, 2022 406 $ 299,570 — $ — 150,513 $ 150 $ 383,176 $ ( 267,470 ) $ 8,425 $ 124,281

Equity-based compensation — — — — 310 — 3,366 — — 3,366

Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 50 32,724 — — — — ( 1,172 ) — — ( 1,172 )

Issuance of common stock, net — — — — 15,147 15 216,063 — — 216,078

Correction of the Capped Call and Put Option errors (see Note 1) — — — — — — 52,914 — — 52,914

Preferred cumulative dividends plus accretion 7 12,484 — — — — ( 13,235 ) — — ( 13,235 )

Dividends paid ( 13 ) ( 18,670 ) — — — — — — — —

Net income — — — — — — — 26,132 — 26,132

Other comprehensive loss — — — — — — — — ( 72,835 ) ( 72,835 )

Balance at September 30, 2022 400 $ 287,561 — $ — 150,334 $ 150 $ 392,862 $ ( 258,360 ) $ ( 72,835 ) $ 61,817

Other comprehensive income — — — — — — — — 13,872 13,872

Balance at March 31, 2023 413 $ 312,054 — $ — 150,823 $ 150 $ 426,221 $ ( 241,338 ) $ 22,297 $ 207,330

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (Deficit) (continued)

Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued)

(in thousands)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Temporary Equity Permanent Equity

Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity

Balance at December 31, 2021 350 $ 237,462 — $ — 135,027 $ 135 $ 202,562 $ ( 271,902 ) $ — $ ( 69,205 )

1 unchanged sentence

Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 50 32,724 — — 15,147 15 215,863 — — 215,878

Issuance of common stock, net — — — — 7,875 8 104,756 — 104,764

Preferred cumulative dividends plus accretion — 11,606 — — — — ( 11,606 ) — — ( 11,606 )

Net loss — — — — — — — ( 25,937 ) — ( 25,937 )

Balance at September 30, 2021 350 $ 235,278 — $ — 134,869 $ 135 $ 251,330 $ ( 250,001 ) $ 1,464

The accompanying notes are an integral part of these condensed consolidated financial statements.

Other comprehensive income — — — — — — — — 56,675 56,675

Balance at March 31, 2022 400 $ 281,792 — $ — 150,174 $ 150 $ 411,232 $ ( 297,839 ) $ 56,675 $ 170,218

See accompanying Notes to Condensed Consolidated Financial Statements.

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Nine Months Ended

September 30,

Cash flows from operating activities

Three Months Ended

Operating activities:

Net income (loss) $ 26,132 $ ( 25,937 )

Adjustments to reconcile net income (loss) to net cash provided by, (used in) operating activities:

Provision for (recovery of) bad debts 660 ( 574 )

Adjustments to net income (loss):

Provision for bad debts 233 145

Deferred tax expense 4,555 4,349

4 unchanged sentences

Warranty provision 436 594

Provision for inventory obsolescence ( 2,333 ) 654

Write-down of inventories 1,847 409

Change in fair value of derivative assets 1,950 —

Changes in operating assets and liabilities, net of business acquisition

4 unchanged sentences

Accounts payable 30,155 59,419

Accounts payable - related party ( 132 ) ( 1,622 )

Accrued expenses and other 3,900 7,027

Warranty payments ( 373 ) —

Income tax payable 4,952 ( 8,760 )

2 unchanged sentences

Net cash provided by (used in) operating activities 45,816 ( 50,097 )

Cash flows from investing activities

Investing activities:

Purchase of property, plant and equipment ( 3,883 ) ( 2,357 )

Acquisition of STI, net of cash acquired — ( 373,816 )

Investment in equity security — ( 11,975 )

Net cash used in investing activities ( 3,883 ) ( 376,173 )

Cash flows from financing activities

Financing activities:

Proceeds from Series A issuance — 33,098

2 unchanged sentences

Common stock issuance costs — ( 450 )

Dividends paid on Series A Preferred ( 18,670 ) —

Payments on revolving credit facility ( 116,000 ) ( 102,000 )

Proceeds from issuance of other debt 39,219 —

Proceeds from revolving credit facility — 52,000

Proceeds from issuance of other debt 6,469 6,229

Principal payments on term loan facility ( 11,075 ) ( 4,368 )

Principal payments on other debt ( 17,206 ) —

Contingent consideration payments ( 1,200 ) ( 1,483 )

Net cash provided by (used in) financing activities ( 23,762 ) 100,736

Array Technologies, Inc.

and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited) (continued)

(in thousands)

Nine Months Ended

September 30,

Principal payments on debt ( 33,286 ) ( 132,150 )

Contingent consideration ( 1,483 ) ( 7,810 )

Debt issuance costs — ( 6,590 )

Net cash provided by financing activities 33,146 188,014

Three Months Ended

Effect of exchange rate changes on cash and cash equivalent balances ( 4,316 ) 7,355

3 unchanged sentences

Supplemental Cash Flow Information

Cash paid for interest $ 7,980 $ 3,039

Cash paid for income taxes $ 2,522 $ —

Non-cash Investing and Financing Activities

Dividends accrued on Series A Preferred $ 6,350 $ 6,189

Stock consideration paid for acquisition of STI $ — $ 200,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

Array Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Organization and Business

Organization, Business and Out-of-Period Adjustments

Array Technologies, Inc.

4 unchanged sentences

owns subsidiaries through which it conducts substantially all operations.

Acquisition of STI

Acquisition of STI Norland

On January 11, 2022 (the “Acquisition Date”), the Company acquired 100 % of the share capital of Soluciones Técnicas Integrales Norland, S.L.U., a Spanish private limited liability Company, and its subsidiaries (collectively, “STI”) with cash and common stock of the Company (the “STI Acquisition”).

The STI Acquisition was accounted for as a business combination.

See Note 3 – Acquisition of STI .

After the acquisition of STI, the Company began operating as two reportable operating segments:

Upon completion of the STI Acquisition, the Company began operating as two reportable operating segments:

the Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI.

Out-of-Period Adjustment for the Correction of Errors

During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the three months ended March 31, 2023.

The Company has concluded that the errors are not material to the previously issued financial statements and the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the three months ended March 31, 2023.

Below is a summary of each of the errors corrected and a summary of the cumulative impact.

As discussed in Note 8 – Debt, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023, in November 2021, the Company paid $ 52.9 million to enter into capped call option agreements (the “Capped Calls”) to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Company’s Convertible Notes (as defined below).

The Company originally concluded that the Capped Calls met the criteria for equity classification because the Capped Calls are indexed to the Company’s common stock, and the Company has discretion to settle the Capped Calls in shares or cash.

As a result, the Company originally recorded the amount paid for the Capped Calls as a reduction to additional paid-in capital of $ 52.9 million, offset by $ 12.4 million of income taxes.

When the Company entered into the Capped Calls, the Company executed certain side letters (the “Side Letters”) with the counterparties that replaced some of the terms described in the primary contract including the volatility inputs used to value the Capped Calls under certain circumstances.

Upon further evaluation, the Company has concluded that the modification to the volatility inputs precludes the Capped Calls from being

Array Technologies, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

indexed to its own stock because there is the possibility that the Capped Calls will settle at an amount that exceeds fair value and, therefore, prevents the Capped Calls from being classified as equity.

In addition, the Side Letters also provide for certain adjustments to settlement amounts on the basis of holder-specific taxes which are impermissible inputs to the valuation that also prevents the Capped Calls from being indexed to the Company’s own stock, and therefore, prevents the Capped Calls from being classified as equity.

As a result, for the three months ended March 31, 2023, the Company has concluded that the cash paid for the Capped Calls should have been recorded as an asset of $ 52.9 million with the asset being subsequently marked to market at the end of each accounting period.

Additional Closing Purchased Put Option

As discussed in Note 9 – Redeemable Perpetual Preferred Stock, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023, in August 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain Purchasers (as defined below), which gives the Company the option to require the Purchasers to purchase up to an additional 150,000 shares of Series A Shares (as defined below) and up to 3,375,000 shares of common stock for $ 148.0 million until June 30, 2023 (the “Put Option”).

Upon issuance of the Put Option, the Company recorded a reduction to additional paid-in-capital of approximately $ 12.4 million because the Company originally concluded that the Put Option should be classified as equity.

During the first quarter of 2023, the Company reconsidered the provisions of this option.

Because the Series A Shares underlying the Put Option could potentially require redemption under the Certificate of Designations governing the Series A Shares, the Put Option should not have been equity classified.

As a result, during the three months ended March 31, 2023, the Company has concluded that the value of the Put Option at inception should have been recorded as an asset of $ 12.4 million, with the asset being subsequently marked to market at the end of each accounting period.

Correction of the Capped Calls and Put Option

The adjustments to correct the Capped Calls and the Put Option at January 1, 2023 resulted in an increase in Derivative assets of $ 55.7 million, a decrease in Deferred income tax assets of $ 11.0 million, an increase in additional paid-in-capital of $ 52.9 million, and a decrease in net income of $ 8.1 million.

In connection with the acquisition of STI, the Company had understated goodwill by $ 2.0 million and overstated inventory by the same amount that was sold during fiscal 2022.

The Company corrected the goodwill balance during the current period resulting in an increase in goodwill and a decrease in cost of goods sold.

Summary of Significant Accounting Policies

2 unchanged sentences

GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of results for the interim periods reported.

The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or any other interim periods, or any future year or period.

normal recurring adjustments, necessary for the fair statement of results for the interim periods reported.

The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023 or any other interim periods, or any future year or period.

The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.

Certain disclosures have been condensed or omitted from the interim financial statements.

These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 6, 2022, as amended by the Form 10-K/A filed with the SEC on April 6, 2022 (the “2021 Annual Report”).

Principles of Consolidation

3 unchanged sentences

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

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

Significant estimates include evaluation for any impairment of goodwill, impairment of long-lived assets, fair value of contingent consideration, Series A Redeemable Perpetual Preferred Stock and the related future tranche, allowance for credit losses, reserve for excess or obsolete inventories, valuation of deferred tax assets and warranty reserve.

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

Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements;

1 unchanged sentence

Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.

Impact of COVID-19 Pandemic

The Company continues to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where it operates.

The Company’s priority remains the welfare of its employees.

The Company expects persistent waves of COVID-19, including variants of the virus, to remain a headwind into the near future.

The duration and extent to which it will continue to adversely impact the Company’s business and results of operations remain uncertain and could be material.

The Company believes it has sufficient liquidity and financing options available and expects to have sufficient liquidity to operate for the next 12 months.

The Company expects to use cash generated from operations and if needed, can access funds from the Revolving Credit Facility (as defined below).

The Company also has $ 100 million in delayed draw ability under the Series A Redeemable Perpetual Preferred Stock (as defined below) future draw commitment;

however, such a draw would increase the Company’s dividend obligations and outstanding common stock and failure to draw the delayed commitments will result in interest expense payable by the Company.

See Note 13 – Redeemable Perpetual Preferred Stock .

The Revolving Credit Facility has $ 166.6 million of availability.

Impact of the Ongoing Conflict in Ukraine

1 unchanged sentence

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

The Company could see an impact from elevated inflation and other operating costs.

Interest rates have increased quickly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation, while government deficits and debt remain at high levels in many global markets.

The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecast period.

Inflationary pressures, while somewhat moderating recently, are expected to persist, at least in the near-term, and may 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.

Business Combinations

2 unchanged sentences

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

Foreign Currency Translation

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

dollar at period end exchange rates.

Income, expense and cash flow items are translated at average exchange rates prevailing during the period.

Translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income in equity.

subsidiaries that use a U.S.

dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S.

dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period end exchange rates.

Inventories charged to cost of revenue and depreciation are remeasured at historical rates, and all other income and expense items are translated at average exchange rates prevailing during the period.

Gains and losses which result from remeasurement are included in earnings.

Foreign Currency Translation Exposure

The functional currencies of certain of our foreign subsidiaries are their local currencies.

Accordingly, we apply period-end exchange rates to translate their assets and liabilities and average exchange rates prevailing during the period to translate their revenues, expenses, gains, and losses into U.S.

We include the associated translation adjustments as a separate component of “Accumulated other comprehensive income (loss)” within stockholders’ equity.

Certain of our foreign subsidiaries have assets and liabilities (primarily cash, receivables, inventory, property, plant and equipment, intangible assets, trade payables, accrued expenses, operating lease liabilities, and long-term debt) that are denominated in currencies other than the subsidiaries’ functional currencies.

Changes in the exchange rates between the functional currencies of our subsidiaries and the other currencies in which these assets and liabilities are denominated will create fluctuations in our reported condensed consolidated statements of operations and cash flows.

Derivative Financial instruments

Both the Capped Call and the Put Option are accounted for as an asset that is recorded at fair value within Derivative assets in the consolidated balance sheets.

The changes in fair value to Derivative assets is recorded within Change in fair value of derivative assets in the Condensed Consolidated Statements of Operations.

See Note 1 – Organization, Business and Out-of-Period Adjustments , for further information.

Recent Accounting Pronouncements

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ ASU 2021-08”).

ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ ASC 606”).

At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract.

Before the recent update, such amounts were recognized by the acquiring company at fair value.

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued.

The Company early adopted ASU 2021-08 as of January 1, 2022.

See Note 3 – Acquisition of STI for further information and disclosures related to the STI Acquisition.

The standard was applied to the acquisition accounting for STI.

A review of the deferred revenue of the acquiree of $ 20.3 million was reviewed for consistency in application with the Company’s policies and U.S.

GAAP and the contract liability balance was carried over at its carrying value.

Acquisition of STI

On the Acquisition Date, the Company completed the STI Acquisition pursuant to the purchase agreement, dated November 10, 2021, by and among Amixa Capital, S.L.

and Aurica Trackers, S.L., each a company duly organized under the laws of the Kingdom of Spain (together, the “Sellers”) and Mr.

Javier Reclusa Etayo (the “STI Purchase Agreement”).

The STI Acquisition was funded primarily with borrowings from the Convertible Notes (as defined below) and the issuance of Series A redeemable perpetual preferred stock of the Company, par value $ 0.001 per share (the “Series A Redeemable Perpetual Preferred Stock”).

The STI Acquisition provided the Company with an immediate presence in Brazil, Western Europe and South Africa.

expenses incurred in connection with the acquisition are $ 5.6 million recorded in the general and administrative line item on the condensed consolidated statement of operations for the nine months ended September 30, 2022.

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

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

The Company has performed a valuation of the acquisition assets and liabilities and determined the related accounting impact.

The purchase price consideration to acquire STI consisted of the following (in thousands):

Cash consideration for STI $ 409,647

Cash consideration for transaction expenses of STI 896

Total cash consideration 410,543

Non-cash equity consideration 200,224

Total consideration transferred 610,767

Total purchase price consideration $ 610,767

The STI Acquisition was accounted for as a business combination applying ASC 805.

The equity consideration transferred consisted of the Company’s common stock and was measured at fair value based on the closing stock price on the Acquisition Date.

The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the Acquisition Date.

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

The factors contributing to the recognition of goodwill were the expected synergies of the combined entities that are expected to be realized from the STI Acquisition.

None of the goodwill is expected to be deductible for income tax purposes.

The following table summarizes the preliminary estimates of fair values of the assets acquired and liabilities assumed as of the Acquisition Date (in thousands):

Preliminary Fair Value of Net Assets Acquired and Liabilities Assumed:

Acquisition Date Measurement Adjustment September 30, 2022

Cash and cash equivalents $ 36,725 $ — $ 36,725

Accounts receivable 110,789 — 110,789

Inventories 47,517 — 47,517

Prepaid expenses and other 23,399 — 23,399

Property, plant and equipment 4,434 — 4,434

Other intangible assets 318,365 — 318,365

Other assets 325 — 325

Total assets acquired $ 541,554 $ — $ 541,554

Accounts payable 65,761 — 65,761

Deferred revenue 20,345 — 20,345

Short-term debt 44,338 — 44,338

Other liabilities 10,115 — 10,115

Income tax payable 7,576 — 7,576

Deferred tax liability 93,823 7,611 101,434

Other long-term liabilities 4,524 — 4,524

Long-term debt 12,053 — 12,053

Total liabilities assumed $ 258,535 $ 7,611 $ 266,146

Preliminary fair value of net assets acquired 283,019 275,408

Preliminary allocation to goodwill $ 327,748 $ 335,359

The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as the twelve months following the Acquisition Date).

The preliminary estimates of the fair values of the assets acquired and liabilities assumed were estimated to approximate carrying values since they are short term in nature, and they are receivable or payable on demand.

These assets and liabilities were cash and cash equivalents, accounts receivable, prepaid expenses and other, accounts payable, other liabilities, and deferred revenue.

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of identifiable intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed as well as the tax impact.

The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed on the Acquisition Date throughout the remainder of the measurement period.

The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by the Company, including but not limited to, the fair value accounting.

For assets and liabilities excluded from the scope of the intangible asset and property, plant and equipment valuation, the Company considered net book value to be a reasonable proxy as of the Acquisition Date.

The preliminary purchase price allocation includes $ 318.4 million of acquired identifiable intangible assets.

Estimated Fair Value Estimated Weighted Average Useful Life in Years

(in thousands, except useful lives)

Backlog $ 51,165 1

Customer relationships 238,770 10

Trade name 28,430 20

Total $ 318,365

The preliminary fair value of the identifiable intangible assets has been estimated using the Excess Earnings Method (customer relationships and backlog) and Relief from Royalty Method (trade name).

Significant inputs using the Excess Earnings Method and Level 3 inputs in the fair value hierarchy include estimated revenue, expenses based on actuals and forecast, and a discount rate based on a weighted average cost of capital for customer relationships of 15 % for Spain, 16.5 % for Brazil and 14.0 % for Spain foreign sourced projects and for order backlog of 8.5 % for Spain, 9.5 % for Brazil and 7.5 % for Spain foreign sourced projects.

Significant inputs to the Relief from Royalty method model include estimates of future revenue, economic life, estimated royalty rate of 1.25 %, and a discount rate based on a weighted average cost of capital 15.2 %.

The weighted average cost of capital was determined based on the Company’s capital structure, cost of capital, inherent business risk profile and long-term growth expectations.

The intangible assets are being amortized over their estimated useful lives on a straight-line basis that reflects the economic benefit of the asset.

The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future forecasted cash flows of the Company following the STI Acquisition.

The amounts of revenue and net loss of STI included in the Company’s consolidated statement of operations from the Acquisition Date through September 30, 2022 are $ 237.2 million and $ 14.1 million, respectively.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma financial information presents the combined results of operations of the Company and STI as if the acquisition had occurred on January 1, 2021, after giving effect to certain unaudited pro forma adjustments.

The unaudited pro forma adjustments reflected herein include only those adjustments that are directly attributable to the STI Acquisition including amortization of intangibles, debt financing expenses and tax benefits.

The unaudited pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the STI Acquisition and is not necessarily indicative of the operating results that would have actually occurred had the STI Acquisition been consummated on January 1, 2021.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 2022 2021

$ 515.0 $ 480.1 $ 1,243.0 $ 764.8

Net income (loss)

$ 52.1 $ ( 22.7 ) $ 48.7 $ ( 44.6 )

Accounts Receivable

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , to provide entities with relief during the transition period by deferring the effective date of reference rate reform from December 31, 2022 to December 31, 2024.

ASU 2022-06 is effective upon issuance.

During the three months ended March 31, 2023, the Company adopted ASU 2020-04 and ASU 2022-06.

Simultaneously, the Company elected to apply the debt accounting optional expedient, under which the reporting entity will account for amendments to debt agreements, which sole intent are the replacement of a discontinued reference rate(s), as being not substantial and thus a continuation of the existing contract .

There was no significant impact to the Company’s condensed consolidated financial statements related to the adoption of ASU 2020-04 and ASU 2022-06.

The Company continues to evaluate the impact of the ASU 2020-04 guidance and may apply other elections as applicable as additional changes in the market occur.

In March 2023, the Company amended an existing debt agreement to replace the London Interbank Offered Rate (“LIBOR”) interest rate provisions with interest rate provisions based on a forward-looking term rate based on the secured overnight funding rate (“SOFR”) (see Note 8 – Debt ).

There were no other changes to the agreement.

There was no significant impact to the Company’s condensed consolidated financial statements.

Accounts Receivable, Net

Accounts receivable consists of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Accounts receivable $ 416,785 $ 423,071

allowance for doubtful accounts ( 695 ) ( 140 )

allowance for credit losses ( 2,073 ) ( 1,888 )

Accounts receivable, net $ 414,712 $ 421,183

Inventories consist of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Raw materials $ 88,348 $ 66,574

Finished goods 166,276 166,585

Reserve for excess or obsolete inventory ( 5,082 ) ( 7,415 )

Total $ 254,624 $ 233,159

Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands, except useful lives):

Estimated Useful Lives (Years) September 30, 2022 December 31, 2021

Property, Plant and Equipment, Net

Property, plant and equipment consist of the following (in thousands, except useful lives):

Estimated Useful Lives (Years) March 31, 2023 December 31, 2022

Land N/A $ 1,587 $ 1,583

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Hardware and software 3 - 5

Assets in progress 3,684 1,880

Assets in progress N/A 8,229 5,142

Total 43,965 40,993

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Property, plant and equipment, net $ 25,864 $ 23,174

Depreciation expense was $ 0.7 million and $ 0.6 million for the three months ended September 30, 2022 and 2021, respectively, of which $ 0.4 million and $ 0.5 million, respectively, was allocated to cost of revenue and $ 0.3 million and $ 0.1 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021.

Depreciation expense was $ 1.8 million and $ 1.8 million for the nine months ended September 30, 2022 and 2021, respectively, of which $ 1.2 million and $ 1.5 million, respectively, was allocated to cost of revenue and $ 0.6 million and $ 0.3 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021.

Depreciation expense was $ 0.7 million and $ 0.6 million for the three months ended March 31, 2023 and 2022, respectively, of which $ 0.3 million and $ 0.5 million, respectively, was allocated to cost of revenue and $ 0.4 million and $ 0.1 million, respectively, was included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022.

Goodwill and Other Intangible Assets

Prior to the STI Acquisition, goodwill, related to Former Parent’s acquisition of the Company, was recorded as $ 121.6 million and was subsequently impaired.

Total accumulated impairment as of September 30, 2022 was $ 51.9 million.

The Company recorded an additional $ 335.4 million of goodwill as a result of the STI Acquisition and the Company’s reporting units became Array Legacy Operations and the newly acquired STI Operations, which had goodwill of $ 69.7 million and $ 289.9 million, respectively, at September 30, 2022 and $ 69.7 million and zero , respectively, at December 31, 2021.

Goodwill is not deductible for tax purposes.

Changes in the carrying amount of goodwill by operating segment during the nine months ended September 30, 2022 are shown below (in thousands):

Array Legacy Operations Segment

STI Operations Segment Total

Changes in the carrying amount of goodwill by operating segment during the three months ended March 31, 2023 are shown below (in thousands):

Array Legacy Operations (1)

STI Operations Total

Beginning balance

$ 69,727 $ 346,457 $ 416,184

Acquisition of STI

— 335,359 $ 335,359

Foreign currency impact — ( 45,457 ) $ ( 45,457 )

Correction to goodwill (see Note 1) — 2,000 2,000

Foreign currency translation — 9,989 9,989

Ending balance

$ 69,727 $ 358,446 $ 428,173

(1) Goodwill attributable to Array Legacy Operations is net of accumulated impairment of $ 51.9 million.

Each quarter the Company evaluates if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test.

During the quarter ended March 31, 2022, the Company determined it was necessary to perform an interim goodwill impairment test for the Array Legacy Operations reporting unit.

The Company performed a quantitative goodwill impairment test and determined the estimated fair value of the reporting unit exceeded the carrying value assigned to that reporting unit;

as a result, goodwill was not impaired.

During our most recent evaluation, we concluded there were no indicators of impairment as of March 31, 2023.

Other Intangible Assets

Other intangible assets consisted of the following (in thousands, except useful lives):

Estimated Useful Lives (Years) September 30, 2022 December 31, 2021

Estimated Useful Lives (Years) March 31, 2023 December 31, 2022

Developed technology 14 $ 204,442 $ 203,800

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Total other intangible assets, net $ 379,374 $ 386,364

Amortization expense related to intangible assets amounted to $ 23.2 million and $ 5.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 69.8 million and $ 17.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Estimated future annual amortization expense for the above amortizable intangible assets for the remaining periods through September 30, as follows (in thousands):

2022 $ 22,365

Amortization expense related to intangible assets was $ 13.8 million and $ 22.0 million for the three months ended March 31, 2023 and 2022, respectively.

Estimated future amortization expense of intangible assets as of March 31, is as follows (in thousands):

Remainder of 2023 $ 34,846

Thereafter 159,604

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.

During the quarter ended March 31, 2022, the Company determined it was necessary to review long-lived assets, including intangible assets related to the Array Legacy Operations reporting unit, for impairment.

The Company determined the undiscounted cash flows expected to result from the use of the asset group and its eventual disposition were greater than the carrying amount and therefore concluded there was no impairment.

Investment in Equity Security

The Company made a $ 10.0 million and $ 2.0 million investment in preferred stock of a private company in February 2021 and April 2021, respectively.

The investment is accounted for in accordance with ASC Topic 321 Investments—Equity Securities at its cost, less any impairment.

The investment balance as of September 30, 2022 was $ 12.0 million and is recorded in other assets on the condensed consolidated balance sheets.

There is no impairment recorded for the nine months ended September 30, 2022.

The Company follows guidance under ASC Topic 740-270 Income Taxes , which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income (loss).

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The tax effect of discrete items is recorded in the quarter in which the discrete events occur.

The Company recorded income tax expense (benefit) of $ 11.1 million and $( 5.4 ) million for the three months ended September 30, 2022 and 2021, respectively, and income tax expense (benefit) of $( 18.1 ) million and $ 5.5 million for the nine months ended September 30, 2022 and 2021, respectively.

The tax expense in the three months ended September 30, 2022 includes tax expense of $ 8.7 million on the legal settlement income which was recorded discretely in the quarter.

The tax, excluding the legal settlement, was favorably impacted by non-taxable contingent income, and mix of income by jurisdiction.

The tax benefit in the three months ended September 30, 2021 was unfavorably impacted by non-deductible amounts for equity-based compensation and follow-on offering costs.

The tax benefit in the nine months ended September 30, 2022 includes tax expense of $ 8.7 million on the legal settlement which was recorded discretely in the quarter.

The tax on the loss, excluding the legal settlement, was favorably impacted by mix of earnings by jurisdictions offset by non-deductible amounts for officers’ compensation and transaction costs.

The tax benefit in the nine months ended September 30, 2021 was unfavorably impacted by non-deductible equity based compensation as well as initial public offering and secondary offering costs.

For the three and nine months ended September 30, 2022 and 2021, no reserves for uncertain tax positions have been recorded.

The Company recorded income tax expense of $ 9.9 million and a benefit of $ 14.7 million for the three months ended March 31, 2023 and 2022, respectively.

The tax expense for the three months ended March 31, 2023 was unfavorably impacted by higher income reported in non-U.S.

jurisdictions and an out of period increase in income tax expense of $ 1.4 million related to the Put Option (see Note 1 – Organization, Business and Out-of-Period Adjustments ), partially offset by benefits related to excess equity-based compensation deductions recorded discretely during the quarter.

The tax benefit for the three months ended March 31, 2022 was favorably impacted by losses in non-U.S.

jurisdictions which have higher tax rates than the U.S., partially offset by non-deductible expenses.

For the three months ended March 31, 2023 and 2022, no reserves for uncertain tax positions have been recorded.

The Company will continue to monitor this position each interim period.

In August 2022, the U.S.

Inflation Reduction Act (“IRA”) was enacted into law.

The IRA contains a number of revisions to the Internal Revenue Code that generally take effect in tax years beginning after December 31, 2022.

The Company is in the process of evaluating provisions included under the IRA and its impact to the Company’s consolidated financial statements.

The following table summarizes the Company’s total debt (in thousands):

March 31, 2023 December 31, 2022

Senior Secured Credit Facility

Long-term senior secured credit facility consisted of the following (in thousands):

September 30, 2022 December 31, 2021

Term loan facility $ 301,400 $ 312,475

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301,400 312,475

Less discount and issuance costs

Unamortized discount and issuance costs ( 17,544 ) ( 19,135 )

Carrying amount 283,856 293,340

Convertible Debt

1 % Senior Notes

425,000 425,000

Long-term portion, net of debt discount and issuance costs 303,381 303,484

Less current portion of credit facility ( 4,300 ) ( 4,300 )

Long-term senior secured facility debt, net of current portion, debt discount and issuance costs $ 299,081 $ 299,184

Unamortized discount and issuance costs ( 10,785 ) ( 11,248 )

Carrying amount 414,215 413,752

Other Debt 42,138 51,951

Total Debt 768,538 789,426

Unamortized discount and issuance costs, total ( 28,329 ) ( 30,383 )

Carrying amount 740,209 759,043

Current portion of debt ( 34,382 ) ( 38,691 )

Total long-term debt, net of current portion $ 705,827 $ 720,352

Senior Secured Credit Facility

On October 14, 2020, the Company entered into a senior secured credit facility, which was amended on February 23, 2021 (the “First Amendment”) and again on February 26, 2021 (the “Second Amendment”).

The senior secured facility consisted originally of (i) a $ 575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $ 150 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”).

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

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

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

On October 14, 2020, the Company entered into a senior secured credit facility (the “Credit Agreement”), which was amended on February 23, 2021 (the “First Amendment”), on February 26, 2021 (the “Second Amendment”) and again on March 2, 2023 (the “Third Amendment”).

The senior secured facility consists of (i) a $ 575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $ 200 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”).

The single purpose of the Third Amendment in March 2023 was to replace the former discontinued Senior Secured Credit Facility reference rate of LIBOR, with the comparable active reference rate, SOFR.

There were no other changes as a result of the Third Amendment.

Revolving Credit Facility

Under the Revolving Credit Facility, the Company had no outstanding balance as of both September 30, 2022 and December 31, 2021, respectively, $ 33.4 million and $ 13.6 million in standby letters of credit at September 30, 2022 and December 31, 2021, respectively, and availability of $ 166.6 million and $ 186.4 million at September 30, 2022 and December 31, 2021, respectively.

The Revolving Credit Facility pays interest depending on the contracted rate for the loan which is either for the Eurocurrency Rate Loans at LIBOR plus 3.25 % and for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1 % above the Federal Funds Rate or the Eurocurrency rate for the Dollar deposits for one month interest period, after giving effect to any floor plus 1 %, plus 2.25 %.

Under the Revolving Credit Facility, the Company had no outstanding balance as of both March 31, 2023 and December 31, 2022, $ 40.4 million and $ 38.8 million in standby letters of credit at March 31, 2023 and December 31, 2022, respectively, and availability of $ 159.6 million and $ 161.2 million at March 31, 2023 and December 31, 2022, respectively.

In accordance with the Third Amendment, the Revolving Credit Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR plus 3.25 % (as defined) or (y) for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1% above the Federal Funds Rate or the Adjusted Term SOFR (as defined) for one month interest period, after giving effect to any floor plus 1 %, plus 2.25 %.

Term Loan Facility

The Term Loan Facility had a balance of $ 323.6 million and $ 326.8 million as of September 30, 2022 and December 31, 2021, respectively.

The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $ 20.2 million and $ 23.3 million as of September 30, 2022 and December 31, 2021, respectively.

The debt discount and issuance costs are being amortized using the effective interest method and the rate as of September 30, 2022 is 6.75 %.

The Term Loan Facility had a balance of $ 301.4 million and $ 312.5 million as of March 31, 2023 and December 31, 2022, respectively.

The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $ 17.5 million and $ 19.1 million as of March 31, 2023 and December 31, 2022, respectively.

In accordance with the Third Amendment, the Term Loan Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (subject to a floor of 0.50 %) plus 3.25 % (as defined) or (y) for Base Rate Loans at the higher of the Prime Rate, 1/2 of 1% above the Federal Funds Rate or the Adjusted Term SOFR (as defined) for one-month interest period, after giving effect to any floor plus 1 %, plus 2.25 %.

The debt discount and issuance costs are being amortized using the effective interest method and the rate as of March 31, 2023 is 9.22 %.

The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula did not result in requiring the Company to make an advance principal payment for the year ended December 31, 2022.

Convertible Debt

Convertible debt consisted of the following (in thousands):

September 30, 2022 December 31, 2021

1.00 % Senior unsecured convertible notes

$ 425,000 $ 425,000

unamortized discount and issuance costs ( 11,721 ) ( 13,137 )

1.00 % Senior unsecured convertible notes, net (1)

$ 413,279 $ 411,863

(1) Effective interest rate for the Convertible Notes as of September 30, 2022 and December 31, 2021 was 1.5 %.

On December 3, 2021 and December 9, 2021, the Company completed a private offering of $ 375 million and $ 50 million over allotment, respectively, in aggregate principal amount of 1.00 % Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $ 364.7 million and $ 48.6 million, respectively, after deducting the original issue discount of 2.75 %.

On December 3, 2021 and December 9, 2021, the Company completed a $ 425.0 million private 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.

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The conversion rate for the Notes was initially 41.9054 shares of the Company’s common stock per $ 1,000 principal amount of Notes, which was equivalent to an initial conversion price of approximately $ 23.86 per share of common stock or 10.1 million shares of common stock.

The Convertible Notes were not convertible during the nine months ended September 30, 2022 and none have been converted to date.

Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the nine months ended September 30, 2022.

The Convertible Notes were not convertible during the three months ended March 31, 2023 and none have been converted to date.

Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the three months ended March 31, 2023.

In connection with the issuances of the Convertible Notes, the Company paid $ 52.9 million, in aggregate, to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Convertible Notes.

1 unchanged sentence

The results of this formula are that the Company would receive more shares as the market price of its common stock exceeds the exercise price and approaches the cap, which was initially $ 36.0200 per share.

Consequently, if the Convertible Notes are converted, then the number of shares to be issued by the Company would be effectively partially offset by the shares of common stock received by the Company under the Capped Calls as they are exercised.

Capped Calls as they are exercised.

The formula above would be adjusted in the event of certain specified extraordinary events affecting the Company, including a merger;

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Although intended to reduce the net number of shares of common stock issued after a conversion of the Convertible Notes, the Capped Calls were separately negotiated transactions, are not a part of the terms of the Convertible Notes, and do not affect the rights of the holders of the Convertible Notes.

The Capped Calls meet the criteria for equity classification because they are indexed to the Company’s common stock and the Company has discretion to settle the Capped Calls in shares or cash.

As a result, the amount paid for the Capped Calls was recorded as a reduction to additional paid-in capital.

The Capped Calls are excluded from the calculation of diluted net income (loss) per share attributable to common stockholders as their effect is antidilutive.

In connection with the STI Acquisition, the Company assumed debt obligations of STI.

As of September 30, 2022, related debt balances were $ 43.3 million in short-term debt and $ 12.7 million in long-term debt.

Interest rates on the acquired debt range from 0.55 % to 2.76 % annually and maturities for the short-term portion of loans range from December 2022 to March 2023.

Maturities for the long-term portion of loans are $ 4.9 million due in 2024 and $ 7.8 million due in March 2027.

See Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Capped Calls

Other debt consists of the debt obligations of STI.

Interest rates on other debt range from 0.55 % to 4.52 % annually.

Of the $ 42.1 million other debt balance, approximately $ 32.6 million is denominated in Euros and $ 9.5 million denominated in Brazilian Real.

Redeemable Perpetual Preferred Stock

Series A Redeemable Perpetual Preferred Stock

On August 10, 2021, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) pursuant to which, on August 11, 2021, the Company issued and sold to certain investors (the “Purchasers”) 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $ 346.0 million (the “Initial Closing”).

Further, pursuant to the Securities Purchase Agreement, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $ 776.0 (the “Prepaid Forward Contract”).

The Company used net proceeds from the Initial Closing to repay the entire $ 102.0 million amount outstanding under its existing Revolving Credit Facility and prepay $ 100.0 million under the Company’s Term Loan Facility.

Additionally, the Securities Purchase Agreement entitles the Purchasers to designate one representative to be appointed to the Company’s board of directors (the “Board”) and to appoint three non-voting observers to the Board, in each case until such time as the Purchasers no longer beneficially own shares of the Series A Redeemable Perpetual Preferred Stock with at least $ 100 million aggregate Liquidation Preference (as defined below).

The Series A Redeemable Perpetual Preferred Stock has no maturity date.

On January 7, 2022, the Company issued and sold to the Purchasers 50,000 shares of Series A Redeemable Perpetual Preferred Stock and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $ 49.4 million (the “Additional Closing”).

Additional Closings

The Securities Purchase Agreement gives the Company the option to require the Purchasers to purchase, in one or more additional closings, up to 150,000 shares of Series A Redeemable Perpetual Preferred Stock until June 30, 2023 and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments) (subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction) for an aggregate purchase price up to $ 148.0 million (the “Delayed Draw Commitment”).

This commitment has been reduced by the Additional Closing.

The Company evaluated the accounting for the instruments issued in the Securities Purchase Agreement and determined the Series A Redeemable Perpetual Preferred Stock and common stock issued in the Initial Closing, as well as the Prepaid Forward Contract, and Delayed Draw Commitment are freestanding instruments accounted for in equity.

The Series A Redeemable Perpetual Preferred Stock is recorded in temporary equity on the condensed consolidated balance sheets as it has redemption features upon certain triggering events that are outside the Company’s control, such as a fundamental change.

The proceeds of the Series A Redeemable Perpetual Preferred Stock, transactions costs and discount of $ 334.6 million have been allocated to each instrument based on its relative fair value.

At the Initial Closing date, $ 229.8 million was allocated to the Series A Redeemable Perpetual Preferred Stock, $ 105.4 million to common stock, $ 12.4 million to the Delayed Draw Commitment, which was recorded as a debit to additional paid-in capital, and $ 11.7 million to the Prepaid Forward Contract.

The Additional Closing carried issuance and original issuance discount costs of $ 1.3 million.

The net proceeds were allocated amongst the Series A Redeemable Perpetual Preferred Stock and common stock based on the proceeds of $ 33.1 million and $ 15.9 million, respectively.

On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Redeemable Perpetual Preferred Stock either in cash at the then-applicable Cash Regular Dividend Rate (as defined below), through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate (as defined below) of 6.25 % (the “Permitted Accrued Dividends”) or a combination thereof.

The Company entered into a Securities Purchase Agreement (the “SPA”) with certain investors (the “Purchasers”) pursuant to which, on August 11, 2021, the Company issued 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock (the “Series A Shares”) and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $ 346.0 million (the “Initial Closing”).

Further, pursuant to the 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 “Prepaid Forward Contract”).

The Company used the net proceeds from the initial Closing to repay the $ 102.0 million outstanding balance under its existing Revolving Credit Facility and prepay $ 100.0 million of the Company’s Term Loan Facility.

The Series A Shares have no maturity date.

The SPA gives the Company the option to require the Purchasers to purchase, up to an additional 150,000 shares of 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” or the “Put Option”).

The Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion.

On January 7, 2022, pursuant to the Delayed Draw Commitment, the Company issued and sold to the Purchasers, 50,000 shares of Series A Shares and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $ 49.4 million (the “Additional Closing”).

The Company has classified the Series A Shares as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method.

Such accretion totaled $ 6.1 million and $ 5.4 million for the three months ended March 31, 2023 and 2022, respectively.

Refer to Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Put Option.

On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Shares either in (i) cash at the then-applicable Cash Regular Dividend Rate (as defined below), (ii) through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate of 6.25 % (the “Permitted Accrued Dividends”), or (iii) a combination thereof.

Following the fifth anniversary of the Initial Closing, dividends are payable only in cash.

To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points.

In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Redeemable Perpetual Preferred Stock, will pay 100 % of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95 % of the 30-day VWAP of the Company’s common stock.

As used herein, “Liquidation Preference” means, with respect to any shares of the Series A Redeemable Perpetual Preferred Stock, the initial liquidation preference of $ 1000 per share plus any accrued dividends of such share as the time of the determination.

The “Cash Regular Dividend Rate” of the Series A Redeemable Perpetual Preferred Stock means (i) initially, 5.75 % per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing.

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

There are no Permitted Accrued Dividends accrued as of September 30, 2022 with dividends paid for the nine months ended September 30, 2022 $ 18.7 million (the “Q3 Dividend Payment”).

Permitted Accrued Dividends resulted in 13 shares of the Series A Redeemable Perpetual Preferred Stock being issued as of September 30, 2022 which were settled with the Q3 Dividend Payment and no longer outstanding.

Dividends declared and paid as of December 31, 2021 were $ 8.2 million.

The shares of Series A Redeemable Perpetual Preferred Stock have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock .

As a result, the discount on Series A Redeemable Perpetual Preferred Stock is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Redeemable Perpetual Preferred Stock by a corresponding amount.

The discount of $ 120.2 million is therefore being amortized over five years using the effective yield method.

The amortization in each period is the amount which, together with the stated dividend in the period, results in a constant rate of effective cost with regard to the carrying amount of the Series A Redeemable Perpetual Preferred Stock.

The Company has presented the Series A Redeemable Perpetual Preferred Stock in temporary equity and is accreting the discount on the increasing rate dividends using the effective interest method.

Such accretion totaled $ 17.2 million for the nine months ended September 30, 2022.

The Company paid the cash dividend for the three months ended September 30, 2022 of $ 6.3 million in dividends at a rate of 5.75 % as of September 30, 2022.

In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Shares, will pay 100 % of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95 % of the 30-day VWAP of the Company’s common stock (“Non-Cash Dividend”).

The “Cash Regular Dividend Rate” of the Series A Shares means (i) initially, 5.75 % per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing.

The “Accrued Regular Dividend Rate” on the Series A Shares means 6.25 % per annum on the Liquidation Preference.

As used herein, “Liquidation Preference” means, with respect to any shares of the Series A Shares, the initial liquidation preference of $ 1,000 per share plus any accrued dividends of such share as the time of the determination.

During the three months ended March 31, 2023, the Company accrued dividends on the Series A Shares at the Accrued Regular Dividend rate of 6.25 % totaling $ 6.3 million.

As of March 31, 2023, the Company has accrued and unpaid dividends of $ 12.7 million.

The Series A Shares have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock .

As a result, the discount on Series A Shares is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Shares by a corresponding amount.

Accordingly, the discount is amortized over five years using the effective yield method.

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

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3.0 % from the 12-month anniversary of the Initial Closing through June 30, 2023.

The Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion.

Based on ASC 606 provisions, the Company disaggregates its revenue from contracts with customers by those sales recorded over-time and sales recorded at a point in time.

The following table presents the Company’s revenue disaggregated by sales recorded over-time and sales recorded at a point in time (in thousands):

The Company disaggregates its revenue from contracts with customers by sales recorded over time and sales recorded at a point in time.

The following table presents the Company’s disaggregated revenues (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Over time revenue $ 248,219 $ 208,071

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Total revenue $ 376,773 $ 300,586

As discussed in the consolidated financial statements included in the 2021 Annual Report, contracts related to the Company’s federal investment tax credit (“ITC”) were determined to have multiple performance obligations satisfied at a point in time instead of one performance obligation satisfied over time.

The disaggregated revenue information above for the nine months ended September 30, 2021 has been restated to correct this error, which resulted in $ 223.2 million of revenue being reclassified from over-time revenue to point in time revenue for the nine months ended September 30, 2021.

Revenue recognized for the ITC-related contracts and standalone system component sales is recorded at a point in time and recognized when obligations under the terms of the contract with the Company’s customer are satisfied.

Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms.

In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers.

When this occurs, the customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC.

Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody.

The material is bundled or palletized in the Company’s warehouses, identified separately as belonging to the respective customer and is ready for immediate transport to the customer project upon customer request.

Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer.

As of September 30, 2022, the Company had no contracts with customers for the sale of goods and services that contained bill-and-hold obligations such as storage, handling and other custodial duties for the three and nine months ended September 30, 2022.

Any losses incurred on point-in-time projects are recognized as the goods are delivered .

Contract Balances

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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.

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.

Contract assets consisting of unbilled receivables are recorded within accounts receivable on the condensed consolidated balance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Unbilled receivables $ 122,003 $ 101,513

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Contract liabilities consisting of deferred revenue recorded on a contract-by-contract basis at the end of each reporting period were as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Deferred revenue $ 151,343 $ 178,922

During the nine months ended September 30, 2022, the Company converted $ 73.1 million in deferred revenue to revenue, which represented 73 % of the prior year’s deferred revenue balance.

During the three months ended March 31, 2023, the Company converted $ 125.2 million in deferred revenue to revenue, which represented 70 % of the prior year’s deferred revenue balance.

Bill-and-Hold Arrangements

Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms.

In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers.

When this occurs, the customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC.

Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody.

Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer.

During the three months ended March 31, 2023, the Company recognized $ 17.6 million in revenue from a single customer for the sale of goods and services that contained bill-and-hold obligations such as storage, handling and other custodial duties.

Remaining Performance Obligations

As of September 30, 2022, the Company had $ 386.3 million of remaining performance obligations.

As of March 31, 2023, the Company had $ 571.5 million of remaining performance obligations.

The Company expects to recognize revenue on 100 % of these performance obligations in the next twelve months .

Income (Loss) Per Share

Earnings Per Share

The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income (loss) $ 26,132 $ ( 25,937 )

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Income (loss) per share $ 0.09 $ ( 0.25 )

Potentially dilutive common shares issuance pursuant to equity-based awards of 108,111 were not included as their effect was anti-dilutive for the three months ended September 30, 2022.

Potentially dilutive common shares issuable pursuant to equity-based awards of 2,504,046 and 1,203,520 were not included for the nine

months ended September 30, 2022 and 2021, respectively, and 1,203,520 for the three months ended September 30, 2021, as their potential effect was anti-dilutive since the Company generated a net loss to common stock holders.

There were no potentially dilutive common shares issuable pursuant to the Convertible Notes, as the stock price is below the strike price.

Potentially dilutive common shares issuable pursuant to equity-based awards of 654,277 were not included for the three months ended March 31, 2022, as their potential effect was anti-dilutive since the Company generated a net loss to common shareholders.

There were no potentially dilutive common shares issuable pursuant to the Convertible Notes for the three months ended March 31, 2023 and 2022, as the par value of the Convertible Notes is required to be paid in cash upon conversion and the stock price has not exceeded the conversion price on the Convertible Notes.

Commitments and Contingencies

Legal Proceedings

The Company, in the normal course of business, is subject to claims and litigation.

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If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss.

On August 30, 2017, the Company filed its first amended complaint in the U.S.

District Court for the District of New Mexico against Nextracker LLC, Daniel S.

Shugar, Marco Garcia, Flextronics International U.S.A., Inc., Scott Graybeal and Colin Mitchell (collectively, the “Defendants”) asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).

On July 15, 2022, the Company settled its claims against Defendants for $ 42.8 million and received payment on August 4, 2022.

On May 14, 2021, a putative class action was filed in the U.S.

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On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”).

The complaint alleges:

The complaint

(1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty.

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On August 17, 2022, the Court in the Plymouth Action set a briefing schedule for any motion to dismiss with the opening motion and supporting memorandum to be filed on or before October 17, 2022, any opposition to be filed on or before December 16, 2022, and any reply in support of the motion to be filed on or before January 16, 2023.

The Company and other defendants in the Plymouth Action filed a joint motion to dismiss the Consolidated Amended Complaint on October 17, 2022.

The Company and other defendants in the Plymouth Action filed a joint motion to dismiss (the “Motion to Dismiss”) the Consolidated Amended Complaint on October 17, 2022.

The lead plaintiff filed a motion opposing the Motion to Dismiss on December 16, 2022, and the Company and other defendants filed a reply in support of the motion to dismiss on January 17, 2023.

On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company, asserting claims for:

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On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action, the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action.

The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the

Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action.

At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the defenses.

The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of September 30, 2022 or December 31, 2021.

The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended

Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action.

At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the Company’s defenses.

The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of March 31, 2023.

Contingent Consideration

Tax Receivable Agreement

Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, Array Tech, Inc.

entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array.

Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, the Company’s operating subsidiary, Array Tech, Inc.

(f/k/a Array Technologies, Inc.), entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array.

The TRA is valued based on the future expected payments under the agreement.

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to the former owners for certain federal, state, local and non-U.S.

tax benefits deemed realized in post-closing taxable periods by Array, from the use of certain deductions generated by the increase in the tax value of the developed technology.

tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc., from the use of certain deductions generated by the increase in the tax value of the developed technology.

The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration in the condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the fair value of the TRA was $ 7.1 million and $ 14.6 million, respectively.

As of March 31, 2023 and December 31, 2022, the fair value of the TRA was $ 8.7 million and $ 8.6 million, respectively.

Estimating the amount of payments that may be made under the TRA is by nature imprecise.

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The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA.

The following table summarizes the liability related to the estimated TRA (in thousands):

The following table summarizes the activity related to the estimated TRA liability (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Beginning balance $ 8,587 $ 14,577

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The TRA liability requires significant judgment and is classified as Level 3 in the fair value hierarchy.

As of September 30, 2022, the Company posted surety bonds in the total amount of approximately $ 175.2 million.

As of March 31, 2023, the Company posted surety bonds in the total amount of approximately $ 208.5 million.

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

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The carrying values and the estimated fair values of debt financial instruments were as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

Convertible Notes $ 414,215 $ 467,084 $ 413,752 $ 430,236

The carrying values of the Revolving Credit Facility recorded in long-term debt on the condensed consolidated balance sheets approximate fair value due to the variable interest rate.

The fair value of the Convertible Notes is estimated using Level 2 inputs, as they are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers.

The Capped Call is valued using a Black-Sholes model, with the most judgmental non-observable input being the volatility measure.

The value of the Capped Call is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy.

The fair value of the Capped Call was $ 59.5 million at March 31, 2023.

The Put Option is exercisable into both Series A Stock and common stock.

The value of the put option is based upon the expected future price of the Series A Stock and the company’s common stock, which is then discounted back to current present value.

The present value of the Series A Stock is determined using a discounted cash flow method where the interest rate used for discounting is determined using a single-factor short-rate model.

The value of the common stock is determined by using a Monte-Carlo simulation and is then discounted back to present value.

The value of the Put Option is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy.

The fair value of the Put Option was $ 3.8 million at March 31, 2023.

The fair value of the Term Loans and Other Debt is estimated using Level 2 inputs.

The carrying values of the Term Loans outstanding under the Senior Secured Credit facility recorded in consolidated balance sheets approximate fair value due to the variable interest rate.

Other Debt totaling $ 42.1 million, consists of $ 25.0 million variable rate obligations and $ 17.1 million fixed rate obligations.

Of the $ 17.1 million fixed rate obligations, $ 11.7 million mature in 2023 and $ 5.4 million mature in 2024.

Due to the relative short-term maturity of these obligations, the Company believes current carrying value approximates fair value.

The carrying value of the $ 25.0 million variable rate obligations approximate fair value due to the variable nature of the interest rate.

Equity-Based Compensation

2020 Equity Incentive Plan

On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective.

The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.

During the nine months ended September 30, 2022, the Company granted an aggregate of 1,433,829 restricted stock units (“RSUs”) to employees and board of director members and 466,916 performance stock units (“PSUs”) to certain executives.

Restricted Stock Units

Pursuant to the 2020 Plan, the Company grants restricted stock units (“RSUs”) to employees and board of director members.

The fair value of the RSUs is determined using the market value of common stock on the grant date.

RSU activity under the 2020 Plan during the three months ended March 31, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value

Outstanding non-vested, December 31, 2022 1,700,824 $ 13.81

Shares granted 757,334 17.26

Shares vested ( 306,245 ) 14.21

Shares forfeited ( 93,019 ) 15.61

Outstanding non-vested, March 31, 2023 2,058,894 $ 14.73

Performance Stock Units

The Company has granted performance stock units (“PSUs”) to certain employees.

The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets.

The PSUs also contain a modifier based on the total stock return (“TSR”) compared to a certain index which modifies the number of PSUs that vest.

The PSUs were valued using a Monte-Carlo simulation method with a volatility assumption of 66 % - 79 %, risk free interest rate of 0.28 % - 2.79 % based on the United States Treasury Constant Maturity rates and no dividends paid assumption.

Activity under the 2020 Plan was as follows:

Number of Shares Weighted Average Grant Date Fair Value

Unvested, December 31, 2021

930,409 $ 21.66

Granted 1,433,829 $ 10.16

Vested ( 278,792 ) $ 18.68

Forfeited ( 127,325 ) $ 18.50

Unvested, September 30, 2022

1,958,121 $ 13.97

The PSUs were valued using a Monte-Carlo simulation method on the date of grant based on the U.S.

Treasury Constant Maturity rates.

The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the PSUs issued during the three months ended March 31, 2023 and 2022:

Volatility 90 % 66 %

Risk-free interest rate 3.74 % 0.28 %

Dividend yield — % — %

PSU activity under the 2020 Plan during the three months ended March 31, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value

Unvested, December 31, 2021

147,687 $ 27.75

Granted 466,916 $ 10.88

Forfeited ( 68,678 ) $ 30.74

Unvested, September 30, 2022

545,925 $ 12.95

Class B Units and Class C Units of Former Parent

The Company accounted for equity grants to employees of Class B Units and Class C Units (collectively, the “Units”) of Former Parent as equity-based compensation under ASC 718, Compensation-Stock Compensation .

The Units contain vesting provisions as defined in the agreement.

Vested Units do not forfeit upon termination and represent a residual interest in Former Parent.

Equity-based compensation cost is measured at the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those Units with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent.

However, the amount of equity-based compensation at any date is equal to the portion of the grant date value of the award that is vested.

The Units issued to employees are measured at fair value on the grant date using an option pricing model.

The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards.

Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage.

The risk-free rates are based on the yields of U.S.

Treasury instruments with comparable terms.

Actual results may vary depending on the assumptions applied within the model.

On November 19, 2019 and May 19, 2020, Former Parent issued 22,326,653 and 4,344,941 , respectively, Class B Units to certain employees of the Company.

On March 28, 2020, Former Parent issued 1,000 Class C Units to a member of the board of directors of Array Technologies, Inc.

On March 23, 2021, in connection with the closing of the 2021 Follow-On Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of equity-based compensation of $ 8.9 million for the nine months ended September 30, 2021.

For the three months ended September 30, 2022 and 2021, the Company recognized $ 4.2 million and $ 2.2 million in equity-based compensation, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recognized $ 11.7 million and $ 14.3 million in equity-based compensation, respectively.

As of September 30, 2022, the Company had $ 23.0 million of unrecognized compensation costs related to RSUs and PSUs which is expected to be recognized over a period of 2 years.

There were 76,936 and 196,003 forfeitures during the three and nine months ended September 30, 2022 and 18,772 and 79,277 forfeitures during the three and nine months ended September 30, 2021, respectively.

Related Party Transactions

Accounts Payable-Related Party

The Company had $ 0.5 million and $ 0.6 million as of September 30, 2022 and December 31, 2021, respectively, of accounts payable-related party with the former shareholders of Array.

The payables relate to a federal tax refund related to the pre-acquisition periods and restricted cash related to Former Parent’s acquisition of the Company which were due to the sellers of Array upon release of the restriction offset by a receivable related to a sales/use tax audit from the pre-acquisition period for which the seller provided the Company with indemnification.

Tax Receivable Agreement

See Note 16 – Commitments and Contingencies – Tax Receivable Agreement.

Outstanding non-vested, December 31, 2022 464,393 $ 11.96

Shares granted 263,594 19.22

Shares vested — —

Shares forfeited — —

Outstanding non-vested, March 31, 2023 727,987 $ 14.59

For the three months ended March 31, 2023 and 2022, the Company recognized $ 3.3 million and $ 4.4 million, respectively, in equity-based compensation.

At March 31, 2023, the Company had $ 32.8 million of unrecognized compensation costs related to RSUs and PSUs, which is expected to be recognized over approximately 2.4 years and 2.7 years, respectively.

15 Segment Reporting

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Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Historically, the Company managed its business on the basis of one operating and reportable segment.

During the nine months ended September 30, 2022, the Company changed its reportable segments as a result of the STI Acquisition;

the Company now operates as two segments;

Historically, the Company managed its business on the basis of one operating

and reportable segment.

Concurrent with the acquisition of STI in January 2022, the Company began operating as two segments;

Array Legacy Operations and STI Operations.

The following table provides a reconciliation of certain financial information for the Company’s reportable segments to information presented in its condensed consolidated financial statements for the three and nine

months ended September 30, 2022 and 2021 and as of September 30, 2022 and December 31, 2021 (in thousands):

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

Array Legacy Operations STI Operations Total Array Legacy Operations

Revenue $ 400,463 $ 114,561 $ 515,024 $ 188,686

Gross Profit $ 63,921 $ 16,302 $ 80,223 $ 5,897

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

Array Legacy Operations STI Operations Total Array Legacy Operations

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Array Legacy Operations STI Operations Total Array Legacy Operations STI Operations Total

Revenue $ 305,204 $ 71,569 $ 376,773 $ 250,652 $ 49,934 $ 300,586

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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-Q

Item 1. Financial Statements