Array Technologies, Inc. 10-Q

Item 1. Financial Statements. Array Technologies, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except per share and share amounts) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 174,010 $ 133,901 Accounts receivable, net of allowance of $ 1,418 and $ 1,888 , respectively 427,664 421,183 Inventories 216,018 233,159 Income tax receivables 367 3,532 Prepaid expenses and other 45,029 39,434 Total current assets 863,088 831,209 Property, plant and equipment, net 29,521 23,174 Goodwill 426,541 416,184 Other intangible assets, net 353,923 386,364 Deferred income tax assets — 16,466 Derivative assets 64,130 — Other assets 41,554 32,655 Total assets $ 1,778,757 $ 1,706,052 LIABILITIES, REDEEMABLE PERPETUAL PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 171,730 $ 170,430 Accrued expenses and other 72,638 54,895 Accrued warranty reserve 2,506 3,690 Income tax payable 6,143 6,881 Deferred revenue 100,757 178,922 Current portion of contingent consideration 1,814 1,200 Current portion of debt 38,767 38,691 Other current liabilities 6,155 10,553 Total current liabilities 400,510 465,262 Deferred income tax liabilities 69,928 72,606 Contingent consideration, net of current portion 7,805 7,387 Other long-term liabilities 21,820 14,808 Long-term warranty 3,421 1,786 Long-term debt, net of current portion 658,879 720,352 1 Array Technologies, Inc. Condensed Consolidated Balance Sheets (unaudited) (continued) (in thousands, except per share and share amounts) September 30, 2023 December 31, 2022 Total liabilities 1,162,363 1,282,201 Commitments and contingencies (Note 11) Series A Redeemable Perpetual Preferred Stock of $ 0.001 par value - 500,000 authorized; 425,956 and 406,389 shares issued as of September 30, 2023 and December 31, 2022, respectively; liquidation preference of $ 493.1 million and $ 493.1 million at respective dates 337,929 299,570 Stockholders’ equity: Preferred stock of $ 0.001 par value - 4,500,000 shares authorized; none issued at respective dates — — Common stock of $ 0.001 par value - 1,000,000,000 shares authorized; 151,071,429 and 150,513,104 shares issued at respective dates 151 150 Additional paid-in capital 407,916 383,176 Accumulated deficit ( 153,316 ) ( 267,470 ) Accumulated other comprehensive income 23,714 8,425 Total stockholders’ equity 278,465 124,281 Total liabilities, redeemable perpetual preferred stock and stockholders’ equity $ 1,778,757 $ 1,706,052 See accompanying Notes to Condensed Consolidated Financial Statements. 2 Array Technologies, Inc. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue $ 350,438 $ 515,024 $ 1,234,936 $ 1,235,475 Cost of revenue: Cost of product and service revenue 259,419 434,801 892,696 1,088,719 Amortization of developed technology 3,640 3,640 10,918 10,918 Total cost of revenue 263,059 438,441 903,614 1,099,637 Gross profit 87,379 76,583 331,322 135,838 Operating expenses: General and administrative 37,432 38,703 115,825 113,064 Change in fair value of contingent consideration 190 ( 572 ) 2,232 ( 5,981 ) Depreciation and amortization 9,552 21,258 29,361 63,237 Total operating expenses 47,174 59,389 147,418 170,320 Income (loss) from operations 40,205 17,194 183,904 ( 34,482 ) Other (expense) income: Other (expense), net ( 446 ) ( 1,092 ) ( 127 ) ( 2,295 ) Interest income 3,425 778 6,124 2,371 Legal settlement — 42,750 — 42,750 Foreign currency gain (loss) 207 ( 159 ) 273 1,968 Change in fair value of derivative assets 116 — ( 1,140 ) — Interest expense ( 13,064 ) ( 8,831 ) ( 35,372 ) ( 23,812 ) Total other (expense) income ( 9,762 ) 33,446 ( 30,242 ) 20,982 Income (loss) before taxes 30,443 50,640 153,662 ( 13,500 ) Income tax expense (benefit) 7,229 9,996 39,508 ( 23,183 ) Net income 23,214 40,644 114,154 9,683 Preferred dividends and accretion 13,091 12,257 38,359 36,045 Net income (loss) to common shareholders $ 10,123 $ 28,387 $ 75,795 $ ( 26,362 ) Income (loss) per common share Basic $ 0.07 $ 0.19 $ 0.50 $ ( 0.18 ) Diluted $ 0.07 $ 0.19 $ 0.50 $ ( 0.18 ) Weighted average number of common shares outstanding Basic 151,068 150,322 150,865 149,604 Diluted 152,323 151,382 152,083 149,604 3 Array Technologies, Inc. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share amounts) See accompanying Notes to Condensed Consolidated Financial Statements. 4 Array Technologies, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 23,214 $ 40,644 $ 114,154 $ 9,683 Change in foreign currency translation adjustments (1) ( 22,495 ) ( 30,807 ) 15,289 ( 19,340 ) Comprehensive income (loss) $ 719 9,837 $ 129,443 $ ( 9,657 ) (1) The tax effect on other comprehensive income is not material. See accompanying Notes to Condensed Consolidated Financial Statements. 5 Array Technologies, Inc. Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (unaudited) (in thousands) Three Months Ended September 30, 2023 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity Balance at June 30, 2023 419 $ 324,838 — $ — 151,049 $ 151 $ 417,624 $ ( 176,530 ) $ 46,209 $ 287,454 Equity-based compensation — — — — 22 — 3,383 — — 3,383 Preferred cumulative dividends plus accretion 7 13,091 — — — — ( 13,091 ) — — ( 13,091 ) Net income — — — — — — — 23,214 — 23,214 Other comprehensive loss — — — — — — — — ( 22,495 ) ( 22,495 ) Balance at September 30, 2023 426 $ 337,929 — $ — 151,071 $ 151 $ 407,916 $ ( 153,316 ) $ 23,714 $ 278,465 6 Array Technologies, Inc. Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued) (unaudited) (in thousands) Three Months Ended September 30, 2022 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Balance at June 30, 2022 413 $ 293,974 — — 150,279 $ 150 $ 401,614 $ ( 302,863 ) $ 11,467 $ 110,368 Equity-based compensation — — — — 55 — 4,097 — — 4,097 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees — — — — — — ( 592 ) — — ( 592 ) Preferred cumulative dividends plus accretion — 12,257 — — — — ( 12,257 ) — — ( 12,257 ) Dividends paid ( 13 ) ( 18,670 ) — — — — — — — — Net income — — — — — — — 40,644 — 40,644 Other comprehensive loss — — — — — — — — ( 30,807 ) ( 30,807 ) Balance at September 30, 2022 400 $ 287,561 — — 150,334 $ 150 $ 392,862 $ ( 262,219 ) $ ( 19,340 ) $ 111,453 7 Array Technologies, Inc. Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued) (unaudited) (in thousands) Nine Months Ended September 30, 2023 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity Balance at December 31, 2022 406 $ 299,570 — $ — 150,513 $ 150 $ 383,176 $ ( 267,470 ) $ 8,425 $ 124,281 Equity-based compensation — — — — 558 1 11,694 — — 11,695 Correction of the Capped Call and Put Option errors (see Note 1) — — — — — — 52,914 — — 52,914 Preferred cumulative dividends plus accretion 20 38,359 — — — — ( 39,868 ) — — ( 39,868 ) Net income — — — — — — — 114,154 — 114,154 Other comprehensive income — — — — — — — — 15,289 15,289 Balance at September 30, 2023 426 $ 337,929 — $ — 151,071 $ 151 $ 407,916 $ ( 153,316 ) $ 23,714 $ 278,465 8 Array Technologies, Inc. Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued) (unaudited) (in thousands) Nine Months Ended September 30, 2022 Temporary Equity Permanent Equity Series A Redeemable Perpetual Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Balance at December 31, 2021 350 $ 237,462 — $ — 135,027 $ 135 $ 202,562 $ ( 271,902 ) $ — $ ( 69,205 ) Equity-based compensation — — — — 161 — 11,454 — — 11,454 Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees 50 32,724 — — 15,146 15 214,891 — — 214,906 Preferred cumulative dividends plus accretion 13 36,045 — — — — ( 36,045 ) — — ( 36,045 ) Dividends paid ( 13 ) ( 18,670 ) — — — — — — — — Net income — — — — — — — 9,683 — 9,683 Other comprehensive income — — — — — — — — ( 19,340 ) ( 19,340 ) Balance at September 30, 2022 400 $ 287,561 — $ — 150,334 $ 150 $ 392,862 $ ( 262,219 ) $ ( 19,340 ) $ 111,453 See accompanying Notes to Condensed Consolidated Financial Statements. 9 Array Technologies, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2023 2022 Operating activities: Net income $ 114,154 $ 9,683 Adjustments to net income: Provision for (recovery of) bad debts ( 117 ) 660 Deferred tax expense (benefit) 284 ( 36,002 ) Depreciation and amortization 30,318 64,039 Amortization of developed technology 10,918 10,918 Amortization of debt discount and issuance costs 9,123 5,003 Equity-based compensation 11,695 11,677 Contingent consideration 2,232 ( 5,981 ) Warranty provision 451 4,341 Write-down of inventories 4,587 ( 2,333 ) Change in fair value of derivative assets 1,140 — Changes in operating assets and liabilities, net of business acquisition: Accounts receivable ( 6,364 ) ( 139,036 ) Inventories 12,554 ( 14,273 ) Income tax receivables 3,165 ( 3,610 ) Prepaid expenses and other ( 2,140 ) 16,329 Accounts payable 14,443 42,073 Accrued expenses and other 18,484 41,271 Warranty payments — ( 373 ) Income tax payable ( 738 ) 2,951 Lease liabilities ( 8,050 ) 1,914 Deferred revenue ( 78,165 ) 34,772 Net cash provided by operating activities 137,974 44,023 Investing activities: Purchase of property, plant and equipment ( 11,615 ) ( 6,690 ) Acquisition of STI, net of cash acquired — ( 373,816 ) Net cash used in investing activities ( 11,615 ) ( 380,506 ) Financing activities: Proceeds from Series A issuance — 33,098 Proceeds from common stock issuance — 15,885 Series A equity issuance costs ( 1,509 ) ( 1,167 ) Common stock issuance costs — ( 450 ) Dividends on Series A Preferred — ( 18,670 ) Payments on revolving credit facility — ( 116,000 ) Proceeds from revolving credit facility — 116,000 Proceeds from issuance of other debt 60,516 39,219 Principal payments on term loan facility ( 73,225 ) — 10 Array Technologies, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (continued) (in thousands) Nine Months Ended September 30, 2023 2022 Principal payments on other debt ( 69,024 ) ( 33,286 ) Contingent consideration payments ( 1,200 ) ( 1,483 ) Net cash provided by (used in) financing activities ( 84,442 ) 33,146 Effect of exchange rate changes on cash and cash equivalent balances ( 1,808 ) ( 1,555 ) Net change in cash and cash equivalents 40,109 ( 304,892 ) Cash and cash equivalents, beginning of period 133,901 367,670 Cash and cash equivalents, end of period $ 174,010 $ 62,778 Supplemental Cash Flow Information Cash paid for interest $ 36,136 $ 22,226 Cash paid for income taxes (net of refunds) $ 36,797 $ 1,189 Non-cash Investing and Financing Activities Dividends accrued on Series A Preferred $ 19,567 $ — Stock consideration paid for acquisition of STI $ — $ 200,224 See accompanying Notes to Condensed Consolidated Financial Statements. 11 Array Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization, Business and Out-of-Period Adjustments Array Technologies, Inc. (the “Company”), formerly ATI Intermediate Holdings, LLC, is a Delaware corporation formed in December 2018 as a wholly owned subsidiary of ATI Investment Parent, LLC (“Former Parent”). On October 14, 2020, the Company converted from a Delaware limited liability company to a Delaware corporation and changed the Company’s name to Array Technologies, Inc. The Company is headquartered in Albuquerque, New Mexico, and manufactures and supplies solar tracking systems and related products for customers across the United States and internationally. The Company, through its wholly-owned subsidiary, ATI Investment Sub, Inc., owns subsidiaries through which it conducts substantially all operations. Acquisition of STI Norland On January 11, 2022, the Company acquired 100 % of the share capital of Soluciones Técnicas Integrales Norland, S.L.U., a Spanish private limited liability Company, and its subsidiaries (collectively, “STI”) with cash and common stock of the Company (the “STI Acquisition”). The STI Acquisition was accounted for as a business combination. Upon completion of the STI Acquisition, the Company began operating as two reportable operating segments: the Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI. Out-of-Period Adjustment for the Correction of Errors During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the three months ended March 31, 2023. The Company has concluded that the errors are not material to the previously issued financial statements and the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the three months ended March 31, 2023. Below is a summary of each of the errors corrected and a summary of the cumulative impact. Capped Calls As discussed in Note 10 – Debt of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023, in November 2021 the Company paid $ 52.9 million to enter into capped call option agreements (the “Capped Calls”) to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Company’s Convertible Notes (as defined below). The Company originally concluded that the Capped Calls met the criteria for equity classification because the Capped Calls are indexed to the Company’s common stock, and the Company has discretion to settle the Capped Calls in shares or cash. As a result, the Company originally recorded the amount paid for the Capped Calls as a reduction to additional paid-in capital of $ 52.9 million, offset by $ 12.4 million of income taxes. When the Company entered into the Capped Calls, the Company executed certain side letters (the “Side Letters”) with the counterparties that replaced some of the terms described in the primary contract including the volatility inputs used to value the Capped Calls under certain circumstances. Upon further evaluation, the Company has concluded that the modification to the volatility inputs precludes the Capped Calls from being 12 Array Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) indexed to its own stock because there is the possibility that the Capped Calls will settle at an amount that exceeds fair value and, therefore, prevents the Capped Calls from being classified as equity. In addition, the Side Letters also provide for certain adjustments to settlement amounts on the basis of holder-specific taxes which are impermissible inputs to the valuation that also prevents the Capped Calls from being indexed to the Company’s own stock, and therefore, prevents the Capped Calls from being classified as equity. As a result, for the three months ended March 31, 2023, the Company has concluded that the cash paid for the Capped Calls should have been recorded as an asset of $ 52.9 million with the asset being subsequently marked to market at the end of each accounting period. Additional Closing Purchased Put Option As discussed in Note 11 – Redeemable Perpetual Preferred Stock, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023, in August 2021 the Company entered into a Securities Purchase Agreement (the “SPA”) with certain Purchasers (as defined below), which gives the Company the option to require the Purchasers to purchase up to an additional 150,000 shares of Series A Shares (as defined below) and up to 3,375,000 shares of common stock for $ 148.0 million until June 30, 2023 (the “Put Option”), which has expired. Upon issuance of the Put Option, the Company recorded a reduction to additional paid-in-capital of approximately $ 12.4 million because the Company originally concluded that the Put Option should be classified as equity. During the first quarter of 2023, the Company reconsidered the provisions of this option. Because the Series A Shares underlying the Put Option could potentially require redemption under the Certificate of Designations governing the Series A Shares, the Put Option should not have been equity classified. As a result, during the three months ended March 31, 2023, the Company has concluded that the value of the Put Option at inception should have been recorded as an asset of $ 12.4 million, with the asset being subsequently marked to market at the end of each accounting period. Correction of the Capped Calls and Put Option The adjustments to correct the Capped Calls and the Put Option at January 1, 2023 resulted in an increase in Derivative assets of $ 55.7 million, a decrease in Deferred income tax assets of $ 11.0 million, an increase in additional paid-in-capital of $ 52.9 million, and a decrease in net income of $ 8.1 million. Goodwill In connection with the acquisition of STI, the Company had understated goodwill by $ 2.0 million and overstated inventory by the same amount that was sold during fiscal 2022. The Company corrected the goodwill balance during the first quarter of fiscal year 2023, resulting in an increase in goodwill and a decrease in cost of goods sold. 2. Summary of Significant Accounting Policies Basis of Accounting and Presentation The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the SEC. The unaudited interim financial 13 statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of results for the interim periods reported. The results for the three and nine months ended September 30, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or any other interim periods, or any future year or period. The balance sheet as of December 31, 2022, included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements included in the 2022 Annual Report. Unless expressly stated or the context otherwise requires, the terms “the Company”, “we”, “us”, “our”, “Array”, and “Array Technologies” refer to Array Technologies, Inc. and its consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report. Reclassifications Beginning in the third quarter of 2023, the Company reclassified amounts recorded for amortization of certain acquired intangible assets in prior presentations from Total operating expenses under the caption "Depreciation and amortization" to Total cost of revenue under the caption "Amortization of developed technology" in the condensed consolidated statements of operations. The Company believes this presentation enhances the comparability of the Company’s financial statements to industry peers. These reclassifications resulted in $ 3.6 million and $ 10.9 million recorded to Amortization of developed technology within Total cost of revenue and a $ 3.6 million and $ 10.9 million decrease to Depreciation and amortization within Total operating expenses during the three and nine months ended September 30, 2022, respectively. These reclassifications did not impact the Company’s operating income (loss), net income (loss) or earnings (loss) per share for any current or historical periods. These reclassifications also did not impact the condensed consolidated balance sheets or condensed consolidated statements of cash flows. Beginning in the third quarter of 2023, revenue excludes a $ 20.1 million Brazil value-added tax benefit, Imposto sobre Circulação de Mercadorias e Servicos (“ICMS”), that has been reclassified and included in cost of revenues in the current year. This reclassification was determined to be appropriate after we evaluated the expected accounting treatment related to future governmental incentives under the Inflation Reduction Act. For the nine months ended September 30, 2022, an ICMS benefit of $ 8.2 million was included in revenues. This reclassification had no impact on the Company’s gross profit, income (loss) from operations, net income or income (loss) per common share in the current period. These reclassifications also did not impact the condensed consolidated balance sheets or condensed consolidated statements of cash flows. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. 14 Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements; however, management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur. 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 the 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. Inflation Inflationary pressures are expected to persist, at least in the near-term, and may negatively impact our results of operations. To mitigate the inflationary pressures on our business, we have implemented selective price increases in certain markets, accelerated productivity initiatives and expanded our supplier base, while continuing to execute on overhead cost containment practices. Business Combinations 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. Foreign Currency Translation Exposure The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities, historical exchange rates to translate their retained earnings, and average exchange rates prevailing during the period to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive income (loss)” within stockholders’ equity. Certain of our foreign subsidiaries have local currencies that are different than the subsidiaries functional currencies. When translating from the local currency to the functional currency, monetary assets and liabilities are translated at the current exchange rate resulting in foreign exchange gains or losses, and non-monetary assets are translated at historical exchange rates. Changes in the exchange rates between the functional 15 currencies of our subsidiaries and the currencies in which monetary financial assets and liabilities are denominated, will create fluctuations in our reported condensed consolidated statements of operations and cash flows. Derivative Financial Instruments Both the Capped Call and the Put Option are accounted for as assets that are recorded at fair value within Derivative assets on the condensed consolidated balance sheets. The changes in fair value to Derivative assets are recorded within change in fair value of derivative assets on the Condensed Consolidated Statements of Operations. See Note 1 – Organization, Business and Out-of-Period Adjustments , for further information. As of June 30, 2023, the Put Option has expired and as a result, the fair value of the Put Option is $ 0 . Recent Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 , to provide entities with relief during the transition period by deferring the effective date of reference rate reform from December 31, 2022 to December 31, 2024. ASU 2022-06 is effective upon issuance. During the three months ended March 31, 2023, the Company adopted ASU 2020-04 and ASU 2022-06. Simultaneously, the Company elected to apply the debt accounting optional expedient, under which the reporting entity will account for amendments to debt agreements, which sole intent are the replacement of a discontinued reference rate(s), as being not substantial and thus a continuation of the existing contract . There was no significant impact to the Company’s condensed consolidated financial statements related to the adoption of ASU 2020-04 and ASU 2022-06. The Company continues to evaluate the impact of the ASU 2020-04 guidance and may apply other elections, as applicable, as additional changes in the market occur. In March 2023, the Company amended an existing debt agreement to replace the London Interbank Offered Rate (“LIBOR”) interest rate provisions with interest rate provisions based on a forward-looking term rate based on the secured overnight funding rate (“SOFR”) (see Note 7 – Debt ). There were no other changes to the agreement. There was no significant impact to the Company’s condensed consolidated financial statements. 3. Inventories Inventories consisted of the following (in thousands): September 30, 2023 December 31, 2022 Raw materials $ 133,726 $ 66,574 Finished goods 82,292 166,585 Inventories $ 216,018 $ 233,159 16 4. Property, Plant and Equipment, Net Property, plant and equipment consisted of the following (in thousands, except useful lives): Estimated Useful Lives (Years) September 30, 2023 December 31, 2022 Land N/A $ 1,612 $ 1,583 Buildings and land improvements 15 - 39 9,034 7,411 Manufacturing equipment 7 22,223 18,983 Furniture, fixtures and equipment 5 - 7 4,567 3,583 Vehicles 5 666 585 Hardware and software 3 - 5 6,161 3,706 Assets in progress N/A 6,083 5,142 Total 50,346 40,993 Less: accumulated depreciation ( 20,825 ) ( 17,819 ) Property, plant and equipment, net $ 29,521 $ 23,174 Depreciation expense was $ 0.9 million and $ 0.7 million for the three months ended September 30, 2023 and 2022, respectively, of which $ 0.4 million was included in cost of revenue in both periods and $ 0.5 million and $ 0.3 million, respectively, was included in depreciation and amortization, on the accompanying condensed consolidated statements of operations. Depreciation expense was $ 2.4 million and $ 1.9 million for the nine months ended September 30, 2023 and 2022, respectively, of which $ 1.0 million and $ 1.2 million, respectively, was included in cost of revenue and $ 1.4 million and $ 0.6 million, respectively, was included in depreciation and amortization on the accompanying condensed consolidated statements of operations. 5. Goodwill and Other Intangible Assets, Net Goodwill Changes in the carrying amount of goodwill by operating segment during the nine months ended September 30, 2023, consisted of the following (in thousands): Array Legacy Operations (1) STI Operations Total Beginning balance $ 69,727 $ 346,457 $ 416,184 Adjustment to goodwill (see Note 1) — 2,000 2,000 Foreign currency translation — 8,357 8,357 Ending balance $ 69,727 $ 356,814 $ 426,541 (1) Goodwill attributable to Array Legacy Operations is net of impairment of $ 51.9 million. Each quarter the Company evaluates if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. During our most recent evaluation, we concluded there were no indicators of impairment as of September 30, 2023. 17 Other Intangible Assets, Net Other intangible assets consisted of the following (in thousands, except useful lives): Estimated Useful Lives (Years) September 30, 2023 December 31, 2022 Amortizable: Developed technology 14 $ 203,800 $ 203,800 Customer relationships 10 327,008 321,935 Backlog 1 52,443 51,015 Trade name 20 26,014 25,682 Total amortizable intangibles 609,265 602,432 Accumulated amortization: Developed technology 105,265 94,347 Customer relationships 105,697 81,268 Backlog 52,443 49,507 Trade name 2,237 1,246 Total accumulated amortization 265,642 226,368 Total amortizable intangibles, net 343,623 376,064 Non-amortizable: Trade name 10,300 10,300 Total other intangible assets, net $ 353,923 $ 386,364 Amortization expense related to intangible assets was $ 12.6 million and $ 24.6 million for the three months ended September 30, 2023 and 2022, respectively, of which $ 3.6 million was included in amortization of developed technology, a component of cost of revenue, in both periods and $ 9.0 million and $ 21.0 million, respectively, was included in depreciation and amortization, on the accompanying condensed consolidated statements of operations. Amortization expense related to intangible assets was $ 38.8 million and $ 73.5 million for the nine months ended September 30, 2023 and 2022, respectively, of which $ 10.9 million was included in amortization of developed technology, a component of cost of revenue, in both periods and $ 27.9 million and $ 62.6 million, respectively, was included in depreciation and amortization, on the accompanying condensed consolidated statements of operations. 18 Estimated future amortization expense of intangible assets as of September 30, 2023, is as follows (in thousands): Amount Remainder of 2023 $ 12,384 2024 49,538 2025 49,538 2026 45,232 2027 40,588 Thereafter 146,343 $ 343,623 Long-lived assets, including both amortizable and non-amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. As of September 30, 2023, no events or circumstances were noted that would indicate the carrying amount of any of our asset groups may not be recoverable. 6. Income Taxes The Company follows guidance under ASC Topic 740-270 Income Taxes , which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income (loss). At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The tax effect of discrete items is recorded in the quarter in which the discrete events occur. The Company recorded income tax expense of $ 7.2 million and $ 10.0 million for the three months ended September 30, 2023 and 2022, respectively, and an expense of $ 39.5 million and a benefit of $ 23.2 million for the nine months ended September 30, 2023 and 2022, respectively. The income 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 (see Note 1 – Organization, Business and Out-of-Period Adjustments ), partially offset by benefits related to excess equity-based compensation deductions recorded discretely. The tax expense for the nine months ended September 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. For the nine months ended September 30, 2023 and 2022, no reserves for uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period. 19 7. Debt The following table summarizes the Company’s total debt (in thousands): September 30, 2023 December 31, 2022 Senior Secured Credit Facility: Term loan facility $ 239,250 $ 312,475 Revolving credit facility — — Total secured credit facility 239,250 312,475 Convertible notes 425,000 425,000 Other debt 55,278 51,951 Total principal 719,528 789,426 Unamortized discount and issuance costs, total ( 21,882 ) ( 30,383 ) Current portion of debt ( 38,767 ) ( 38,691 ) Total long-term debt, net of current portion $ 658,879 $ 720,352 Senior Secured Credit Facility On October 14, 2020, the Company entered into a credit agreement (as amended, the “Credit Agreement”) governing the Company’s senior secured credit facility, consisting of (i) a $ 575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $ 200 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”). The Credit Agreement was amended on February 23, 2021 (the “First Amendment”), on February 26, 2021 (the “Second Amendment”) and again on March 2, 2023 (the “Third Amendment”). The single purpose of the Third Amendment in March 2023 was to replace the former discontinued Senior Secured Credit Facility reference rate of LIBOR, with the comparable active reference rate, SOFR. There were no other changes as a result of the Third Amendment. Revolving Credit Facility Under the Revolving Credit Facility, the Company had no outstanding balance as of both September 30, 2023 and December 31, 2022, $ 24.9 million and $ 38.8 million in standby letters of credit at September 30, 2023 and December 31, 2022, respectively, and availability of $ 175.1 million and $ 161.2 million at September 30, 2023 and December 31, 2022, respectively. In accordance with the Third Amendment, the Revolving Credit Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (as defined in the Credit Agreement) plus 3.25 % or (y) for Base Rate Loans at the higher of the Prime Rate, one half of 1.00 % above the Federal Funds Rate or the Adjusted Term SOFR for one month interest period, after giving effect to any floor plus 1.00 %, plus 2.25 %. Term Loan Facility The Term Loan Facility had a balance of $ 239.3 million and $ 312.5 million as of September 30, 2023 and December 31, 2022, respectively. The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $ 12.0 million and $ 19.1 million as of September 30, 2023 and December 31, 2022, respectively. In accordance with the Third Amendment, the Term Loan Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (subject to a floor of 0.50 %) plus 3.25 % or (y) for Base Rate Loans at the higher of the 20 Prime Rate, one half of 1.00 % above the Federal Funds Rate or the Adjusted Term SOFR for one-month interest period, after giving effect to any floor plus 1.00 %, plus 2.25 %. The debt discount and issuance costs are being amortized using the effective interest method and the effective interest rate of the Term Loan Facility as of September 30, 2023, was 9.95 %. The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula did not result in requiring the Company to make an advance principal payment for the year ended December 31, 2022. Convertible Notes On December 3, 2021 and December 9, 2021, the Company completed a $ 425.0 million private offering ($ 375 million and $ 50 million, respectively), of its 1.00 % Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $ 413.3 million ($ 364.7 million and $ 48.6 million, respectively), after deducting the original issue discount of 2.75 %. The Convertible Notes were issued pursuant to an indenture, dated December 3, 2021, between the Company and U.S. Bank National Association, as trustee. The Convertible Notes are senior unsecured obligations of the Company and will mature on December 1, 2028, unless earlier converted, redeemed, or repurchased. The Convertible Notes bear interest at a rate of 1.00 % per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022. As of September 30, 2023 and December 31, 2022, the principal balance of the Convertible Notes was $ 425.0 million with unamortized discount and issuance costs of $ 9.8 million and $ 11.3 million, respectively, for a net carrying amount of $ 415.2 million and $ 413.8 million, respectively. The conversion rate for the Notes was initially 41.9054 shares of the Company’s common stock per $ 1,000 principal amount of Notes, which was equivalent to an initial conversion price of approximately $ 23.86 per share of common stock or 10.1 million shares of common stock. The Convertible Notes were not convertible during the nine months ended September 30, 2023, and none have been converted to date. Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the three and nine months ended September 30, 2023. Capped Calls In connection with the issuances of the Convertible Notes, the Company paid $ 52.9 million, in aggregate, to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Convertible Notes. Specifically, upon the exercise of the Capped Call instruments issued pursuant to the agreements (the “Capped Calls”), the Company would receive shares of its common stock equal to approximately 17.8 million shares (a) multiplied by (i) the lower of $ 36.0200 or the then-current market price of its common stock, less (ii) the applicable exercise price, $ 23.86 , and (b) divided by the then-current market price of its common stock. The results of this formula are that the Company would receive more shares as the market price of its common stock exceeds the exercise price and approaches the cap, which was initially $ 36.02 per share. Consequently, if the Convertible Notes are converted, then the number of shares to be issued by the Company would be effectively partially offset by the shares of common stock received by the Company under the Capped Calls as they are exercised. The formula above would be adjusted in the event of certain specified extraordinary events affecting the Company, including: a merger; a tender offer; nationalization, insolvency or delisting of the Company’s common stock; changes in law; failure to deliver; insolvency filing; stock splits, combinations, dividends, repurchases or similar events; or an announcement of certain of the preceding actions. 21 The Company can also elect to receive the equivalent value of cash in lieu of shares of common stock upon settlement, except in certain circumstances. The Capped Calls expire on December 1, 2028, and terminate upon the occurrence of certain extraordinary events such as a merger, tender offer, nationalization, insolvency, delisting, event of default, a change in law, failure to deliver, an announcement of certain of these events, or an early conversion of the Convertible Notes. Although intended to reduce the net number of shares of common stock issued after a conversion of the Convertible Notes, the Capped Calls were separately negotiated transactions, are not a part of the terms of the Convertible Notes, and do not affect the rights of the holders of the Convertible Notes. See Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Capped Calls. Other Debt Other debt consists of the debt obligations of STI. Interest rates on other debt range from 0.55 % to 4.41 % annually. Of the $ 55.3 million other debt balance, approximately $ 45.3 million is denominated in Euros and $ 10.0 million is denominated in Brazilian Real. 8. Redeemable Perpetual Preferred Stock Series A Redeemable Perpetual Preferred Stock The Company entered into a Securities Purchase Agreement (the “SPA”) with certain investors (the “Purchasers”) pursuant to which, on August 11, 2021, the Company issued 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock (the “Series A Shares”) and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $ 346.0 million (the “Initial Closing”). Further, pursuant to the SPA, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $ 0.01 million (the “Prepaid Forward Contract”). The Company used the net proceeds from the initial Closing to repay the $ 102.0 million outstanding balance under its existing Revolving Credit Facility and prepay $ 100.0 million of the Company’s Term Loan Facility. The Series A Shares have no maturity date. The Put Option included in the SPA required the Purchasers to purchase up to an additional 150,000 shares of Series A Shares and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments) until June 30, 2023, subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction, for an aggregate purchase price up to $ 148.0 million (the “Delayed Draw Commitment” or the “Put Option”). The Put Option expired effective June 30, 2023. On January 7, 2022, pursuant to the Put Option, the Company issued and sold to the Purchasers 50,000 shares of Series A Shares and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $ 49.4 million (the “Additional Closing”). The Company has classified the Series A Shares as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method. Such accretion totaled $ 18.8 million and $ 17.2 million for the nine months ended September 30, 2023 and 2022, respectively. Refer to Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Put Option. 22 Dividends On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Shares either in (i) cash at the then-applicable Cash Regular Dividend Rate (as defined below), (ii) through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate of 6.25 % (the “Permitted Accrued Dividends”), or (iii) a combination thereof. Following the fifth anniversary of the Initial Closing, dividends are payable only in cash. To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points. In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Shares, will pay 100 % of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95 % of the 30-day VWAP of the Company’s common stock (“Non-Cash Dividend”). The “Cash Regular Dividend Rate” of the Series A Shares means (i) initially, 5.75 % per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing. The “Accrued Regular Dividend Rate” on the Series A Shares means 6.25 % per annum on the Liquidation Preference. As used herein, “Liquidation Preference” means, with respect to the Series A Shares, the initial liquidation preference of $ 1,000 per share, plus accrued dividends of such share at the time of the determination. During the nine months ended September 30, 2023, the Company accrued dividends on the Series A Shares at the Accrued Regular Dividend rate of 6.25 % totaling $ 19.6 million. As of September 30, 2023, total accrued and unpaid dividends were $ 26.0 million. The Series A Shares have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock . As a result, the discount on Series A Shares is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Shares by a corresponding amount. Accordingly, the discount is amortized over five years using the effective yield method. Fees During the six months ended June 30, 2023, the Company paid the Purchasers a per annum cash commitment fee totaling $ 1.5 million on the unpurchased portion of Put Option. The Put Option expired effective June 30, 2023. 23 9. Revenue The Company disaggregates its revenue from contracts with customers by sales recorded over time and sales recorded at a point in time. The following table presents the Company’s disaggregated revenues (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Over time revenue $ 321,154 $ 458,405 $ 1,120,526 $ 991,561 Point in time revenue 29,284 56,619 114,410 243,914 Total revenue $ 350,438 $ 515,024 $ 1,234,936 $ 1,235,475 Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (“contract assets”), and deferred revenue (“contract liabilities”) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses, in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings. Contract assets are recorded within accounts receivable, net on the condensed consolidated balance sheets on a contract-by-contract basis and consisted of the following at the end of each reporting period (in thousands): September 30, 2023 December 31, 2022 Unbilled receivables $ 74,076 $ 101,513 The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities relate to advanced orders and payments received by the Company. Contract liabilities are recorded on a contract-by-contract basis and consisted of the following at the end of each reporting period (in thousands): September 30, 2023 December 31, 2022 Deferred revenue $ 100,757 $ 178,922 During the nine months ended September 30, 2023, the Company converted $ 153.9 million in deferred revenue to revenue, which represented 86 % of the prior year’s deferred revenue balance. Bill-and-Hold Arrangements Revenue recognized for the Company’s federal investment tax credit (“ITC”) contracts and standalone system component sales is recorded at a point in time and recognized when obligations under the terms of the contract with the Company’s customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms. 24 In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers. An example of such a situation is when customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC. Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody. All bill-and-hold inventory is bundled or palletized in the Company’s warehouses, separately identified as not belonging to the Company and ready for immediate transport to the customer project upon request. Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer. During the three and nine months ended September 30, 2023, the Company recognized zero and $ 22.8 million, respectively, in revenue from a single customer for the sale of goods and services that also contained bill-and-hold obligations such as storage, handling and other custodial duties. Remaining Performance Obligations As of September 30, 2023, the Company had $ 336.2 million of remaining performance obligations. The Company expects to recognize revenue on 100 % of these performance obligations in the next twelve months . 10. Earnings Per Share The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 23,214 $ 40,644 $ 114,154 $ 9,683 Less: preferred dividends and accretion 13,091 12,257 38,359 36,045 Net income (loss) to common shareholders $ 10,123 $ 28,387 $ 75,795 $ ( 26,362 ) Basic: Weighted average shares 151,068 150,322 150,865 149,604 Income (loss) per share $ 0.07 $ 0.19 $ 0.50 $ ( 0.18 ) Diluted: Effect of restricted stock and performance awards 1,255 1,060 1,219 — Weighted average shares 152,323 151,382 152,083 149,604 Income (loss) per share $ 0.07 $ 0.19 $ 0.50 $ ( 0.18 ) Potentially dilutive common shares issuable pursuant to equity-based awards of 108,111 were not included for the nine months ended September 30, 2022, as their potential effect was anti-dilutive given the Company generated a net loss to common shareholders. There were no potentially dilutive common shares issuable pursuant to the Convertible Notes for both the nine months ended September 30, 2023 and 2022, as the average market price of the Company’s common stock has not exceeded the exercise price since their issuance. 25 11. Commitments and Contingencies Legal Proceedings The Company, in the normal course of business, is subject to claims and litigation. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss. On August 30, 2017, the Company filed its first amended complaint in the U.S. District Court for the District of New Mexico against Nextracker LLC, Daniel S. Shugar, Marco Garcia, Flextronics International U.S.A., Inc., Scott Graybeal and Colin Mitchell (collectively, the “Defendants”) asserting (among other claims) trade secret misappropriation, tortious interference with contract, fraud, and breach of contract (the “Nextracker Litigation”). On July 15, 2022, the Company settled its claims against Defendants for $ 42.8 million and received payment on August 4, 2022. On May 14, 2021, a putative class action was filed in the U.S. District Court for the Southern District of New York (the “Southern District of New York” or the “Court”) against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering (“IPO”), the Company’s December 2020 offering (the “2020 Follow-On Offering”), and the Company’s March 2021 offering (the “2021 Follow-On Offering”) during the putative class period of October 14, 2020 through May 11, 2021. On June 30, 2021, a second putative class action was filed in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11 and 15 of the Securities Exchange Act of 1933 (“Keippel Action”). The Keippel Action similarly alleged misstatements and/or omissions in certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering during the putative class period of October 14, 2020 through May 11, 2021. On July 6, 2021, the Court entered an order that the Keippel Action was in all material respects substantially similar to the Plymouth Action that both actions arise out of the same or similar operative facts, and that the parties are substantially the same parties. The Court accordingly consolidated the Keippel Action with the Plymouth Action for all pretrial purposes and, ordered all filings to be made in the Plymouth Action. On July 16, 2021, a verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“First SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934. On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a 26 false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second SDNY Derivative Action was consolidated with the First SDNY Derivative Action (the “Consolidated SDNY Derivative Action”), the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action. On September 21, 2021, the Court in the Plymouth Action appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiffs. On December 7, 2021, an amended class action complaint was filed by lead plaintiffs in the Plymouth Action against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Exchange Act of 1933, on behalf of a putative class of persons and entities that purchased or otherwise acquired the Company’s securities during the period from October 14, 2020 through May 11, 2021 (the “Consolidated Amended Complaint”). The Consolidated Amended Complaint alleges misstatements and/or omissions in: (1) certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering; (2) in the Company’s Annual Report on Form 10-K and associated press release announcing results for the fourth quarter and full fiscal year 2020; and (3) in the Company’s November 5, 2020 and March 9, 2021 earnings calls. On October 17, 2022, the Company and other defendants in the Plymouth Action filed a joint motion to dismiss (the “Motion to Dismiss”) the Consolidated Amended Complaint. The lead plaintiff filed a motion opposing the Motion to Dismiss on December 16, 2022, and the Company and other defendants filed a reply in support of the motion to dismiss on January 17, 2023. On May 19, 2023, the Court in the Plymouth Action granted the Company’s Motion to Dismiss. On July 5, 2023, the Court denied the lead plaintiffs’ request for leave to amend the Consolidated Amended Complaint and dismissed the Plymouth Action with prejudice. On August 4, 2023, the lead plaintiffs filed a notice of appeal of the Court’s dismissal of the Consolidated Amended Complaint (the “Second Circuit Appeal”). On September 11, 2023, pursuant to a scheduling request filed by lead plaintiffs, the United States Court of Appeals for the Second Circuit ordered lead plaintiffs to file their opening brief in the Second Circuit Appeal by November 17, 2023. On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company, asserting claims for: (1) breach of fiduciary duty and (2) unjust enrichment (“First Delaware Derivative Action”). On August 11, 2022, a second verified derivative complaint was filed against certain officers and directors of the Company Court of Chancery, asserting claims for: (1) breach of fiduciary duty; (2) aiding and abetting 27 breaches of fiduciary duty; (3) waste of corporate assets; (4) unjust enrichment; (5) insider selling; and (6) aiding and abetting insider selling (“Second Delaware Derivative Action”). On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action (the “Consolidated Delaware Derivative Action”), the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action. The stays in both the Consolidated SDNY Derivative Action and the Consolidated Delaware Derivative Action remain in place following the dismissal of the Plymouth Action during the pendency of the Second Circuit Appeal. At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the Company’s defenses. The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of September 30, 2023. Contingent Consideration Tax Receivable Agreement Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, the Company’s operating subsidiary, Array Tech, Inc. (f/k/a Array Technologies, Inc.), entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc., to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc., from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration on the condensed consolidated statements of operations. As of September 30, 2023 and December 31, 2022, the fair value of the TRA was $ 9.6 million and $ 8.6 million, respectively. Estimating the amount of payments that may be made under the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to the former owners 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. Payments made under the TRA consider tax positions taken by the Company and are due within 125 days following the filing of the Company’s U.S. federal and state income tax returns under procedures described in the agreement. The current portion of the TRA liability is based on tax returns. The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA. 28 The following table summarizes the activity related to the estimated TRA liability (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Beginning balance $ 9,429 $ 7,685 $ 8,587 $ 14,577 Payments — — ( 1,200 ) ( 1,483 ) Fair value adjustment 190 ( 572 ) 2,232 ( 5,981 ) Ending balance $ 9,619 $ 7,113 $ 9,619 $ 7,113 The TRA liability requires significant judgment and is classified as Level 3 in the fair value hierarchy. Surety Bonds As of September 30, 2023, the Company posted surety bonds in the total amount of $ 217.6 million. The Company is required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact the Company’s liquidity or capital resources. 12. Fair Value of Financial Instruments The carrying values and estimated fair values of the Company’s debt financial instruments were as follows (in thousands): September 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value Convertible Notes $ 415,158 $ 485,563 $ 413,752 $ 430,236 The fair value of the Convertible Notes is estimated using Level 2 inputs, as they are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers. The following table summarizes the activity related to the Capped Calls (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Beginning balance $ 64,014 $ — $ — $ — Change in fair value gain and loss 116 — ( 1,140 ) — Change due to correction of errors (see Note 1) — — 65,270 — Ending balance $ 64,130 $ — $ 64,130 $ — The Capped Calls are valued using a Black-Scholes model, with the most judgmental unobservable input being the volatility measure. The value of the Capped Call is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy. 29 The fair value of the Term Loans and Other Debt is estimated using Level 2 inputs. The carrying values of the Term Loans outstanding under the Senior Secured Credit facility recorded in the condensed consolidated balance sheets approximate fair value due to the variable nature of the interest rates. Other Debt totaling $ 55.3 million, consists of $ 40.0 million variable rate obligations and $ 15.3 million fixed rate obligations. Of the $ 15.3 million fixed rate obligations, $ 3.3 million mature in 2023 and $ 11.9 million mature in 2024. Due to the relative short-term maturity of the fixed rate obligations, the Company believes current carrying value approximates fair value. The carrying value of the $ 40.0 million variable rate obligations approximate fair value due to the variable nature of the interest rates. 13. Equity-Based Compensation 2020 Equity Incentive Plan On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan. Restricted Stock Units Pursuant to the 2020 Plan, the Company grants restricted stock units (“RSUs”) to employees and members of the Company’s board of directors. The fair value of the RSUs is determined using the market value of the Company’s common stock on the grant date. RSU activity under the 2020 Plan during the nine months ended September 30, 2023, was as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding non-vested, December 31, 2022 1,700,824 $ 13.81 Shares granted 846,559 17.90 Shares vested ( 564,358 ) 12.51 Shares forfeited ( 135,313 ) 18.57 Outstanding non-vested, September 30, 2023 1,847,712 $ 15.73 30 Performance Stock Units The Company has granted performance stock units (“PSUs”) to certain employees. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (“TSR”) compared to a certain index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method on the date of grant based on the U.S. Treasury Constant Maturity rates. The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the PSUs issued during the nine months ended September 30, 2023 and 2022: 2023 2022 Volatility 90 % 60 % Risk-free interest rate 3.74 % 2.83 % Dividend yield — % — % PSU activity under the 2020 Plan during the nine months ended September 30, 2023, was as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding non-vested, December 31, 2022 464,393 $ 11.96 Shares granted 263,594 19.22 Shares vested — — Shares forfeited ( 33,176 ) 15.15 Outstanding non-vested, September 30, 2023 694,811 $ 14.56 For the three months ended September 30, 2023 and 2022, the Company recognized $ 3.4 million and $ 4.2 million, respectively, in equity-based compensation expense. For the nine months ended September 30, 2023 and 2022, the Company recognized $ 11.9 million and $ 11.7 million, respectively, in equity-based compensation. At September 30, 2023, the Company had $ 24.7 million of unrecognized compensation costs related to RSUs and PSUs, which are expected to be recognized over approximately 2.0 years and 2.2 years, respectively. 14 Segment Reporting ASC 280 Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Historically, the Company managed its business on the basis of one operating and reportable segment. Concurrent with the acquisition of STI in January 2022, the Company began operating as two segments; Array Legacy Operations and STI Operations. The following table provides a reconciliation of certain financial information for the Company’s reportable segments to information presented in its condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue: Array Legacy Operations $ 244,857 $ 400,463 $ 895,322 $ 998,292 STI Operations 105,581 114,561 339,614 237,183 Total $ 350,438 $ 515,024 $ 1,234,936 $ 1,235,475 Gross Profit: Array Legacy Operations $ 58,233 $ 60,281 $ 241,019 $ 108,111 STI Operations 29,146 16,302 90,303 27,727 Total $ 87,379 $ 76,583 $ 331,322 $ 135,838 31