Array Technologies, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and other financial information included in this Annual Report on Form 10-K. 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 of this Form 10-K captioned “Forward-Looking Statements” and “Risk Factors.” Overview We are a leading global provider of solar tracking technology to utility-scale and distributed generation customers, who construct, develop and operate solar PV sites. With solutions engineered to withstand the harshest weather conditions, ARRAY’s high-quality solar trackers, software platforms and field services combine to maximize energy production and deliver value to our customers for the entire lifecycle of a project. Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increases their energy production. Solar energy projects that use trackers typically generate more energy and deliver a lower LCOE than projects that use “fixed tilt” mounting systems, which do not move. The vast majority of ground mounted solar systems in the U.S. use trackers. Our flagship tracker uses a patented design that allows one motor to drive multiple rows of solar panels through articulated driveline joints. To avoid infringing on our U.S. patent, our competitors must use designs that we believe are inherently less efficient and reliable. For example, our largest competitor’s design requires one motor for each row of solar panels. As a result, we believe our products have greater reliability, lower installation costs, reduced maintenance requirements and competitive manufacturing costs. Our core U.S. patent is on a linked-row, single-driving apparatus that rotates a plurality of tracker rows connected by an articulating drive shaft. This patent does not expire until February 5, 2030. With our acquisition of STI in January 2022, we added a dual-row tracker design to our product portfolio. This tracker uses one motor to drive two connected rows and is ideally suited for sites with irregular and highly angled boundaries or fragmented project areas. To offer a comprehensive set of solutions to the growing market, in September of 2022, we also introduced a third tracker product, OmniTrack, which requires significantly less grading and civil works permitting prior to installation in addition to accommodating uneven terrain. This suite of products extends our target applications and ability to deliver the best utility-scale solar tracker solutions to the market. We sell our products to 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 year ended December 31, 2024, we derived 70% and 30% of our revenues from customers in the U.S. and the rest of the world, respectively. As of December 31, 2024, we had shipped approximately 83 gigawatts of trackers to customers worldwide. Acquisition of STI Norland On January 11, 2022, we completed our acquisition of STI, which resulted in the Company owning 100% of the equity interests in STI. 41 Similar to Array Legacy Operations, the STI Operations generate revenue through the design, manufacture and sale of utility-scale solar tracker systems to customers in global markets that include Spain, Brazil, the U.S. and South Africa. The integration of STI has allowed us to accelerate our international expansion and better address rising global demand for utility-scale solar projects, particularly in developing countries in Latin America and Africa. Factors Affecting Results of Operations Project Timing Because we recognize revenue on projects as legal title to equipment is transferred from us to the customer, any delays in large projects from one quarter to another for any reason may cause our results of operations for a particular period to fall below expectations and make the timing of revenue difficult to forecast. Our end-users’ ability to install solar energy systems has been affected by a number of factors including: • Weather . Inclement weather can affect our customers’ ability to install their systems, particularly in the northeastern U.S., Europe and 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 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 had customers delay planned installations in anticipation of interest reductions and more favorable project financing conditions later in 2024. While the Federal Reserve made the decision to lower the target interest rate by 0.5% in October 2024 the timing of any positive impact the lower rate may have on project timing remains uncertain, particularly in light of the Federal Reserve’s decision not to lower the target interest rate further in January 2025. • Availability of necessary equipment . We have a broad portfolio of customer relationships including presence with most Tier 1 utilities in the U.S. Each utility has unique specifications for access to its grid, which is generally not consistent across the industry. As the supply of renewables projects has increased, severe shortages and long lead-times in the supply of switches, transformers and high-voltage breakers used in the interconnection of utility scale solar power plants to the grid, has affected the timing and completion of these projects, including for some of our customers. • Macroeconomic factors . 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. Many of the developers in Brazil of these projects are continuing signaling delays as they renegotiate the pricing of these PPAs. In addition, our results will also be impacted by tax incentives we can recognize, for example the Brazil value-added tax benefit, Imposto sobre Circulação de Mercadorias e Servicos (“ICMS”), which will discontinue in 2033. • Local permitting . If our customers cannot receive permitting for their projects, they are unable to begin and ultimately complete them in a timely manner. A dramatic increase in solar and battery storage sites has increased the average permitting time in many geographies in which our customers operate. Research and Development We incur R&D costs during the process of researching and developing new products and significant enhancements to existing products. R&D costs are a subset of our total engineering spend and consist primarily of personnel-related costs associated with our team of internal engineers, third-party consultants, materials and overhead. We expense these costs as incurred prior to a respective product being ready for 42 commercial production. Total engineering expense was $17.0 million, $16.7 million and $11.8 million during the years ended December 31, 2024, 2023 and 2022, respectively, of which $6.7 million, $8.5 million and $4.2 million were related to R&D activities we performed during the same period, respectively. Impact of IRA While solar power is cost-competitive with conventional forms of generation in many U.S. states even without the ITC, we believe step-downs in the ITC have influenced the timing and quantity of some customers’ orders. With the passage of the 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. Section 45X Credit After a period of uncertainty, on October 24, 2024, U.S. Department of Treasury and the IRS issued final regulations on the section 45X manufacturing tax credit that largely adopted the statutory definitions of torque tube and structural fasteners, which we have determined apply to our components. Beginning in late 2023 and continuing through 2024 and into 2025, we have successfully negotiated, and we continue to successfully negotiate, agreements with key suppliers around sharing the economic benefits of section 45X credits associated with torque tube and structural fasteners. We continue to pursue additional agreements for splitting the economic benefits of section 45X with suppliers for parts we do not manufacture internally. In addition, during the second quarter of 2024, we concluded that certain parts manufactured by the Company qualify for the section 45X advanced production credits. Refer to Note 2 – Summary of Significant Accounting Policies in the accompanying notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion on how we account for these incentives and amounts recognized for the periods presented. Domestic Content Safe Harbor Guidance The IRS issued Notice 2023-38 in May of 2023 setting forth guidance on the domestic content bonus tax credits under the IRA. Uncertainties still exist under this guidance, like whose costs would be used (the manufacturer’s cost, a vendor’s cost to acquire, etc.) and how to define manufactured product components associated with trackers. In May of 2024, the IRS issued Notice 2024-41 setting forth further guidance on the domestic content bonus tax credits, including a safe harbor method for calculating domestic content percentages. On January 16, 2025, the IRS released Notice 2025-08, modifying Notice 2023-38 and Notice 2024-41 as well as introducing an updated elective safe harbor method for use in lieu of provisions of the adjusted percentage rule provided in Notice 2023-38 for calculating the domestic content bonus credit amounts applicable for certain qualified facilities and energy projects. Notice 2024-41 and Notice 2025-08 and the updated definitions described therein have clarified some pre-existing uncertainty in the industry, but they have also introduced uncertainties of their own. These uncertainties have and could continue to cause our customers to delay projects as they navigate the existing guidance in qualifying for the tax credit and possibly wait for further clarity. Structured Cost Management We actively manage the risk from certain types of customer contracts, including, for example, multi-year contracts that require fixed pricing or pricing tied to certain commodity indices. Depending on the totality of the circumstances and our ability to mitigate risk, we may or may not pursue such contractual arrangements. Where we decline, this may have the effect of driving certain customers or projects to our competitors. We believe this is the right way to manage a high-quality portfolio and drive consistent margins over time. 43 Impact of the Ongoing Russian-Ukraine War The ongoing Russian-Ukraine war 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 Disruption of Key Shipping Lines, i.e. 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. Many shipping companies have paused shipments through the Suez Canal and the Red Sea causing rerouting of commercial vessels. 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. Inflation Inflationary pressure 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. Impact of AD/CVD Petitions and Determinations On August 18, 2023, the U.S. Department of Commerce issued final affirmative determinations of circumvention with respect to certain CSPV cells and modules produced in Cambodia, Malaysia, Thailand and Vietnam using parts and components from China. As a result, certain CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam are now subject to AD/CVD orders on CSPV cells and modules from China that have been in place since 2012. Subject to certain certification and utilization conditions, imports of CSPV cells and modules covered by the circumvention determinations that entered the U.S. during the two-year period prior to June 6, 2024 were not subject to AD/CVD cash deposit or duty requirements. Imports of CSPV cells and modules from the four Southeast Asian countries covered by the circumvention determination that entered the U.S. on or after June 6, 2024 are subject to AD/CVD cash deposit requirements of the China AD/CVD orders and, possibly, final AD/CVD duty liability. Cash deposit rates for CSPV modules covered by the China AD/CVD orders vary significantly depending on the producer and exporter of the modules and may amount to over 250% of the entered value of the imported merchandise. 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. We have seen a number of projects in our order book delayed as a result of the USDOC investigation, and effective enforcement of the AD/CVD orders could negatively impact our results of operations. U.S. Trade Policy and Executive Orders On February 1, 2025, the President Trump issued three executive orders directing the U.S. to impose new tariffs on imports from Canada, Mexico, and China, to take effect on February 4, 2025, and on February 3, 44 2025, President Trump announced his intention to pause these tariffs on Canada and Mexico for a one-month period. The tariffs impose an additional 25% ad valorem rate of duty on all imports from Canada and Mexico (other than imports of Canadian energy resources exports, which are subject to a 10% ad valorem rate of duty) and an additional 10% ad valorem rate of duty on all imports from China. We are currently evaluating the potential impact of the imposition of the announced tariffs to our business and financial condition. While we do not believe that the tariffs announced by the U.S. on February 1, 2025 will have a material adverse effect upon our results of operations, financial condition, or liquidity, the actual impact of the new tariffs is subject to a number of factors including the effective date and duration of such tariffs, changes in the amount, scope and nature of the tariffs in the future, any countermeasures that the target countries may take and any mitigating actions that may become available. Foreign Currency Translation For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities are translated into U.S. dollars at period end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. For non-U.S. subsidiaries that operate in a U.S. dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S. dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the period. Gains and losses which result from remeasurement are included in earnings. Concentrations of Major Customers Our customer base consists primarily of large solar developers, independent power producers, utilities and EPCs. We do not require collateral on our accounts receivable. At December 31, 2024, our largest customer and five largest customers accounted for 9.0% and 31.0%, respectively, of total accounts receivable. At December 31, 2023, our largest and five largest customers constituted 2.7% and 29.6% of trade accounts receivable, respectively. During the year ended December 31, 2024, two customers accounted for 15.6% and 11.9%, respectively, of total revenue. During the year ended December 31, 2023, one customer accounted for 13.4% of total revenue. During the year ended December 31, 2022, two customers accounted for 11.8% and 10.6%, respectively, of total revenue. Further, our accounts receivable are from companies within the solar industry and, as such, we are exposed to normal industry credit risk. We continually evaluate our reserves for potential credit losses and establish reserves for such losses. Performance Measures In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products is megawatts (“MWs”) shipped, and specifically the change in MWs shipped from period to period. MWs are measured for each individual project and are calculated based on the respective projects’ expected megawatt output once installed and fully operational. We also utilize metrics related to price and cost of goods sold per MW, including average selling price (“ASP”) and cost per watt (“CPW”). ASP is calculated by dividing total applicable revenues by total applicable MWs, 45 whereas CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs. These metrics enable us to evaluate trends in pricing, manufacturing cost and customer profitability. Key Components of Our Results of Operations The following discussion describes certain line items in our consolidated statements of operations. Revenue We generate revenue from the sale of solar tracking systems, parts, software and services. Our customers include EPCs, utilities, solar developers and independent power producers. For each individual solar project, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for the tracker system and parts can vary from days to several months. Contracts can range in value from hundreds of thousands to tens of millions of dollars. 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, commodity prices 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 in which 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 and 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 Cost of product and service revenue consists primarily of product costs, including raw materials, purchased components, net of any incentives or rebates earned from our suppliers, salaries, wages and benefits of manufacturing personnel, freight, tariffs, customer support, product warranty, amortization of developed technology, and depreciation of manufacturing and testing equipment. Our product costs are affected by (i) the underlying cost of raw materials, including steel and aluminum, (ii) component costs, including electric motors and gearboxes, (iii) technological innovation, and (iv) economies of scale and improvements in production processes and automation. We may experience disruptions to our supply chain and increased material and freight costs like those experienced in 2021 and 2022 during the COVID-19 pandemic. When possible, we 46 modify our production schedules and processes to mitigate the impact of these disruptions and cost increases on our margins. We do not currently hedge against changes in the price of our raw materials. Gross profit may vary from quarter to quarter and is primarily affected by our volume, ASPs, product costs, project mix, customer mix, geographical mix, commodity prices, logistics rates, warranty costs, and seasonality. Gross profit will also be impacted by tax incentives we can recognize, for example ICMS value added tax benefits in Brazil, which will discontinue in 2033. 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 2024, 2023, and 2022, 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 and Australia. 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. For discussion and analysis of the TRA see Note 16 – Commitments and Contingencies . Depreciation consists of costs associated with property, plant and equipment not used in manufacturing of our products. We expect that as we continue to grow both our revenue and our general and administrative personnel, we may require some additional property, plant and equipment to support this growth resulting in additional depreciation expense. Amortization consists of the expense recognized over the expected period of use of our customer relationships, contractual backlog, and the STI trade name intangible assets. Amortization related to certain acquired intangible assets is recorded as Total cost of revenue under the caption “Amortization of developed technology.” Non-Operating Expenses Interest income consists of interest earned on our cash and cash equivalents balance. Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility, the Convertible Notes, and Other debt held by our STI Operations. We are subject to U.S. federal, state and non-U.S. income taxes. As we expand into additional foreign markets, we may be subject to additional foreign tax. Reportable Segments Subsequent to the acquisition of STI, we began reporting our results of operations in two segments; the Array legacy operating segment (“Array Legacy Operations”) and the STI Operations operating segment (“STI Operations”) pertaining to legacy STI operations. The segment amounts included in this Item 7. Management’s Discussion and Analysis are presented on a basis consistent with our internal management reporting. 47 Additional information on our reportable segments is contained in Note 20 – Segment and Geographic Information in the accompanying notes to the consolidated financial statements. Results of Operations The following table sets forth our consolidated statement of operations ( in thousands ): Year Ended December 31, Increase (Decrease) 2024 2023 $ % Revenue $ 915,807 $ 1,576,551 $ (660,744) (42) % Cost of revenue: Cost of product and service revenue 603,572 1,146,442 (542,870) (47) % Amortization of developed technology 14,558 14,558 — — % Total cost of revenue 618,130 1,161,000 (542,870) (47) % Gross profit 297,677 415,551 (117,874) (28) % Operating expenses: General and administrative 160,567 159,535 1,032 1 % Change in fair value of contingent consideration 125 2,964 (2,839) (96) % Depreciation and amortization 36,086 38,928 (2,842) (7) % Long-lived assets impairment 91,904 — 91,904 100 % Goodwill impairment 236,000 — 236,000 100 % Total operating expenses 524,682 201,427 323,255 160 % (Loss) income from operations (227,005) 214,124 (441,129) (206) % Other (expense) income, net (1,008) (1,015) 7 1 % Interest income 16,777 8,330 8,447 101 % Foreign currency (loss) gain, net (4,515) (53) (4,462) (8419) % Interest expense (34,825) (44,229) 9,404 21 % Total other (expense) income (23,571) (36,967) (13,396) (36) % (Loss) income before income tax expense (benefit) (250,576) 177,157 (427,733) (241) % Income tax (benefit) expense (10,182) 39,917 (50,099) (126) % Net income $ (240,394) $ 137,240 $ (377,634) (275) % 48 The following table provides details on our operating results by reportable segment for the respective periods ( in thousands ): Year Ended December 31, Increase/Decrease Revenue: 2024 2023 $ % Array Legacy Operations $ 661,629 $ 1,172,827 $ (511,198) (44) % STI Operations 254,178 403,724 (149,546) (37) % Total $ 915,807 $ 1,576,551 $ (660,744) (42) % Gross Profit: Array Legacy Operations $ 270,031 $ 317,605 $ (47,574) (15) % STI Operations 27,646 97,946 (70,300) (72) % Total $ 297,677 $ 415,551 $ (117,874) (28) % Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Revenue Consolidated revenue for the year ended December 31, 2024 decreased by $660.7 million, or 42%, compared to the year ended December 31, 2023, primarily driven by lower revenue from Array Legacy Operations of 44% and STI Operations of 37%. Array Legacy Operations revenue for the year ended December 31, 2024 decreased by $511.2 million, or 44%, compared to the year ended December 31, 2023. The decrease was primarily driven by approximately 39% decrease in volume shipped and a decrease of approximately 8% in average selling prices. STI Operations revenue for the year ended December 31, 2024 decreased by $149.5 million, or 37%, compared to the year ended December 31, 2023. The decrease was primarily driven by a decrease of 12% in volume shipped, a decrease of approximately 24% in average selling prices and a foreign currency impact of approximately 4%. Cost of Revenue and Gross Profit Consolidated cost of revenue decreased by $542.9 million, or 47%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, in line with lower revenue, partially offset by lower input cost per watt, resulting from supply chain and engineering cost control initiatives and the realization of 45X benefits associated with torque tubes and structural fasteners by Legacy Array Operations. 45X benefits realized for the year ended December 31, 2024 were $137.8 million compared to $9.3 million for the year ended December 31, 2023. Consolidated gross profit decreased by $117.9 million, or 28%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. Consolidated gross margin increased to 33% for the year ended December 31, 2024, as compared to 26% during the same period in the prior year. Array Legacy Operations gross profit decreased by $47.6 million, or 15%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. Gross margin increased to 41% from 27% for the years ended December 31, 2024 and 2023, respectively. The increase in gross margin was driven the realization of 45X benefits associated with torque tubes and structural fasteners during the fiscal year. 45X benefits realized for the year ended December 31, 2024 were $137.8 million compared to $9.3 million for the year ended December 31, 2023. 49 STI Operations gross profit decreased by $70.3 million, or 72%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. Gross margin for STI Operations decreased to 11% from 24% for the years ended December 31, 2024 and 2023, respectively, driven by a decline in average selling prices of 24%, reduction in volume of 12%, partially offset by lower costs from operational efficiencies and lower input costs. Operating Expenses Consolidated general and administrative expense for the year ended December 31, 2024 increased by $1.0 million compared to the same period in the prior year, primarily as a result of higher legal and professional fees of $6.3 million and an increase in facility and infrastructure costs of $0.9 million, partially offset by lower personnel expenses of $6.2 million as a result of lower stock-based compensation and headcount. Change in the fair value of contingent consideration resulted in a gain of $0.1 million for the year ended December 31, 2024, due to the fair value remeasurement of the TRA liability, primarily driven by a decrease in the discount rates used in the valuation. Consolidated depreciation and amortization expense decreased $2.8 million, or 7%, due to the decrease in the amortization of intangibles, as the Backlog intangible recognized as part of the STI Acquisition had a one-year life and was fully amortized as of the first quarter of 2023. During the year ended December 31, 2024, the Company identified certain indicators of impairment, which resulted in an impairment of goodwill and long-lived assets of $327.9 million. Other (Expense) Income, Net Other expense was $1.0 million for both years ended December 31, 2024 and 2023. Other expense primarily consists of certain other non-income taxes and miscellaneous income/expense. Interest Income Consolidated interest income for the year ended December 31, 2024 increased by $8.4 million, or 101%, as compared to the prior year, due to higher cash on hand balances during 2024 and higher yields on our cash management program. Legal Settlement Legal settlement income in 2022 resulted from the settlement of litigation related to trade secret misappropriation, for which we received a $42.8 million settlement. The settlement is related to Nextracker’s acknowledgment that an Array employee was hired in violation of his non-compete agreement, certain Array confidential information was improperly obtained, and Nextracker’s behavior was wrongful. The parties concluded the matter and plan to continue their shared missions of mainstreaming clean energy worldwide. As part of the settlement, the parties agreed to treat the settlement terms as confidential except to the extent required or necessitated by law, regulation, or the corporate parties’ shareholder disclosure standards. Foreign Currency Loss Consolidated foreign currency loss was $4.5 million during 2024 due to certain monetary assets and liabilities denominated in currencies other than the Brazilian Real, which weakened significantly during 2024. The foreign currency loss recorded during 2023 was not material. 50 Interest Expense Consolidated interest expense for the year ended December 31, 2024 decreased by $9.4 million, or 21%, compared to the prior year period, primarily due to the impact of the $4.3 million and $74.3 million principal pay downs on our Term Loan Facility during 2024 and 2023, respectively. These pay downs were the result of focused efforts to decrease our outstanding debt balance with free cash flows from operations. Income Tax Expense (Benefit) Consolidated income tax expense (benefit) decreased by $50.1 million, or (126)%, We recorded income tax benefit of $10.2 million and an expense of $39.9 million for the years ended December 31, 2024 and 2023, respectively. The decrease in the tax expense is mostly related to the decrease in pre-tax income, which includes an impairment charge of $91.9 million for acquired intangibles and PP&E. The impairment resulted in a benefit of $31.2 million, offset by a valuation allowance against deferred tax assets of $7.2 million. In addition, the income tax expense for the year ended December 31, 2024, was favorably impacted by losses in non-U.S. jurisdictions which have higher tax rates than the U.S., additional tax credits, and reduced state income tax expense, partially offset by benefits related to excess equity-based compensation deductions and non-deductible expense. The tax expense for the year ended December 31, 2023, was favorably impacted by losses in non-U.S. jurisdictions which have higher tax rates than the U.S. and benefit from a non-US tax incentive, partially offset by non-deductible expenses. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 A discussion and analysis covering the comparison of the year ended December 31, 2023, to the year ended December 31, 2022, is included in our annual report on Form 10-K filed with the SEC on March 22, 2023. Liquidity and Capital Resources Financing Transactions Series A Shares For more information related to the 2022 and 2021 issuances of Series A Shares, see Note 12 – Redeemable Perpetual Preferred Stock , to the accompanying consolidated financial statements. Debt Obligations For a discussion of our debt obligations see Note 11 – Debt , in the accompanying notes to the consolidated financial statements. Surety Bonds We are required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee our performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources. As of December 31, 2024, we posted surety bonds totaling approximately $270.9 million. 51 Cash Flows (in thousands) Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 153,980 $ 231,955 Net cash used in investing activities (9,572) (16,821) Net cash (used in) provided by financing activities (11,844) (101,761) Effect of exchange rate changes on cash and cash equivalent balances (17,503) 1,806 Net change in cash and cash equivalents $ 115,061 $ 115,179 Historically, we have financed our operations with the proceeds from operating cash flows, capital contributions and short and long-term borrowings. Our ability to generate positive cash flow from operations is dependent on the strength of our gross margins as well as our ability to quickly turn our working capital. Based on our past performance and current expectations, we believe that operating cash flows will be sufficient to meet our liquidity needs in the next 12 months and beyond. As of December 31, 2024, our cash balance was $363.0 million, of which $36.6 million was held outside the U.S., and net working capital was $560.9 million. We had outstanding borrowings of $233.9 million under our $575 million Term Loan Facility and $172.0 million available to us under our $200.0 million Revolving Credit Facility. We continually monitor and review our liquidity position and funding needs. Management believes that our ability to generate operating cash flows in the future and available borrowing capacity under our Senior Secured Credit Facility will be sufficient to meet our future short-term liquidity needs. Operating Activities For the year ended December 31, 2024, cash provided by operating activities was $154.0 million attributable to non-cash adjustments of $367.7 million, mainly consisting of goodwill and long-lived asset impairment charges, depreciation and amortization expense and equity-based compensation and a net cash inflow of $26.6 million from changes in our operating assets and liabilities, partially offset by a net loss of $240.4 million. Investing Activities For the year ended December 31, 2024, cash used in investing activities was $9.6 million, of which $7.3 million related to purchases of property, plant and equipment, $3.0 related to an investment in a Simple Agreement of Future Equity (“SAFE”) and $11.3 million related to the cash payment to acquire certain right-of-use assets, partially offset by $12.0 million in proceeds from the sale of an equity investment in a private company. Financing Activities For the year ended December 31, 2024, net cash used in financing activities was $11.8 million, driven by a $4.4 million net reduction of other debt and a $4.3 million payments on our Term Loan Facility, as well as $1.4 million in TRA payments issued during the year ended December 31, 2024. Discussion of Historical Cash Flows for Year Ended December 31, 2023 and 2022 A discussion and analysis covering historical cash flows for the year ended December 31, 2023 and 2022, is included in our annual report on Form 10-K filed with the SEC on February 28, 2024. 52 Contractual Obligations and Commitments The following table summarizes our commitments to settle contractual obligations as of December 31, 2024 (in thousands): Payments due by period Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Debt obligations, including interest $ 692,917 $ 30,959 $ 661,958 $ — $ — Lease commitments (1) 28,457 5,156 6,003 6,030 11,268 Purchase obligations (2) 78,168 75,664 2,504 — — Other obligations (3) 2,000 — 2,000 — — Total $ 801,542 $ 111,779 $ 672,465 $ 6,030 $ 11,268 (1) Represents commitments under our non-cancelable office and facility leases. The lease for our new facility in Albuquerque, New Mexico, is currently expected to commence during the fourth quarter of 2025. For further information see Note 19 – Leases . Future minimum lease payments for this facility for the initial term of the lease and the one term consecutive extension of the lease for an additional ten years are approximately $105.0 million, which have been excluded from the table above. (2) Purchase obligations primarily relate to commitments with certain suppliers under firm purchase orders or supply agreements to purchase raw materials or parts. (3) Other obligations represent a commitment of the Company to invest an additional $2.0 million in future SAFEs with a technology company upon the achievement of defined milestones. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our 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 consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. 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 consolidated financial statements. Business Combinations We completed one business combination for an aggregate purchase price of $610.8 million during the year ended December 31, 2022. In accordance with Topic 805 Business Combinations, total consideration was first allocated to the fair value of assets acquired and liabilities assumed, with the excess being recorded as Goodwill. The fair value of the identifiable intangible assets has been estimated using the Excess Earnings Method (customer relationships and backlog) and Relief from Royalty Method (trade name). Significant inputs 53 using the Excess Earnings Method and Level 3 inputs in the fair value hierarchy include estimated revenue, expenses based on actuals and forecast. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Intangible assets have been recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity. Determining these fair values required us to make significant estimates and assumptions, particularly with respect to acquired intangible assets. The determination of fair value required considerable judgment and were sensitive to changes in underlying assumptions, estimates and market factors. There were no business combinations during the year ended December 31, 2024 and 2023. Goodwill Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of (i) the number of reporting units, (ii) the goodwill and other assets and liabilities to be allocated to the reporting units and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. 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 using the income approach, with the resulting value compared to Guideline publicly traded companies (“GPC”) marketplace EBITDA multiples to corroborate the fair value of the reporting unit. During the quarters ended September 30, 2024 and December 31, 2024, the Company experienced a sustained decline in its stock price, which hit a 52-week low during the third quarter of 2024 and again during the fourth quarter of 2024, resulting in a decrease in market capitalization. In addition, the Company updated its long-term projections for the Company’s reporting units as of September 30, 2024 and December 31, 2024 and evaluated the execution risk associated with the Company’s projections and market conditions. As a result, the Company identified indicators of impairment related to the Company’s reporting units during the third and fourth quarters of 2024. Management, with the assistance of a third-party valuation specialist, performed quantitative goodwill impairment tests of the Legacy Array Operations and STI Operations reporting units as of September 30, 2024 and December 31, 2024. As a result of these tests, the Company recorded impairments of STI Operation’s goodwill totaling $236.0 million during the year ended December 31, 2024. The estimated fair value of the Array Legacy Operations reporting unit was significantly higher than the carrying balance of the reporting unit as of each of the testing dates. 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 Guideline Public Company method (“GPC”), 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. 54 The most significant assumption used in determining the estimated fair value of STI Operations is the discount rate assumption. A 50-basis point increase in the discount rate would potentially result in an incremental goodwill impairment of $10 million as of December 31, 2024. Refer also to Note 7 - Goodwill, Long-Lived Assets, and Other Intangible Assets for further information. Long-Lived Assets When events, circumstances or operating results indicate that the carrying values of long-lived assets, including our finite lived intangible assets, might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to be generated from the underlying asset group and the cash flows resulting from the asset groupings eventual disposition. If the projections indicate that the underlying asset grouping is not expected to be recoverable, the estimated fair value of the asset group is determined. An impairment loss is recognized based on the difference between the carrying value of the asset group and its estimated fair value. The loss is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets. The Company identified indicators of impairment associated with the STI Operations asset groups, and as a result, performed an undiscounted cash flow tests on the same dates that the reporting unit goodwill was tested for impairment. The sum of the undiscounted cash flows was less than the carrying balance for one of the STI operations assets groups as of the December 31, 2024 testing date. As a result, with the assistance of a third-party valuation specialist, management estimated the fair value of the asset group as of December 31, 2024, and recorded an impairment loss of $91.9 million, which was allocated to the long-lived assets of the group on a pro rata basis on the difference between the estimated fair value of the asset group and its carrying value. In determining the fair value of the asset group, the Company used a DCF analysis using the income approach with the resulting value compared to Guideline publicly traded companies (“GPC”) marketplace EBITDA multiples to corroborate the fair value of the reporting unit. The significant assumptions used in determining the fair value of the asset group are similar to the significant assumptions used in determining the fair value the Company’s reporting units. Refer also Note 7 - Goodwill, Long-Lived Assets, and Other Intangible Assets for further information. Equity-Based Compensation We granted restricted stock units (“RSUs”) to employees and Performance Stock Units (“PSUs”) to certain executives. The PSUs contain performance and market conditions. The PSU grants were valued using the Monte Carlo simulation method and the assigned fair value on grant date will be recognized on a straight-line basis over the vesting term of the awards. The probability of the awards meeting the performance related vested conditions is not included in the grant date fair value, but rather will be estimated quarterly and we will true-up the expense recognition accordingly upon any probability to vest revision. We account for forfeitures as they occur. Recent Accounting Pronouncements Refer to Note 2 – Summary of Significant Accounting Policies in the accompanying notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.