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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 142 added, 149 removed, 230 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information included in Part I, “Item 1.

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In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections captioned “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report and our 2023 Annual Report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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You should read this report with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of this Quarterly Report.

Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of our 2023 Annual Report and the “Risk Factors” section of this Quarterly Report.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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

We are one of the leading global manufacturer and supplier of ground-mounting tracking systems used in solar energy projects at utility scale.

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

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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, 2024, we derived 72% and 28% of our revenues from customers in the U.S.

During the nine months ended September 30, 2024, we derived 70% and 30% of our revenues from customers in the U.S.

and the rest of the world, respectively.

As of June 30, 2024, we had shipped more than 77.4 gigawatts of trackers to customers worldwide.

As of September 30, 2024, we had shipped approximately 79.9 gigawatts of trackers to customers worldwide.

Our corporate headquarters are located in Albuquerque, New Mexico.

As of June 30, 2024, we had 1,013 full-time employees.

As of September 30, 2024, we had 961 full-time employees.

Research and Development

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The Company expenses these costs as incurred prior to a respective product being ready for commercial production.

Total engineering expense was $4.1 million and $4.3 million during the three months ended June 30, 2024 and 2023, respectively, of which $1.8 million and $2.3 million were related to R&D activities performed by the Company during the same period, respectively.

Total engineering expense was $8.3 million and $8.2 million during the six months ended June 30, 2024 and 2023, respectively, of which $3.7 million and $4.4 million were related to R&D activities performed by the Company during the same period, respectively.

Total engineering expense was $4.4 million and $4.1 million during the three months ended September 30, 2024 and 2023, respectively, of which $1.6 million and $2.0 million were related to R&D activities performed by the Company during the same period, respectively.

Total engineering expense was $12.7 million and $12.3 million during the nine months ended September 30, 2024 and 2023, respectively, of which $5.3 million and $6.4 million were related to R&D activities performed by the Company during the same period, respectively.

Acquisition of STI Norland

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Our end-users’ ability to install solar energy systems has been affected by a number of factors including:

Inclement weather can affect our customers’ ability to install their systems, particularly in the northeastern United States and in Europe.

Inclement weather can affect our customers’ ability to install their systems, particularly in the northeastern United States, Europe and in Brazil.

In addition, weather delays can adversely affect our logistics and operations by causing delays in the shipping and delivery of our materials.

• The interest rate environment .

As interest rates have risen, we have seen customers looking to renegotiate power purchase agreements to improve project returns.

As interest rates rose in 2022 and 2023, we saw customers looking to renegotiate power purchase agreements to improve project returns.

Any unexpected or protracted negotiation can cause installation delays and delay our ability to recognize revenue relating to the relevant projects.

In addition, we have had customers delay planned installations in anticipation of interest reductions and more favorable project financing conditions later in 2024.

• Uncertainty regarding potential tariffs.

On April 24, 2024, the American Alliance for Solar Manufacturing Trade Committee, an ad hoc coalition of domestic producers of CSPV cells and modules, filed a petition with the USDOC and the U.S.

International Trade Commission (the “USITC”) seeking the imposition of AD/CVD tariffs on imports of CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam.

The USITC made a preliminary affirmative determination on June 7, 2024, and the USDOC is expected to make its preliminary determination in November of 2024.

As a result of these preliminary and expected preliminary determinations, we have had customers determine to pre-emptively change panel selection or plan on project delays in consideration of a potential panel selection change.

Once the impact of any potential tariffs is clear, customers can better understand their impact on panel costs and can make relevant timing decisions for specific projects.

In addition, we had customers delay planned installations in anticipation of interest reductions and more favorable project financing conditions later in 2024.

The effects of the Federal Reserve’s decision to lower the target interest rate by 0.5% and the timing of any positive impact the lower rate may have on project timing remains uncertain.

• Availability of necessary equipment .

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There has been a rapid depreciation of the Brazilian Real in conjunction with existing pricing pressures on energy in the Brazilian market.

Due to these dynamics, the economic cases for the power purchase agreements, or PPAs, for many solar projects have become less

attractive for our customers.

Due to these dynamics, the economic cases for the power purchase agreements, or PPAs, for many solar projects have become less attractive for our customers.

Many of the developers of these projects are now signaling delays as they renegotiate the pricing of these PPAs.

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With the passage of the Inflation Reduction Act (“IRA”) in August 2022, the ITC was raised to 30% with no step downs before 2032.

Accordingly, we do not anticipate the ITC rate to impact our seasonality during that timeframe.

After a period of uncertainty, in December the IRS published proposed regulations on 45X manufacturing credit benefits that largely confirmed our previous understanding around the eligibility of our torque tube.

Beginning in late 2023 and continuing into 2024, we have and continue to successfully negotiate agreements with key suppliers around 45X manufacturing credit benefits associated with the torque tube.

During the six months ended June 30, 2024, we entered into vendor rebate agreements pertaining to additional parts we concluded qualify as structural fasteners in accordance with the IRC 45X Advanced Manufacturing Production Credit.

We are pursuing initiatives to obtain further clarity regarding the eligibility of additional parts that qualify for the 45X Manufacturing Credit in conjunction with negotiating the split of the 45X benefits with suppliers for parts we do not manufacture internally.

Accordingly, as of September 30, 2024 we do not anticipate the ITC rate to impact our seasonality during that timeframe.

After a period of uncertainty, on October 24, 2024 Treasury and the IRS issued final regulations for the 45X manufacturing credit benefits that largely confirmed our previous understanding around the eligibility of our torque tube and structural fasteners.

Beginning in late 2023 and continuing into 2024, we have and continue to successfully negotiate agreements with key suppliers around 45X manufacturing credit benefits associated with the torque tube and structural fasteners.

We continue to pursue additional agreements for splitting 45X benefits with suppliers for parts we do not manufacture internally.

Domestic Content Safe Harbor Guidance

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We believe this is the right way to manage a high-quality portfolio and drive consistent margins over time.

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.

Impact of Attacks on Shipping in the Red Sea

The disruption of container shipping traffic through the Red Sea has created port congestion, especially in Asia, affecting transit times, capacity, and shipping costs for routes connecting the rest of the world with Asia.

address the challenges arising from prolonged transit times, we have increased our local sourcing efforts where feasible within certain regions.

To address the challenges arising from prolonged transit times, we have increased our local sourcing efforts where feasible within certain regions.

These measures aim to reduce delays to get the product to project sites on time.

There is still uncertainty on how long these disruptions and the severity of their impact on our operations will last, but we continue to monitor the situation and evaluate our procurement and supply chain strategies, as to reduce any negative impact on our business, financial condition, and results of operations.

Inflationary pressures persist and may continue to negatively impact our results of operations.

Inflationary pressures may continue to negatively impact our results of operations in the near-term.

To mitigate the inflationary pressures on our business, despite our ASPs decreasing due to the current deflationary environment for commodities like steel, we have continued to accelerate our productivity initiatives, expanded our supplier base, and continued to execute on our overhead cost containment practices.

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In August 2023, the USDOC issued final affirmative circumvention rulings, finding that solar panels completed in Cambodia, Malaysia, Thailand, and Vietnam using parts and components produced in China circumvent the pre-existing AD/CVD orders on China.

On April 24, 2024, the American Alliance for Solar Manufacturing Trade Committee, an ad hoc coalition of domestic producers of CSPV cells and modules, filed a petition with the USDOC and the U.S.

International Trade Commission (the “USITC”) seeking the imposition of AD/CVD tariffs on imports of CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam.

The USITC made a preliminary affirmative determination on June 7, 2024, and the USDOC made its preliminary affirmative determination on October 1, 2024.

The preliminary tariff rates varying from below 1% to almost 300%, depending on the relevant company.

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

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

Our operating results could be adversely impacted if the USDOC imposes duties on such imports.

We continue to monitor developments in the above petition and investigation processes and work to mitigate their impact on our supply chain, but if we are unable to do so, the imposition of AD/CVD orders could negatively impact our business, financial condition, and results of operations.

In September 2024, the USDOC released its final determination from their investigations against aluminum extrusions from multiple countries.

On October 30, 2024, the USITC voted to find no injury in its pending AD/CVD investigation, meaning that the USDOC’s AD/CVD orders will not go into effect.

The coalition of petitioners may still appeal the USITC’s decision, and we will continue to monitor developments in the appeal process.

If the USITC’s decision is overturned on appeal, the imposition of AD/CVD orders could negatively impact our business, financial condition, and results of operations.

The possibility of additional tariffs and duties in the future like those described above has created uncertainty in the industry.

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Additionally, existing or future tariffs may negatively affect key customers, suppliers, and manufacturing partners.

Such outcomes could adversely affect the amount or timing of our revenues, results of operations or cash flows, and continuing uncertainty could cause sales volatility, price fluctuations or supply shortages or cause our customers to advance or delay their purchase of our products.

advance or delay their purchase of our products.

It is difficult to predict what further trade-related actions governments may take, which may include additional or increased tariffs and trade restrictions, and we may be unable to quickly and effectively react to such actions.

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Our revenue is affected by changes in the volume and ASPs of solar tracking systems purchased by our customers.

The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in project mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

Our revenue growth is dependent on continued growth in the size and number of solar energy projects installed each year, as well as our ability to maintain market share in each geography where we compete, expand our global footprint to new and evolving markets, grow our production capabilities to satisfy demand, and continue to develop and introduce new innovative products that integrate emerging technologies and the performance requirements of our customers.

The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in project mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, commodity prices and availability of government incentives to the end-users of our products.

to develop and introduce new innovative products that integrate emerging technologies and the performance requirements of our customers.

A majority of our revenue is recognized over time as work progresses, and for single performance obligations, we use an input measure, the cost-to-cost method, to determine progress.

We review and update the contract related estimates on an ongoing basis and recognize adjustments for any project specific facts and circumstances that could impact the measurement of the extent of progress, such as the total costs to complete the contracts, under the cumulative catch-up method.

Due to the relatively short duration of our outstanding performance obligations, and our ability to estimate the remaining costs to be incurred, which are substantially all material costs covered under our material supply agreements with our suppliers, we have not recorded any material catch-up adjustments for the periods presented that would have impacted revenues or EPS related to revisions in our measurement of remaining progress of our performance obligations.

Cost of Revenue and Gross Profit

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We have, and will continue to, enter into arrangements with manufacturing vendors that produce 45X Credit eligible parts, in which the vendors agree to share a portion of the benefit received related to our purchases, in the form of “Vendor Rebates.”

We account for these Vendor Rebates as a reduction of the purchase prices of the vendors’ products and therefore a reduction in the cost of inventory until the inventory is sold, at which time we recognize such rebates as a reduction of cost of revenues on the condensed consolidated statements of operations.

We account for these Vendor Rebates as a reduction of the purchase prices of the vendors’ products and therefore a reduction in the cost of inventory until the inventory is sold, at which time we recognize such rebates as a reduction of cost of product and service revenue on the condensed consolidated statements of operations.

Rebates related to purchases that were made prior to the execution of the agreements are deferred and recognized as a reduction of the prices of future purchases.

Inflation Reduction Act 45X Credits

During the three months ended June 30, 2024, the Company concluded that certain parts manufactured by the Company qualify for the 45X Advanced Manufacturing Production Credits.

As a result, the Company recorded it an immaterial cumulative catch-up for 45X Advanced Manufacturing Production Credits related to torque tubes manufactured by the Company and sold from January 1, 2023 through March 31, 2024.

Operating Expenses

General and administrative expense consists 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.

The majority of our sales in the first quarter of 2024 and 2023, were in the U.S.;

The majority of our sales in the nine months ended September 30, 2024 and 2023, were in the U.S.;

however, in January 2022, we expanded our international operations with the STI Acquisition.

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

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.

Contingent consideration consists of the changes in fair value of the tax receivable agreement (“TRA”) entered into with a former indirect stockholder, concurrent with the acquisition of Patent LLC by Former Parent.

The TRA liability was recorded at fair value as of July 8, 2016 (the “Patent Acquisition Date”) and subsequent

changes in the fair value are recognized in earnings.

The TRA liability was recorded at fair value as of July 8, 2016 (the “Patent Acquisition Date”) and subsequent changes in the fair value are recognized in earnings.

For discussion and analysis of the TRA see Note 11 – Commitments and Contingencies .

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Results of Operations

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)

The following table sets forth our consolidated statement of operations (in thousands, except percentages):

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

2024 2023 $ % 2024 2023 $ %

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Depreciation and amortization 8,880 9,552 (672) (7) % 27,384 29,361 (1,977) (7) %

Goodwill impairment 162,000 — (162,000) (100) % 162,000 — 162,000 (100) %

Total operating expenses 210,990 47,174 163,816 347 % 304,017 147,418 156,599 106 %

Income from operations 39,602 96,241 (56,639) (59) % 48,016 143,699 (95,683) (67) %

Other (loss) income, net (1,794) 125 (1,919) (1535) % (980) 319 (1,299) (407) %

(Loss) income from operations

(132,675) 40,205 (172,880) (430) % (84,659) 183,904 (268,563) (146) %

Other loss, net (682) (446) (236) 53 % (1,662) (127) (1,535) 1209 %

Interest income 4,223 3,425 798 23 % 12,685 6,124 6,561 107 %

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Total other expense, net (4,829) (9,878) 5,049 51 % (15,868) (29,102) (13,234) (45) %

Income before income tax expense 33,508 86,517 (58,935) (68) % 36,977 124,475 (87,498) (70) %

(Loss) income before income tax expense

(137,504) 30,327 (167,831) (553) % (100,527) 154,802 (255,329) (165) %

Income tax expense 3,850 7,229 (3,379) (47) % 12,964 36,904 (23,940) (65) %

Net income $ 25,698 $ 65,165 $ (45,393) (70) % $ 27,863 $ 94,800 $ (66,937) (71) %

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)

Net (loss) income

$ (141,354) $ 23,098 $ (164,452) (712) % $ (113,491) $ 117,898 $ (231,389) (196) %

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

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

2024 2023 $ % 2024 2023 $ %

Array Legacy Operations $ 160,266 $ 244,857 $ (84,591) (35) % $ 459,807 $ 895,322 $ (435,515) (49) %

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Total $ 78,315 $ 87,379 $ (9,064) (10) % $ 219,358 $ 331,322 $ (111,964) (34) %

Comparison of the three months ended June 30, 2024 and 2023

Consolidated revenue decreased $252.0 million, or 50%, driven by a decrease in Array Legacy Operations of 46% and STI Operations of 57%.

The $160.1 million, or 46%, 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 and an ASP decrease on lower input costs per watt.

The $91.9 million, or 57%, revenue decrease in STI Operations was driven by a decrease in the number of megawatts shipped, largely due to a year-over-year shift from larger utility-scale projects to smaller distributed generation projects and an ASP decrease due to a smaller percentage of projects with construction services.

Cost of Revenue and Gross Profit

Consolidated cost of revenue decreased by $191.5 million, or 53%, driven primarily by a reduction in revenue combined with lower input costs per watt resulting from commodities coupled with supply chain and engineering cost out initiatives and the realization of 45X benefits associated with torque tubes and structural fasteners.

Consolidated gross profit decreased by $60.4 million, or 41%.

As a percentage of revenue, consolidated gross profit increased to 34% for the three months ended June 30, 2024, as compared to 29% during the same period in the prior year.

Array Legacy Operations gross profit decreased by $25.6 million, or 25%.

As a percentage of revenue, gross profit increased to 42% from 30% for the three months ended June 30, 2024 and 2023, respectively.

The increase in gross profit as a percent of revenue was driven by continued performance of our core gross margins, enhanced by the realization of 45X benefits associated with torque tubes and structural fasteners.

STI Operations gross profit decreased by $34.8 million, or 80%.

As a percentage of revenue, gross profit for STI Operations decreased to 12% from 27% for the three months ended June 30, 2024 and 2023, respectively, driven primarily by higher costs of locally sourced material to support on-time delivery for customers.

Operating Expenses

Consolidated general and administrative expenses decreased by $3.3 million, or 8%.

The decrease was primarily due to a change in estimate related to performance-based equity compensation and lower professional and consulting fees as a result of our initiative to reduce fees and internalize activities that were historically outsourced, more than offsetting incremental recruiting costs, and incremental severance costs

Change in the fair value of contingent consideration resulted in a loss of $0.5 million.

Consolidated depreciation and amortization decreased by $0.3 million or 4%, effectively flat when compared to the same period in the prior year.

Interest Income

Consolidated interest income increased by $3.3 million, or 226%, due to higher cash on hand during the second quarter of 2024, coupled with higher interest rates.

Interest Expense

Consolidated interest expense decreased by $3.0 million, or 26%, primarily due to impact of the $74.3 million of principal pay downs on our Term Loan during 2023.

These pay downs were the result of focused efforts to decrease our outstanding debt balance with free cash flows from operations.

Income Tax Expense

Consolidated income tax decreased by $13.5 million, or 63%.

The Company recorded income tax expense of $7.8 million for the three months ended June 30, 2024, compared to income tax expense of $21.4 million for the three months ended June 30, 2023.

Our effective tax rate was 23.3% for the three months ended June 30, 2024, and 24.7% for the three months ended June 30, 2023.

The tax expense for the three months ended June 30, 2024, was impacted by legislation in Brazil which resulted in a local tax incentive no longer being exempt from federal income tax beginning in 2024.

Additionally, tax expense of $0.1 million was recorded discretely related to equity-based compensation.

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

jurisdictions, partially offset by benefits related to excess stock compensation deductions of $0.8 million recorded discretely during the quarter.

Comparison of the six months ended June 30, 2024 and 2023

Consolidated revenue decreased, $475.3 million, or 54%, driven by a decrease at Array Legacy Operations of $350.9 million and a decrease at STI Operations of $124.4 million.

The $350.9 million, or 54%, revenue decrease at Array Legacy Operations was driven by a decrease in the number of megawatts shipped and an ASP decrease due to lower input costs per watt.

The $124.4 million, or 53%, revenue decrease at STI Operations was driven by a decrease in the number of megawatts shipped, largely due to a year-over-year shift from larger utility-scale projects to smaller distributed generation projects and an ASP decrease due to a smaller percentage of projects with construction services.

Comparison of the three and nine months ended September 30, 2024 and 2023

Consolidated revenue decreased $119.0 million, or 34%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily driven by lower revenue from Array Legacy Operations of 35% and STI Operations of 33%.

Array Legacy Operations revenue decreased by $84.6 million, or 35%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily driven by a decrease of approximately 35% in volume.

Revenue from STI Operations decreased by $34.4 million, or 33% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The decrease was primarily driven by a decrease of approximately 13% in volume, a decrease of approximately 12% in average selling prices and a foreign currency impact of approximately 7%.

Consolidated revenue decreased $594.4 million, or 48%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by lower revenue from Array Legacy Operations of 49% and STI Operations of 47%.

Array Legacy Operations revenue decreased by $435.5 million, or 49%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by a decrease of approximately 46% in volume and a decrease of approximately 5% in average selling prices.

Revenue from STI Operations decreased by $158.8 million, or 47% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The decrease was primarily driven by a decrease of approximately 31% in volume, a decrease of approximately 19% in average selling prices and a foreign currency impact of approximately 3%.

Cost of Revenue and Gross Profit

Consolidated cost of revenue decreased by $372.4 million, or 58%, driven primarily by a reduction in revenue combined with lower input costs per watt resulting from commodities coupled with supply chain and engineering cost out initiatives and the realization of 45X benefits associated with torque tubes and structural fasteners.

Consolidated gross profit decreased by $102.9 million, or 42%.

As a percentage of revenue, consolidated gross profit increased to 34% for the six months ended June 30, 2024, as compared to 28% during the same period in the prior year.

Array Legacy Operations gross profit decreased by $56.4 million, or 31%.

As a percentage of revenue, gross profit at Array Legacy Operations increased to 42% from 28% for the six months ended June 30, 2024 and 2023, respectively.

The increase in gross profit as a percent of revenue was primarily driven by the realization of 45X benefits associated with torque tubes and structural fasteners.

The Company also recognized a one-time $4.0 million settlement with one of our vendors during the first quarter as a reduction of Cost of revenue.

STI Operations gross profit decreased by $46.5 million, or 76%.

As a percentage of revenue, gross profit for STI Operations decreased to 13% from 26% for the six months ended June 30, 2024 and 2023, respectively, driven primarily by higher costs of locally sourced material to support on-time delivery for customers.

Consolidated cost of revenue decreased by $110.0 million, or 42%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, in line with lower revenue, combined with lower input costs per watt, resulting from supply chain and engineering cost control initiatives and the realization of 45X benefits associated with torque tubes and structural fasteners.

Consolidated gross profit decreased by $9.1 million, or 10%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Gross Margin increased to 34% for the three months ended September 30, 2024, as compared to 25% during the same period in the prior year.

Array Legacy Operations gross profit increased by $7.5 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Gross margin increased to 41% from 24% for the three months ended September 30, 2024 and 2023, respectively.

The increase in gross margin was driven by the realization of 45X benefits associated with torque tubes and structural fasteners during the quarter.

STI Operations gross profit decreased by $16.6 million, or 57%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Gross margin for STI Operations decreased to 18% from 28% for the three months ended September 30, 2024 and 2023, respectively, driven primarily by a decline in average selling prices of approximately 12%, partially offset by lower commodity prices.

Consolidated cost of revenue decreased by $482.4 million, or 53%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, in line with lower revenues and the realization of 45X benefits associated with torque tubes and structural fasteners.

Consolidated gross profit decreased by $112.0 million, or 34%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Gross margin increased to 34% for the nine months ended September 30, 2024, as compared to 27% during the same period in the prior year.

Array Legacy Operations gross profit decreased by $48.9 million, or 20%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Gross margin at Array Legacy Operations increased to 42% from 27% for the nine months ended September 30, 2024 and 2023, respectively.

The increase in gross margin was driven by the realization of 45X benefits associated with torque tubes and structural fasteners.

In addition, the Company also recognized a one-time $4.0 million settlement with one of our vendors during the first quarter of 2024, which was recorded as a reduction of cost of product and service revenue.

STI Operations gross profit decreased by $63.1 million, or 70%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Gross margin for STI Operations decreased to 15% from 27% for the nine months ended September 30, 2024 and 2023, respectively, in line with lower revenue and a decrease in average selling prices of 19%, partially offset by lower commodity prices.

Operating Expenses

Consolidated general and administrative expenses decreased by $3.6 million, or 5%.

Change in the fair value of contingent consideration resulted in a gain of $0.2 million.

Consolidated depreciation and amortization expense decreased by $1.3 million, or 7%, due to the decrease in the amortization of intangibles of $1.8 million, driven by a subset of intangible assets acquired in January 2022, becoming fully amortized during the first quarter of 2023.

Consolidated general and administrative expenses for the three and nine months ended September 30, 2024 increased by $2.7 million, or 7%, and decreased by $0.9 million, or 1%, respectively, compared to the three and nine months ended September 30, 2023.

The increase during the third quarter of 2024 was primarily due to an increase of $2.0 million in legal and other professional fees, an increase of $1.6 million in an allowance

for credit risk related to one customer in Brazil, partially offset by lower personnel expenses as a result of lower stock-based compensation expense and lower headcount.

General and administrative expenses decreased during the nine months ended September 30, 2024 due to $4.4 million of lower personnel expenses as a result lower stock-based compensation expense and lower headcount, partially offset by an increase of $3.4 million in an allowance for credit risk related to a limited number of customers in Brazil.

Change in the fair value of contingent consideration for the three and nine months ended September 30, 2024 resulted in a loss of $39 thousand and a gain of $0.3 million, respectively, compared to the three and nine months ended September 30, 2023.

Consolidated depreciation and amortization expense for the three and nine months ended September 30, 2024 decreased by $0.7 million, or 7%, and $2.0 million, or 7%, respectively, compared to the three and nine months ended September 30, 2023.

The decrease was primarily due to certain assets acquired becoming fully amortized.

During the three months ended September 30, 2024, the Company identified certain indicators of impairment, which resulted in an impairment of goodwill of $162.0 million.

See Note 5 – Goodwill and Other Intangibles for additional information.

Interest Income

Consolidated interest income increased by $5.8 million, or 214%, due to higher cash on hand during the six months ended June 30, 2024, coupled with higher interest rates.

Consolidated interest income for the three and nine months ended September 30, 2024 increased by $0.8 million, or 23%, and $6.6 million, or 107%, respectively, compared to the three and nine months ended September 30, 2023, primarily as a result of higher cash on hand and higher yields on our cash management program.

Interest Expense

Consolidated interest expense decreased by $4.8 million, or 21%, primarily due to $74.3 million of principal pay downs on our Term Loan during 2023.

Consolidated interest expense for the three and nine months ended September 30, 2024 increased by $4.8 million, or 37%, and $9.6 million, or 27%, respectively, compared to the three and nine months ended September 30, 2023, primarily due to the impact of the $74.3 million of principal pay downs on our Term Loan Facility during 2023.

These pay downs were the result of focused efforts to decrease our outstanding debt balance with free cash flows from operations.

Income Tax Expense

Consolidated income tax decreased by $20.6 million, or 69%.

The Company recorded income tax expense of $9.1 million for the six months ended June 30, 2024, compared to an expense of $29.7 million for the six months ended June 30, 2023.

Our effective tax rate was 24.6% and 23.8% for the six months ended June 30, 2024 and 2023, respectively.

The income tax expense for the six months ended June 30, 2024, was impacted

by legislation in Brazil which resulted in a local tax incentive no longer being exempt from federal income tax beginning in 2024.

Additionally, tax expense of $0.5 million was recorded discretely related to equity-based compensation.

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

jurisdictions, partially offset by benefits related to excess stock compensation deductions of $1.2 million recorded discretely.

Consolidated income tax expense for the three and nine months ended September 30, 2024 decreased by $3.4 million, or 47%, and $23.9 million, or 65%, respectively, compared to the three and nine months ended September 30, 2023.

The Company recorded income tax expense of $3.9 million and $13.0 million, respectively, for the three and nine months ended September 30, 2024, compared to income tax expense of $7.2 million and $36.9 million, respectively, for the three and nine months ended September 30, 2023.

Our effective tax rate was (2.8)% and (12.9)% for the three and nine months ended September 30, 2024, respectively, and 23.8% for both the three and nine months ended September 30, 2023.

No tax benefit was recorded from the goodwill impairment recorded for the three months ended September 30, 2024 as the goodwill is non-deductible for income tax purposes.

Our effective tax rate, excluding the impact of the goodwill impairment was 15.7% and 21.1% for the three and nine months ended September 30, 2024.

The tax expense for the three months ended September 30, 2024, was favorably impacted by lower profits in non-

US jurisdictions and additional tax credits recorded during the period.

This is partially offset by legislative changes in Brazil where a local tax incentive is no longer exempt from federal income tax beginning in 2024.

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

jurisdictions.

The Company recorded income tax expense of $13.0 million for the nine months ended September 30, 2024, compared to an expense of $36.9 million for the nine months ended September 30, 2023.

Income tax expense for the nine months ended September 30, 2024 was favorably impacted by lower profits in non-US jurisdictions and additional tax credits recorded during the period.

This was partially offset by legislative changes in Brazil where a local tax incentive is no longer exempt from federal income tax beginning in 2024.

Additionally, tax expense of $0.5 million related to equity-based compensation, was recorded discretely.

Tax expense for the nine months ended September 30, 2023 was unfavorably impacted by higher income reported in non-U.S.

jurisdictions, offset by a tax benefit of $1.2 million related to equity-based compensation, recorded discretely.

Liquidity and Capital Resources

Divestiture of Investment in Equity Securities

In June 2024, we divested 100 percent of our equity investment in preferred stock of a private company we purchased in 2021.

We received $12.0 million in proceeds for the divestiture.

The proceeds were received in July 2024, therefore we recorded a receivable in the amount of $12.0 million in Prepaid expenses and other on the condensed consolidated balance sheet at June 30, 2024.

No gain or loss resulted from the transaction.

In June 2024, we divested 100% of our equity investment in preferred stock of a private company we purchased in 2021.

We received $12.0 million in proceeds for the divestiture in July 2024.

No gain or loss resulted from this transaction.

Cash Flows (in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities

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

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

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

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, 2024, our cash balance was $282.3 million, of which $45.5 million was held outside the U.S., and net working capital was $511.4 million.

As of September 30, 2024, our cash balance was $332.4 million, of which $24.1 million was held outside the U.S., and net working capital was $527.4 million.

We had outstanding borrowings of $235.0 million under our $575 million Term Loan Facility and $183.6 million available to us under our $200 million Revolving Credit Facility.

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Operating Activities

For the six months ended June 30, 2024, cash provided by operating activities was $51.5 million, of which $61.7 million was generated from net income as adjusted for the impact of non-cash expenses, consisting primarily of depreciation and amortization, amortization of developed technology, and equity-based compensation.

For the six months ended June 30, 2023, cash provided by operating activities was $66.4 million, of which $139.8 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 nine months ended September 30, 2024, cash provided by operating activities was $96.4 million attributable to a net loss of $113.5 million and a net cash outflow of $1.9 million from changes in our operating

assets and liabilities, offset by non-cash adjustments of 211.8 million, mainly consisting of goodwill impairment charges, depreciation and amortization expense and equity-based compensation.

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 during the period.

Investing Activities

For the six months ended June 30, 2024, net cash used in investing activities was $4.5 million, all of which was related to the purchase of property, plant and equipment, net of dispositions.

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 nine months ended September 30, 2024, net cash provided by investing activities was $6.4 million, of which $12.0 million was related to sale of an equity investment in a private company, partially of by $5.6 million of purchases of property, plant and equipment, net of dispositions.

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.

Financing Activities

For the six months ended June 30, 2024, net cash used in financing activities was $4.1 million, driven primarily by a $12.7 million net reduction of other debt and $2.2 million in payments on our Term Loan Facility, as well as $1.4 million in TRA payments issued during the six months ended June 30, 2024.

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

For the nine months ended September 30, 2024, net cash used in financing activities was $12.2 million, driven primarily by a $24.9 million net reduction of other debt and $3.2 million in payments on our Term Loan Facility, as well as $1.4 million in TRA payments issued during the nine months ended September 30, 2024.

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

Series A Redeemable Perpetual Preferred Stock

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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, 2024, we posted surety bonds in the total amount of approximately $197.8 million.

As of September 30, 2024, we posted surety bonds in the total amount of approximately $198.2 million.

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

Critical Accounting Policies and Significant Management Estimates

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

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

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

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

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

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

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

Fair Value of Financial Instruments

The capped call option agreements associated with conversion of the Convertible Notes (the “Capped Calls”) are accounted for as an asset that is recorded at fair value within Derivative assets in the consolidated balance sheets.

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

See Note 1 – Organization, Business and Out of Period Adjustments , and Note 2 – Summary of Significant Accounting Policies , of the condensed consolidated financial statements for further information regarding the accounting of these instruments.

The Capped Calls are valued using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure.

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

Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired.

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We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment on an annual basis during the fourth quarter of each year, and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

If we use a qualitative approach and determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we would then perform the first step of the goodwill impairment test, which would consist primarily of a discounted cash flow (“DCF”) analysis compared to a guideline publicly-traded companies (“GPC”) analysis to determine the fair value of the reporting unit.

During the second quarter of 2024, we noted facts and circumstances around our STI Operations reporting unit Goodwill, were indicative that the fair value could be less than its carrying value.

Accordingly, with the assistance of a third-party specialist, we performed the first step of the goodwill impairment test (“Step One”).

The Step One impairment test consisted primarily of a DCF analysis compared to a GPC analysis to determine the fair value of the STI reporting unit.

The significant assumptions used in determining the fair values primarily related to the selection of EBITDA multiples used in the GPC analysis, and the revenue growth rate, the forecasted EBITDA margin, and the selected discount rate used in the DCF model.

As a result of the Step One impairment test performed, we concluded the fair value of Goodwill of the STI reporting unit was greater than its carrying value, thus the STI reporting unit was not impaired as of June 30, 2024.

Long-lived Assets

We review long-lived assets, including our finite-lived intangible assets, for impairment whenever events or changes in circumstances, indicate that the carrying value of the long-lived assets may not be recoverable.

Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition.

Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.

During the second quarter of 2024, we noted facts and circumstances indicated that the STI asset groups may not be recoverable, and that the carrying value may not be recoverable.

We performed a recoverability test over our asset groups by comparing the sum of the estimated undiscounted future cash flows of the STI asset groups to the carrying amounts at June 30, 2024.

The result of the recoverability test indicated the sum of the expected future undiscounted cash flows was greater than the carrying amount of the STI asset groups.

Accordingly, we concluded the long-lived assets of STI were not impaired as of June 30, 2024.

If we use a qualitative approach and determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we would then perform the first step of the goodwill impairment test, which would consist primarily of a discounted cash flow (“DCF”) analysis using the income approach, with the resulting value compared to GPC marketplace EBITDA multiples to corroborate the fair value of the reporting unit.

During the quarter ended September 30, 2024, the Company experienced a sustained decline in its stock price, which hit a 52-week low during the quarter, resulting in a decrease in market capitalization.

In addition, the Company updated its long-term projections for the Company’s reporting units and evaluated the execution risk associated with the Company’s projections.

As a result, the Company identified indicators of impairment related to the Company’s reporting units.

Management, with the assistance of a third-party valuation specialist, performed an interim quantitative goodwill impairment test of the Legacy Array Operations and STI Operations reporting units as of September 30, 2024.

As a result of this test, the Company recorded an impairment of goodwill of $162.0 million related to the STI Operations reporting unit.

The estimated fair value of the Array Legacy Operations reporting unit was significantly higher than the carrying balance of the reporting unit.

Subsequent to recording the impairment of goodwill, the Company reconciled the overall market capitalization of the Company, within a reasonable range, to the sum of the estimated fair values of both of the Company’s reporting units.

The significant assumptions used in determining the fair value of the Company’s reporting units primarily relate to the revenue growth rate, the forecasted EBITDA margin, and the selected discount rate used in the discounted cash flow model under the income approach.

Under the GPC method, the selection of EBITDA multiples to be used requires significant judgement.

To the extent that the discount rate used in determining the present value of our cash flows increases, if we do not meet the cash flow projections for the reporting unit, or GPC multiples in the future decrease, additional impairment charges may be recorded in the future.

In addition, a further decrease in the Company’s common stock share price and market capitalization over a sustained period of time could be an indication that there has been a further decrease in the fair value of the Company’s reporting units.

The most significant assumption used in determining the estimated fair value of STI Operations is the discount rate assumption.

A 100-basis point increase in the discount rate would potentially result in an incremental

goodwill impairment of $40 million.

A 100-basis point decrease in the discount rate would result in a reduction in the goodwill impairment of $48 million.

For a further discussion of our critical accounting estimates, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024.

There have been no material changes to the critical accounting estimates disclosed in such Annual Report on Form 10-K other than what has been disclosed above.

Adoption of New and Recently Issued Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis