Array Technologies(ARRY) - 2023 Q4 - Annual Report

PART I Business Overview Array Technologies, Inc. is a global leader in ground-mounted solar tracking systems, offering integrated hardware and software solutions primarily to EPCs and developers, with 74% of 2023 revenue from the US market - The company is one of the largest global manufacturers of ground-mounted tracking systems, offering integrated solar tracking systems including software and hardware[20] - Tracking systems significantly increase energy yield and reduce the Levelized Cost of Energy (LCOE) by optimizing solar panel orientation[20] - The company's flagship tracker features a patented design where one motor drives multiple rows, reducing installation and O&M costs[21] - The acquisition of STI added dual-row tracker designs and introduced OmniTrack, expanding market applications by adapting to irregular terrain and reducing earthwork[22] - The company is one of the largest global manufacturers of ground-mounted tracking systems, with a product portfolio including DuraTrack HZ v3, Array STI H250, Array OmniTrack, SmarTrack software, and related services[20][22][25][26][27][28][29][30] - In 2023, approximately 69% of the company's revenue came from EPCs, with 74% from US customers and 26% from other regions worldwide[23] - As of December 31, 2023, the company had shipped over 73 gigawatts of trackers to customers globally[23] - The company expanded its target applications and market solutions by acquiring STI Norland, which added dual-row tracker designs and the OmniTrack product[22][185] - The company operates manufacturing and warehousing facilities in the US (Albuquerque, New Mexico), Spain, and Brazil, utilizing an outsourcing strategy to optimize capital-intensive activities and the supply chain[39][40][41][162] - The company continuously invests in R&D to enhance product performance, reliability, reduce costs, and simplify installation, holding 34 US patents and 245 non-US patents, with US patents expiring between 2030 and 2042[42][46] - The business experiences seasonality, with lower revenue in the first and fourth quarters due to reduced project construction in North America and Europe during colder months; however, the Inflation Reduction Act (IRA) raising the Investment Tax Credit (ITC) to 30% without step-downs until 2032 is expected to mitigate ITC's impact on seasonality[49][52] - The company has 1,028 full-time employees as of December 31, 2023, with 50% in the US and 50% globally, focusing on talent attraction, retention, diversity, inclusion, and development opportunities[59][60][61] Company Overview The company is a leading global manufacturer of integrated solar tracking systems, enhancing energy production and reducing LCOE with patented designs - The company is one of the largest global manufacturers of ground-mounted tracking systems, offering integrated solar tracking systems including software and hardware[20] - Tracking systems significantly increase energy yield and reduce the Levelized Cost of Energy (LCOE) by optimizing solar panel orientation[20] - The company's flagship tracker features a patented design where one motor drives multiple rows, reducing installation and O&M costs[21] - The acquisition of STI added dual-row tracker designs and introduced OmniTrack, expanding market applications by adapting to irregular terrain and reducing earthwork[22] Sales The company primarily sells its products to EPCs, large solar developers, independent power producers, and utility companies - The company's products are primarily sold to Engineering, Procurement, and Construction companies (EPCs), large solar developers, independent power producers, and utility companies[23] 2023 Revenue Sources | Customer Type | Revenue Share | | :------------ | :------------ | | EPCs | 69% | | United States | 74% | | Other Regions | 26% | - As of December 31, 2023, the company had shipped over 73 gigawatts of trackers to customers globally[23] Our Products and Services The company offers a range of solar tracking systems including DuraTrack HZ v3, Array STI H250, and Array OmniTrack, complemented by SmarTrack software and field services - The company offers DuraTrack HZ v3 (a flagship single-axis tracker with a patented single-bolt installation system and passive wind load mitigation), Array STI H250 (a dual-row tracker suitable for irregular terrain), and Array OmniTrack (enhancing north-south terrain flexibility and reducing earthwork)[26][27][28] - SmarTrack software utilizes historical weather and energy production data with machine learning algorithms to optimize solar array positioning in real-time, increasing energy yield and mitigating extreme weather risks[29] - The company provides field services and customer training programs aimed at optimizing installation practices, reducing operational downtime, and enhancing the efficiency of solar project installation and operation[30] Markets The company's product roadmap focuses on customer value, differentiated offerings, and new market products, supported by a global sales and marketing strategy - The company's product roadmap centers on customer value, differentiated products and services, and new market offerings, continuously developing next-generation tracker technology[32] - SmarTrack software continuously introduces improvements and additional features, including bifacial panel positioning algorithms, weather forecast pre-positioning commands, enhanced machine learning capabilities, and strengthened cybersecurity[33] - Sales and marketing strategies employ a "360-degree" approach, promoting product advantages and low life-cycle costs to all stakeholders through direct sales, independent third-party research, training workshops, and industry conferences[34] - The company maintains sales teams in seven countries globally, including the US, Europe, Middle East, Africa, Latin America, and Australia, providing engineering design, installation training, and 24/7 technical support[34][35][36] Competition The company competes with other tracker manufacturers and fixed-tilt mounting system providers based on product performance, total cost of ownership, reliability, and customer support - The company's primary competitors include tracker manufacturers such as Nextracker Inc., PV Hardware, and GameChange Solar, as well as fixed-tilt mounting system manufacturers like UNIRAC, Inc. and RBI Solar Inc[38] - Competition is primarily based on product performance and features, Levelized Cost of Energy (LCOE), reliability, product warranty periods, sales and distribution capabilities, and training and customer support[38] Resources The company leverages manufacturing and warehousing facilities in the US, Spain, and Brazil, invests in R&D, and protects its intellectual property through patents and other means - The company operates manufacturing and warehousing facilities in the US (Albuquerque), Spain, and Brazil, optimizing capital expenditure and inventory management by outsourcing the production of components like steel tubes, supports, and drive shafts[39][40] - The company continuously invests in research and development to create innovative products and services, aiming to enhance system performance, reliability, reduce costs, and simplify installation, supported by a strong R&D team and external collaborations[42][43][45] - The company protects its intellectual property through patents, trademarks, copyrights, and trade secrets, holding 34 US patents, 245 non-US patents, and 121 pending patent applications as of December 31, 2023[46] Seasonality The company's revenue experiences seasonal fluctuations due to reduced project construction activity in North America and Europe during colder months - Project construction activity in North America and Europe typically decreases during colder months (Q1 and Q4), leading to seasonal fluctuations in revenue[49] - Seasonal fluctuations are expected to diminish with business growth in new markets like Brazil and the Southern Hemisphere[49] ITC Step-Downs The Inflation Reduction Act (IRA) has eliminated Investment Tax Credit (ITC) step-downs until 2032, reducing its historical impact on customer order timing - Following the passage of the Inflation Reduction Act (IRA) in August 2022, the Investment Tax Credit (ITC) was increased to 30% and step-downs were eliminated until 2032, meaning ITC rates are not expected to affect the company's seasonality during this period[52] - Historically, ITC step-downs influenced the timing and volume of customer orders, such as the $400 million in orders received in Q4 2019 to qualify for the 30% ITC[50] Government Regulation The company adheres to environmental and safety regulations and operates within a solar market significantly influenced by government incentives and tax credits - The company complies with environmental, health, safety, and pollution control laws and regulations in its operating locations, with compliance costs not expected to materially impact the business[53] - The solar market heavily relies on government incentives, including rebates, tax credits, and other financial stimuli[54] - The IRA significantly reformed the tax credit system for US solar installations, introducing a 30% ITC (potentially increasing to 40% with domestic content requirements) and a Production Tax Credit (PTC) option[55][57] - After 2024, ITC and PTC will be replaced by "technology-neutral" tax credits, requiring projects to meet "zero greenhouse gas emissions" standards[58] Human Capital The company employs 1,028 full-time staff globally, focusing on talent attraction, retention, diversity, and employee well-being - As of December 31, 2023, the company had 1,028 full-time employees, with 50% in the US and 50% distributed across Europe, Latin America, Africa, Australia, and Asia[59] - The company is committed to attracting and retaining top talent, motivating and developing employees through promotion opportunities, on-the-job and online training, and education reimbursement[60] - The company values diversity and inclusion, with approximately 29% of employees being women and approximately 60% identifying as racially or ethnically diverse as of December 31, 2023[61] - The company is dedicated to employee health and safety, implementing a zero-injury culture and achieving ISO 9001 and ISO 45001 certifications for quality and occupational health and safety management systems[62][64] Available Information The company's website and investor relations site provide access to annual reports, quarterly reports, 8-K filings, and amendments - The company's website (https://arraytechinc.com) and investor relations website (https://ir.arraytechinc.com) provide annual reports, quarterly reports, 8-K reports, and amended filings[65] Risk Factors The company faces multiple risks including slowing solar demand, intense competition, customer loss, declining electricity prices, rising interest rates, changes in government incentives, supply chain disruptions, trade policy shifts, intellectual property challenges, operational defects, talent loss, international expansion risks, cybersecurity incidents, internal control deficiencies, and debt financing risks - Slowing growth in solar project demand, declining electricity prices, increased competition, and changes in government incentive policies could adversely affect the company's business[11][67][69][70][73][75][88][90] - Supply chain disruptions (e.g., interruptions in material flow from international suppliers, Red Sea shipping attacks), changes in the trade environment (tariffs, import restrictions), and fluctuations in raw material costs could impact the company's revenue, operating costs, and cash flow[13][77][79][82][83][85][102][104][105] - Failure to effectively protect intellectual property or respond to infringement claims, as well as product defects or performance issues, could lead to customer loss, reputational damage, and revenue decline[13][94][97][98][106] - Material weaknesses in internal controls (e.g., insufficient qualified personnel, inadequate STI information technology controls) could result in inaccurate financial reporting and adversely affect the business[13][116][119][360][361] - The company's substantial debt may limit financial flexibility, increase vulnerability to adverse economic conditions, and potentially impact future financing capabilities[13][120][122][123][125] - Cybersecurity incidents, data breaches, or failure to comply with privacy and data protection regulations could harm the company's business and reputation[13][112][113][114] - Macroeconomic and geopolitical conditions (e.g., COVID-19 pandemic, Russia-Ukraine conflict, Israel-Hamas war, Red Sea shipping attacks, inflation, and rising interest rates) could adversely affect the company's business, operating results, and financial condition[13][135][143][144][146] Unresolved Staff Comments There are no unresolved staff comments in this report - There are no unresolved staff comments in this report[147] Cybersecurity The company integrates cybersecurity risk management into its enterprise risk management program, collaborating with external experts and overseen by the Board of Directors, while continuously monitoring and responding to potential threats - The company is strategically integrating cybersecurity risk management into its broader enterprise risk management program to foster a company-wide culture of cybersecurity risk management[149] - The company engages external experts, including cybersecurity assessors, consultants, and auditors, to evaluate, test, and improve its risk management systems[150] - The Board of Directors oversees cybersecurity risks through the Nominating and Corporate Governance Committee, which receives reports from the Chief Information Officer and Chief Legal Officer at least annually[154][156] - Chief Information Officer Jovan Kangrga is responsible for assessing, monitoring, and managing the company's cybersecurity risks, leading a team with over 40 years of cybersecurity experience[157] - The company has not encountered any cybersecurity threats that have materially impacted its business strategy, operating results, or financial condition, but cannot rule out the possibility of future cyberattacks[152] Properties The company owns and leases approximately 3.8 million square feet of office, manufacturing, and warehousing space globally, primarily in the US, Spain, and Brazil, with its headquarters in Albuquerque, New Mexico - The company owns and leases approximately 3.8 million square feet of office, manufacturing, and warehousing space globally, primarily located in the US, Spain, and Brazil[162] - The company's headquarters in Albuquerque, New Mexico, comprises approximately 11,600 square feet of office space and approximately 58,000 square feet of manufacturing, warehousing, and shipping facilities[162] - The company leases significant warehousing and office space in the US, Spain, and Brazil to support its domestic and international operations[162] - The company believes its existing facilities are in good condition and sufficient to meet foreseeable business needs, with plans to acquire additional space and facilities as the business grows[163] Legal Proceedings The company faces claims and lawsuits in the ordinary course of business, including class action lawsuits related to public offerings and derivative lawsuits against executives and directors, with one class action dismissed and currently under appeal - The company faces claims and lawsuits in the ordinary course of business and assesses potential financial risks[164][579] - The company is subject to class action lawsuits (Plymouth Action and Keippel Action) related to its 2020 and 2021 public offerings, as well as derivative lawsuits (SDNY Derivative Action and Delaware Derivative Action) against its officers and directors[580][581][582][583][584][585][586] - The Plymouth Action was dismissed by the court on July 5, 2023, and is currently under appeal[588][589] - The company believes the likelihood of any material loss from these matters is remote and has not recorded any material loss contingency reserves on its consolidated balance sheets as of December 31, 2023[589] Mine Safety Disclosures This item is not applicable - This item is not applicable[164] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Global Market under "ARRY," with approximately five registered shareholders as of February 23, 2024, and no cash dividends paid since its IPO, while Series A redeemable perpetual preferred stock dividends accrue in kind until August 11, 2026 - The company's common stock trades on the Nasdaq Global Market under the ticker symbol "ARRY"[165] - As of February 23, 2024, the company had approximately five registered holders of its common stock[167] - The company has not declared or paid any cash dividends on its common stock (except for special distributions) since its initial public offering and plans to retain any future earnings for the foreseeable future[168] - Dividends on Series A preferred stock accrue in kind until August 11, 2026, after which they will be paid in cash[169] - The company disclosed a cumulative total return graph comparing its common stock to the Russell 2000 Index and a custom peer group since its IPO in October 2020[171][174][175] - The company issued and sold Series A redeemable perpetual preferred stock and common stock to Blackstone affiliates in August 2021 and January 2022, with total purchase prices of $346 million and $49.4 million, respectively[176][177] - The company did not repurchase any equity securities during the reporting period[179] Selected Financial Data This item is reserved - This item is reserved[179] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's 2023 financial condition and operating results, highlighting its business as a global solar tracking system manufacturer, the integration of STI Norland, adjustments to hedging option accounting, and factors impacting performance such as project timing, the IRA, cost management, Red Sea shipping disruptions, inflation, and regulatory effects - The company is a leading global manufacturer of utility-scale solar tracking systems, with a product portfolio including patented single-axis trackers, dual-row trackers (through the STI acquisition), and the terrain-adaptive OmniTrack[183][184][185] - The acquisition of STI Norland in January 2022 aimed to accelerate international expansion, particularly in Latin American and African markets[187][189] - Following consultation with the SEC in Q4 2023, the company reverted the accounting treatment for capped calls and put options to their original equity classification, reversing related fair value adjustments recorded during interim periods in 2023[191] - Factors affecting the company's performance include project delays (weather, interest rates, equipment shortages, permitting), the IRA (raising ITC to 30% without step-downs until 2032, and the 45X manufacturing tax credit), structured cost management, Red Sea shipping disruptions, inflation, and regulatory impacts (e.g., AD/CVD tariffs)[192][193][195][197][198][199][200][203] - The company uses operational metrics such as megawatts (MWs) shipped, average selling price (ASP), and cost per watt (CPW) to evaluate sales performance, market acceptance, pricing, and manufacturing costs[205][206] 2023 vs 2022 Consolidated Results of Operations (in thousands USD) | Metric | 2023 | 2022 | Change | % Change | | :--------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $1,576,551 | $1,637,546 | $(60,995) | (4)% | | Cost of Sales | $1,161,000 | $1,424,828 | $(263,828) | (19)% | | Gross Profit | $415,551 | $212,718 | $202,833 | 95% | | Operating Expenses | $201,427 | $230,851 | $(29,424) | (13)% | | Operating Income (Loss) | $214,124 | $(18,133) | $232,257 | 1281% | | Other (Expense) Income, Net | $(36,967) | $13,181 | $(35,078) | (266)% | | Income (Loss) Before Income Taxes | $177,157 | $(4,952) | $182,109 | 3677% | | Income Tax Expense (Benefit) | $39,917 | $(9,384) | $49,301 | 525% | | Net Income | $137,240 | $4,432 | $132,808 | 2997% | 2023 vs 2022 Segment Revenue and Gross Profit (in thousands USD) | Metric | 2023 | 2022 | Change | % Change | | :--------------- | :---------- | :---------- | :--------- | :------- | | Revenue: | | | | | | Array Legacy | $1,172,827 | $1,267,883 | $(95,056) | (7)% | | STI Operations | $403,724 | $369,663 | $34,061 | 9% | | Gross Profit: | | | | | | Array Legacy | $317,605 | $153,612 | $163,993 | 107% | | STI Operations | $97,946 | $59,106 | $38,840 | 66% | - In 2023, operating cash flow was $232 million, cash used in investing activities was $16.8 million, and cash used in financing activities was $101.8 million; as of December 31, 2023, cash balance was $249.1 million and net working capital was $496.6 million[241][242][245][247][248] Overview The company is a leading global manufacturer of utility-scale solar tracking systems, offering integrated solutions that enhance energy production and reduce LCOE - The company is one of the leading global manufacturers of ground-mounted tracking systems for utility-scale solar projects[183] - Its primary products are integrated solar tracking systems, including steel supports, electric motors, gearboxes, and electronic controllers, which significantly increase energy yield and reduce LCOE[183] - The company's flagship tracker features a patented design where one motor drives multiple rows of solar panels, offering higher reliability and lower installation and maintenance costs[184] - Through the acquisition of STI, the company added dual-row tracker designs and introduced the OmniTrack product to provide comprehensive solutions and adapt to uneven terrain[185] - The company primarily sells its products to EPCs, large solar developers, independent power producers, and utility companies, with the US market accounting for 74% of revenue in 2023[186] Acquisition of STI Norland The company completed the acquisition of STI Norland in January 2022 for $610.8 million, accelerating international expansion and meeting global demand for utility-scale solar projects - The company completed the acquisition of STI Norland on January 11, 2022, for a total consideration of $410.5 million in cash and 13,894,800 shares of common stock, with a total fair value of $610.8 million[187] - This acquisition enabled the company to accelerate international expansion and better meet the growing demand for utility-scale solar projects globally, particularly in developing countries in Latin America and Africa[189] Reversal of Out-of-Period Adjustment Recorded during the three months ended March 31, 2023 Following consultation with the SEC, the company reverted the accounting treatment for capped calls and put options to their original equity classification, reversing related fair value adjustments recorded in interim periods of 2023 - Following consultation with the SEC in Q4 2023, the company reverted the accounting treatment for Capped Calls and Put Options to their original equity classification, reversing related fair value adjustments recorded during interim periods in 2023[191] Factors Affecting Results Of Operations Operating results are influenced by project timing, the IRA's tax credits, structured cost management, Red Sea shipping disruptions, inflation, and regulatory impacts - Project revenue recognition is affected by various factors, including weather, interest rate environments (leading to power purchase agreement renegotiations and installation delays), availability of necessary equipment (e.g., switches, transformers, high-voltage circuit breakers), and local permitting delays[192] - The Inflation Reduction Act (IRA) increased the Investment Tax Credit (ITC) to 30% without step-downs until 2032, which is expected to reduce the ITC's impact on seasonality[193] - In Q4 2023, the company accrued $49.9 million in benefits from the 45X manufacturing tax credit (related to torque tubes), with $9.3 million recognized as a reduction in cost of revenue in 2023, and the remaining $40.6 million expected to be recognized in 2024[195] - The company actively manages risks associated with fixed-price or commodity-indexed multi-year contracts, sometimes foregoing certain projects to maintain stable profit margins[197] - Red Sea shipping attacks since late November 2023 have caused vessels to reroute around the Cape of Good Hope, increasing transit distances and potential port delays, with the company currently assessing the supply chain impact[198] - Inflationary pressures continue to affect operating results, with the company mitigating impacts through selective price increases, accelerated productivity initiatives, expanded supplier base, and controlled administrative expenses[199] - The expiration of the US Department of Commerce's anti-dumping/countervailing duty (AD/CVD) tariff waiver on solar panels from Southeast Asian countries and the issuance of final affirmative rulings have led to project delays; additionally, AD/CVD cases on aluminum extrusions could impact tracker components[200][202][203] Performance Measures The company uses megawatts shipped, average selling price, and cost per watt as key metrics to evaluate sales performance, market acceptance, pricing, and manufacturing cost trends - The company uses megawatts (MWs) shipped as a primary operational metric to assess sales performance and market acceptance[205] - The company also uses average selling price (ASP) and cost per watt (CPW) to evaluate pricing, manufacturing costs, and customer profitability trends[206] Key Components of Our Results of Operations Revenue is primarily derived from solar tracking system sales, while cost of sales includes product costs and amortization, with gross profit influenced by various factors including commodity prices and the 45X tax credit - Revenue primarily comes from the sale of solar tracking systems and components, influenced by product volume, average selling price, project mix, geographic regions, competition, and government incentives[208][210] - Cost of sales primarily includes product costs (raw materials, components, labor, freight, duties, warranties) and amortization of developed technology; gross profit is affected by sales volume, average selling price, product costs, project mix, commodity prices, and seasonality[211][212] - The company recognizes supplier rebates related to the Inflation Reduction Act's 45X advanced manufacturing production tax credit as a reduction in purchase price, which is then recognized as a reduction in cost of revenue when inventory is sold[213][214] - Operating expenses primarily include general and administrative expenses (salaries, benefits, equity compensation, travel, marketing, professional fees), changes in fair value of contingent consideration, and depreciation and amortization[218][219][220] - Non-operating expenses primarily include interest expense related to senior secured credit, convertible notes, and other debt, as well as US federal, state, and non-US income taxes[221] Reportable Segments The company currently operates with two reportable operating segments: Array Legacy Operations and STI Legacy Operations - The company currently has two reportable operating segments: Array Legacy Operations and STI Legacy Operations[222] Results of Operations In 2023, the company experienced a slight revenue decrease but a significant increase in gross profit and a turnaround to operating income, driven by cost control and commodity price pass-through 2023 vs 2022 Consolidated Results of Operations (in thousands USD) | Metric | 2023 | 2022 | Change | % Change | | :--------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $1,576,551 | $1,637,546 | $(60,995) | (4)% | | Cost of Sales | $1,161,000 | $1,424,828 | $(263,828) | (19)% | | Gross Profit | $415,551 | $212,718 | $202,833 | 95% | | Operating Expenses | $201,427 | $230,851 | $(29,424) | (13)% | | Operating Income (Loss) | $214,124 | $(18,133) | $232,257 | 1281% | | Other (Expense) Income, Net | $(36,967) | $13,181 | $(35,078) | (266)% | | Income (Loss) Before Income Taxes | $177,157 | $(4,952) | $182,109 | 3677% | | Income Tax Expense (Benefit) | $39,917 | $(9,384) | $49,301 | 525% | | Net Income | $137,240 | $4,432 | $132,808 | 2997% | 2023 vs 2022 Segment Revenue and Gross Profit (in thousands USD) | Metric | 2023 | 2022 | Change | % Change | | :--------------- | :---------- | :---------- | :--------- | :------- | | Revenue: | | | | | | Array Legacy | $1,172,827 | $1,267,883 | $(95,056) | (7)% | | STI Operations | $403,724 | $369,663 | $34,061 | 9% | | Gross Profit: | | | | | | Array Legacy | $317,605 | $153,612 | $163,993 | 107% | | STI Operations | $97,946 | $59,106 | $38,840 | 66% | - In 2023, Array Legacy operating revenue decreased by 7% ($95.1 million), primarily due to reduced megawatts shipped caused by customer project delays, while STI operating revenue grew by 9% ($34.1 million), mainly driven by increased megawatts shipped in Brazil[227] - The consolidated gross profit margin increased from 13% in 2022 to 26% in 2023, primarily due to better pass-through of commodity volatility costs to customers, logistics and raw material cost savings, and increased higher-margin non-tracker revenue[228][229] - General and administrative expenses increased by 6% ($8.8 million) in 2023, mainly due to higher employee salaries and related costs, while depreciation and amortization expenses decreased by 54% ($45.7 million), primarily due to the full amortization of STI acquisition backlog[230] - There was no legal settlement income in 2023, compared to $42.8 million in income from a trade secret theft settlement in 2022[232] - Interest income increased by 162% ($5.1 million) in 2023, primarily due to higher cash balances and rising interest rates, while interest expense increased by 21% ($7.5 million), mainly due to higher term loan interest rates and accelerated non-cash interest recognition from unscheduled principal payments[233][234] - Income tax expense shifted from a $9.4 million benefit in 2022 to a $39.9 million expense in 2023, primarily influenced by higher income in non-US jurisdictions[235] Liquidity and Capital Resources The company's liquidity is primarily supported by operating cash flow, capital contributions, and borrowings, with a cash balance of $249.1 million and net working capital of $496.6 million as of December 31, 2023 - The company's historical working capital has primarily been sourced from operating cash flow, capital contributions, and short-term/long-term borrowings[241] - As of December 31, 2023, the company's cash balance was $249.1 million ($66.8 million of which was held offshore), and net working capital was $496.6 million[242] - The company had $238.2 million in outstanding borrowings under its $575 million term loan facility and $175.2 million available under its $200 million revolving credit facility[242] 2023 vs 2022 Cash Flows (in thousands USD) | Cash Flow Type | 2023 | 2022 | | :----------------------------- | :---------- | :---------- | | Net Cash from Operating Activities | $231,955 | $141,493 | | Net Cash from Investing Activities | $(16,821) | $(384,437) | | Net Cash from Financing Activities | $(101,761) | $8,440 | | Effect of Exchange Rate Changes | $1,806 | $735 | | Net Change in Cash and Cash Equivalents | $115,179 | $(233,769) | - In 2023, operating activities generated $232 million in cash, primarily from net income adjusted for non-cash expenses; investing activities used $16.8 million in cash, mainly for property, plant, and equipment purchases; and financing activities used $101.8 million in cash, primarily for term loan and other debt repayments[245][247][248] Critical Accounting Estimates Key accounting estimates involve revenue recognition, business combinations, goodwill impairment, product warranties, tax receivable agreements, and equity compensation, all requiring significant judgment and assumptions - Revenue recognition uses the cost-to-cost method, relying on assumptions about future events (e.g., material costs and availability) and adjusted for project-specific circumstances[253] - Business combinations involve significant estimates and assumptions for the fair value of acquired assets and liabilities, particularly the valuation of intangible assets[254] - Goodwill impairment testing requires significant judgment and estimates regarding the fair value of reporting units, including projections of future revenue and EBITDA margins, and the selection of discount rates[255][258] - Product warranty reserves are based on historical claims information and estimates of future claims, which are continuously re-evaluated[259] - The valuation of Tax Receivable Agreements (TRA) is based on estimates of future expected payments, including tax payment timing, discount rates, book income projections, and attribute utilization rates[260] - Equity compensation expense is recognized based on the grant-date fair value of equity awards, with performance and market-conditioned PSUs valued using Monte Carlo simulations[261] Recent Accounting Pronouncements Recent accounting pronouncements include revisions to debt agreements, new segment reporting requirements, and enhanced income tax disclosures - In March 2023, the company revised existing debt agreements to replace LIBOR interest rate terms with SOFR terms, with no material impact on financial statements[459] - FASB issued ASU 2023-07 (Segment Reporting), requiring disclosure of significant segment expenses and other segment items, retrospectively applicable for fiscal years beginning after December 15, 2023[460] - FASB issued ASU 2023-09 (Income Tax Disclosures), requiring disaggregated income taxes paid and prescribing standard categories for effective tax rate reconciliations, applicable for fiscal years beginning after December 31, 2025[461] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from customer concentration, commodity price fluctuations (steel, aluminum, logistics), interest rate changes on floating-rate debt, and foreign currency exchange rate volatility from international operations - The company's customers are primarily concentrated among large solar developers, independent power producers, utility companies, and EPCs; as of December 31, 2023, the largest customer and top five customers accounted for 2.7% and 29.6% of total accounts receivable, respectively[265] - The company faces risks from price fluctuations in raw materials like steel and aluminum and does not hedge commodity prices; logistics cost volatility (e.g., due to the COVID-19 pandemic) also poses a risk[267][268] - As of December 31, 2023, $261 million of the company's long-term debt was subject to floating interest rate agreements; a 50 basis point increase in interest rates would increase expected annual interest expense by approximately $1.2 million over the next 12 months[269][271] - Customer reliance on debt financing indirectly exposes the company to interest rate risk, as rising rates could reduce customer demand for the company's products[272] - Operating in multiple countries exposes the company to foreign currency exchange rate fluctuations between the US dollar and foreign currencies such as the Euro and Brazilian Real[273] Financial Statements and Supplementary Data The required financial statements and supplementary data are included after the signature page of this annual 10-K report, starting on page F-1 - The financial statements and supplementary data required for this item are included after the signature page of this annual 10-K report, beginning on page F-1[274] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure in this report - There are no changes in or disagreements with accountants on accounting and financial disclosure in this report[274] Controls and Procedures As of December 31, 2023, management assessed disclosure controls and procedures and internal control over financial reporting as ineffective due to material weaknesses, primarily insufficient qualified personnel and STI information technology control deficiencies, with active remediation plans underway - As of December 31, 2023, the company's management assessed that disclosure controls and procedures were not effective, and internal control over financial reporting was also not effective, primarily due to material weaknesses[276][278] - Identified material weaknesses include: 1) a lack of a sufficient number of qualified personnel to perform control activities necessary for financial statement preparation; and 2) STI's failure to design, implement, and monitor information technology general controls, as well as to design and implement formal accounting policies, procedures, and controls[279][360][361] - The company is actively implementing remediation plans, including hiring qualified accounting and finance personnel (including a new CFO in Q4 2023), assessing STI's personnel needs, and planning to implement a new accounting system in the first half of 2024 to address STI's control deficiencies[280][281][283] - Previously disclosed entity-level material weaknesses (control environment, risk assessment, and monitoring activities) have been remediated, except for the insufficient qualified personnel weakness; process-level material weaknesses (inventory, revenue recognition, accounts receivable, financial reporting, consolidation, and foreign currency) have also been remediated, except for those related to STI[284][285][286] Other Information Following SEC consultation in Q4 2023, the accounting treatment for capped calls and put options was reverted to equity classification, reversing prior fair value adjustments deemed immaterial to interim periods, and the company disclosed Rule 10b5-1(c) trading plans by directors and officers - Following consultation with the SEC in Q4 2023, the company reverted the accounting treatment for Capped Calls and Put Options to their original equity classification, reversing related fair value adjustments recorded during interim periods in 2023[289][290] - Management assessed these misstatements as immaterial to the 2023 interim periods and will retrospectively correct the relevant financial statements[291] - In Q4 2023, certain directors and officers of the company adopted securities trading plans under Rule 10b5-1(c)[314] - The company's website (www.arraytechinc.com) provides electronic access to annual reports, quarterly reports, 8-K reports, and amendments[315] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections There is no disclosure regarding foreign jurisdictions that prevent inspections in this report - There is no disclosure regarding foreign jurisdictions that prevent inspections in this report[316] PART III Directors, Executive Officers and Corporate Governance The required information will be included in the company's 2024 Annual Meeting of Stockholders proxy statement and incorporated by reference into this annual report, with a written Code of Business Conduct applicable to all officers, directors, and employees - The information required for this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders, expected to be filed no later than 120 days after the fiscal year ended December 31, 2023[317] - The company has adopted a written Code of Business Conduct applicable to all officers, directors, and employees, available on the company's website[317][319] Executive Compensation The required information will be included in the company's proxy statement and incorporated by reference into this annual report - The information required for this item will be included in the company's proxy statement and incorporated by reference into this annual report[320] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The required information will be included in the company's proxy statement and incorporated by reference into this annual report - The information required for this item will be included in the company's proxy statement and incorporated by reference into this annual report[320] Certain Relationships and Related Transactions, and Director Independence The required information will be included in the company's proxy statement and incorporated by reference into this annual report - The information required for this item will be included in the company's proxy statement and incorporated by reference into this annual report[320] Principal Accountant Fees and Services The required information will be included in the company's proxy statement and incorporated by reference into this annual report, with Deloitte & Touche LLP serving as the company's auditor - The information required for this item will be included in the company's proxy statement and incorporated by reference into this annual report[320] - The company's auditor is Deloitte & Touche LLP, with auditor ID 34, located in Tempe, Arizona[320] PART IV Exhibit and Financial Statement Schedules This item lists the financial statements, supplementary data, and exhibits included in the company's annual report, with all schedules omitted as they are either not required or the information is provided elsewhere - The financial statements and supplementary data required for this item are included after the signature page of this annual 10-K report, beginning on page F-1[320] - All schedules have been omitted because they are either not required or the information is provided in the financial statements or notes thereto[321] - The exhibit index lists various documents filed or incorporated by reference, including the company's articles of incorporation, credit agreements, tax receivable agreements, and equity incentive plans[322][324][326] Form 10–K Summary There is no Form 10-K Summary in this report - There is no Form 10-K Summary in this report[327] SIGNATURES This report was signed by CEO Kevin Hostetler, CFO Kurt Wood, Board Chairman Brad Forth, and other directors on February 27, 2024 - This report was signed by CEO Kevin Hostetler, CFO Kurt Wood, Board Chairman Brad Forth, and other directors on February 27, 2024[329][330] INDEX TO FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2023, but an adverse opinion on internal control over financial reporting due to material weaknesses, while BDO USA, LLP issued an unqualified opinion for the two years ended December 31, 2022 - Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2023[337] - Deloitte & Touche LLP issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2023, due to material weaknesses, including insufficient qualified personnel and STI information technology control deficiencies[338][353][360][361] - BDO USA, LLP issued an unqualified opinion on the company's consolidated financial statements for the two years ended December 31, 2022[364] - Key audit matters include goodwill for the STI operating segment ($435.6 million, with $365.9 million allocated to STI) and the accounting treatment for capped calls ($52.9 million)[344][348] Consolidated Balance Sheets As of December 31, 2023, total assets were $1.7067 billion, slightly up from $1.7061 billion in 2022, with cash and cash equivalents increasing to $249.1 million, while total liabilities decreased to $1.0962 billion from $1.2822 billion, and total stockholders' equity rose to $259.2 million Consolidated Balance Sheet Key Data (in thousands USD) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------- | :---------------- | :---------------- | | Assets: | | | | Cash and Cash Equivalents | $249,080 | $133,901 | | Accounts Receivable, Net | $332,152 | $421,183 | | Inventories | $161,964 | $233,159 | | Total Current Assets | $832,281 | $831,209 | | Property, Plant and Equipment, Net | $31,886 | $23,174 | | Goodwill | $435,591 | $416,184 | | Other Intangible Assets, Net | $350,396 | $386,364 | | Total Assets | $1,706,741 | $1,706,052 | | Liabilities: | | | | Accounts Payable | $119,498 | $170,430 | | Deferred Revenue | $66,488 | $178,922 | | Total Current Liabilities | $335,691 | $465,262 | | Long-Term Debt, Net | $660,948 | $720,352 | | Total Liabilities | $1,096,233 | $1,282,201 | | Stockholders' Equity: | | | | Total Stockholders' Equity | $259,248 | $124,281 | Consolidated Statements of Operations In 2023, the company's revenue slightly decreased to $1.5766 billion, but gross profit significantly increased to $415.6 million, leading to an operating income of $214.1 million and net income of $137.2 million, with basic earnings per share turning positive at $0.57 Consolidated Statements of Operations Key Data (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :--------------------------- | :---------- | :---------- | :--------- | | Revenue | $1,576,551 | $1,637,546 | $853,318 | | Cost of Sales | $1,161,000 | $1,424,828 | $785,017 | | Gross Profit | $415,551 | $212,718 | $68,301 | | Operating Expenses | $201,427 | $230,851 | $93,042 | | Operating Income (Loss) | $214,124 | $(18,133) | $(24,741) | | Other (Expense) Income, Net | $(36,967) | $13,181 | $(36,380) | | Income (Loss) Before Income Taxes | $177,157 | $(4,952) | $(61,121) | | Income Tax Expense (Benefit) | $39,917 | $(9,384) | $(10,718) | | Net Income | $137,240 | $4,432 | $(50,403) | | Net Income Attributable to Common Stockholders | $85,549 | $(43,622) | $(66,118) | | Basic Earnings Per Share | $0.57 | $(0.29) | $(0.51) | | Diluted Earnings Per Share | $0.56 | $(0.29) | $(0.51) | Consolidated Statements of Comprehensive Income (Loss) The company's comprehensive income significantly increased to $173.6 million in 2023, primarily driven by a substantial rise in net income and a $36.4 million gain from foreign currency translation adjustments Consolidated Comprehensive Income (Loss) Key Data (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :------------------------- | :---------- | :---------- | :--------- | | Net Income (Loss) | $137,240 | $4,432 | $(50,403) | | Foreign Currency Translation | $36,385 | $8,425 | $0 | | Comprehensive Income (Loss) | $173,625 | $12,857 | $(50,403) | Consolidated Statements of Changes in Redeemable Perpetual Preferred Stock and Stockholders' Equity (Deficit) As of December 31, 2023, redeemable perpetual preferred stock increased to $351.3 million, additional paid-in capital decreased to $344.5 million, and the accumulated deficit significantly reduced to $130.2 million, reflecting improved profitability Consolidated Redeemable Perpetual Preferred Stock and Stockholders' Equity (Deficit) Key Data (in thousands USD) | Metric | December 31, 2023 | December 31, 2022 | | :----------------------------------- | :---------------- | :---------------- | | Redeemable Perpetual Preferred Stock | $351,260 | $299,570 | | Common Stock | $151 | $150 | | Additional Paid-in Capital | $344,517 | $383,176 | | Accumulated Deficit | $(130,230) | $(267,470) | | Accumulated Other Comprehensive Income | $44,810 | $8,425 | | Total Stockholders' Equity | $259,248 | $124,281 | - In 2023, equity compensation expense was $14.54 million, preferred stock accumulated dividends and accretion were $51.69 million, net income was $137.2 million, and foreign currency translation gain was $36.385 million[384][385] Consolidated Statements of Cash Flows The company generated $232 million in net cash from operating activities in 2023, a significant increase from 2022, while cash used in investing activities decreased substantially, and cash used in financing activities increased, resulting in a year-end cash balance of $249.1 million Consolidated Cash Flow Statement Key Data (in thousands USD) | Cash Flow Type | 2023 | 2022 | 2021 | | :----------------------------- | :---------- | :---------- | :---------- | | Net Cash from Operating Activities | $231,955 | $141,493 | $(263,187) | | Net Cash from Investing Activities | $(16,821) | $(384,437) | $(15,332) | | Net Cash from Financing Activities | $(101,761) | $8,440 | $537,748 | | Effect of Exchange Rate Changes | $1,806 | $735 | $0 | | Net Change in Cash and Cash Equivalents | $115,179 | $(233,769) | $259,229 | | Cash and Cash Equivalents, End of Period | $249,080 | $133,901 | $367,670 | - In 2023, operating cash flow primarily stemmed from $137.2 million in net income, adjusted for non-cash expenses; investing activities mainly involved purchasing property, plant, and equipment; and financing activities primarily consisted of repaying term loans ($74.3 million) and other debt ($88.063 million)[245][247][248] Supplemental Cash Flow Information (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :----------------- | :-------- | :-------- | :-------- | | Cash Paid for Interest | $43,949 | $23,118 | $24,306 | | Cash Paid for Income Taxes | $45,942 | $10,739 | $13,318 | Notes to Consolidated Financial Statements This section details the company's organization, business, accounting policies, STI acquisition, various financial accounts, income taxes, debt, equity, revenue recognition, earnings per share, commitments, contingencies, fair value of financial instruments, equity compensation, leases, and segment information, including the reversal of out-of-period adjustments for capped calls and put options, 45X manufacturing tax credits, and disclosures on material internal control weaknesses - The company acquired STI on January 11, 2022, and began operating with two reportable segments: Array Legacy Operations and STI Operations[394][395] - In Q4 2023, the company reversed out-of-period adjustments for capped calls and put options, reverting their accounting treatment to the original equity classification[540][542][551] - The company faces macroeconomic impacts from the Russia-Ukraine conflict, Red Sea shipping attacks, and inflation, and has implemented price increases and cost control measures[403][404][405] - The company recognizes supplier rebates related to the 45X advanced manufacturing production tax credit as a reduction in cost of revenue, with $49.9 million accrued in 2023, of which $9.3 million has been recognized[406][408] - As of December 31, 2023, net accounts receivable was $332.2 million, inventory was $162 million, and net property, plant, and equipment was $31.9 million[477][479][482] - As of December 31, 2023, goodwill was $435.6 million ($365.9 million allocated to STI), and net other intangible assets were $350.4 million; no goodwill impairment was recognized in 2023[484][486][487] - In 2023, income tax expense was $39.9 million, net deferred tax assets were negative $50.99 million, and a valuation allowance of $2.36 million existed[492][495][500] - As of December 31, 2023, total principal debt was $703.1 million, including $238.2 million in term loans and $425 million in convertible notes; interest expense in 2023 was $44.2 million[513][515][519][526] - The company has issued Series A redeemable perpetual preferred stock, with total accrued and unpaid dividends of $32.8 million as of December 31, 2023[554] - To