What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-10 · 104 added, 102 removed, 231 unchanged (47% of the section changed)

19 unchanged sentences

Our business is subject to a number of risks that if realized could materially and adversely affect our business, financial conditions, results of operations, cash flows and access to liquidity.

These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report.

These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Our principal risks include the following:

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• 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;

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• 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;

• 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;

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• if we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed;

• we may need to defend ourselves against third-party claims that we are infringing, misappropriating or otherwise violating others’ intellectual property rights, which could divert management’s attention, cause us to incur significant costs and prevent us from selling or using the technology to which such rights relate;

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

• we 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;

• we may be unable to remediate our material weaknesses in a timely manner or at all;

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

During the three months ended March 31, 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.

During the six months ended June 30, 2023, we derived 72% and 28% of our revenues from customers in the United States and the rest of the world, respectively.

As of June 30, 2023, we had shipped more than 66.6 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.

As of June 30, 2023, we had 1,096 full-time employees.

Acquisition of STI Norland

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

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

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

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.

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.

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 six months ended June 30, 2023.

A summary of these corrections and a summary of the cumulative impact is provided in 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.

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.

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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.

On May 16, President Biden announced that he had vetoed the U.S.

Senate’s actions, and the emergency declaration will remain in place until June of 2024.

The repeal of the President’s emergency declaration, and any affirmative determinations made once the suspension is lifted in any event,

would 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.

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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.

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.

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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

In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics.

These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections.

These operating metrics are utilized by our management

to evaluate our business, measure our performance, identify trends affecting our business and formulate projections.

The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products from year to year is megawatts (“MWs”) shipped generally and the change in MW shipped from period to period specifically.

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

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

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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 by us in connection with the STI Acquisition.

Interest expense consists of interest and other charges paid in connection with (i) our $575 million senior secured 7-year term loan facility (the “Term Loan Facility”), (ii) our $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”), (iii) our 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”), and (iv) the Other Debt we assumed in connection with the STI Acquisition.

Income Tax Expense

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

Three Months Ended March 31, Increase/Decrease

Three Months Ended June 30, Increase/(Decrease) Six Months Ended June 30, Increase/(Decrease)

2023 2022 $ % 2023 2022 $ %

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Other income (expense):

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

Other income (expense), net 125 (371) 496 134 % 319 372 (53) (14) %

Foreign currency gain (loss) 260 (1,736) 1,996 115 % 66 2,127 (2,061) (97) %

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

Three Months Ended

March 31, Increase/Decrease

Three Months Ended June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

2023 2022 $ % 2023 2022 $ %

Array Legacy Operations $ 305,204 $ 250,652 $ 54,552 22 %

STI Operations 71,569 49,934 21,635 43 %

Array $ 345,261 $ 347,177 $ (1,916) (1) % $ 650,465 $ 597,829 $ 52,636 9 %

STI 162,464 72,688 89,776 124 % 234,033 122,622 111,411 91 %

Total Revenue $ 507,725 $ 419,865 $ 87,860 21 % $ 884,498 $ 720,451 $ 164,047 23 %

Gross Profit:

Array Legacy Operations $ 83,474 $ 21,268 $ 62,206 292 %

STI Operations 17,705 5,319 12,386 233 %

Array $ 106,590 $ 33,840 $ 72,750 215 % $ 190,064 $ 55,108 $ 134,956 245 %

STI 43,452 6,106 37,346 612 % 61,157 11,425 49,732 435 %

Total Gross Profit $ 150,042 $ 39,946 $ 110,096 276 % $ 251,221 $ 66,533 $ 184,688 278 %

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

Comparison of the three months ended June 30, 2023 and 2022

Consolidated revenue increased $87.9 million, or 21%, driven by an increase in STI Operations of 124%, which more than offset a slight decline of 1% in Array Legacy Operations.

The 1% revenue decrease in Array Legacy Operations was driven by an 8% reduction in the number of MWs shipped due to project delays.

The reduction in MWs was partially offset by an increase in ASP of 8%.

The $89.8 million, or 124% revenue increase in STI Operations was driven by an increase in the number of megawatts shipped, most notably in the Brazil region, which offset lower ASP due to a smaller percentage of construction services being offered.

Cost of Revenue and Gross Profit

Consolidated cost of revenue decreased $22.2 million, or 6%, driven primarily by lower input costs.

Consolidated gross profit increased $110.1 million, or 276%.

As a percentage of revenue, consolidated gross profit increased to 30% for the three months ended June 30, 2023, as compared to 9.5% for the prior year.

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

Array Legacy Operations gross profit increased $72.8 million, or 215%.

As a percentage of revenue, gross profit increased to 31% from 10% for the three months ended June 30, 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 cost savings opportunities in logistics and raw materials, as well as a higher proportion of higher margin non-tracker revenue.

STI Operations gross profit increased $37.3 million, or 612%.

As a percentage of revenue, gross profit for STI Operations increased to 27% from 8% for the three months ended June 30, 2023 and 2022, respectively, driven primarily by improved pass through pricing, cost savings opportunities on raw materials and a reduced impact of lower margin construction related services provided.

Operating Expenses:

General and Administrative

Consolidated general and administrative expenses increased by $11.3 million, or 39%.

The increase was driven by higher payroll related expenses incurred to increase headcount in support of our growth and innovation strategy and higher professional fees for accounting and SOX initiatives.

Contingent Consideration

Consolidated contingent consideration expense increased by $2.4 million, or 142% 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 depreciation and amortization decreased by $13.2 million or 51% due to the decrease in the amortization of intangibles of $13.4 million, as the backlog related to the STI Acquisition had a one-year life and was fully amortized as of January 11, 2023.

Interest Expense

Consolidated interest expense decreased by $2.1 million, or 26%, primarily due to increased variable interest rates charged on our Term Loan Facility as well as the write off of $1.1 million of non-cash interest expense related to the accelerated principle payments made against the outstanding Term Loan balance.

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 $40.8 million, or 222%.

The Company recorded income tax expense of $22.4 million for the three months ended June 30, 2023, compared to a benefit of $18.4 million for the three months ended June 30, 2022.

Our effective tax rate was 25.7% for the three months ended June 30, 2023 and 78.6% for the three months ended June 30, 2022.

The tax expense for the three months ended June 30, 2023 was unfavorably impacted by higher income reported in non-U.S.

jurisdictions and an increase in income tax expense related to the Purchasers’ delayed draw commitment under the Securities Purchase Agreement for the Series A Shares (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 June 30, 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 $69.8 million, or 1390%, driven by a $87.9 million increase in consolidated revenue, a 276% increase in consolidated gross profit, partially offset by a $40.8 million increase in income tax expense.

Comparison of the six months ended June 30, 2023 and 2022

Consolidated revenue increased $164.0 million, or 23%, driven by increases in both Array Legacy Operations and STI Operations of $52.6 million and $111.4 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.

The $52.6 million, or 9% revenue increase in Array Legacy Operations was driven by an increase in ASP of 11%, as a result of pass-through pricing to our customers, which was offset by a 2% decrease in MWs shipped.

The $111.4 million, or 91% revenue increase in STI Operations was driven by an increase in the number of megawatts shipped, most notably in the Brazil region, which offset lower ASP due to a smaller percentage of construction services being offered.

Cost of Revenue and Gross Profit

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

Consolidated cost of revenue decreased $20.6 million, or 3%, driven primarily by lower input costs.

Consolidated gross profit increased $184.7 million, or 278%.

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.

As a percentage of revenue, consolidated gross profit increased to 28% for the three and six months ended June 30, 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 $135.0 million, or 245%.

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.

As a percentage of revenue, gross profit at Array Legacy increased to 29% from 9% for the six months ended June 30, 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 cost savings opportunities in logistics and raw materials as well as higher proportion of higher margin non-tracker revenue.

STI Operations gross profit increased $49.7 million, or 435.3%.

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.

As a percentage of revenue, gross profit for STI Operations increased to 26% from 9% for the six months ended June 30, 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 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.

Consolidated general and administrative expenses increased by $4.0 million, or 5%.

The increase was driven by higher payroll and related expenses incurred to increase headcount in support of our growth and innovation strategy, as well as higher professional fees for accounting and SOX initiatives.

These increases were partially offset by no acquisition related expenses in 2023 compared to expenses related to the acquisition of STI in 2022.

Contingent Consideration

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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.

Consolidated depreciation and amortization decreased by $22.2 million or 45% due to the decrease in the amortization of intangibles of $22.7 million, as the backlog intangible asset related to the STI Acquisition had a one-year life and was fully amortized as of January 11, 2023.

Interest Expense

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.

Consolidated interest expense decreased by $4.6 million, or 31%, primarily due to increased variable interest rates charged on our Term Loan Facility as well as the write off of $1.7 million of non-cash interest expense related to the accelerated principle payments made against the outstanding Term Loan balance.

Income Tax Expense (Benefit)

Consolidated income tax increased by $65.5 million, or 197%.

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.

The Company recorded income tax expense of $32.3 million for the six months ended June 30, 2023 compared to a benefit of $33.2 million for the six months ended June 30, 2022.

Our effective tax rate was 26.2% for the six months ended June 30, 2023 and 51.7% for the six months ended June 30, 2022.

The tax expense for the six months ended June 30, 2023 was unfavorably impacted by higher income reported in non-U.S.

jurisdictions and an increase in income tax expense 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 six months ended June 30, 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.

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Cash Flows (in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ 66,356 $ (60,764)

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Net change in cash and cash equivalents $ 22,065 $ (316,624)

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.

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

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

Based on our past performance and current expectations, we believe that operating cash flows will be sufficient to meet our future cash needs.

As of June 30, 2023, our cash balance was $156.0 million, of which $60.7 million was held outside the U.S., and net working capital was $473.3 million.

We had outstanding borrowings of $290.3 million under our $575 million Term Loan Facility and $173.3 million available to us under our $200 million Revolving Credit Facility.

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

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Operating Activities

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.

For the six months ended June 30, 2023, cash provided by operating activities was $66.4 million, of which $139.9 million was generated from net income as adjusted for the impact of non-cash expenses, consisting primarily of deferred tax expense, depreciation and amortization, equity-based compensation and both a $30.5 million increase in accounts payable and a $22.8 million decrease in inventory.

These increases were partially offset by an $81.0 million increase in accounts receivable and a $64.1 million decrease in deferred revenue.

For the six months ended June 30, 2022, cash used in operating activities was $60.8 million, primarily due to an increase in accounts receivable and inventories of $106.5 million and $77.2 million, respectively.

Inventories increased as a result of a build up of product due to supply chain difficulties and accounts receivable is higher due to higher sales.

This increase was offset in part by an increase in accounts payable of $74.5 million due to higher expenses associated with increased sales.

Investing Activities

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.

For the six months ended June 30, 2023, net cash used in investing activities was $9.4 million, all of which was related to the purchase of property, plant and equipment.

For the six months ended June 30, 2022, net cash used in investing activities was $377.7 million, primarily due to cash used in the STI Acquisition.

Financing Activities

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.

For the six months ended June 30, 2023, net cash used by financing activities was $39.3 million, driven primarily by $22.2 million in payments on our Term Loan and a $14.5 million net reduction of other debt.

For the six months ended June 30, 2022, net cash provided by financing activities was $122.7 million, of which $101.0 million related to proceeds under the Revolving Facility and $48.4 million related to proceeds from the Additional Closing in January 2022 offset by payments of $33.0 million on the Revolving Facility.

Series A Redeemable Perpetual Preferred Stock

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.

On August 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain investors (the “Purchasers”).

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.

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

Further, pursuant to the Securities Purchase Agreement, and subject to the terms and conditions set forth therein, as amended, we have issued and sold to the Purchasers 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.

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For a discussion of our debt obligations see Note 7 – 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.

As of June 30, 2023, we posted surety bonds in the total amount of approximately $220.9 million.

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

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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.

The capped call option agreements associated with conversion of the Convertible Notes ( the “Capped Calls”) 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 are 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.

The Capped Calls are valued using a Black-Scholes 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

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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 2. Management’s Discussion and Analysis