What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 116 added, 108 removed, 227 unchanged (50% of the section changed)

41 unchanged sentences

• our substantial indebtedness could adversely affect our financial condition;

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

• the implementation of the Inflation Reduction Act may not deliver as much growth as we are anticipating, and we may not be able to maximize its benefits;

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

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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 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.

During the nine months ended September 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 September 30, 2023, we had shipped more than 70.0 gigawatts of trackers to customers worldwide, including STI.

Our corporate headquarters are located in Albuquerque, New Mexico.

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

As of September 30, 2023, we had 1,058 full-time employees.

Acquisition of STI Norland

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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 six months ended June 30, 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 six months ended June 30, 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 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.

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.

Inflationary pressures 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.

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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;

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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.

On August 18, 2023, the USDOC announced the final determinations in the circumvention inquiries of solar cells and modules from China.

The USDOC found that certain Chinese producers were shipping solar products through Cambodia, Malaysia, Thailand, and/or Vietnam for minor processing in an attempt to circumvent

antidumping and countervailing duties.

The final determination affirms the USDOC’s preliminary findings in most respects;

however, pursuant to President Biden’s June 6, 2022 emergency declaration, duties will not be collected on any solar module and cell imports from these four countries until June 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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While we do not import or sell solar panels, project delays caused by solar panel constraints may negatively impact our product delivery schedules and future sales, and therefore our business, financial condition, and results of operations.

Impact of the Ongoing Conflict in Ukraine

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

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

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.

Antidumping and Countervailing Duty Petitions on Aluminum Extrusions

On October 4, 2023, domestic producers filed petitions with the USDOC International Trade Commission, seeking antidumping duties on imports of aluminum extrusions from Colombia, the Dominican Republic, Ecuador, India, Indonesia, Italy, Malaysia, Mexico, China, South Korea, Taiwan, Thailand, Turkey, the United Arab Emirates (UAE) and Vietnam, and countervailing duties on such imports from China, Indonesia, Mexico and Turkey.

The merchandise subject to this investigation is aluminum extrusions, regardless of form, finishing or fabrication, whether assembled with other parts or unassembled, whether coated, painted, anodized or thermally improved.

Certain components in our trackers, including certain clamps, U-joints, and bearing housings are made using extruded aluminum.

It is anticipated that the USDOC will set preliminary countervailing duty rates in March of 2024 and preliminary antidumping rates in May of 2024, with the potential to cover materials imported from December 2023 and February 2024 onward, respectively.

We cannot currently predict what, if any, impact the USDOC’s investigation will have on the overall future supply of these components.

We continue to monitor developments in the investigation and work to mitigate its impact on our

supply chain, but if we are unable to do so, these antidumping and countervailing duties could negatively impact our business, financial condition, and results of operations.

Impact of the Ongoing Russian-Ukraine Conflict

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

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

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

Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.

Our product costs are affected by the underlying cost of raw materials, including steel and aluminum;

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

Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.

In addition, cost of revenue includes amortization of developed technology.

Gross profit may vary from quarter to quarter and is primarily affected by our ASPs, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs and seasonality.

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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.

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.

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

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.

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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, contractual backlog, and the STI trade name amortized over their expected period of use.

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

Non-Operating Expenses

Interest Expense

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.

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

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

2023 2022 $ % 2023 2022 $ %

1 unchanged sentence

Cost of revenue:

Cost of product and service revenue 259,419 434,801 (175,382) (40) % 892,696 1,088,719 (196,023) (18) %

Amortization of developed technology 3,640 3,640 — — % 10,918 10,918 — — %

Total cost of revenue 263,059 438,441 (175,382) (40) % 903,614 1,099,637 (196,023) (18) %

Gross profit 87,379 76,583 10,796 14 % 331,322 135,838 195,484 144 %

5 unchanged sentences

Income (loss) from operations 40,205 17,194 23,011 134 % 183,904 (34,482) 218,386 633 %

Other income (expense):

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

Other (expense) income:

Other (expense), net (446) (1,092) 646 59 % (127) (2,295) 2,168 (94) %

Interest income 3,425 778 2,647 (340) % 6,124 2,371 3,753 158 %

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

Foreign currency gain (loss) 207 (159) 366 230 % 273 1,968 (1,695) (86) %

1 unchanged sentence

Interest expense (13,064) (8,831) (4,233) (48) % (35,372) (23,812) (11,560) (49) %

Total other (expense) (9,030) (10,128) 1,098 11 % (20,480) (12,464) (8,016) (64) %

Income (loss) before income tax (benefit) expense 87,211 (23,460) 110,671 472 % 123,219 (64,140) 187,359 292 %

Income tax (benefit) expense 22,403 (18,436) 40,839 222 % 32,279 (33,179) 65,458 197 %

Net income (loss) $ 64,808 $ (5,024) $ 69,832 1390 % $ 90,940 $ (30,961) $ 121,901 394 %

Total other (expense) income (9,762) 33,446 (43,208) (129) % (30,242) 20,982 (51,224) (244) %

Income (loss) before taxes 30,443 50,640 (20,197) (40) % 153,662 (13,500) 167,162 1238 %

Income tax expense (benefit) 7,229 9,996 (2,767) (28) % 39,508 (23,183) 62,691 270 %

Net income $ 23,214 $ 40,644 $ (17,430) (43) % $ 114,154 $ 9,683 $ 104,471 1079 %

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

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

June 30, Increase/(Decrease)

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

2023 2022 $ % 2023 2022 $ %

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 %

Array Legacy Operations $ 244,857 $ 400,463 $ (155,606) (39) % $ 895,322 $ 998,292 $ (102,970) (10) %

STI Operations 105,581 114,561 (8,980) (8) % 339,614 237,183 102,431 43 %

Total Revenue $ 350,438 $ 515,024 $ (164,586) (32) % $ 1,234,936 $ 1,235,475 $ (539) — %

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 %

Array Legacy Operations $ 58,233 $ 60,281 $ (2,048) (3) % $ 241,019 $ 108,111 $ 132,908 123 %

STI Operations 29,146 16,302 12,844 79 % 90,303 27,727 62,576 226 %

Total Gross Profit $ 87,379 $ 76,583 $ 10,796 14 % $ 331,322 $ 135,838 $ 195,484 144 %

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.

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

Consolidated revenue decreased $164.6 million, or 32%, driven primarily by a decrease in both Array Legacy Operations of 39% and STI Operations of 8%.

The decrease in revenue in Array Legacy Operations was driven by a 33% reduction in the number of MWs shipped due to project delays from our customers, as well as a 9% reduction in ASP due to lower input costs for materials and logistics.

The decrease in revenue in STI Operations was driven by a decrease 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.

Consolidated cost of revenue decreased by $175.4 million, or 40%, driven primarily by a reduction in revenue combined with lower input costs.

Consolidated gross profit increased by $10.8 million, or 14%.

As a percentage of revenue, consolidated gross profit increased to 25% for the three months ended September 30, 2023, as compared to 15% during the same period in the prior year.

Both operating segments had increases in gross profit as a percent of revenue.

Array Legacy Operations gross profit decreased by $2.0 million, or 3%.

As a percentage of revenue, gross profit increased to 24% from 15% for the three months ended September 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 due to improved raw materials pricing and lower logistics rates, as well as a higher proportion of higher margin non-tracker revenue.

STI Operations gross profit increased by $12.8 million, or 79%.

As a percentage of revenue, gross profit for STI Operations increased to 28% from 14% for the three months ended September 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.

Consolidated general and administrative expenses decreased by $1.3 million, or 3%.

In the third quarter of 2022, the Company incurred $4.9 million in professional fees related to the STI acquisition for which there were no comparable expenses in the current year.

Excluding those fees, expense was up primarily due to an increase in payroll and related costs, driven by an increase in headcount.

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.

Consolidated contingent consideration expense increased by $0.8 million, or 133%, as a result of the increased valuation of the TRA liability.

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.

Consolidated depreciation and amortization decreased by $11.7 million or 55%, due to the decrease in the amortization of intangibles of $12.0 million, as the backlog purchased as part of the STI Acquisition had a one-year life and was fully amortized in the first quarter of 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.

Consolidated interest expense increased by $4.2 million, or 48%, primarily due to increased variable interest rates charged on our Term Loan Facility as well as the acceleration of $2.5 million of non-cash interest expense related to an unscheduled principal payment 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.

Consolidated income tax decreased by $2.8 million, or 28%.

The Company recorded income tax expense of $7.2 million for the three months ended September 30, 2023, compared to income tax expense of $10.0 million for the three months ended September 30, 2022.

Our effective tax rate was 23.7% for the three months ended September 30, 2023, and 19.7% for the three months ended September 30, 2022.

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

jurisdictions which have higher tax rates than the U.S.

and non-deductible expenses.

The tax expense for the three months ended September 30, 2022, which includes $8.7 million related to the legal settlement discretely recorded in the period, 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 $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.

Consolidated net income decreased by $17.4 million, or 43%, driven by a $164.6 million decrease in consolidated revenue and the nonrecurrence in the current year of a $42.8 million legal settlement gain recognized by Array Legacy Operations during the three months ended September 30, 2022.

Comparison of the nine months ended September 30, 2023 and 2022

Consolidated revenue was flat year over year, driven by an increase in STI Operations of $102.4 million, offset by a decrease in Array Legacy Operations of $103.0 million.

The $102.4 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, which offset lower ASP due to a smaller percentage of construction services being offered.

The $103.0 million, or 10%, revenue decrease in Array Legacy Operations was driven by a decrease in the number of megawatts shipped, due primarily to project delays from our customers.

Cost of Revenue and Gross Profit

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 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 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 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.

Consolidated cost of revenue decreased by $196.0 million, or 18%, driven primarily by a reduction in revenue combined with a decrease in input costs.

Consolidated gross profit increased by $195.5 million, or 144%.

As a percentage of revenue, consolidated gross profit increased to 27% for the nine months ended September 30, 2023, as compared to 11% during the same period in the prior year.

The increase in gross profit dollars was driven by cost savings opportunities and lower overall costs in logistics and raw materials, a higher proportion of higher margin non-tracker revenue and a decrease in lower margin construction related services.

Array Legacy Operations gross profit increased by $132.9 million, or 123%.

As a percentage of revenue, gross profit at Array Legacy Operations increased to 27% from 11% for the nine months ended September 30, 2023 and 2022, respectively.

STI Operations gross profit increased by $62.6 million, or 226%.

As a percentage of revenue, gross profit for STI Operations increased to 27% from 12% for the nine months ended September 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:

1 unchanged sentence

Consolidated general and administrative expenses increased by $2.8 million, or 2%.

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.

The increase was driven by higher payroll and related expenses incurred to increase headcount in support of our growth and innovation strategy.

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

Contingent Consideration

1 unchanged sentence

Depreciation and Amortization

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.

Consolidated depreciation and amortization decreased by $33.9 million, or 54%, due to the decrease in the amortization of intangibles of $34.7 million, as the backlog purchased as part of the STI Acquisition had a one-year life and was fully amortized as of the first quarter of 2023.

Interest Expense

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.

Consolidated interest expense increased by $11.6 million, or 49%, primarily due to increased variable interest rates charged on our Term Loan Facility as well as the acceleration of $3.6 million of non-cash interest expense related to unscheduled principal payments made against the outstanding Term Loan balance.

Income Tax Expense (Benefit)

Consolidated income tax increased by $62.7 million, or 270%.

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.

The Company recorded income tax expense of $39.5 million for the nine months ended September 30, 2023, compared to a benefit of $23.2 million for the nine months ended September 30, 2022.

Our effective tax rate was 25.7% and 171.7% for the nine months ended September 30, 2023 and 2022, respectively.

The tax expense for the nine months ended September 30, 2023, was unfavorably impacted by higher income 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 period.

The tax benefit for the nine months ended September 30, 2022, which includes $8.7 million related to the legal settlement discretely recorded in the period, 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 $121.9 million, or 394%, driven by a $164.0 million increase in consolidated revenue, a 278% increase in consolidated gross profit margin and an $10.7 million reduction in operating expenses, partially offset by a $65.5 million increase in income tax expense.

Consolidated net income increased by $104.5 million, or 1,079%, driven by a 144% increase in consolidated gross profit margin and a $22.9 million reduction in operating expenses, partially offset by a $62.7 million increase in income tax expense and the nonrecurrence in the current year of a $42.8 million legal settlement gain recognized by Array Legacy Operations during the three months ended September 30, 2022.

Liquidity and Capital Resources

Cash Flows (in thousands)

Six Months Ended June 30,

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

Nine Months Ended September 30,

Net cash provided by operating activities

$ 137,974 $ 44,023

Net cash used in investing activities (11,615) (380,506)

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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.

As of September 30, 2023, our cash balance was $174.0 million, of which $62.5 million was held outside the U.S., and net working capital was $462.6 million.

We had outstanding borrowings of $239.3 million under our $575 million Term Loan Facility and $175.1 million available to us under our $200 million Revolving Credit Facility.

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Operating Activities

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.

For the nine months ended September 30, 2023, cash provided by operating activities was $138.0 million, of which $184.8 million was generated from net income as adjusted for the impact of non-cash expenses, consisting primarily of depreciation and amortization, equity-based compensation, amortization of developed technology, and amortization of debt discount and issuance costs.

Increases in accrued expenses and other of $18.5 million, accounts payable of $14.4 million, and inventory of $12.6 million, were partially offset by decreases in deferred revenue of $78.2 million and accounts receivable of $6.4 million.

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.

Investing Activities

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.

For the nine months ended September 30, 2023, net cash used in investing activities was $11.6 million, all of which was related to the purchase of property, plant and equipment.

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.

Financing Activities

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.

For the nine months ended September 30, 2023, net cash provided by financing activities was $84.4 million, driven primarily by $73.2 million in payments on our Term Loan and a $8.5 million net reduction of other debt.

For the nine months ended September 30, 2022, net cash provided by financing activities was $33.1 million, of which $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.

Series A Redeemable Perpetual Preferred Stock

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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.

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

For more information related to the Series A Shares, see Note 8 – Redeemable Perpetual Preferred Stock ,” to the accompanying condensed consolidated financial statements.

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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.

As of September 30, 2023, we posted surety bonds in the total amount of approximately $217.6 million.

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

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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.

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.

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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