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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________

Commission File Number: 001-39613

https://cdn.kscope.io/f109f8b8eedd4033732f64e9cb086dec-arry-20210930_g1.jpg

ARRAY TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware83-2747826
(State or Other Jurisdiction)(I.R.S. Employer Identification No.)
3901 Midway Place NEAlbuquerqueNew Mexico87109
(Address of principal executive offices)(Zip Code)

(Registrant’s telephone number, including area code)(505)881-7567

(Former name, former address and former fiscal year, if changed since last report) N/A

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par valueARRYNasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                     ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                         ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of November 5, 2021, there were 135,026,940 shares of common stock, par value $0.001 per share, issued and outstanding.



Array Technologies, Inc.
Index to Form 10-Q

PART I - FINANCIAL INFORMATION
Item 1.Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Changes in Member’s Equity/Stockholders’ Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except per share and share amounts)
September 30, 2021December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$116,391 $108,441 
Accounts receivable, net177,462 118,694 
Inventories, net173,126 118,459 
Income tax receivables6,453 17,158 
Prepaid expenses and other18,193 12,423 
Total current assets491,625 375,175 
Property, plant and equipment, net10,202 9,774 
Goodwill69,727 69,727 
Other intangible assets, net180,630 198,260 
Other assets24,405 3,088 
Total assets$776,589 $656,024 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities
Accounts payable$84,703 $82,755 
Accounts payable - related party610 2,232 
Accrued expenses and other31,256 29,164 
Accrued warranty reserve3,025 3,049 
Income tax payable629 8,814 
Deferred revenue81,347 149,821 
Current portion of contingent consideration2,168 8,955 
Current portion of term loan4,300 4,313 
Other current liabilities6,457  
Total current liabilities214,495 289,103 
Long-term liabilities
Deferred tax liability6,583 13,114 
Contingent consideration, net of current portion10,784 10,736 
Other long-term liabilities2,953  
Long-term debt, net of current portion, debt discount and issuance costs299,212 423,970 
Total long-term liabilities319,532 447,820 
Total liabilities534,027 736,923 
Commitments and contingencies (Note 13)
1


September 30, 2021December 31, 2020
Series A Redeemable Perpetual Preferred Stock of $0.001 par value - 500,000 authorized; 350,000 and none issued as of September 30, 2021 and December 31, 2020; liquidation preference of $352.8 million and zero at September 30, 2021 and December 31, 2020
235,278 — 
Stockholders’ equity/(deficit)
Preferred stock of $0.001 par value - 4,500,000 shares authorized; zero issued as of September 30, 2021 and December 31, 2020
  
Common stock of $0.001 par value - 1,000,000,000 shares authorized; 134,869,467 and 126,994,467 shares issued as of September 30, 2021 and December 31, 2020
135 127 
Additional paid-in capital251,330 140,473 
Accumulated deficit(244,181)(221,499)
Total stockholders’ equity/(deficit)7,284 (80,899)
Total liabilities, redeemable perpetual preferred stock and stockholders’ equity/(deficit)$776,589 $656,024 

The accompanying notes are an integral part of these condensed consolidated financial statements.
2


Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenue$192,068 $139,462 $640,796 $692,096 
Cost of revenue182,789 112,731 560,872 524,747 
Gross profit9,279 26,731 79,924 167,349 
Operating expenses
General and administrative18,493 11,873 58,279 34,772 
Contingent consideration936 13,591 1,071 16,008 
Depreciation and amortization5,984 6,374 17,949 19,117 
Total operating expenses25,413 31,838 77,299 69,897 
Income (loss) from operations(16,134)(5,107)2,625 97,452 
 
Other expense
Other expense, net(297)(29)(497)(2,163)
Interest expense(13,109)(673)(28,769)(8,313)
Total other expense(13,406)(702)(29,266)(10,476)
Income (loss) before income tax expense (benefit)(29,540)(5,809)(26,641)86,976 
Income tax expense (benefit)(3,988)1,423 (3,959)18,131 
Net income (loss)$(25,552)$(7,232)$(22,682)$68,845 
Preferred dividends and accretion(5,479)— (5,479)— 
Net income (loss) to common shareholders$(31,031)$(7,232)$(28,161)$68,845 
Earnings (loss) per share
Basic$(0.24)$(0.06)$(0.22)$0.57 
Diluted$(0.24)$(0.06)$(0.22)$0.57 
Weighted average number of shares
Basic130,955 119,994 128,315 119,994 
Diluted130,955 119,994 128,315 119,994 



The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Member’s Equity/Redeemable Perpetual Preferred Stock and Stockholders’ Equity/(Deficit)
(unaudited)
(in thousands)


For the Three Months Ended September 30, 2021

Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred Stock Preferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional paid-in capitalAccumulated deficitTotal Stockholders’ Equity/(Deficit)
Balance, June 30, 2021 $ — $— 126,994 127 149,893 (218,629)$(68,609)
Equity-based compensation— — — — — — 2,160 — 2,160 
Issuance of Series A Preferred, net of fees350 229,799 — — — — — — — 
Issuance of common stock, net— — — — 7,875 8 104,756 — 104,764 
Preferred cumulative dividends plus accretion— 5,479 — — — — (5,479)— (5,479)
Net loss— — — — — — — (25,552)(25,552)
Balance, September 30, 2021350 $235,278 — $— 134,869 $135 $251,330 $(244,181)$7,284 

For the Three Months Ended September 30, 2020
Units (*)Total Members’ Equity
Balance, June 30, 20201 $383,639 
Equity-based compensation— 853 
Net loss— (7,232)
Balance, September 30, 20201 $377,260 
(*) See note 2 - Summary of Significant Accounting Policies - corporate conversion and stock split.
4















Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Member’s Equity/Redeemable Perpetual Preferred Stock and Stockholders’ Equity/(Deficit) (continued)
(unaudited)
(in thousands)


For the Nine Months Ended September 30, 2021
Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred StockPreferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional paid-in capitalAccumulated deficitTotal Stockholders’ Equity/(Deficit)
Balance, December 31, 2020 $ — $— 126,994 $127 $140,473 $(221,499)$(80,899)
Equity-based compensation— — — — — — 11,580 — 11,580 
Issuance of common stock, net— — — — 7,875 8 104,756 — 104,764 
Issuance of Series A Preferred net of fees350 229,799 — — — — — — — 
Preferred cumulative dividends plus accretion— 5,479 — — — — (5,479)— (5,479)
Net loss— — — — — — — (22,682)(22,682)
Balance, September 30, 2021350 $235,278 — $— 134,869 $135 $251,330 $(244,181)$7,284 
5




For the Nine Months Ended September 30, 2020

Units (*)Total Members’ Equity
Balance, December 31, 20191 $305,151 
Equity-based compensation— 3,264 
Net income— 68,845 
Balance, September 30, 20201 $377,260 
(*) See note 2 - Summary of Significant Accounting Policies - corporate conversion and stock split.     


The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Array Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Nine Months Ended
September 30,
20212020
Cash flows used in operating activities
Net income (loss)$(22,682)$68,845 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Provision for (recovery of) bad debts(574)493 
Deferred tax benefit(6,531)(3,666)
Depreciation and amortization19,454 20,587 
Amortization of debt discount and issuance costs13,653 2,160 
Interest paid-in-kind 3,421 
Equity-based compensation11,706 3,264 
Contingent consideration1,071 16,008 
Warranty provision305 633 
Provision for inventory obsolescence654 2,517 
Changes in operating assets and liabilities
Accounts receivable(58,194)(22,340)
Inventories(55,321)48,992 
Income tax receivables10,705 (15,890)
Prepaid expenses and other(5,770)7,222 
Accounts payable1,948 (82,284)
Accounts payable - related party(1,622)(3,690)
Accrued expenses and other1,683 4,644 
Income tax payable(8,185)6,584 
Lease liabilities337  
Deferred revenue(68,474)(284,000)
Net cash used in operating activities(165,837)(226,500)
Cash flows used in investing activities
Purchase of property, plant and equipment(2,252)(610)
Investment in equity security(11,975) 
Net cash used in investing activities(14,227)(610)
Cash flows from financing activities
Proceeds from revolving credit facility102,000 32 
Principal payments on term loan facility(132,150)(57,702)
Proceeds from Series A issuance224,987  
Proceeds from common stock issuance120,645  
Series A equity issuance costs(7,195) 
Common stock issuance costs(3,873) 
Payments on revolving credit facility(102,000) 
Payments on related party loans (45,558)
Contingent consideration(7,810) 
Deferred offering costs (3,775)
7


Debt issuance costs(6,590) 
Net cash provided by (used in) financing activities188,014 (107,003)
Net change in cash and cash equivalents7,950 (334,113)
Cash and cash equivalents, beginning of period108,441 361,257 
Cash and cash equivalents, end of period$116,391 $27,144 


The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Array Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

1.    Organization and Business

Array Technologies, Inc. (the “Company”) formerly ATI Intermediate Holdings, LLC, is a Delaware corporation formed in December 2018 as a wholly owned subsidiary of ATI Investment Parent, LLC (“Former Parent”). On October 14, 2020, the Company converted from a Delaware limited liability company to a Delaware corporation and changed the Company’s name to Array Technologies, Inc. The Company is headquartered in Albuquerque, New Mexico, and manufactures and supplies solar tracking systems and related products for customers across the United States and internationally. The Company, through its wholly-owned subsidiary, ATI Investment Holdings, Inc. (“ATI Investment”) owns one subsidiary through which it conducts substantially all operations; Array Tech, Inc. (collectively “AT”).

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of results for the interim periods reported. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021 or any other interim periods, or any future year or period. The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2021.

Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.


2.    Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements in ASC Topic 840, “Leases”. Under ASU No. 2016-02, lessees are required to recognize assets and liabilities on the consolidated balance sheets for most leases and provide enhanced disclosures. For companies that are not emerging growth companies (“EGCs”), the ASU was effective for fiscal years beginning after December 15, 2018. For EGCs, the ASU is effective for fiscal years beginning after December 15, 2021. The Company early adopted the new standard using the modified retrospective method by recording a right-of-use asset of $13.2 million, short-term portion of lease liabilities of $6.3 million and long-term portion of lease liabilities of $7.2 million as of the effective date. Prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods. The Company applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The adoption did not have a material impact on its consolidated statements of
9


operations or its consolidated statements of cash flows. See Note 15, Leases, for further information and disclosures related to the adoption of this standard.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company has adopted the pronouncement and it did not have a material impact on its consolidated financial statements and related disclosures.

Corporate Conversion and Stock Split
On October 14, 2020, prior to the issuance of any of our shares of common stock in our initial public offering (the “IPO”), we converted from a Delaware limited liability company to a Delaware corporation. In connection with the corporate conversion, we converted all 1,000 of our outstanding member units into 100,000,000 shares of common stock and then completed a stock split of 1.19994-for-1. The corporate conversion and stock split representing 119,994,467 shares of common stock have been adjusted retroactively for the purposes of calculating basic and diluted earnings per share.

Principles of Consolidation
The condensed consolidated financial statements include the accounts of Array Technologies, Inc. and its Subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include impairment of goodwill, impairment of long-lived assets, fair value of contingent consideration, allowance for doubtful accounts, reserve for excess or obsolete inventories, valuation of deferred tax assets and warranty reserve. Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. Management has made estimates and assumptions taking into consideration certain possible impacts due to COVID-19. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements; however, management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.

Impact of COVID-19 Pandemic
In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Due to economic conditions our industry has seen rapid commodity price increases and strained logistics, causing us to experience temporary decreased margins and thus decreased cash from operations. We have taken, and continue to take, mitigating steps to overcome the economic challenges and, therefore, believe the impact to be temporary, but cannot be certain the timing of when we will achieve better margins. We have sufficient
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liquidity and financing options available, and we expect to have sufficient liquidity to operate for the next 12 months.

The Company has implemented adjustments to its operations designed to keep employees safe and comply with federal, state and local guidelines, including those regarding social distancing. The extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence. In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic.

Equity-Based Compensation

On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. Under the 2020 Plan, the Company may grant (i) restricted stock units (RSU’s) to its employees and non-employee directors in connection with their service on the board of directors, and (ii) performance stock units (“PSUs”) to certain of its executive officers and members of management. The PSUs contain performance and market conditions. The RSUs are valued at the closing stock price on the date of grant and recognized on a straight-line basis over vesting term. The PSU grants are 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 the Company will true-up the expense recognition accordingly upon any probability to vest revision. The Company accounts for forfeitures as they occur.

In the case of Class B units (the “Class B Units”) and Class C units (the “Class C Units” and, together with the Class B Units, the “Units”) of Former Parent granted to certain employees and directors of the Company, the determination of the fair value of equity awards issued to employees of the Company was based upon the underlying share price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends. The Class B Units fully vested upon the completion of the Company’s follow-on offering of its common stock in March 2021 (the “2021 Follow-on Offering”) as it was considered a sale of Former Parent and the Company recognized expense of $8.9 million.

Temporary Equity

Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable, or probable of becoming redeemable. The Series A Redeemable Preferred Stock issued in connection with the Securities Purchase Agreement as described in Note 9 is classified as temporary equity in the accompanying condensed consolidated financial statements. The Company elected the accreted redemption value method under which it accretes changes in redemption value over the period from the date of issuance of the Series A Redeemable Perpetual Preferred Stock to the earliest costless redemption date (the fifth anniversary) using the effective interest method. Such adjustments are included in preferred undeclared dividends and accretion on Series A Redeemable Perpetual Preferred Stock on the Company’s condensed consolidated statements of changes in equity and treated similarly to a dividend on preferred stock for GAAP purposes.
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New Accounting Standards
To be adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU No. 2018-19 and ASU No. 2019-10, requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for EGCs for the fiscal year beginning after December 15, 2022, or December 15, 2021 if we were to lose EGC status in 2021. The Company will continue to assess the possible impact of this standard, but currently does not expect the adoption of this standard will have a significant impact on its consolidated financial statements and its limited history of bad debt expense relating to trade accounts receivable.

3.    Inventories

Inventories consist of the following (in thousands):
September 30,December 31,
20212020
Raw materials$73,514 $39,051 
Finished goods106,690 85,833 
Reserve for excess or obsolete inventory(7,078)(6,425)
Total$173,126 $118,459 


4.    Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):
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Estimated Useful Lives (Years)September 30,December 31,
20212020
LandN/A$1,340 $1,340 
Buildings and land improvements
15-39
2,486 2,486 
Manufacturing equipment713,791 13,261 
Furniture, fixtures and equipment
5-7
477 443 
Vehicles5161 140 
Hardware and software
3-5
1,603 887 
Machinery in progress951  
Total20,809 18,557 
Less: accumulated depreciation(10,607)(8,783)
Property, plant and equipment, net$10,202 $9,774 


Depreciation expense was $0.6 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, of which $0.5 million and $0.5 million, respectively, has been allocated to cost of revenue and $0.1 million and $0.1 million, respectively, is included in depreciation and amortization in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020.

Depreciation expense was $1.8 million and $1.8 million for the nine months ended September 30, 2021 and 2020, respectively, of which $1.5 million and $1.5 million, respectively, has been allocated to cost of revenue and $0.3 million and $0.3 million, respectively, is included in depreciation and amortization in the accompanying consolidated statements of operations for the nine months ended September 30, 2021 and 2020.

5.    Goodwill and Other Intangible Assets

Goodwill

Goodwill relates to Former Parent’s acquisition of AT (the “Acquisition”) in 2016. As of July 8, 2016 (the “Acquisition Date”), goodwill was $121.6 million. As of September 30, 2021 and December 31, 2020 goodwill totaled $69.7 million, net of accumulated impairment of $51.9 million and is not deductible for tax purposes.

Other Intangible Assets

Other intangible assets consisted of the following (in thousands):
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Estimated Useful Lives (Years)September 30,December 31,
20212020
Amortizable:
Costs:
Developed technology14$203,800 $203,800 
Customer relationships1089,500 89,500 
Internal-use software modification2.54,356 4,356 
Total amortizable intangibles297,656 297,656 
Accumulated amortization:
Developed technology76,151 65,233 
Customer relationships46,819 40,107 
Internal-use software modification costs4,356 4,356 
Total accumulated amortization127,326 109,696 
Total amortizable intangibles, net170,330 187,960 
Non-amortizable costs:
Trade name10,300 10,300 
Total other intangible assets, net$180,630 $198,260 


Amortization expense related to intangible assets amounted to $5.9 million for the three months ended September 30, 2021 and 2020, and $17.6 million for the nine months ended September 30, 2021 and 2020, respectively.


6.    Investment in Equity Security

The Company made a $10.0 million and $2.0 million investment in preferred stock of a private company in February 2021 and April 2021, respectively. The investment is accounted for in accordance with ASC 321 at its cost less any impairment. The investment balance as of September 30, 2021 is $12.0 million and is recorded in other assets on the condensed consolidated balance sheet. There is no impairment recorded for the three and nine months ended September 30, 2021.

7.    Income Taxes

The Company follows guidance under ASC Topic 740-270, Interim Reporting, which requires that an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The tax effect of discrete items is recorded in the quarter in which the discrete events occur.

The Company recorded income tax expense (benefit) of $(4.0) million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively, and income tax expense (benefit) of $(4.0) million and $18.1 million for the nine months ended September 30, 2021 and 2020. The tax benefit in the three months ended September 30, 2021 is unfavorably impacted by non-deductible amounts for equity-based compensation
14


and Follow-on Offering costs. The tax benefit in the three months ended September 30, 2020 was favorably impacted by a tax benefit related to an NOL carryback as a result of the CARES Act. The tax benefit in the nine months ended September 30, 2021 was unfavorably impacted by non-deductible amounts for equity-based compensation and Follow-on Offering costs. The tax expense in the nine months ended September 30, 2020 was favorably impacted by a tax benefit related to an NOL carryback as a result of the CARES Act.

For the three and nine ended September 30, 2021 and 2020, no reserves for uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.

8.    Long-Term Debt

September 30,December 31,
20212020
Term loan facility$327,850 $460,000 
Revolving credit facility  
327,850 460,000 
Less discount and issuance costs
(24,338)(31,717)
Long term debt, net of debt discount and issuance costs303,512 428,283 
Less current portion of long-term debt(4,300)(4,313)
Long-term debt, net of current portion, debt discount and issuance costs$299,212 $423,970 

Senior Secured Credit Facility
On October 14, 2020, the Company entered into a senior secured credit facility consisting of (i) a $575 million senior secured seven-year term loan facility (the “Term Loan Facility”) and (ii) a $150 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”). As of September 30, 2021, the Term Loan Facility had a balance of $327.9 million. On August 11, 2021, in connection with the sale of the Series A, the Company used the proceeds to repay $100.0 million of the outstanding Term Loan Facility and $102.0 million of the Revolving Credit Facility. On February 23, 2021 the Company entered into the First Amendment (“First Amendment”) to its Senior Secured Credit Facility. The First Amendment, in the case of the Eurocurrency borrowings, lowers the London interbank offered rate floor to 50 basis points from 100 basis points and lowers the applicable margin to 325 basis points from 400 basis points per annum. This resulted in the current rate on the Term Loan Facility of 3.75%. On February 26, 2021, we entered into the incremental facility amendment No. 2 (the “Second Amendment”) to the Senior Secured Credit Facility. The Second Amendment increases the $150.0 million Revolving Credit Facility from $150.0 million to $200.0 million. The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets net of debt discount and issuance costs of $24.3 million at September 30, 2021. The debt discount and issuance costs are being amortized using the effective interest method and the rate as of September 30, 2021 is 5.01%. The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula does not result in requiring the Company to make any advance principal payments for the year ended December 31, 2021.

Revolving Credit Facility
Under the Revolving Credit Facility, the Company had a zero outstanding balance, $14.5 million in standby letters of credit and availability of $185.5 million as of September 30, 2021.


9.    Redeemable Perpetual Preferred
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Series A Redeemable Perpetual Preferred
On August 10, 2021, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) pursuant to which on August 11, 2021, the Company issued and sold to certain investors (the Purchasers”) 350,000 shares of a newly designated Series A Redeemable Perpetual Preferred Stock of the Company, par value $0.001 per share (the “Series A Redeemable Perpetual Preferred Stock” or “Series A”), and 7,098,765 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), for an aggregate purchase price of $346.0 million (the “Initial Closing”). Further, pursuant to the Securities Purchase Agreement, the Company issued and sold to the Purchaser 776,235 shares of Common Stock for an aggregate purchase price of $776. The Company used net proceeds from the Initial Closing to repay all of the outstanding amounts under the Company’s existing revolving credit facility and prepaid $100 million under the Company’s term loan and for general corporate purposes. The Purchaser is entitled to designate one representative to be appointed to the Company’s board of directors, and to appoint three non-voting observers to the Board, in each case until such time as the Purchaser no longer beneficially own shares of the Series A Redeemable Perpetual Preferred Stock with at least $100 million aggregate Liquidation Preference (as defined below). The Series A have no maturity date.

Additional Closings
The Securities Purchase Agreement gives the Company the option to require the Purchaser to purchase, in one or more additional closings, up to 150,000 shares, until June 30, 2023, of the Series A Redeemable Perpetual Preferred Stock and up to 3,375,000 shares of Common Stock (or up to 6,100,000 shares of Common Stock in the event of certain price-related adjustments) (subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction) for an aggregate purchase price up to $148 million. This represents a committed financing put right with an initial fair value of $12.4 million.

The Series A preferred stock was recorded as temporary equity, net of issuance costs, on the condensed consolidated balance sheets as it has redemption features upon certain triggering events that are outside the Company’s control, such as a fundamental change. The net proceeds of the Series A offering of $334.6 million have been allocated on the balance sheet by each instruments relative fair values, net of fees, to the Series A Redeemable Perpetual Preferred Stock of $229.8 million, Common Stock of $105.4 million, a debit to additional paid-in capital of $12.4 million for the committed financing put right and $11.7 million for a prepaid forward contract on the issuance of 776,235 shares of Common Stock which was settled on September 27, 2021.

Dividends
On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Redeemable Perpetual Preferred Stock either in cash at the then-applicable Cash Regular Dividend Rate (as defined below), through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate of 6.25% (the “Permitted Accrued Dividends”), or a combination thereof. Following the fifth anniversary of the Initial Closing, dividends shall be payable only in cash. To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points. In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holder of the Series A Redeemable Perpetual Preferred Stock (each a “Holder”), will pay 100% of the amount of Default Accrued Dividends by delivering to the Holder a number of shares of
16


Common Stock equal to the quotient of (i) the amount of Default Accrued Dividends) divided by (ii) 95% of the 30-day VWAP of the Common Stock (“Non-Cash Dividend”).
The “Cash Regular Dividend Rate” of the Series A Redeemable Perpetual Preferred Stock means (i) initially, 5.75% per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing. The “Accrued Regular Dividend Rate” on the Series A Redeemable Perpetual Preferred Stock means 6.25% per annum on the Liquidation Preference.

The Series A preferred stock have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. As a result, the discount on Series A preferred stock is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A preferred stock by a corresponding amount. The discount of $120.2 million is therefore being amortized over five years using the effective yield method. The amortization in each period is the amount which, together with the stated dividend in the period, results in a constant rate of effective cost with regard to the carrying amount of the Series A preferred stock.

The Company has presented the Series A Redeemable Perpetual Preferred Stock in temporary equity and is accreting the discount on the increasing rate dividends using the effective interest method. Such accretion totaled $2.7 million for the three and nine months ended September 30, 2021.

The Company accreted to the carrying value of the Series A Preferred the regular cash rate of dividends of 5.75%, or $2.8 million in dividends for the three and nine months ended September 30, 2021.

Fees
Until June 30, 2023, the Company will pay the Purchaser a cash commitment premium on the unpurchased portion of Delayed Draw Commitment as follows:
a.0% through the six-month anniversary of the Initial Closing;
b.1.5% from the six-month anniversary of the Initial Closing through the 12-month anniversary of the Initial Closing; and
c.3.0% from the 12-month anniversary of the Initial Closing through June 30, 2023.

The Company may terminate some or all of the Delayed Draw Commitment, from time to time, at its sole discretion.

Customary Covenants
The Securities Purchase Agreement, Certificate of Designations and Registration Rights Agreement (as defined below) contain other customary covenants and agreements, including certain standstill provisions and customary preemptive rights. The Delayed Draw Commitment is subject to certain customary anti-dilution adjustments provided under the Securities Purchase Agreement and Certificate of Designations, including for stock splits, reclassifications, combinations and dividends or distributions made by the Company on the Common Stock.

Transfer Restrictions
After the Initial Closing, subject to certain customary exceptions including transfers to Permitted Transferees (as defined in the Securities Purchase Agreement), the Purchaser will be restricted from transferring the Series
17


A Redeemable Perpetual Preferred Stock and Common Stock until the one-year anniversary of the Initial Closing.

Ranking and Liquidation Preference
The Series A Redeemable Perpetual Preferred Stock ranks senior to the Common Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (a “Liquidation”). Upon a Liquidation, each share of Series A Redeemable Perpetual Preferred Stock would be entitled to receive an amount per share (the “Liquidation, Redemption or Repurchase Amount”) equal to the greater of (i) the Liquidation Preference of such share, plus all accrued and unpaid dividends (including any Accrued Dividends) thereon and (ii) an amount in cash equal to the sum of (a) 130.0% of the Initial Liquidation Preference (as defined below) of such share, minus (b) the cumulative amount of cash dividends paid in respect of such share prior to such payment. As used herein, “Liquidation Preference” means, with respect to any share of the Series A Redeemable Perpetual Preferred Stock, the initial liquidation preference of $1,000 per share (the “Initial Liquidation Preference”) plus any Accrued Dividends of such share as of the time of determination.

Redemption Rights
The Company may redeem all or any portion of the Series A Redeemable Perpetual Preferred Stock (in increments of not less than $200 million based on the Liquidation Preference of such shares of Series A Redeemable Perpetual Preferred Stock to be redeemed at such time (or such lesser amount to the extent the Company chooses to redeem all of the outstanding shares of Series A Redeemable Perpetual Preferred Stock)) for an amount in cash equal to the Liquidation, Redemption or Repurchase Amount. Upon a “Fundamental Change” (involving a change of control, bankruptcy, insolvency or liquidation of the Company as further described in the Certificate of Designations), each Holder shall have the right to require the Company to redeem all or any part of the Holder’s Series A Redeemable Perpetual Preferred Stock for an amount in cash equal to the Liquidation, Redemption or Repurchase Amount.

Voting and Consent Rights
Each Holder of Series A Redeemable Perpetual Preferred Stock will have one vote per share on any matter on which Holders of Series A Redeemable Perpetual Preferred Stock are entitled to vote separately as a class (as described below), whether at a meeting or by written consent. The Holders of shares of Series A Redeemable Perpetual Preferred Stock do not otherwise have any voting rights. The consent of the Holders of a majority of the outstanding shares of Series A Redeemable Perpetual Preferred Stock will be required for so long as the Threshold Amount remains outstanding for (i) amendments to the Company’s organizational documents that have an adverse effect on the Holders, (ii) issuances by the Company of securities that are senior to, or equal in priority with, the Series A Redeemable Perpetual Preferred Stock, (iii) entrance into, or amendments to, transactions with affiliates of the Company, (iv) incurrence by the Company of indebtedness, unless the Consolidated Total Leverage Ratio (as defined in the Certificate of Designations) would not exceed 8.5-to-1 after giving effect to such incurrence (other than drawdowns by the Company under the Company’s current Revolving Credit Facility) or (v) any payment of dividends or making of distributions on equity securities of the Company ranking junior to the Series A Redeemable Perpetual Preferred Stock or redemptions, purchases or direct or indirect acquisitions of such equity securities ranking junior to or parity with the Series A Redeemable Perpetual Preferred Stock by the Company, unless the Consolidated Total Leverage Ratio (as defined in the Certificate of Designations) would not exceed 8.5-to-1 after giving effect to such dividends, distributions, redemptions, purchases or acquisitions.

Registration Rights
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In connection with the Securities Purchase Agreement, on August 10, 2021, the Company and the Purchaser entered into a Registration Rights Agreement pursuant to which, among other things, the Company granted the Purchaser certain registration rights with respect to Common Stock purchased pursuant to the Securities Purchase Agreement and Non-Cash Dividend pursuant to the Certificate of Designations, including customary shelf registration rights and “piggyback” registration rights.

10.    Related Party Loan

The Company had a senior secured promissory note, as amended, with a unit holder of Former Parent that had a balance, net of debt discount and issuance costs as of June 30, 2020 of $41.8 million for which the Company paid off the balance on July 31, 2020 to settle the obligation with respect to the Senior Secured Loan. The Company paid interest expense for the three and nine months ended September 30, 2020 of $0.3 million and $3.8 million, which consisted of cash interest, PIK interest and amortization of the debt discount. The note was no longer outstanding as of June 30, 2021 and had no balance or interest expense for the three months ended September 30, 2021.

11.    Revenue

Based on Topic 606 provisions, the Company disaggregates its revenue from contracts with customers by those sales recorded over-time and sales recorded at a point in time. The following table presents the Company’s revenue disaggregated by sales recorded over-time and sales recorded at a point in time (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Over-time revenue$169,753 $112,329 $591,117 $620,447 
Point in time revenue22,315 27,133 49,679 71,649 
Total revenue$192,068 $139,462 $640,796 $692,096 

Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets (i.e. unbilled receivables) and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings for the Company’s revenue recognized over-time. Contract assets consisting of unbilled receivables are recorded within accounts receivable on the condensed consolidated balance sheets on a contract-by-contract basis at the end of the reporting period and consisted of the following (in thousands):
September 30, 2021December 31, 2020
Unbilled receivables$61,108 $18,073 

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The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities (i.e. deferred revenue) relate to advanced orders and payments received by the Company. Contract liabilities consisting of deferred revenue recorded on a contract-by-contract basis at the end of each reporting period were as follows (in thousands):
September 30, 2021December 31, 2020
Deferred revenue$81,347 $149,821 

During the nine months ended September 30, 2021, the Company converted $149.8 million deferred revenue to revenue which represented 100.0% of the prior years deferred revenue balance.

Remaining Performance Obligations
As of September 30, 2021, the Company had $591.0 million of remaining performance obligations. The Company expects to recognize revenue on 100% of these performance obligations in the next twelve months.


12.    Earnings (loss) per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net (loss) income $(25,552)$(7,232)$(22,682)$68,845 
Preferred dividends and accretion(5,479)(5,479)— 
Net income (loss) to common shareholders$(31,031)$(7,232)$(28,161)$68,845 
Basic:
Weighted-average shares130,955 119,994 128,315 119,994 
Earnings (loss) per share$(0.24)$(0.06)$(0.22)$0.57 
Diluted:
Weighted-average shares130,955 119,994 128,315 119,994 
Equity compensation dilutive securities    
Weighted average dilutive shares130,955 119,994 128,315 119,994 
Earnings (loss) per share$(0.24)$(0.06)$(0.22)$0.57 

Potentially dilutive common shares issuable pursuant to equity-based awards were not included for the three months ended September 30, 2021 as their potential effect was anti-dilutive as the Company generated a net loss.


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13.    Commitments and Contingencies

Litigation
The Company, in the normal course of business, is subject to claims and litigation. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss.

On May 14, 2021, a putative class action was filed in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering, the Company’s December 2020 offering, and the Company’s March 2021 offering during the putative class period of October 14, 2020 through May 11, 2021. The Court appointed the Array Institutional Investor Group as lead plaintiff and the deadline for an amended complaint is November 19, 2021.

On June 30, 2021, a second putative class action was filed in the Southern District of New York against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11 and 15 of the Securities Exchange Act of 1933 (“Keippel Action”). The Keippel Action similarly alleged misstatements and/or omissions in certain of the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering, the Company’s December 2020 offering, and the Company’s March 2021 offering during the putative class period of October 14, 2020 through May 11, 2021. On July 6, 2021, the Court entered an order that the Keippel Action was in all material respects substantially similar to the Plymouth Action that both actions arise out of the same or similar operative facts, and that the parties are substantially the same parties. The Court accordingly consolidated the Keippel Action with the Plymouth Action for all pretrial purposes and, ordered all filings to be made in the Plymouth Action.

On July 16, 2021, a verified derivative complaint was filed against certain officers and directors of the Company (“First Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934. On August 24, 2021, the case was consolidated with the Second Derivative Action, the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action.

On July 30, 2021, a second and related verified derivative complaint was filed against certain officers and directors of the Company (“Second Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second Derivative Action was consolidated with the First Derivative Action, the Court appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order
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on any motions to dismiss the Plymouth Action or, (b) to the extent the complaint in the Plymouth Action is amended, the entry of an order on any motions to dismiss any such amended complaints in the Plymouth Action.

On September 21, 2021, the Court appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiff in the Plymouth Action. The deadline for the lead plaintiff to file an amended complaint in the Plymouth action is November 19, 2021

At this time the Company believes that the likelihood of any material loss related to these matters is remote given the preliminary stage of the claims and strength of the Company’s defenses. The Company has not recorded any material loss contingency in the condensed consolidated balance sheets as of September 30, 2021.

Contingent Consideration

Taxes Receivable Agreement
Concurrent with the Acquisition, Array Tech, Inc. (f/k/a Array Technologies, Inc.) entered into a Taxes Receivable Agreement (“TRA”) with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc. to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array, from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration in the accompanying condensed consolidated statements of operations. As of September 30, 2021 and December 31, 2020, the fair value of the TRA was $13.0 million and $19.7 million, respectively.

Estimating the amount of payments that may be made under the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to the former owners include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA.

Payments made under the TRA consider tax positions taken by the Company and are due within 125 days following the filing of the Company’s U.S. federal and state income tax returns under procedures described in the agreement. The current portion of the TRA liability is based on tax returns. The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA.

Earn-Out Liability
The Company had a liability to the selling stockholders of Array for contingent consideration consisting of earn-out payments in the form of cash upon the occurrence of certain events, including the sale, transfer, assignment, pledge, encumbrance, distribution or disposition of shares held by the acquirer to a third party; initial public offering of the equity securities of Former Parent, acquirer or the Company; the sale of equity securities or assets of Former Parent, acquirer or the Company to a third-party; or a merger, consolidation, recapitalization or reorganization of Former Parent, acquirer or the Company. The maximum aggregate earn-out consideration was $25.0 million. The earn-out liability was paid off in the fourth quarter of the fiscal year ended December 31, 2020.
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The fair value of the earn-out liability was initially determined as of the Acquisition Date using unobservable inputs. These inputs include the estimated amount and timing of future cash flows, the probability of a qualifying event occurring, and a risk-free rate used to adjust the probability-weighted cash flows to their present value. Subsequent to the Acquisition Date, at each reporting period, the earn-out liability was re-measured to fair value with changes in fair value recorded in contingent consideration in the accompanying condensed consolidated statements of operations.

The following table summarizes the liability related to the estimated contingent consideration (in thousands):

TRAEarn-Out LiabilityContingent Consideration
Balance, June 30, 2021$12,016 $ $12,016 
Payments   
Fair value adjustment936  936 
Balance, September 30, 2021$12,952 $ $12,952 
Balance, June 30, 2020$18,845 $1,822 $20,667 
Fair value adjustment(521)14,112 13,591 
Balance, September 30, 2020$18,324 $15,934 $34,258 
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TRAEarn-Out LiabilityContingent Consideration
Balance, December 31, 2020$19,691 $ $19,691 
Payments(7,810) (7,810)
Fair value adjustment1,071  1,071 
Balance, September 30, 2021$12,952 $ $12,952 
Balance, December 31, 2019$17,808 $442 $18,250 
Fair value adjustment516 15,492 16,008 
Balance, September 30, 2020$18,324 $15,934 $34,258 

The TRA and earn-out liabilities require significant judgment and are classified as Level 3 in the fair value hierarchy.


14.    Equity-Based Compensation

Equity Incentive Plan
On October 14, 2020, the Company’s 2020 Plan became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.

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In the nine months ended September 30, 2021, the Company granted an aggregate of 605,319 RSUs to employees and board of director members and 177,472 Performance Stock Units (PSUs) to certain executives. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (TSR) compared to a certain Index which modifies the number of PSUs that vest.

Activity under the 2020 Plan was as follows:
Number of SharesWeighted Average Grant Date Fair Value
RSU
Unvested, December 31, 2020500,006 $22.00 
Granted605,319 $23.77 
Vested  
Forfeited(61,817)$26.33 
Unvested, September 30, 20211,043,508 $22.77 
PSUNumber of SharesWeighted Average Grant Date Fair Value
Unvested, December 31, 2020 $ 
Granted177,472 $28.25 
Vested  
Forfeited(17,460)$30.74 
Unvested, September 30, 2021160,012 $27.98 

Class B Units
The Company accounted for equity grants to employees of Class B Units of Former Parent (the “Units”) as equity-based compensation under ASC 718, Compensation-Stock Compensation. The Units contained vesting provisions as defined in the agreement. Equity-based compensation cost was measured at the grant date fair value and recognized on a straight-line basis over the requisite service period, including those units with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent; however, the amount of equity-based compensation at any date is equal to the portion of the grant date value of the award that is vested.

The Units issued to employees were measured at fair value on the grant date using an option pricing model. The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards. Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage. The risk-free rates are based on the yields of U.S. Treasury instruments with comparable terms. Actual results may vary depending on the assumptions applied within the model.

On March 23, 2021, in connection with the closing of the 2021 Follow-on Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of expense of $8.9 million.

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For the three and nine months ended September 30, 2021, the Company recognized $2.2 million and $14.3 million in equity-based compensation, respectively. For the three and nine months ended September 30, 2020, the Company recognized $0.9 million and $3.3 million in equity-based compensation, respectively. As of September 30, 2021, the Company had $18.4 million of unrecognized compensation costs which is expected to be recognized over a period of 2.3 years. There were 18,772 and 79,277 forfeitures during the three and nine months ended September 30, 2021 and no forfeitures during the three and nine month ended September 30, 2020.

15.    Leases

Effective January 1, 2021, the Company adopted ASC 842 Leases using the modified retrospective approach. The Company elected the use of the package of practical expedients permitted under the transition guidance which allows the Company not to reassess whether a contract contains a lease, carry forward the historical lease classification and not reassess initial direct lease costs. The Company also elected to apply the short-term measurement and recognition exemption in which the right-of-use (“ROU”) assets and lease liabilities are not recognized for short-term leases. Adoption of this standard resulted in recording of net operating lease ROU assets and corresponding operating lease liabilities of $13.2 million and $13.5 million, respectively. The standard did not materially affect the condensed consolidated statements of income and had no impact on the condensed consolidated statements of cash flows.

The following table summarizes the balances as it relates to leases at the end of the period (in thousands):

(*)September 30, 2021
ROU AssetOther assets$9,008 
Lease liability, current portionOther current liabilities$6,447 
Lease liability, long-term portionOther long-term liabilities2,817 
Total lease liability$9,264 
(*) Location on the condensed consolidated balance sheet

The Company determines if an arrangement is a lease at its inception. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease ROU assets also include any initial direct costs and prepayments less lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. As the Company’s leases generally do not provide an implicit rate, the Company uses its collateralized incremental borrowing rate based on the information available at the lease commencement date, including lease term, in determining the present value of lease payments. Lease expense for these leases is recognized on a straight-line basis over the lease term.

Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the right-of-use assets are included in other assets and the corresponding lease liabilities, depending on their maturity, are included in accrued liabilities or other long-term liabilities in the condensed consolidated balance sheets.

The details of the Company’s operating leases are as follows (in thousands):
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Three Months EndedNine Months Ended
September 30, 2021September 30, 2021
Operating lease expense$1,651 $4,955 
Variable lease expense 27 79 
Short-term lease expense 
Total lease expense$1,678 $5,034 

The following table presents the maturities of lease liabilities as of September 30, 2021 (in thousands):
Fiscal year ending September 30, Operating Leases
2021$1,868 
20226,071 
2023896 
2024794 
202519 
Thereafter 
Total lease payments9,648 
Less: Imputed lease interest(384)
Total lease liabilities$9,264 

The following table represents future minimum lease obligations under non-cancelable operating leases as of December 31, 2020 (in thousands):

Fiscal year ending December 31, Operating Leases
2021$6,663 
20226,073 
2023893 
2024791 
202515 
Thereafter 
Total$14,435 

The Company’s weighted-average remaining lease-term and weighted-average discount rate are as follows:

Three Months EndedNine Months Ended
September 30, 2021September 30, 2021
Weighted average remaining lease-term1.7 years1.7 years
Weighted average discount rate5 %5 %