What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-09 · 192 added, 238 removed, 141 unchanged (75% of the section changed)

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Our principal risks include the following:

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

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

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

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

• the viability and demand for solar energy are impacted by many factors outside of our control, which makes it difficult to predict our future prospects;

• competitive pressures within our industry may harm our business, revenues, growth rates and market share;

• we face competition from conventional and renewable energy sources that may offer products and solutions that are less expensive or otherwise perceived to be more advantageous than solar energy solutions, which could materially and adversely affect the demand for and the average selling price of our products and services;

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

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

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

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

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

• we have and may continue to face challenges in our ability to consolidate the financial reporting of our acquired foreign subsidiaries;

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

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

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

• we may experience delays, disruptions or quality control problems in our product development operations;

• our business is subject to the risks of severe weather events, natural disasters and other catastrophic events;

• our continued expansion into new markets could subject us to additional business, financial, regulatory and competitive risks;

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

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

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

• changes to tax laws and regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects;

• existing electric utility industry policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems, which may significantly reduce demand for our products or harm our ability to compete;

• the interruption of the flow of materials from international vendors could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges or restrictions on imports and exports;

• changes in the U.S.

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

• the impact of the ongoing conflict in Ukraine on our supply chain and cost of logistics could adversely affect the amount or timing of our revenues, results of operations or cash flows;

• changes in the global trade environment, including the imposition of import tariffs or other import restrictions, could adversely affect the amount or timing of our revenues, results of operations or cash flows;

• economic, political and market conditions, including the Russian-Ukraine conflict, uncertain credit and global financial markets resulting from increasing inflation and interest rates along with recent bank failures, and the COVID-19 pandemic, have had and could continue to have an adverse effect on our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price;

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

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• significant changes in the cost of raw materials could adversely affect our financial performance;

• we are dependent on transportation and logistics providers to deliver our products in a cost-efficient manner.

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

• we rely heavily on our suppliers and our operations could be disrupted if we encounter problems with our suppliers or if there are disruptions in our supply chain;

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

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• our substantial indebtedness could adversely affect our financial condition;

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

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

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

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

• the implementation of the IRA may not deliver as much growth as we are anticipating;

• cybersecurity or other data incidents, including unauthorized disclosure of personal or sensitive data or theft of confidential information could harm our business.

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

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

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

The vast majority of ground mounted solar systems in the United States, and an increasing amount outside of the U.S., use trackers.

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

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

use trackers.

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

To avoid infringing on our U.S.

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patent on a linked-row, rotating gear drive system does not expire until February 5, 2030.

Array acquired STI Norland in January 2022 introducing a dual-row tracker design to the product portfolio.

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

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

This suite of products extends Array’s target applications and bankability to deliver the best utility-scale solar tracker solutions to the market.

All of our products are protected by U.S.

and international patents, including our core U.S.

patent on a linked-row, rotating gear drive system which does not expire until February 5, 2030.

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

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

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

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

We sell our products to engineering, procurement and construction firms (“EPCs”) that build solar energy projects and to large solar developers, independent power producers and utilities, often under master supply agreements or multi-year procurement contracts.

During the nine months ended September 30, 2022, we derived 79% and 21% of our revenues from customers in the United States and the rest of the world, respectively.

We are a U.S.

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

As of September 30, 2022, we had 1,118 full-time employees, up from 471 as of December 31, 2021, with the increase primarily due to the STI Acquisition (as defined below).

Acquisition of STI

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

and its subsidiaries (collectively, “STI”) pursuant to that certain 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”).

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.

During the three months ended March 31, 2023, we derived 81% and 19% of our revenues from customers in the United States and the rest of the world, respectively.

As of March 31, 2023, we had shipped more than 58 gigawatts of trackers to customers worldwide, including STI.

Our corporate headquarters are located in Albuquerque, New Mexico.

As of March 31, 2023, we had 1,050 full-time employees.

Acquisition of STI Norland

On January 11, 2022, the Company completed its acquisition of STI for purchase consideration 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 equity interests in STI.

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

As a result of the STI Acquisition, the Company began reporting its results of operations in two segments:

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

The primary source of revenue of the STI Operations is the design, manufacture and sale of its solar tracker system to utility scale customers in principal markets to include Spain, Brazil, South Africa and other international markets.

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

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

and South Africa.

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

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 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.

A summary of these corrections and a summary of the cumulative impact appears Note 1 – Organization, Business and Out-of-Period Adjustments in Part I of this Quarterly Report.

Update on the Impact of COVID-19

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

Our priority remains the welfare of our employees.

We expect 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 our business and results of operations remain uncertain and could be material.

We are continuously evaluating our capital structure in response to the current environment and expect that our current financial condition, including our liquidity sources will be adequate to fund future commitments.

See additional discussion in the Liquidity and Capital Resources section below.

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

Inflation in the United States peaked at a year-over-year rate of 9.1% in June, before moderating to a still-elevated 8.2% in September.

In Europe, energy price pressures and inflation have remained on an upward path, with September U.K.

inflation rebounding to 10.1% and Euro Area inflation at 9.9%, both on a year-over-year basis.

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.

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

which we operate.

On January 31, 2023, the Biden administration announced its plan to let the COVID-19 public health emergency expire in May 2023.

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

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

Impact of Potential Solar Module Supply Chain Disruptions

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

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

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

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

As disclosed in our quarterly report on Form 10-Q for the three months ended March 31, 2022, the investigation created uncertainty related to the supply of solar modules.

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

initially delayed;

however, on June 6, 2022, President Biden suspended, for a period of 24 months, certain antidumping and countervailing duties on crystalline silicon PV cells and module imports assembled and completed in southeast Asia.

Due to these developments the Company has not observed a material decrease in customer demand for our product, and unless the duties are reinstated, the Company does not currently believe the investigation is reasonably likely to have a material adverse effect on future periods.

On April 1, 2022, the U.S.

Department of Commerce (“USDOC”) initiated anti-circumvention inquiries of the U.S.

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

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

The USDOC is expected to issue final determinations by August 17, 2023.

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

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

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

On May 3, 2023, however, the U.S.

Senate voted to repeal President Biden’s emergency declaration.

Unless vetoed, the repeal of the President’s emergency declaration, and any affirmative determinations made once the suspension is lifted in any event, could have an adverse effect on the global solar energy marketplace, and as such, an adverse effect on our business, financial condition, and results of operations.

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

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

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

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

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

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

An inter-agency task force produced a report on June 21, 2022 which, among other things, includes a list of entities that are believed to be using or benefiting from forced labor.

Some suppliers of solar modules have seen shipments detained by US Customs and Border Patrol pursuant to the UFLPA.

These detainments have not directly impacted any of Array’s projects to date;

however, we cannot be certain that future detainments will not directly impact projects that use our products and services.

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

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

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

Solar panel imports to the U.S.

may also be impacted by the Uyghur Forced Labor Prevention Act (“UFLPA”) that was signed into law by President Biden on December 23, 2021.

According to U.S.

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

The presumption applies unless the Commissioner of U.S.

Customs and Border Protection determines that the

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

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

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

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

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

Impact of the Ongoing Conflict in Ukraine

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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.

Uncertainty in the Banking System

Events involving limited liquidity, defaults, non-performance or other adverse developments among several banks and financial institutions recently have created uncertainty in the financial services industry generally.

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

Foreign Currency Translation

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

dollars at period end exchange rates.

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

Translation adjustments for these subsidiaries are accumulated as a separate component of net parent investment.

subsidiaries that use a U.S.

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

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

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

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

Performance Measures

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

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

ASP is calculated by dividing total applicable revenues by total applicable MWs,

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

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

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

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

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

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

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

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Operating Expenses

Operating expenses consist of general and administrative costs, contingent consideration, as well as depreciation and amortization expense.

Personnel-related costs are the most significant component of our operating expenses and include salaries, benefits, payroll taxes and commissions.

Our full-time employee headcount in our general and administrative departments has grown from approximately 210 as of December 31, 2021 to approximately 424, due in part to the STI Acquisition, as of September 30, 2022, and we expect to continue to hire new employees to support our growth.

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

We expect to continue to invest substantial resources to support our growth and continued technological

advancement and anticipate that general and administrative and depreciation expenses will increase in absolute dollar amounts for the foreseeable future.

General and administrative expenses

General and administrative expenses consist primarily of salaries, equity-based compensation, employee benefits and payroll taxes related to our executives, sales, finance, human resources, information technology, engineering and legal organizations, as well as travel, facilities costs, marketing, bad debt and fees for professional services.

Professional services consist of audit, legal, tax, insurance, information technology and other costs.

We expect an increase in the number of sales and marketing personnel in connection with the expansion of our global sales and marketing footprint, enabling us to penetrate new markets.

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

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

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

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

increase the number of sales and marketing personnel in connection with the expansion of our global sales and marketing footprint, enabling us to penetrate new markets.

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

We intend to continue to expand our sales presence and marketing efforts to additional countries.

We also expect that as a public company we will incur additional audit, tax, accounting, legal and other costs related to compliance with applicable securities laws and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.

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

We also anticipate increased spending related to product development and innovation as we hire additional engineering resources and increase our research and development (“R&D”) spend.

Further, as a relatively new public company, we may incur additional audit, accounting, tax, legal and other costs related to compliance with applicable securities laws and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.

Contingent Consideration

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

Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC by Former Parent.

Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC by our Former Parent, ATI Investment Parent, LLC.

The TRA liability is recorded at fair value and changes in the fair value are recognized in earnings.

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

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

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

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Estimating fair value of the TRA is by nature imprecise.

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

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

Corio include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA.

Depreciation and Amortization

Depreciation in our operating expense consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing of our products.

We expect that as we continue to grow both our revenue and our general and administrative personnel, we will require some additional PP&E to support this growth resulting in additional depreciation expense.

Amortization of intangibles consists of developed technology, customer relationships, backlog, and trade name amortized over their expected period of use.

Amortization of intangibles consists of developed technology, customer relationships, contractual backlog, and the STI trade name amortized over their expected period of use.

Non-Operating Expenses

Interest Expense

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

Legal Settlement

Legal settlement income includes a legal settlement awarded and paid from Nextracker LLC, for $42.8 million for the Company asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).

Income Tax Expense

We are subject to United States federal and state income taxes as well as foreign income taxes.

We are subject to U.S.

federal and state and non-U.S.

income taxes.

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

Results of Operations

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

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

Three Months Ended March 31, Increase/Decrease

2023 2022 $ %

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General and administrative 38,142 45,425 (7,283) (16) %

Contingent consideration (572) 936 (1,508) (161) % (5,981) 1,071 (7,052) (658) %

Change in fair value of contingent consideration 1,338 (3,731) 5,069 136 %

Depreciation and amortization 14,241 23,237 (8,996) (39) %

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Other income (expense)

Other expense, net (399) (297) 102 (34) % (27) (497) (470) (95) %

Legal settlement 42,750 — 42,750 100 % 42,750 — 42,750 100 %

Other income, net 194 743 (549) (74) %

Foreign currency gain (loss) (194) 3,863 (4,057) (105) %

Change in fair value of derivative assets (1,950) — (1,950) (100) %

Interest expense (9,500) (6,942) 2,558 37 %

Total other income (expense) 33,446 (13,406) (46,852) 349 % 20,982 (29,266) (50,248) (172) %

Total other (expense) (11,450) (2,336) 9,114 390 %

Income (loss) before income tax (benefit) expense 36,008 (40,680) 76,688 189 %

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Three Months Ended

September 30, Increase/Decrease Nine Months Ended

September 30, Increase/Decrease

March 31, Increase/Decrease

2023 2022 $ %

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Total Gross Profit $ 101,179 $ 26,587 $ 74,592 281 %

Comparison of three months ended September 30, 2022 and 2021

Our consolidated revenue increased by $326.3 million, or 173%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The increase was partially driven by the STI Acquisition, which added $114.6 million of revenue when compared to the three months ended September 30, 2021.

Excluding the impact of the STI Acquisition, revenue was up $211.8 million, or 112%, driven by both an increase in the total number of MWs shipped and an increase in ASP.

Revenue for Array Legacy Operations increased 112% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Total MWs shipped were up approximately 63% for the three months ended September 30, 2022, driven by increased customer demand for our product.

ASP for the three months ended September 30, 2022 was up 29% compared to the three months ended September 30, 2021, which is reflective of higher pass-through pricing to our customers.

Revenue for STI Operations increased by $114.6 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, due to the STI Acquisition occurring in January 2022 with no activity in the prior period.

Cost of Revenue and Gross Profit

Consolidated cost of revenue increased by $252.0 million, or 138%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the increase in the number of MWs delivered and the STI Acquisition.

Gross profit as a percentage of revenue increased from 3% for the three months ended September 30, 2021 to 16% for the three months ended September 30, 2022.

The increase in gross profit as a percentage of revenue reflects higher pass-through pricing of our material and logistics costs.

Gross profit as a percentage of revenue for the Array Legacy Operations increased to 16% for the three months ended September 30, 2022 from 3% for the three months ended September 30, 2021.

The increase was due to a higher proportion of our projects with improved pass-through pricing of our material and logistics costs.

Gross profit as a percentage of revenue for the STI segment was 14% for the three months ended September 30, 2022.

Operating Expenses:

General and Administrative

Consolidated general and administrative expense increased by $20.4 million, or 110%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The increase in expense was primarily due to increased consulting costs, professional fees, legal costs, as well as higher payroll and related costs due to our growing internal headcount and the STI Acquisition, which had $5.7 million in general and administrative expense.

Contingent Consideration

Consolidated contingent consideration expense decreased by $1.5 million, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The decrease was due to a decrease in the valuation of the associated liability.

Consolidated depreciation expense for the three months ended September 30, 2022 was similar to the three months ended September 30, 2021.

Amortization of Intangibles

Consolidated amortization of intangibles increased by $17.2 million, or 292%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to intangibles added as a result of the STI Acquisition.

Legal Settlement

Legal settlement income increased due to the Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Company asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”).

Interest Expense

Consolidated interest expense decreased by $4.4 million, or 33%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the write-off of fees associated with refinancing our debt that occurred in the three months ended September 30, 2021 for which we have no similar fees in the current period.

As of September 30, 2022, we had $425 million outstanding on the Convertible Notes, $323.6 million outstanding under the Term Loan Facility and no balance outstanding under the Revolving Credit Facility.

The Credit Facility has variable interest rates that are expected to fluctuate with the Federal Funds rate so interest expense could increase for the Term Loan Facility and the Revolving Credit Facility.

Income Tax Benefit

Consolidated income tax benefit increased by $16.5 million, or 308% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The tax expense in the three months ended September 30, 2022 includes tax expense of $8.7 million on the legal settlement income recorded discreetly in the current period.

Our effective tax rate, excluding the legal settlement was 26.5% for the three

months ended September 30, 2022 and 16.3% for the three months ended September 30, 2021.

The tax benefit increase, excluding the legal settlement, is primarily related to non-taxable contingent income, and a favorable mix of income for the three months ended September 30, 2022.

Comparison of the nine months ended September 30, 2022 and 2021

Consolidated revenue increased by $602.0 million, or 95%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by a revenue increase of $364.9 million, or 58%, resulting from both an increase in the total number of MWs shipped and an increase in ASP excluding the impact of the STI Acquisition.

The remainder of the increase in revenue resulted from the STI Acquisition of $237.2 million.

Revenue for Array Legacy Operations increased 58% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Total MWs shipped were up approximately 31% for the nine months ended September 30, 2022, driven by increased customer demand for our product.

ASP for the nine months ended September 30, 2022 was up 20% compared to the nine months ended September 30, 2021, which is reflective of higher pass-through pricing to our customers.

Revenue for STI Operations increased by $237.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the STI Acquisition occurring in January 2022 with no activity in the prior period.

Comparison of the three months ended March 31, 2023 and 2022

Consolidated revenue increased $76.2 million, or 25%, driven by increases in both Array Legacy Operations and STI Operations of $54.6 million and $21.6 million, respectively.

The 22% revenue increase in Array Legacy Operations was driven by increased customer demand for our product as megawatts shipped were up 6% and ASP improved 15%, as a result of higher pass-through pricing to our customers.

The $21.6 million, or 43% revenue increase in STI Operations was driven by an increase in the number of megawatts shipped, most notably in the Brazil region.

Cost of Revenue and Gross Profit

Consolidated cost of revenue increased by $527.8 million, or 94%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the STI Acquisition and the higher cost of raw materials and logistics compared to the prior year period.

Gross profit as a percentage of revenue increased from 11% for the nine months ended September 30, 2021 to 12% for the nine months ended September 30, 2022.

The increase in gross profit as a percentage of revenue reflects better pass-through pricing to our customers to offset higher commodity prices and logistics costs.

Gross profit as a percentage of revenue increased for Array Legacy Operations to 12% for the nine months ended September 30, 2022 from 11% for the nine months ended September 30, 2021 due to improved pass through pricing of commodity costs.

Gross profit as a percentage of revenue was 11% for STI for the nine months ended September 30, 2022.

Consolidated cost of revenue increased $1.6 million, or 1%, driven primarily by higher revenue activity.

Consolidated gross profit increased $74.6 million, or 281%.

As a percentage of revenue, consolidated gross profit increased to 27% for the three months ended March 31, 2023, as compared to 9% for the prior year.

The increase in gross profit dollars was driven by both higher volume and an increase in gross profit as a percent of revenue in both operating segments.

Array Legacy Operations gross profit increased $62.2 million, or 292%.

As a percentage of revenue, gross profit at Array Legacy increased to 27% from 8% for the three months ended March 31, 2023 and 2022, respectively.

The increase in gross profit as a percent of revenue was driven by an improvement in pass through pricing to customers, in addition to a one-time benefit from lower than expected logistics costs.

STI Operations gross profit increased $12.4 million, or 232.9%.

As a percentage of revenue, gross profit for STI Operations increased to 25% from 11% for the three months ended March 31, 2023 and 2022, respectively, driven primarily by improved pass through pricing and a reduced impact of lower margin construction related services provided.

Operating Expenses:

General and Administrative

Consolidated general and administrative expenses increased by $49.6 million, or 85%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase in expense was primarily due to the STI Acquisition, which resulted in an increase of $11.6 million.

Additionally, increased consulting costs and other professional fees, as well as increased headcount, led to higher payroll and related costs.

Consolidated general and administrative expenses decreased by $7.3 million, or 16%.

The decrease was primarily due to STI Acquisition related expenses, which were incurred in the first quarter of 2022, as well as costs related to the Chief Executive Officer transition that occurred in the first quarter of 2022 and did not recur in 2023.

These reductions more than offset higher payroll related expenses incurred to increase headcount in support of our growth and innovation strategy.

Contingent Consideration

Consolidated contingent consideration expense decreased by $7.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The decrease was due to a decrease in the valuation of the associated liability.

Consolidated depreciation expense for the nine months ended September 30, 2022 was similar to the nine months ended September 30, 2021.

Amortization of Intangibles

Consolidated amortization of intangibles increased by $52.1 million, or 296%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to intangibles added as a result of the STI Acquisition.

Legal Settlement

Legal settlement income increased due to the Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Nextracker Litigation.

Other Expense, Net

Consolidated other income (expense) increased by $0.5 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the STI Acquisition.

Foreign Currency Gain

Consolidated foreign currency gain increased by $2.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the foreign currency translation gain resulting from the STI Acquisition.

Consolidated contingent consideration expense increased by $5.1 million, or 136% as a result of the increased valuation of the TRA liability, which was driven by a decrease in the credit spread used in the valuation, consistent with the overall downward trend of credit spreads subsequent to 2022.

Depreciation and Amortization

Consolidated amortization of intangibles decreased by $9.4 million, or 40%, primarily due to a subset of intangibles related to the STI Acquisition having a one-year life.

As the STI acquisition occurred on January 11, 2022, nearly the full quarter of amortization expense was recognized for this subset of acquired intangibles during the three months ended March 23, 2022, compared to a fraction of a quarter of amortization expense that was recognized during the three months ended March 31, 2023.

Interest Expense

Consolidated interest expense decreased by $5.1 million, or 18%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the write-off of fees associated with refinancing our debt that occurred in the nine months ended September 30, 2021 for which we have no similar fees in the current period.

In the nine months ended September 30, 2021, we paid off a portion of our Term Loan Facility and therefore expensed the associated fees that were capitalized.

Our outstanding debt as of September 30, 2022 for which interest expense is associated includes $425.0 million outstanding on the Convertible Notes, $323.6 million outstanding under the Term Loan Facility and no balance outstanding under the Revolving Credit Facility.

We expect interest expense to be higher for the remainder of 2022 compared to 2021 as a result of the debt outstanding under the Convertible Notes.

In addition, the Credit Facility has variable interest rates expected to fluctuate with the Federal Funds rate so interest expense could increase for the Term Loan Facility and the Revolving Credit Facility.

Income Tax Benefit

Consolidated income tax benefit increased by $12.6 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

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

Our effective tax rate, excluding the legal settlement benefit was 56.7% for the nine months ended September 30, 2022 and 16.2% for the nine months ended September 30, 2021.

The benefit increase excluding the legal settlement, is primarily related to non-taxable contingent consideration and the mix of earnings in foreign jurisdictions partially offset by an increase in non-deductible officer compensation for the nine months ended September 30, 2022.

Consolidated interest expense increased by $2.6 million, or 37%, primarily due to increased variable interest rates charged on our Term Loan Facility.

We expect interest expense to be higher for the remainder of 2023 compared to 2022 as a result of continued higher variable interest rates.

Income Tax Expense (Benefit)

Consolidated income tax increased by $24.6 million, or 167%.

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

Our effective tax rate was 27.4% for the three months ended March 31, 2023 and 36.2% for the three months ended March 31, 2022.

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, partially offset by benefits related to excess stock 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.

Consolidated net income increased $52.1 million, or 201%, driven by a $76.2 million increase in consolidated revenue, a 18.0% increase in consolidated gross profit margin and an $11.2 million reduction in operating expenses, partially offset by a $24.6 million increase in income tax expense.

Liquidity and Capital Resources

Historical Cash Flow

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

Nine Months Ended September 30,

Net cash used in operating activities $ 44,023 $ (165,837)

Cash Flows (in thousands)

Three Months Ended March 31,

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

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

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

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

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

Net change in cash and cash equivalents $ 13,855 $ (318,179)

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

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

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

These factors adversely impacted our business, causing us to experience decreased margins and thus decreased cash from operations.

In addition, they led to an increase in our unbilled receivables and in some instances liquidated damages owed to our customers.

Unbilled receivables, which represent temporary timing differences between shipments made and billing milestones achieved, were $137.0 million and $111.2 millions of the accounts receivable balances as of September 30, 2022 and December 31, 2021, respectively.

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

The Company continues to improve its supply chain, logistics, and labor shortage issues to avoid causing any additional delays in delivering specific components to complete a MW delivery.

Accordingly, we would expect the unbilled receivable balance as a percentage of revenue to improve once the billing criteria is satisfied and the customers are invoiced.

The extent to which macroeconomic concerns, including the COVID-19 pandemic, rising interest rates, elevated inflation levels and the ongoing conflict in Ukraine, may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

We have taken mitigating steps to overcome the economic challenges and, therefore, believe the impact to be temporary, as demonstrated by our sequential margin improvement over the last four quarters.

Mitigation efforts to date have generally consisted of the introduction of new supply routes, the use of bulk shipping (to a limited degree), and—with respect to commodity price increases—changes in the Company’s contracting process that are designed to narrow the timeframe between when a price is agreed upon to when prices for the Company’s most volatile cost inputs are fixed.

The Company has utilized these strategies in combination over

the last twelve months and expects to continue to do so in response to the recent challenging environment.

We continuously evaluate our ability to meet our obligations over the next 12 months and we have sufficient liquidity as well as financing options available to fund current and future commitments.

In January 2022, we issued 50,000 of Series A Redeemable Perpetual Preferred Stock (as defined below), and 1,125,000 shares of our common stock in an Additional Closing (as defined below) for an aggregate purchase price of $49.4 million.

As of September 30, 2022, our cash and cash equivalents were $62.8 million.

Net working capital as of September 30, 2022 was $358.7 million.

As of September 30, 2022, we had outstanding borrowings of $323.6 million under the Term Loan Facility and a $200.0 million commitment under our Revolving Credit Facility, of which no balance is outstanding and $166.6 million was available to borrow to fund operations.

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

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

Due to recent macroeconomic trends, our industry has seen rapid fluctuations in commodity prices, the global tightening of supply chains, and strained logistics networks.

These factors have adversely impacted and could continue in the future to adversely impact our business, putting pressure on our margins.

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

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

In response to the recent challenging environment, we continuously evaluate our ability to meet our obligations over the next twelve months.

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

As of March 31, 2023, our cash balance was $147.8 million, of which $33.6 million was held outside the U.S., and net working capital was $396.1 million.

We had outstanding borrowings of $301.4 million under or $575 million Term Loan Facility and $159.6 million available to us under our $200.0 million Revolving Credit Facility.

Also, through June 30, 2023, we have the option to require our Series A Shares investors to purchase an additional 100,000 shares of our Series A Shares and 2,250,000 shares of our common stock for an aggregate purchase price of approximately $100.0 million.

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

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

Operating Activities

For the nine months ended September 30, 2022, cash provided by operating activities was $44.0 million, primarily due to an increase in net income and the Company being awarded and paid a settlement from Nextracker LLC, for $42.8 million for the Nextracker Litigation.

In addition, accounts payable and accruals increased cash by $42.2 million and $41.3 million, respectively, driven by higher expenses associated with higher sales, offset by a use from accounts receivable of $139.0 million driven primarily by higher sales.

For the nine months ended September 30, 2021, cash used in operating activities was $165.8 million, primarily due a decrease in deferred revenue of $68.5 million for which we made payments to our suppliers for products that we received the cash for in 2020, but that we did not ship until 2021, an increase in accounts receivable of $58.2 million, and an increase in inventories of $55.4 million.

For the three months ended March 31, 2023, cash provided by operating activities was $45.8 million, of which $57.2 million was generated from net income as adjusted for the impact of non-cash expenses, consisting primarily of depreciation and amortization, deferred tax expense and equity-based compensation and a $30.2 million increase in accounts payable.

These increases were partially offset by a $23.3 million increase in inventory and a $27.6 million decrease in deferred revenue.

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

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

Investing Activities

For the nine months ended September 30, 2022, net cash used in investing activities was $380.5 million, primarily due to cash used in the STI Acquisition.

For the nine months ended September 30, 2021, net cash used in investing activities was $14.2 million, primarily attributable to a $12.0 million investment in equity securities.

For the three months ended March 31, 2023, net cash used in investing activities was $3.9 million, all of which was related to the purchase of property, plant and equipment.

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

Financing Activities

For the nine months ended September 30, 2022, net cash provided by financing activities was $33.1 million, of which and $48.4 million related to proceeds from the Additional Closing in January 2022 offset by a dividend payment of $18.4 million on the Series A preferred stock.

For the nine months ended September 30, 2021, net cash used by financing activities was $188.0 million, of which $345.6 million was proceeds from the Series A that closed on August 11, 2021, $102.0 million was from proceeds under the Revolving Credit Facility, offset by a $132.2 million payment on the Term Loan Facility, a $102.0 million payment of the Revolving Credit Facility, $11.1 million in equity issuance costs associated with the Series A and $6.6 million in fees paid on the Senior Secured Credit Facility and to increase the limit on the Revolving Credit Facility by $50.0 million.

For the three months ended March 31, 2023, net cash used by financing activities was $23.8 million, driven primarily by $11.1 million in payments on our Term Loan and a $10.7 million net reduction of other debt.

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

Series A Redeemable Perpetual Preferred Stock

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

Pursuant to the Securities Purchase Agreement, on August 11, 2021, the Company issued and sold to the Purchaser 350,000 shares of a newly designated Series A Redeemable Perpetual Preferred Stock of the Company, par value $0.001 per share (the “Series A Perpetual Preferred Stock”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of the Company’s common stock, par value $0.001 per share, for an aggregate purchase price of $346.0 million.

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

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

In January 2022, we issued 50,000 of Series A Redeemable Perpetual Preferred Stock, and 1,125,000 shares of our common stock in an Additional Closing for an aggregate purchase price of $49,376,125.

Registration Rights Agreement

In connection with the Securities Purchase Agreement, on August 10, 2021, the Company and the Purchaser entered into a Registration Rights Agreement pursuant to which, among other things, the Company granted the Purchaser certain registration rights with respect to common stock purchased pursuant to the Securities Purchase Agreement, including customary shelf registration rights and “piggyback” registration rights.

Direct costs associated with the issuance of the securities were $11.1 million, which along with the $4.4 million discount, have been accounted for as a reduction in the proceeds of the securities.

These net proceeds of $334.6 million have been allocated on the balance sheet to the preferred shares of $229.8 million, common stock of $105.4 million and additional paid-in capital of $12.4 million for the committed financing put right.

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

Such accretion totaled $5.9 million and $17.2 million for the three and nine months ended September 30, 2022.

The Company accreted the dividends at an accrual rate of 6.25% to the Liquidation Preference of the Series A Redeemable Perpetual Preferred Stock, or $6.1 million and $18.7 million in dividends, for the three and nine months ended September 30, 2022, respectively.

On August 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with BCP Helios Aggregator L.P., a Delaware limited partnership (the “Purchaser”), an investment vehicle of funds affiliated with Blackstone Inc.

Pursuant to the Securities Purchase Agreement, on August 11, 2021, we issued and sold to the Purchaser 350,000 shares of a newly designated Series A Redeemable Perpetual Preferred Stock, par value $0.001 per share (the “Series A Shares”), having the powers, designations, preferences, and other rights set forth in the Certificate of Designations, and 7,098,765 shares of our common stock, par value $0.001 per share, for an aggregate purchase price of $346.0 million.

amended, we have issued and sold to the Purchaser 776,235 shares of common stock for an aggregate purchase price of $776.

In January 2022, we issued 50,000 of Series A Shares, and 1,125,000 shares of our common stock in an Additional Closing for an aggregate purchase price of $49,376,125.

For more information related to the Series A Shares, see Note 9 – Redeemable Perpetual Preferred Stock ,” to the accompanying condensed consolidated financial statements.

Debt Obligations

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

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

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

For a discussion of our debt obligations see Note 8 – Debt to our condensed consolidated financial statements included in this Quarterly Report.

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

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

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

Critical Accounting Policies and Significant Management Estimates

As of September 30, 2022, there were the following changes in the application of our critical accounting policies or estimation procedures from those presented in our 2021 Annual Report.

Business Combinations

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

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

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

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

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

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

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

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

Goodwill is evaluated for impairment annually.

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.

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the (“U.S.

In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with U.S.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates.

To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements.

Fair Value of 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 , and Note 2 – Summary of Significant Accounting Policies , of the condensed consolidated financial statements for further information regarding the accounting of these instruments.

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

Changes in the assumptions around the volatility can cause significant changes in the estimated fair value of the Capped Call.

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 value is determined based on unobservable inputs and changes in assumptions around interest rates and discount rates can have a significant impact on the estimated fair value of the Put Option.

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.

Adoption of New and Recently Issued Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies to our condensed consolidated financial statements for a discussion of adoption of new and recently issued accounting pronouncements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis