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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 June 30, 2023

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/47aa9b51b50c53ea600176b60a59ce0c-ARRAY logo.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 August 4, 2023, there were 151,069,600 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. Financial Statements.

Array Technologies, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except per share and share amounts)

June 30, 2023December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents$155,966 $133,901 
Accounts receivable, net of allowance of $1,651 and $1,888, respectively
502,363 421,183 
Inventories206,857 233,159 
Income tax receivables312 3,532 
Prepaid expenses and other42,740 39,434 
Total current assets908,238 831,209 
Property, plant and equipment, net30,674 23,174 
Goodwill441,255 416,184 
Other intangible assets, net375,527 386,364 
Deferred income tax assets 16,466 
Derivative assets64,014  
Other assets33,076 32,655 
Total assets$1,852,784 $1,706,052 
LIABILITIES, REDEEMABLE PERPETUAL PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$188,633 $170,430 
Accrued expenses and other61,156 54,895 
Accrued warranty reserve1,540 3,690 
Income tax payable16,711 6,881 
Deferred revenue114,810 178,922 
Current portion of contingent consideration1,809 1,200 
Current portion of debt37,450 38,691 
Other current liabilities12,844 10,553 
Total current liabilities434,953 465,262 
Deferred income tax liabilities74,902 72,606 
Contingent consideration, net of current portion7,620 7,387 
Other long-term liabilities16,117 14,808 
Long-term warranty4,415 1,786 
Long-term debt, net of current portion702,485 720,352 
Total liabilities1,240,492 1,282,201 
1

Array Technologies, Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands, except per share and share amounts)
June 30, 2023December 31, 2022
Commitments and contingencies (Note 11)
Series A Redeemable Perpetual Preferred Stock of $0.001 par value - 500,000 authorized; 419,259 and 406,389 shares issued as of June 30, 2023 and December 31, 2022, respectively; liquidation preference of $419.3 million and $406.4 million at respective dates
324,838 299,570 
Stockholders’ equity:
Preferred stock of $0.001 par value - 4,500,000 shares authorized; none issued at respective dates
  
Common stock of $0.001 par value - 1,000,000,000 shares authorized; 151,048,790 and 150,513,104 shares issued at respective dates
151 150 
Additional paid-in capital417,624 383,176 
Accumulated deficit(176,530)(267,470)
Accumulated other comprehensive income46,209 8,425 
Total stockholders’ equity287,454 124,281 
Total liabilities, redeemable perpetual preferred stock and stockholders’ equity$1,852,784 $1,706,052 

See accompanying Notes to Condensed Consolidated Financial Statements.
2



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

Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenue$507,725 $419,865 $884,498 $720,451 
Cost of revenue357,683 379,919 633,277 653,918 
Gross profit150,042 39,946 251,221 66,533 
Operating expenses:
General and administrative40,250 28,936 78,392 74,361 
Change in fair value of contingent consideration705 (1,678)2,043 (5,409)
Depreciation and amortization12,846 26,020 27,087 49,257 
Total operating expenses53,801 53,278 107,522 118,209 
Income (loss) from operations96,241 (13,332)143,699 (51,676)
Other income (expense):
Other income (expense), net125 (371)319 372 
Foreign currency gain (loss)260 (1,736)66 2,127 
Change in fair value of derivative assets694  (1,256) 
Interest expense(10,109)(8,021)(19,609)(14,963)
Total other (expense)(9,030)(10,128)(20,480)(12,464)
Income (loss) before income tax (benefit) expense87,211 (23,460)123,219 (64,140)
Income tax (benefit) expense22,403 (18,436)32,279 (33,179)
Net income (loss)64,808 (5,024)90,940 (30,961)
Preferred dividends and accretion12,784 12,182 25,268 23,788 
Net income (loss) to common shareholders$52,024 $(17,206)$65,672 $(54,749)
Income (loss) per common share
Basic$0.34 $(0.11)$0.44 $(0.37)
Diluted$0.34 $(0.11)$0.43 $(0.37)
Weighted average number of common shares outstanding
Basic150,919 150,203 150,763 149,246 
Diluted152,129 150,203 151,970 149,246 

See accompanying Notes to Condensed Consolidated Financial Statements.
3



Array Technologies, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(in thousands)

Three Months Ended June 30,Six Months Ended
June 30,
2023202220232022
Net income (loss)$64,808 $(5,024)$90,940 $(30,961)
Change in foreign currency translation adjustments(1)
23,912 (45,208)37,784 11,467 
Comprehensive income (loss)$88,720 (50,232)$128,724 $(19,494)
(1) The tax effect on other comprehensive income is not material.


See accompanying Notes to Condensed Consolidated Financial Statements.
4



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






Three Months Ended June 30, 2023
Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred StockPreferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
Balance at March 31, 2023413 $312,054 — $— 150,823 $150 $426,221 $(241,338)$22,297 $207,330 
Equity-based compensation— — — — 226 1 4,944 — — 4,945 
Preferred cumulative dividends plus accretion6 12,784 — — — — (13,541)— — (13,541)
Net income— — — — — — — 64,808 — 64,808 
Other comprehensive income— — — — — — — 23,912 23,912 
Balance at June 30, 2023419 $324,838 — $— 151,049 $151 $417,624 $(176,530)$46,209 $287,454 















5



Array Technologies, Inc.
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued)
(unaudited)
(in thousands)
Three Months Ended June 30, 2022
Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred StockPreferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
Balance at March 31, 2022400 $281,792   150,174 $150 $411,232 $(297,839)$56,675 $170,218 
Equity-based compensation— —  — 105 — 2,944 — — 2,944 
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees— —  — — — (380)— — (380)
Preferred cumulative dividends plus accretion13 12,182  — — — (12,182)— — (12,182)
Net loss— —  — — — — (5,024)— (5,024)
Other comprehensive loss— —  — — — — — (45,208)(45,208)
Balance at June 30, 2022413 $293,974 — — 150,279 $150 $401,614 $(302,863)$11,467 $110,368 












6



Array Technologies, Inc.
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued)
(unaudited)
(in thousands)
Six Months Ended June 30, 2023
Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred StockPreferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
Balance at December 31, 2022406 $299,570 — $— 150,513 $150 $383,176 $(267,470)$8,425 $124,281 
Equity-based compensation— — — — 536 1 8,310 — — 8,311 
Correction of the Capped Call and Put Option errors (see Note 1)— — — — — 52,914 — — 52,914 
Preferred cumulative dividends plus accretion13 25,268 — — — — (26,776)— — (26,776)
Net income— — — — — — — 90,940 — 90,940 
Other comprehensive income— — — — — — — — 37,784 37,784 
Balance at June 30, 2023419 $324,838 — $— 151,049 $151 $417,624 $(176,530)$46,209 $287,454 



7



Array Technologies, Inc.
Condensed Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders’ Equity (continued)
(unaudited)
(in thousands)
Six Months Ended June 30, 2022
Temporary EquityPermanent Equity
Series A Redeemable Perpetual Preferred StockPreferred StockCommon Stock
SharesAmountSharesAmountSharesAmountAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
Balance at December 31, 2021350 $237,462 — $— 135,027 $135 $202,562 $(271,902)$ $(69,205)
Equity-based compensation— — — — — — 7,357 — — 7,357 
Issuance of Series A Redeemable Perpetual Preferred Stock, net of fees50 32,724 — — 15,252 15 215,483 — — 215,498 
Preferred cumulative dividends plus accretion13 23,788 — — — — (23,788)— — (23,788)
Net loss— — — — — — — (30,961)— (30,961)
Other comprehensive income— — — — — — — — 11,467 11,467 
Balance at June 30, 2022413 $293,974 — $— 150,279 $150 $401,614 $(302,863)$11,467 $110,368 


See accompanying Notes to Condensed Consolidated Financial Statements.
8



Array Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

Six Months Ended
June 30,
20232022
Operating activities:
Net income (loss)$90,940 $(30,961)
Adjustments to net income (loss):
Provision for bad debts(141)510 
Deferred tax expense816 (23,910)
Depreciation and amortization27,692 49,795 
Amortization of debt discount and issuance costs4,998 3,286 
Equity-based compensation8,311 7,472 
Contingent consideration2,043 (5,409)
Warranty provision479 1,215 
Write-down of inventories3,458 409 
Change in fair value of derivative assets1,256  
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable(81,039)(106,548)
Inventories22,844 (77,191)
Income tax receivables3,220 (7,062)
Prepaid expenses and other(3,292)5,015 
Accounts payable30,542 74,513 
Accrued expenses and other7,097 3,356 
Income tax payable9,830 (7,217)
Lease liabilities1,414 4,700 
Deferred revenue(64,112)47,263 
Net cash provided by (used in) operating activities66,356 (60,764)
Investing activities:
Purchase of property, plant and equipment(9,424)(3,895)
Acquisition of STI, net of cash acquired (373,818)
Net cash used in investing activities(9,424)(377,713)
Financing activities:
Proceeds from Series A issuance 33,098 
Proceeds from common stock issuance 15,885 
Series A equity issuance costs(1,508)(575)
Common stock issuance costs (450)
Payments on revolving credit facility (33,000)
Proceeds from revolving credit facility 101,000 
Proceeds from issuance of other debt23,801 30,599 
Principal payments on term loan facility(22,150) 
Principal payments on other debt(38,257)(22,377)
Contingent consideration payments(1,200)(1,483)
9



Array Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
(in thousands)
Six Months Ended
June 30,
20232022
Net cash provided by (used in) financing activities(39,314)122,697 
Effect of exchange rate changes on cash and cash equivalent balances4,447 (844)
Net change in cash and cash equivalents22,065 (316,624)
Cash and cash equivalents, beginning of period133,901 367,670 
Cash and cash equivalents, end of period$155,966 $51,046 
Supplemental Cash Flow Information
Cash paid for interest$15,880 $7,428 
Cash paid for income taxes (net of refunds)$18,484 $(230)
Non-cash Investing and Financing Activities
Dividends accrued on Series A Preferred$12,871 $12,606 
Stock consideration paid for acquisition of STI$ $200,224 

See accompanying Notes to Condensed Consolidated Financial Statements.
10

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

1.    Organization, Business and Out-of-Period Adjustments

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

Acquisition of STI Norland
On January 11, 2022 (the “Acquisition Date”), the Company acquired 100% of the share capital of Soluciones Técnicas Integrales Norland, S.L.U., a Spanish private limited liability Company, and its subsidiaries (collectively, “STI”) with cash and common stock of the Company (the “STI Acquisition”). The STI Acquisition was accounted for as a business combination.

Upon completion of the STI Acquisition, the Company began operating as two reportable operating segments: the Array legacy operating segment (the “Array Legacy Operations”) and the newly acquired operations (the “STI Operations”) pertaining to STI.

Out-of-Period Adjustment for the Correction of Errors
During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the three months ended March 31, 2023. The Company has concluded that the errors are not material to the previously issued financial statements and the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the three months ended March 31, 2023. Below is a summary of each of the errors corrected and a summary of the cumulative impact.

Capped Calls
As discussed in Note 10 – Debt, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023, in November 2021 the Company paid $52.9 million to enter into capped call option agreements (the “Capped Calls”) to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Company’s Convertible Notes (as defined below). The Company originally concluded that the Capped Calls met the criteria for equity classification because the Capped Calls are indexed to the Company’s common stock, and the Company has discretion to settle the Capped Calls in shares or cash. As a result, the Company originally recorded the amount paid for the Capped Calls as a reduction to additional paid-in capital of $52.9 million, offset by $12.4 million of income taxes.

When the Company entered into the Capped Calls, the Company executed certain side letters (the “Side Letters”) with the counterparties that replaced some of the terms described in the primary contract including the volatility inputs used to value the Capped Calls under certain circumstances. Upon further evaluation, the Company has concluded that the modification to the volatility inputs precludes the Capped Calls from being
11

Array Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
indexed to its own stock because there is the possibility that the Capped Calls will settle at an amount that exceeds fair value and, therefore, prevents the Capped Calls from being classified as equity.

In addition, the Side Letters also provide for certain adjustments to settlement amounts on the basis of holder-specific taxes which are impermissible inputs to the valuation that also prevents the Capped Calls from being indexed to the Company’s own stock, and therefore, prevents the Capped Calls from being classified as equity. As a result, for the three months ended March 31, 2023, the Company has concluded that the cash paid for the Capped Calls should have been recorded as an asset of $52.9 million with the asset being subsequently marked to market at the end of each accounting period.

Additional Closing Purchased Put Option
As discussed in Note 11 – Redeemable Perpetual Preferred Stock, of the Company’s consolidated financial statements for the fiscal year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023, in August 2021 the Company entered into a Securities Purchase Agreement (the “SPA”) with certain Purchasers (as defined below), which gives the Company the option to require the Purchasers to purchase up to an additional 150,000 shares of Series A Shares (as defined below) and up to 3,375,000 shares of common stock for $148.0 million until June 30, 2023 (the “Put Option”). Upon issuance of the Put Option, the Company recorded a reduction to additional paid-in-capital of approximately $12.4 million because the Company originally concluded that the Put Option should be classified as equity.

During the first quarter of 2023, the Company reconsidered the provisions of this option. Because the Series A Shares underlying the Put Option could potentially require redemption under the Certificate of Designations governing the Series A Shares, the Put Option should not have been equity classified. As a result, during the three months ended March 31, 2023, the Company has concluded that the value of the Put Option at inception should have been recorded as an asset of $12.4 million, with the asset being subsequently marked to market at the end of each accounting period.

Correction of the Capped Calls and Put Option
The adjustments to correct the Capped Calls and the Put Option at January 1, 2023 resulted in an increase in Derivative assets of $55.7 million, a decrease in Deferred income tax assets of $11.0 million, an increase in additional paid-in-capital of $52.9 million, and a decrease in net income of $8.1 million.

Goodwill
In connection with the acquisition of STI, the Company had understated goodwill by $2.0 million and overstated inventory by the same amount that was sold during fiscal 2022. The Company corrected the goodwill balance during the first quarter of fiscal year 2023, resulting in an increase in goodwill and a decrease in cost of goods sold.

2.    Summary of Significant Accounting Policies

Basis of Accounting and Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), pursuant to the rules and regulations of the SEC. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the
12


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 six months ended June 30, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or any other interim periods, or any future year or period. The balance sheet as of December 31, 2022, included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements included in the 2022 Annual Report.

Unless expressly stated or the context otherwise requires, the terms “the Company”, “we”, “us”, “our”, “Array”, and “Array Technologies” refer to Array Technologies, Inc. and its consolidated subsidiaries, and the term “condensed consolidated financial statements” refers to the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report.

Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

Actual results may differ from previously estimated amounts, and such differences may be material to the condensed consolidated financial statements; however, management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.

Impact of the Ongoing Conflict in Ukraine
The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know the ultimate severity or duration of the conflict in Ukraine, but we continue to monitor the situation and evaluate our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations.

Inflation
Inflationary pressures, while somewhat moderating recently, are expected to persist, at least in the near-term, and may negatively impact our results of operations. To mitigate the inflationary pressures on our business, we have implemented selective price increases in certain markets, accelerated productivity initiatives and expanded our supplier base, while continuing to execute on overhead cost containment practices.

Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
13


805 Business Combinations (“ASC 805”). The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, amongst other items.

Foreign Currency Translation Exposure
The functional currencies of certain of our foreign subsidiaries are their local currencies. Accordingly, we apply period-end exchange rates to translate their assets and liabilities, historical exchange rates to translate their retained earnings, and average exchange rates prevailing during the period to translate their revenues, expenses, gains, and losses into U.S. dollars. We include the associated translation adjustments as a separate component of “Accumulated other comprehensive income (loss)” within stockholders’ equity.

Certain of our foreign subsidiaries have local currencies that are different than the subsidiaries functional currencies. When translating from the local currency to the functional currency, monetary assets and liabilities are translated at the current exchange rate resulting in foreign exchange gains or losses, and non-monetary assets are translated at historical exchange rates. Changes in the exchange rates between the functional currencies of our subsidiaries and the currencies in which monetary financial assets and liabilities are denominated in, will create fluctuations in our reported condensed consolidated statements of operations and cash flows.

Derivative Financial Instruments

Both the Capped Call and the Put Option are accounted for as assets that are recorded at fair value within Derivative assets on the condensed consolidated balance sheets. The changes in fair value to Derivative assets are recorded within change in fair value of derivative assets on the Condensed Consolidated Statements of Operations. See Note 1 – Organization, Business and Out-of-Period Adjustments, for further information.

Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to provide entities with relief during the transition period by deferring the effective date of reference rate reform from December 31, 2022 to December 31, 2024. ASU 2022-06 is effective upon issuance. During the three months ended March 31, 2023, the Company adopted ASU 2020-04 and ASU 2022-06. Simultaneously, the Company elected to apply the debt accounting optional expedient, under which the reporting entity will account for amendments to debt agreements, which sole intent are the replacement of a discontinued reference rate(s), as being not substantial and thus a continuation of the existing contract. There was no significant impact to the Company’s condensed consolidated financial statements related to the adoption of ASU 2020-04 and ASU 2022-06. The Company
14


continues to evaluate the impact of the ASU 2020-04 guidance and may apply other elections, as applicable, as additional changes in the market occur.

In March 2023, the Company amended an existing debt agreement to replace the London Interbank Offered Rate (“LIBOR”) interest rate provisions with interest rate provisions based on a forward-looking term rate based on the secured overnight funding rate (“SOFR”) (see Note 7 – Debt). There were no other changes to the agreement. There was no significant impact to the Company’s condensed consolidated financial statements.

3.    Inventories

Inventories consisted of the following (in thousands):
June 30, 2023December 31, 2022
Raw materials$131,830 $66,574 
Finished goods75,027 166,585 
Total$206,857 $233,159 

4.    Property, Plant and Equipment, Net

Property, plant and equipment consisted of the following (in thousands, except useful lives):
Estimated Useful Lives (Years)June 30, 2023December 31, 2022
LandN/A$1,588 $1,583 
Buildings and land improvements
15-39
7,160 7,411 
Manufacturing equipment721,072 18,983 
Furniture, fixtures and equipment
5-7
3,545 3,583 
Vehicles5621 585 
Hardware and software
3-5
4,275 3,706 
Assets in progressN/A12,092 5,142 
Total50,353 40,993 
Less: accumulated depreciation(19,679)(17,819)
Property, plant and equipment, net$30,674 $23,174 

Depreciation expense was $0.8 million and $0.6 million for the three months ended June 30, 2023 and 2022, respectively, of which $0.3 million and $0.4 million was allocated to cost of revenue and $0.5 million and $0.2 million was included in depreciation and amortization, on the accompanying condensed consolidated statements of operations for the three months ended June 30, 2023 and 2022.

Depreciation expense was $1.5 million and $1.2 million for the six months ended June 30, 2023 and 2022, respectively, of which $0.6 million and $0.9 million was allocated to cost of revenue and $0.9 million and $0.3 million was included in depreciation and amortization on the accompanying condensed consolidated statements of operations for the six months ended June 30, 2023 and 2022.

15


5.    Goodwill and Other Intangible Assets, Net

Goodwill
Changes in the carrying amount of goodwill by operating segment during the six months ended June 30, 2023, consisted of the following (in thousands):
Array Legacy Operations(1)
STI OperationsTotal
Beginning balance
$69,727 $346,457 $416,184 
Adjustment to goodwill (see Note 1) 2,000 2,000 
Foreign currency translation 23,071 23,071 
Ending balance
$69,727 $371,528 $441,255 
(1) Goodwill attributable to Array Legacy Operations is net of impairment of $51.9 million.

Each quarter the Company evaluates if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. During our most recent evaluation, we concluded there were no indicators of impairment as of June 30, 2023.

Other Intangible Assets, Net
Other intangible assets consisted of the following (in thousands, except useful lives):
Estimated Useful Lives (Years)June 30, 2023December 31, 2022
Amortizable:
Costs:
Developed technology14$204,441 $203,800 
Customer relationships10336,305 321,935 
Backlog154,676 51,015 
Trade name2027,009 25,682 
Total amortizable intangibles622,431 602,432 
Accumulated amortization:
Developed technology101,769 94,347 
Customer relationships98,773 81,268 
Backlog54,677 49,507 
Trade name1,985 1,246 
Total accumulated amortization257,204 226,368 
Total amortizable intangibles, net365,227 376,064 
Non-amortizable costs:
Trade name10,300 10,300 
Total other intangible assets, net$375,527 $386,364 

16


Amortization expense related to intangible assets was $12.4 million and $25.8 million for the three months ended June 30, 2023 and 2022, respectively, and $26.2 million and $48.9 million for the six months ended June 30, 2023 and 2022, respectively.

Estimated future amortization expense of intangible assets as of June 30, 2023, is as follows (in thousands):
Amount
Remainder of 2023$24,769 
202449,538 
202549,538 
202645,232 
202740,588 
Thereafter155,562 
$365,227 

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. As of June 30, 2023, no events or circumstances were noted that would indicate the carrying amount of any of our asset groups may not be recoverable.

6.    Income Taxes

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

The Company recorded income tax expense of $22.4 million and a benefit of $18.4 million for the three months ended June 30, 2023 and 2022, respectively, and an expense of $32.3 million and a benefit of $33.2 million for the six months ended June 30, 2023 and 2022, respectively. The tax expense for the six months ended June 30, 2023 was unfavorably impacted by higher income reported in non-U.S. jurisdictions and an increase in income tax expense related to the Put Option (see Note 1 – Organization, Business and Out-of-Period Adjustments), partially offset by benefits related to excess equity-based compensation deductions recorded discretely during the quarter. The tax benefit for the six months ended June 30, 2022 was favorably impacted by losses in non-U.S. jurisdictions which have higher tax rates than the U.S., partially offset by non-deductible expenses.

For the six months ended June 30, 2023 and 2022, no reserves for uncertain tax positions have been recorded. The Company will continue to monitor this position each interim period.

17


7.    Debt

The following table summarizes the Company’s total debt (in thousands):
June 30, 2023December 31, 2022
Senior Secured Credit Facility:
Term loan facility$290,325 $312,475 
Revolving credit facility  
Total secured credit facility290,325 312,475 
Convertible notes425,000 425,000 
Other debt50,411 51,951 
Total principal765,736 789,426 
Unamortized discount and issuance costs, total(25,801)(30,383)
Current portion of debt(37,450)(38,691)
Total long-term debt, net of current portion$702,485 $720,352 

Senior Secured Credit Facility
On October 14, 2020, the Company entered into a credit agreement (as amended, the “Credit Agreement”) governing the Company’s senior secured credit facility, consisting of (i) a $575 million senior secured 7-year term loan facility (the “Term Loan Facility”) and (ii) a $200 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facility”). The Credit Agreement was amended on February 23, 2021 (the “First Amendment”), on February 26, 2021 (the “Second Amendment”) and again on March 2, 2023 (the “Third Amendment”). The single purpose of the Third Amendment in March 2023 was to replace the former discontinued Senior Secured Credit Facility reference rate of LIBOR, with the comparable active reference rate, SOFR. There were no other changes as a result of the Third Amendment.

Revolving Credit Facility
Under the Revolving Credit Facility, the Company had no outstanding balance as of both June 30, 2023 and December 31, 2022, $26.7 million and $38.8 million in standby letters of credit at June 30, 2023 and December 31, 2022, respectively, and availability of $173.3 million and $161.2 million at June 30, 2023 and December 31, 2022, respectively. In accordance with the Third Amendment, the Revolving Credit Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (as defined in the Credit Agreement) plus 3.25% or (y) for Base Rate Loans at the higher of the Prime Rate, one half of 1.00% above the Federal Funds Rate or the Adjusted Term SOFR for one month interest period, after giving effect to any floor plus 1.00%, plus 2.25%.

Term Loan Facility
The Term Loan Facility had a balance of $290.3 million and $312.5 million as of June 30, 2023 and December 31, 2022, respectively. The balance of the Term Loan Facility is presented in the accompanying condensed consolidated balance sheets, net of debt discount and issuance costs of $15.5 million and $19.1 million as of June 30, 2023 and December 31, 2022, respectively. In accordance with the Third Amendment, the Term Loan Facility pays interest at the Company’s election, at either (x) for SOFR Loans at Adjusted Term SOFR (subject to a floor of 0.50%) plus 3.25% or (y) for Base Rate Loans at the higher of the Prime Rate, one half of 1.00%
18


above the Federal Funds Rate or the Adjusted Term SOFR for one-month interest period, after giving effect to any floor plus 1.00%, plus 2.25%. The debt discount and issuance costs are being amortized using the effective interest method and the effective interest rate of the Term Loan Facility as of June 30, 2023, was 9.41%. The Term Loan Facility has an annual excess cash flow calculation, for which the prescribed formula did not result in requiring the Company to make an advance principal payment for the year ended December 31, 2022.

Convertible Notes
On December 3, 2021 and December 9, 2021, the Company completed a $425.0 million private offering ($375 million and $50 million, respectively), of its 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”), resulting in proceeds of $413.3 million ($364.7 million and $48.6 million, respectively), after deducting the original issue discount of 2.75%. The Convertible Notes were issued pursuant to an indenture, dated December 3, 2021, between the Company and U.S. Bank National Association, as trustee.

The Convertible Notes are senior unsecured obligations of the Company and will mature on December 1, 2028, unless earlier converted, redeemed, or repurchased. The Convertible Notes bear interest at a rate of 1.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022.

The conversion rate for the Notes was initially 41.9054 shares of the Company’s common stock per $1,000 principal amount of Notes, which was equivalent to an initial conversion price of approximately $23.86 per share of common stock or 10.1 million shares of common stock. The Convertible Notes were not convertible during the six months ended June 30, 2023, and none have been converted to date. Also, given that the average market price of the Company’s common stock has not exceeded the exercise price since inception, there was no dilutive impact for the three and six months ended June 30, 2023.

Capped Calls
In connection with the issuances of the Convertible Notes, the Company paid $52.9 million, in aggregate, to enter into capped call option agreements to reduce the potential dilution to holders of the Company’s common stock after a conversion of the Convertible Notes. Specifically, upon the exercise of the Capped Call instruments issued pursuant to the agreements (the “Capped Calls”), the Company would receive shares of its common stock equal to approximately $17.8 million shares (a) multiplied by (i) the lower of $36.0200 or the then-current market price of its common stock, less (ii) the applicable exercise price, $23.86, and (b) divided by the then-current market price of its common stock. The results of this formula are that the Company would receive more shares as the market price of its common stock exceeds the exercise price and approaches the cap, which was initially $36.02 per share.

Consequently, if the Convertible Notes are converted, then the number of shares to be issued by the Company would be effectively partially offset by the shares of common stock received by the Company under the Capped Calls as they are exercised. The formula above would be adjusted in the event of certain specified extraordinary events affecting the Company, including a merger; a tender offer; nationalization, insolvency or delisting of the Company’s common stock; changes in law; failure to deliver; insolvency filing; stock splits, combinations, dividends, repurchases or similar events; or an announcement of certain of the preceding actions.

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The Company can also elect to receive the equivalent value of cash in lieu of shares of common stock upon settlement, except in certain circumstances. The Capped Calls expire on December 1, 2028, and terminate upon the occurrence of certain extraordinary events such as a merger, tender offer, nationalization, insolvency, delisting, event of default, a change in law, failure to deliver, an announcement of certain of these events, or an early conversion of the Convertible Notes. Although intended to reduce the net number of shares of common stock issued after a conversion of the Convertible Notes, the Capped Calls were separately negotiated transactions, are not a part of the terms of the Convertible Notes, and do not affect the rights of the holders of the Convertible Notes. See Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Capped Calls.

Other Debt
Other debt consists of the debt obligations of STI. Interest rates on other debt range from 0.55% to 4.52% annually. Of the $50.4 million other debt balance, approximately $10.3 million is denominated in Euros and $40.1 million is denominated in Brazilian Real.

8.    Redeemable Perpetual Preferred Stock

Series A Redeemable Perpetual Preferred Stock
The Company entered into a Securities Purchase Agreement (the “SPA”) with certain investors (the “Purchasers”) pursuant to which, on August 11, 2021, the Company issued 350,000 shares of its newly designated Series A Redeemable Perpetual Preferred Stock (the “Series A Shares”) and 7,098,765 shares of the Company’s common stock for an aggregate purchase price of $346.0 million (the “Initial Closing”). Further, pursuant to the SPA, on September 27, 2021, the Company issued and sold to the Purchasers 776,235 shares of common stock for an aggregate purchase price of $0.01 million (the “Prepaid Forward Contract”). The Company used the net proceeds from the initial Closing to repay the $102.0 million outstanding balance under its existing Revolving Credit Facility and prepay $100.0 million of the Company’s Term Loan Facility. The Series A Shares have no maturity date.

The Put Option included in the SPA required the Purchasers to purchase, up to an additional 150,000 shares of Series A Shares and up to 3,375,000 shares of common stock (or up to 6,100,000 shares of common stock in the event of certain price-related adjustments) until June 30, 2023, subject to certain equitable adjustments pursuant to any stock dividend, stock split, stock combination, reclassification or similar transaction, for an aggregate purchase price up to $148.0 million (the “Delayed Draw Commitment” or the “Put Option”). The Put Option expired effective June 30, 2023.

On January 7, 2022, pursuant to the Put Option, the Company issued and sold to the Purchasers, 50,000 shares of Series A Shares and 1,125,000 shares of the Company’s common stock in an additional closing for an aggregate purchase price of $49.4 million (the “Additional Closing”).

The Company has classified the Series A Shares as temporary equity and is accreting the carrying amount to its full redemption amount from the date of issuance to the earliest redemption date using the effective interest method. Such accretion totaled $12.4 million and $11.1 million for the six months ended June 30, 2023 and 2022, respectively. Refer to Note 2 – Summary of Significant Accounting Policies for information regarding the accounting for the Put Option.

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Dividends
On or prior to the fifth anniversary of the Initial Closing, the Company may pay dividends on the Series A Shares either in (i) cash at the then-applicable Cash Regular Dividend Rate (as defined below), (ii) through accrual to the Liquidation Preference at the Accrued Regular Dividend Rate of 6.25% (the “Permitted Accrued Dividends”), or (iii) a combination thereof. Following the fifth anniversary of the Initial Closing, dividends are payable only in cash. To the extent the Company does not declare such dividends and pay in cash following the fifth anniversary of the Initial Closing, the dividends accrue to the Liquidation Preference (“Default Accrued Dividends”) at the then-applicable Cash Regular Dividend Rate plus 200 basis points. In the event there are Default Accrued Dividends outstanding for six consecutive quarters, the Company, at the option of the holders of the Series A Shares, will pay 100% of the amount of Default Accrued Dividends by delivering to such holder a number of shares of the Company’s common stock equal to the quotient of (i) the amount of Default Accrued Dividends divided by (ii) 95% of the 30-day VWAP of the Company’s common stock (“Non-Cash Dividend”).

The “Cash Regular Dividend Rate” of the Series A Shares means (i) initially, 5.75% per annum on the Liquidation Preference and (ii) increased by (a) 50 basis points on each of the fifth, sixth and seventh anniversaries of the Initial Closing and (b) 100 basis points on each of the eighth, ninth and tenth anniversaries of the Initial Closing. The “Accrued Regular Dividend Rate” on the Series A Shares means 6.25% per annum on the Liquidation Preference.

As used herein, “Liquidation Preference” means, with respect to the Series A Shares, the initial liquidation preference of $1,000 per share, plus accrued dividends of such share at the time of the determination.

During the six months ended June 30, 2023, the Company accrued dividends on the Series A Shares at the Accrued Regular Dividend rate of 6.25% totaling $12.9 million. As of June 30, 2023, the Company has accrued and unpaid dividends of $19.3 million.

The Series A Shares have similar characteristics of an “Increasing Rate Security” as described by SEC Staff Accounting Bulletin Topic 5Q, Increasing Rate Preferred Stock. As a result, the discount on Series A Shares is considered an unstated dividend cost that is amortized over the period preceding commencement of the perpetual dividend using the effective interest method, by charging imputed dividend cost against retained earnings, or additional paid in capital in the absence of retained earnings, and increasing the carrying amount of the Series A Shares by a corresponding amount. Accordingly, the discount is amortized over five years using the effective yield method.

Fees
During the six months ended June 30, 2023, the Company paid the Purchasers a 3% per annum cash commitment fee totaling $1,508 on the unpurchased portion of Put Option.

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9.    Revenue

The Company disaggregates its revenue from contracts with customers by sales recorded over time and sales recorded at a point in time. The following table presents the Company’s disaggregated revenues (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Over time revenue$417,448 $324,851 $703,759 $532,922 
Point in time revenue90,277 95,014 180,739 187,529 
Total revenue$507,725 $419,865 $884,498 $720,451 

Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (“contract assets”), and deferred revenue (“contract liabilities”) on the condensed consolidated balance sheets. The majority of the Company’s contract amounts are billed as work progresses, in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. The changes in contract assets and the corresponding amounts recorded in revenue relate to fluctuations in the timing and volume of billings.

Contract assets are recorded within accounts receivable, net on the condensed consolidated balance sheets on a contract-by-contract basis and consisted of the following at the end of each reporting period (in thousands):
June 30, 2023December 31, 2022
Unbilled receivables$141,636 $101,513 

The Company also receives advances or deposits from its customers, before revenue is recognized, resulting in contract liabilities. The changes in contract liabilities relate to advanced orders and payments received by the Company.

Contract liabilities are recorded on a contract-by-contract basis and consisted of the following at the end of each reporting period (in thousands):
June 30, 2023December 31, 2022
Deferred revenue$114,810 $178,922 

During the six months ended June 30, 2023, the Company converted $160.0 million in deferred revenue to revenue, which represented 89% of the prior year’s deferred revenue balance.

Bill-and-Hold Arrangements
Revenue recognized for the Company’s federal investment tax credit (“ITC”) contracts and standalone system component sales is recorded at a point in time and recognized when obligations under the terms of the contract with the Company’s customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is typically upon delivery to the customer in line with shipping terms.
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In certain situations, the Company recognizes revenue under a bill-and-hold arrangement with its customers. An example of such a situation is when customers purchase material prior to the start of construction of a solar project in order to meet the Five Percent Safe Harbor test to qualify for the ITC. Because the customers lack sufficient storage capacity to accept a large amount of material prior to the start of construction, they request that the Company keep the product in its custody. All bill-and-hold inventory is bundled or palletized in the Company’s warehouses, separately identified as not belonging to the Company and ready for immediate transport to the customer project upon request. Additionally, title and risk of loss has passed to the customer and the Company does not have the ability to use the product or direct it to another customer. During the three and six months ended June 30, 2023, the Company recognized $3.5 million and $22.8 million, respectively, in revenue from a single customer for the sale of goods and services that contained bill-and-hold obligations such as storage, handling and other custodial duties.

Remaining Performance Obligations
As of June 30, 2023, the Company had $452.7 million of remaining performance obligations. The Company expects to recognize revenue on 100% of these performance obligations in the next twelve months.

10.    Earnings Per Share

The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income (loss)$64,808 $(5,024)$90,940 $(30,961)
Preferred dividends and accretion12,784 12,182 25,268 23,788 
Net income (loss) to common shareholders$52,024 $(17,206)$65,672 $(54,749)
Basic:
Weighted average shares150,919 150,203 150,763 149,246 
Income (loss) per share$0.34 $(0.11)$0.44 $(0.37)
Diluted:
Effect of restricted stock and performance awards1,210  1,207  
Weighted average shares152,129 150,203 151,970 149,246 
Income (loss) per share$0.34 $(0.11)$0.43 $(0.37)

Potentially dilutive common shares issuable pursuant to equity-based awards of 2,413 were not included for the six months ended June 30, 2022, as their potential effect was anti-dilutive given the Company generated a net loss to common shareholders.

There were no potentially dilutive common shares issuable pursuant to the Convertible Notes for both the six months ended June 30, 2023 and 2022, as the average market price of the Company’s common stock has not exceeded the exercise price since their issuance.

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11.    Commitments and Contingencies

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

On May 14, 2021, a putative class action was filed in the U.S. District Court for the Southern District of New York (the “Southern District of New York” or the “Court”) against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 (“Plymouth Action”). The Plymouth Action alleges misstatements and/or omissions in the Company’s registration statements and prospectuses related to the Company’s October 2020 initial public offering (“IPO”), the Company’s December 2020 offering (the “2020 Follow-On Offering”), and the Company’s March 2021 offering (the “2021 Follow-On Offering”) during the putative class period of October 14, 2020 through May 11, 2021.

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

On July 16, 2021, a verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“First SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for misleading proxy statements, (2) breach of fiduciary duty, (3) unjust enrichment, (4) abuse of control, (5) gross mismanagement, (6) corporate waste, (7) aiding and abetting breach of fiduciary duty, and (8) contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934.

On July 30, 2021, a second and related verified derivative complaint was filed in the Southern District of New York against certain officers and directors of the Company (“Second SDNY Derivative Action”). The complaint alleges: (1) violations of Section 14(a) of the Securities Exchange Act of 1934 for causing the issuance of a false/misleading proxy statement, (2) breach of fiduciary duty, and (3) aiding and abetting breaches of fiduciary duty. On August 24, 2021, the Second SDNY Derivative Action was consolidated with the First SDNY Derivative Action, the 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.
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On September 21, 2021, the Court in the Plymouth Action appointed a group comprised of institutional investors Plymouth County Retirement Association and Carpenters Pension Trust Fund for Northern California as lead plaintiff.

On December 7, 2021, an amended class action complaint was filed by lead plaintiff in the Plymouth Action against the Company and certain officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Exchange Act of 1933, on behalf of a putative class of persons and entities that purchased or otherwise acquired the Company’s securities during the period from October 14, 2020 through May 11, 2021 (the “Consolidated Amended Complaint”). The Consolidated Amended Complaint alleges misstatements and/or omissions in: (1) certain of the Company’s registration statements and prospectuses related to the Company’s IPO, the Company’s 2020 Follow-On Offering, and the Company’s 2021 Follow-On Offering; (2) in the Company’s Annual Report on Form 10-K and associated press release announcing results for the fourth quarter and full fiscal year 2020; and (3) in the Company’s November 5, 2020 and March 9, 2021 earnings calls.

On August 17, 2022, the Court in the Plymouth Action set a briefing schedule for any motion to dismiss with the opening motion and supporting memorandum to be filed on or before October 17, 2022, any opposition to be filed on or before December 16, 2022, and any reply in support of the motion to be filed on or before January 16, 2023. The Company and other defendants in the Plymouth Action filed a joint motion to dismiss (the “Motion to Dismiss”) the Consolidated Amended Complaint on October 17, 2022. The lead plaintiff filed a motion opposing the Motion to Dismiss on December 16, 2022, and the Company and other defendants filed a reply in support of the motion to dismiss on January 17, 2023.

On May 19, 2023, the Court in the Plymouth Action granted the Company’s Motion to Dismiss. On July 5, 2023, the Court denied the lead plaintiffs’ request for leave to amend the Consolidated Amended Complaint and dismissed the Plymouth Action with prejudice.

On August 4, 2023, the lead plaintiffs filed a notice of appeal of the Court’s dismissal of the Consolidated Amended Complaint.

On August 3, 2022, a verified derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court of Chancery”) against certain officers and directors of the Company, asserting claims for: (1) breach of fiduciary duty and (2) unjust enrichment (“First Delaware Derivative Action”).

On August 11, 2022, a second verified derivative complaint was filed against certain officers and directors of the Company Court of Chancery, asserting claims for: (1) breach of fiduciary duty; (2) aiding and abetting breaches of fiduciary duty; (3) waste of corporate assets; (4) unjust enrichment; (5) insider selling; and (6) aiding and abetting insider selling (“Second Delaware Derivative Action”).

On September 2, 2022, the Second Delaware Derivative Action was consolidated with the First Delaware Derivative Action, the Court of Chancery appointed co-lead counsel, and the case was temporarily stayed pending the entry of an order on all motions to dismiss directed at the pleadings filed in the Plymouth Action. The stay shall remain in effect until the later of (a) the entry of an order on the pending motion to dismiss the Consolidated Amended Complaint in the Plymouth Action, (b) to the extent the Consolidated Amended Complaint in the Plymouth Action is further amended, the entry of an order on any motions to dismiss any such
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amended complaints in the Plymouth Action, or (c) the public announcement of a settlement of the Plymouth Action.

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 June 30, 2023.

Contingent Consideration
Tax Receivable Agreement
Concurrent with the Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC on July 8, 2016, the Company’s operating subsidiary, Array Tech, Inc. (f/k/a Array Technologies, Inc.), entered into a Tax Receivable Agreement (the “TRA”) with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc., to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc., from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are recognized in contingent consideration on the condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, the fair value of the TRA was $9.4 million and $8.6 million, respectively.

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

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

The following table summarizes the activity related to the estimated TRA liability (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Beginning balance$8,724 $9,364 $8,586 $14,578 
Payments  (1,200)(1,483)
Fair value adjustment705 (1,678)2,043 (5,409)
Ending balance$9,429 $7,686 $9,429 $7,686 

The TRA liability requires significant judgment and is classified as Level 3 in the fair value hierarchy.

Surety Bonds
As of June 30, 2023, the Company posted surety bonds in the total amount of $220.9 million. The Company is required to provide surety bonds to various parties as required for certain transactions initiated during the
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ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact the Company’s liquidity or capital resources.

12.    Fair Value of Financial Instruments

The carrying values and estimated fair values of the Company’s debt financial instruments were as follows (in thousands):
June 30, 2023December 31, 2022
Carrying ValueFair ValueCarrying ValueFair Value
Convertible Notes$414,684 $486,362 $413,752 $430,236 

The fair value of the Convertible Notes is estimated using Level 2 inputs, as they are not registered securities nor listed on any securities exchange but may be traded by qualified institutional buyers.

The Capped Calls are valued using a Black-Scholes model, with the most judgmental unobservable input being the volatility measure. The value of the Capped Call is determined using unobservable inputs and is considered to be a Level 3 value in the fair value hierarchy. The fair value of the Capped Call was $64.0 million at June 30, 2023.

The fair value of the Term Loans and Other Debt is estimated using Level 2 inputs. The carrying values of the Term Loans outstanding under the Senior Secured Credit facility recorded in the condensed consolidated balance sheets approximate fair value due to the variable nature of the interest rates.

Other Debt totaling $50.4 million, consists of $34.6 million variable rate obligations and $15.8 million fixed rate obligations. Of the $15.8 million fixed rate obligations, $10.3 million mature in 2023 and $5.5 million mature in 2024. Due to the relative short-term maturity of these obligations, the Company believes current carrying value approximates fair value. The carrying value of the $34.6 million variable rate obligations approximate fair value due to the variable nature of the interest rates.

13.    Equity-Based Compensation

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

Restricted Stock Units
Pursuant to the 2020 Plan, the Company grants restricted stock units (“RSUs”) to employees and members of the Company’s board of directors. The fair value of the RSUs is determined using the market value of the Company’s common stock on the grant date.

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RSU activity under the 2020 Plan during the six months ended June 30, 2023, was as follows:
Number of SharesWeighted Average Grant Date Fair Value
Outstanding non-vested, December 31, 20221,700,824 $13.81 
Shares granted802,130 17.65 
Shares vested(557,448)12.47 
Shares forfeited(117,511)15.07 
Outstanding non-vested, June 30, 20231,827,995 $15.57 

Performance Stock Units
The Company has granted performance stock units (“PSUs”) to certain employees. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (“TSR”) compared to a certain index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method on the date of grant based on the U.S. Treasury Constant Maturity rates. The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the PSUs issued during the six months ended June 30, 2023 and 2022:

20232022
Volatility90 %66 %
Risk-free interest rate3.74 %28.00 %
Dividend yield % %

PSU activity under the 2020 Plan during the six months ended June 30, 2023, was as follows:
Number of SharesWeighted Average Grant Date Fair Value
Outstanding non-vested, December 31, 2022464,393 $11.96 
Shares granted263,594 19.22 
Shares vested  
Shares forfeited(1,465)20.00 
Outstanding non-vested, June 30, 2023726,522 $14.62 

For the three months ended June 30, 2023 and 2022, the Company recognized $5.2 million and $3.0 million, respectively, in equity-based compensation expense. For the six months ended June 30, 2023 and 2022, the Company recognized $8.6 million and $7.5 million, respectively, in equity-based compensation. At June 30, 2023, the Company had $28.2 million of unrecognized compensation costs related to RSUs and PSUs, which are expected to be recognized over approximately 2.2 years and 2.4 years, respectively.

14    Segment Reporting

ASC 280 Segment Reporting establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Historically, the Company managed its business on the basis of one operating
and reportable segment. Concurrent with the acquisition of STI in January 2022, the Company began operating as two segments; Array Legacy Operations and STI Operations.

The following table provides a reconciliation of certain financial information for the Company’s reportable segments to information presented in its condensed consolidated financial statements for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30, 2023Three Months Ended June 30, 2022
Array Legacy OperationsSTI OperationsTotalArray Legacy OperationsSTI OperationsTotal
Revenue$345,261 $162,464 $507,725 $347,177 $72,688 $419,865 
Gross Profit$106,590 $43,452 $150,042 $33,840 $6,106 $39,946 

Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Array Legacy OperationsSTI OperationsTotalArray Legacy OperationsSTI OperationsTotal
Revenue$650,465 $234,033 $884,498 $597,829 $122,622 $720,451 
Gross Profit$190,064 $61,157 $251,221 $55,108 $11,425 $66,533 


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information included in Part I, “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q (this “Quarterly Report”), as well as our audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”). Each of the terms the “Company,” “Array,” “we,” or “us” as used herein refers collectively to Array Technologies, Inc. and its wholly owned subsidiaries, unless otherwise stated. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections captioned “Forward-Looking Statements” and “Risk Factors” in this Quarterly Report and our 2022 Annual Report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations include factors in “Summary Risk Factors” and the “Risk Factors” sections of this Quarterly Report. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Summary Risk Factors
Our business is subject to a number of risks that if realized could materially and adversely affect our business, financial conditions, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our principal risks include the following:

if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, our business will suffer;
the viability and demand for solar energy are impacted by many factors outside of our control, which makes it difficult to predict our future prospects;
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competitive pressures within our industry may harm our business, revenues, growth rates and market share;
a loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment, could harm our business and negatively impact revenue, results of operations and cash flow;
a failure to retain key personnel or a failure to attract additional qualified personnel may affect our ability to achieve our anticipated level of growth and adversely affect our business;
a drop in the price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition, results of operations and prospects;
we have and may continue to face challenges in our ability to consolidate the financial reporting of our acquired foreign subsidiaries;
defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;
we may experience delays, disruptions or quality control problems in our product development operations;
a further increase in interest rates, or a reduction in the availability of tax equity or project debt capital in the global financial markets could make it difficult for customers to finance the cost of a solar energy system and could reduce the demand for our products;
changes to tax laws and regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects;
existing electric utility industry policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems, which may significantly reduce demand for our products or harm our ability to compete;
the interruption of the flow of materials from international vendors could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges or restrictions on imports and exports;
changes in the global trade environment, including the imposition of import tariffs or other import restrictions, could adversely affect the amount or timing of our revenues, results of operations or cash flows;
economic, political and market conditions, including the Russian-Ukraine conflict, uncertain credit and global financial markets resulting from increasing inflation and interest rates along with recent bank failures, and the COVID-19 pandemic, have had and could continue to have an adverse effect on our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price;
the reduction, elimination or expiration of government incentives for, or regulations mandating the use of, renewable energy and solar energy specifically could reduce demand for solar energy systems and harm our business;
if we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed;
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significant changes in the cost of raw materials could adversely affect our financial performance;
we may be unable to remediate our material weaknesses in a timely manner or at all;
our substantial indebtedness could adversely affect our financial condition;
the implementation of the IRA may not deliver as much growth as we are anticipating; and
cybersecurity or other data incidents, including unauthorized disclosure of personal or sensitive data or theft of confidential information could harm our business.

Overview
We are one of the world’s largest manufacturers of ground-mounting tracking systems used in solar energy projects at utility scale. Our principal products are a portfolio of integrated solar tracking systems comprised of steel supports, electric motors, gearboxes and electronic controllers commonly referred to as a single-axis “tracker.” Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increases their energy production. Solar energy projects that use trackers generate more energy and deliver a lower Levelized Cost of Energy 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 on a linked-row, rotating gear drive system 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 2022, we also introduced a third tracker product requiring 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 engineering, procurement and construction firms (“EPCs”) that build solar energy projects and to large solar developers, independent power producers and utilities, often under master supply agreements or multi-year procurement contracts. During the six months ended June 30, 2023, we derived 72% and 28% of our revenues from customers in the United States and the rest of the world, respectively. As of June 30, 2023, we had shipped more than 66.6 gigawatts of trackers to customers worldwide, including STI.

Our corporate headquarters are located in Albuquerque, New Mexico. As of June 30, 2023, we had 1,096 full-time employees.

Acquisition of STI Norland
On January 11, 2022, the Company completed its acquisition of STI for purchase consideration of $410.5 million in cash and 13,894,800 shares of the Company’s common stock. The fair value of the purchase consideration was $610.8 million and resulted in the Company owning 100% of the equity interests in STI.

STI generates revenue through the design, manufacture and sale of its utility-scale solar tracker systems to customers in global markets that include Spain, Brazil, U.S. and South Africa. The integration of STI provides
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us the opportunity to accelerate our international expansion and better address rising global demand for utility-scale solar projects, particularly in developing countries in South America and Africa.

Out-of-Period Adjustment for the Correction of Errors
During the first quarter of fiscal year 2023, the Company identified certain errors in its previously issued financial statements that have been corrected through a cumulative out-of-period adjustment in the condensed consolidated financial statements as of and for the six months ended June 30, 2023. The Company has concluded that the cumulative out-of-period adjustment for the correction of these errors is not material to the financial statements for the six months ended June 30, 2023. A summary of these corrections and a summary of the cumulative impact is provided in Note 1 – Organization, Business and Out-of-Period Adjustments in Part I of this Quarterly Report.

Update on the Impact of COVID-19
We continue to closely monitor the ongoing impact of the COVID-19 pandemic in all the locations where we operate. At this time, the extent to which the pandemic may affect our business, operations and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change, but overall, the pandemic appears to be having a lessening impact on our business and the markets in which we operate. On January 31, 2023, the Biden administration announced its plan to let the COVID-19 public health emergency expire in May 2023.

Inflation
Inflationary pressures, while somewhat moderating recently, are expected to persist, at least in the near-term, and may continue to negatively impact our results of operation. To mitigate the inflationary pressures on our business, we have implemented selective price increases in certain markets, accelerated productivity initiatives and expanded our supplier base, while continuing to execute on overhead cost containment practices.

Impact of Potential Solar Module Supply Chain Disruptions
On April 1, 2022, the U.S. Department of Commerce (“USDOC”) initiated anti-circumvention inquiries of the U.S. Solar 1 Orders covering merchandise from Vietnam, Malaysia, Thailand, and Cambodia pursuant to Section 781 of the Tariff Act of 1930. The USDOC issued preliminary determinations in these inquiries on December 1, 2022, affirmatively finding that certain photovoltaic solar cells and modules produced in Vietnam, Malaysia, Thailand, and Cambodia using parts and components from China from certain producers and/or exporters, are circumventing the Solar 1 Orders and therefore should be subject to the antidumping and countervailing duty liabilities arising from those orders. The USDOC is expected to issue final determinations by August 17, 2023.

As a result of the USDOC’s investigation, we saw a number of projects in our order book initially delayed; however, on June 6, 2022, President Biden issued an emergency declaration delaying the imposition of any cash deposit or duty payment obligations on merchandise subject to these inquiries until the earlier of (i) the expiration of the order on June 6, 2024, or (ii) termination of the emergency declaration by the President. Merchandise from the four subject countries covered under the scope of these inquiries should therefore not be subject to any antidumping or countervailing duty liabilities under the Solar 1 Orders until the termination of the emergency declaration as long as the importer(s) and exporter(s) follow proper certification procedures that will be implemented by the USDOC. On May 3, 2023, however, the U.S. Senate voted to repeal President Biden’s emergency declaration. On May 16, President Biden announced that he had vetoed the U.S. Senate’s actions, and the emergency declaration will remain in place until June of 2024. The repeal of the President’s emergency declaration, and any affirmative determinations made once the suspension is lifted in any event,
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would have an adverse effect on the global solar energy marketplace, and as such, an adverse effect on our business, financial condition, and results of operations.

While we do not sell solar modules, the degree of our exposure is dependent on, among other things, the impact of the investigation on the projects that are also intended to use our products, with such impact being largely out of our control. To date, we have seen a number of projects in our order book delayed as a result of the USDOC investigation; however, the ultimate severity or duration of the expected solar panel supply chain disruption or its effects on our clients’ solar project development and construction activities remains uncertain. More broadly, legislation has been proposed that would make it easier for domestic companies to obtain affirmative determinations in antidumping and countervailing duties investigations. The proposed USICA/America COMPETES Act, if enacted, could result in future successful petitions that limit imports from Asia and other regions.

Solar panel imports to the U.S. may also be impacted by the Uyghur Forced Labor Prevention Act (“UFLPA”) that was signed into law by President Biden on December 23, 2021. According to U.S. Customs and Border Protection, “it establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the U.S. The presumption applies unless the Commissioner of U.S. Customs and Border Protection determines that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor.” There continues to be uncertainty in the market around achieving full compliance with UFLPA, whether related to sufficient traceability of materials or other factors. This has created a significant compliance burden and constrained solar panel imports. We cannot currently predict what, if any, impact the UFLPA will have on the overall future supply of solar panels into the U.S. and the related timing and cost of our clients’ solar project, development and construction activities. While we do not import or sell solar panels, project delays caused by solar panel constraints may negatively impact our product delivery schedules and future sales, and therefore our business, financial condition, and results of operations.

Impact of the Ongoing Conflict in Ukraine
The ongoing conflict in Ukraine has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know ultimate severity or duration of the conflict in Ukraine, but we continue to monitor the situation and evaluate our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition and results of operations.

Uncertainty in the Banking System
Events involving limited liquidity, defaults, non-performance or other adverse developments among several banks and financial institutions recently have created uncertainty in the financial services industry generally. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.

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
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to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products from year to year is megawatts (“MWs”) shipped generally and the change in MW shipped from period to period specifically. MWs are measured for each individual project and calculated based on the expected output of that project 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, while 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
Our operating segments generate revenue from the sale of solar tracking systems, parts and services. Our customers include EPCs, utilities, large 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 product mix between module type and wattage, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

Our revenue growth is dependent on continued growth in the amount of solar energy projects installed each year as well as our ability to increase our share of demand in each of the geographies where we compete, expanding our global footprint to new evolving markets, growing our production and supply chain capabilities to meet demand, and continuing to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

Cost of Revenue and Gross Profit
Cost of revenue for both segments consists primarily of product costs, including purchased components, as well as costs related to shipping, tariffs, customer support, product warranty, personnel and depreciation of test and manufacturing equipment. Personnel costs in cost of revenue includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including steel and aluminum; component costs, including electric motors and gearboxes; technological innovation; economies of scale resulting in lower component costs and improvements in production processes and automation.

We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.

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

Operating Expenses
General and administrative expenses
General and administrative expenses consist primarily of salaries, benefits and equity-based compensation related to our executive, sales, engineering, finance, human resources, information technology and legal personnel, as well as travel, facility costs, marketing, bad debt provision and professional fees. We expect to increase the number of sales and marketing personnel in connection with the expansion of our global sales and marketing footprint, enabling us to penetrate new markets. We currently have a sales presence in the U.S., Spain, Brazil, South Africa, Australia and the U.K. We intend to continue to expand our sales presence and marketing efforts to additional countries. We also anticipate increased spending related to product development and innovation as we hire additional engineering resources and increase our research and development (“R&D”) spend. Further, as a relatively new public company, we may incur additional audit, accounting, tax, legal and other costs related to compliance with applicable securities laws and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.

Contingent Consideration
Contingent consideration consists of the changes in fair value of the Taxes Receivable Agreement (“TRA”) entered into with Ron P. Corio, a former indirect stockholder, concurrent with the Acquisition of Array Technologies Patent Holdings Co., LLC by our Former Parent, ATI Investment Parent, LLC.

The TRA liability is recorded at fair value and changes in the fair value are recognized in earnings. The TRA will generally provide for the payment by our operating company, Array Tech, Inc. (f/k/a Array Technologies, Inc.), to Ron P. Corio for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array Tech, Inc. from the use of certain deductions generated by the increase in the tax value of the developed technology. Estimating fair value of the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to Mr. Corio 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.

Depreciation and Amortization
Depreciation in our operating expense consists of costs associated with property, plant and equipment (“PP&E”) 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 will require some additional PP&E to support this growth resulting in additional depreciation expense.

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

Non-Operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with (i) our $575 million senior secured 7-year term loan facility (the “Term Loan Facility”), (ii) our $200 million senior secured 5-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured
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Credit Facility”), (iii) our 1.00% Convertible Senior Notes due 2028 (the “Convertible Notes”), and (iv) the Other Debt we assumed in connection with the STI Acquisition.

Income Tax Expense
We are subject to U.S. federal and state and non-U.S. income taxes. As we expand into additional foreign markets, we may be subject to additional foreign tax.

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Results of Operations

The following table sets forth our consolidated statement of operations (dollars in thousands):

Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)
20232022$%20232022$%
Revenue$507,725 $419,865 $87,860 21 %$884,498 $720,451 $164,047 23 %
Cost of revenue357,683 379,919 (22,236)(6)%633,277 653,918 (20,641)(3)%
Gross profit150,042 39,946 110,096 276 %251,221 66,533 184,688 278 %
Operating expenses:
General and administrative40,250 28,936 11,314 39 %78,392 74,361 4,031 %
Change in fair value of contingent consideration705 (1,678)2,383 142 %2,043 (5,409)7,452 138 %
Depreciation and amortization12,846 26,020 (13,174)(51)%27,087 49,257 (22,170)(45)%
Total operating expenses53,801 53,278 523 %107,522 118,209 (10,687)(9)%
Income (loss) from operations96,241 (13,332)109,573 822 %143,699 (51,676)195,375 378 %
Other income (expense):
Other income (expense), net125 (371)496 134 %319 372 (53)(14)%
Foreign currency gain (loss)260 (1,736)1,996 115 %66 2,127(2,061)(97)%
Change in fair value of derivative assets694 — 694 100 %(1,256)