Array Technologies(US:ARRY)2022-05-09 16:00markdown PART I - FINANCIAL INFORMATION [Unaudited Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) The company's Q1 2022 financial statements show total assets increased to **$1.72 billion** due to the STI acquisition, with revenue growing **21%** to **$300.6 million**, but a net loss of **$22.1 million** was reported, primarily from higher costs and expenses [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.72 billion** as of March 31, 2022, from **$1.14 billion** at year-end 2021, primarily due to the STI acquisition, while total liabilities rose to **$1.33 billion** and stockholders' equity turned positive to **$108.4 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $49,491 | $367,670 | | Accounts receivable, net | $390,921 | $236,009 | | Inventories, net | $299,010 | $205,653 | | Goodwill | $379,840 | $69,727 | | Other intangible assets, net | $470,690 | $174,753 | | **Total assets** | **$1,715,718** | **$1,142,979** | | Accounts payable | $187,466 | $91,392 | | Total current liabilities | $433,124 | $245,305 | | Long-term debt, net | $778,248 | $711,056 | | **Total liabilities** | **$1,325,511** | **$974,722** | | **Total stockholders' equity (deficit)** | **$108,415** | **($69,205)** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue increased **21%** to **$300.6 million** for Q1 2022, but gross profit declined **42%** to **$26.6 million**, leading to an operating loss of **$32.2 million** and a net loss of **$22.1 million** Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Revenue | $300,586 | $248,240 | | Gross Profit | $26,587 | $46,166 | | Income (loss) from operations | ($32,161) | $15,361 | | Net income (loss) | ($22,054) | $4,576 | | Net income (loss) to common shareholders | ($33,660) | $4,576 | | Basic earnings (loss) per share | ($0.23) | $0.04 | | Diluted earnings (loss) per share | ($0.23) | $0.04 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$50.1 million** for Q1 2022, with investing activities consuming **$376.2 million** primarily for the STI acquisition, resulting in a **$318.2 million** decrease in cash and equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($50,097) | ($42,148) | | Net cash used in investing activities | ($376,173) | ($10,570) | | Net cash provided by (used in) financing activities | $100,736 | ($36,590) | | **Net change in cash and cash equivalents** | **($318,179)** | **($89,308)** | | **Cash and cash equivalents, end of period** | **$49,491** | **$19,133** | - The acquisition of STI was the primary driver of investing cash flows, with a net cash outlay of **$373.8 million**[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the **$610.8 million** STI acquisition, the establishment of two reportable segments, ongoing litigation, and **$301.3 million** in remaining performance obligations expected within twelve months - On January 11, 2022, the Company acquired 100% of STI for total consideration of **$610.8 million**, consisting of **$410.5 million** in cash and **13.9 million** shares of common stock, adding **$327.8 million** in goodwill[35](index=35&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk) - The company now operates and reports in two segments following the acquisition: Array and STI. For Q1 2022, the Array segment generated **$250.7 million** in revenue and the STI segment generated **$49.9 million**[137](index=137&type=chunk)[138](index=138&type=chunk) - The company is subject to a putative class action lawsuit (Plymouth Action) and related derivative actions alleging misstatements in offering documents, though the company believes the likelihood of material loss is remote[105](index=105&type=chunk)[107](index=107&type=chunk)[114](index=114&type=chunk) - As of March 31, 2022, the company had **$301.3 million** of remaining performance obligations, all of which are expected to be recognized as revenue in the next twelve months[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes **21%** revenue growth to the STI acquisition, despite gross margin declining from **18.6%** to **8.8%** due to higher costs, while external risks like supply chain disruptions and the Ukraine conflict pose headwinds Q1 2022 vs Q1 2021 Performance (in thousands) | Metric | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $300,586 | $248,240 | $52,346 | 21% | | Gross Profit | $26,587 | $46,166 | ($19,579) | (42)% | | Income (loss) from operations | ($32,161) | $15,361 | ($47,522) | (309)% | | Net income (loss) | ($22,054) | $4,576 | ($26,630) | (582)% | - The acquisition of STI on January 11, 2022, is a key strategic move, providing an immediate presence in Brazil and Western Europe[154](index=154&type=chunk) - The business is facing significant external risks, including a USDOC investigation into solar module imports from Southeast Asia and impacts from the conflict in Ukraine, which could disrupt supply chains and increase costs[156](index=156&type=chunk)[160](index=160&type=chunk) - Gross profit margin decreased from **18.6%** in Q1 2021 to **8.8%** in Q1 2022, primarily due to higher commodity prices and logistics costs[182](index=182&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk disclosures were reported from the 2021 Form 10-K, except for new risks concerning solar module supply chain disruptions and the conflict in Ukraine - There have been no material changes to market risk disclosures from the 2021 Form 10-K, except for new risks related to solar module supply chain disruptions and the conflict in Ukraine[211](index=211&type=chunk) [Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to ongoing material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to ongoing material weaknesses[212](index=212&type=chunk) - Material weaknesses persist in: Control Environment and Monitoring, Inventory (existence, accuracy, cutoff), Revenue Recognition (identification of performance obligations), and Accounts Receivable (existence)[213](index=213&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) - A remediation plan is in progress, including hiring a Chief Accounting Officer, adding more accounting and IT staff, and strengthening specific control activities[218](index=218&type=chunk)[219](index=219&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a trade secret misappropriation lawsuit against Nextracker set for trial, and a consolidated class action lawsuit (Plymouth Action) alleging misstatements in offering documents - The company's lawsuit against Nextracker, Inc. for trade secret misappropriation is scheduled for trial on **July 18, 2022**[223](index=223&type=chunk) - A consolidated class action lawsuit (Plymouth Action) alleges misstatements related to the company's IPO and follow-on offerings, with defendants seeking dismissal[224](index=224&type=chunk)[231](index=231&type=chunk) - Related derivative actions have been filed and are currently stayed pending a ruling on the motion to dismiss in the Plymouth Action[228](index=228&type=chunk) [Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported to the risk factors from the 2021 Form 10-K - No material changes were reported to the risk factors from the 2021 Form 10-K[234](index=234&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details on unregistered sales of equity securities, specifically the issuance of Series A Redeemable Perpetual Preferred Stock, are provided in Note 13 to the financial statements - Details on unregistered sales of equity securities can be found in Note 13, concerning the Series A Redeemable Perpetual Preferred Stock[234](index=234&type=chunk) [Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, transaction agreements, and required CEO/CFO certifications - Key exhibits filed include corporate governance documents, agreements related to recent transactions (Registration Rights, Offer Letter), and required CEO/CFO certifications[235](index=235&type=chunk)[236](index=236&type=chunk)