Array Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Array manufactures and supplies utility-scale solar tracking systems. Results include STI, acquired January 11, 2022, which expanded the company’s operations into Brazil, Western Europe and South Africa. Unless otherwise noted, figures below are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $515.0 million | $188.7 million | $1,235.5 million | $633.4 million |
| Gross profit / margin | $80.2 million / 15.6% | $5.9 million / 3.1% | $146.8 million / 11.9% | $72.6 million / 11.5% |
| Operating income (loss) | $18.5 million | $(19.5) million | $(25.5) million | $(4.7) million |
| Net income (loss) | $40.8 million | $(27.6) million | $13.5 million | $(28.5) million |
| Net income (loss) to common shareholders | $28.6 million | $(33.0) million | $(22.5) million | $(34.0) million |
| Operating cash flow | Not provided for the quarter | $44.0 million | $(165.8) million |
Q3 diluted earnings per share were $0.19, compared with a loss of $0.25. Nine-month loss per common share was $0.15, versus a loss of $0.26. Preferred dividends and accretion were $36.0 million for the nine-month period, so reported net income did not translate into income attributable to common shareholders.
Q3 revenue rose 173%; legacy Array revenue increased 112%, with shipped megawatts up approximately 63% and average selling price up 29%. For the first nine months, revenue grew 95%; legacy revenue rose 58%, with megawatts shipped up approximately 31% and average selling price up 20%. STI contributed $114.6 million of Q3 revenue and $237.2 million for the nine months. Management attributed stronger gross margins mainly to improved customer pass-through pricing for materials and logistics costs.
Cash, debt and liquidity
Cash and cash equivalents were $62.8 million at September 30, 2022, down from $367.7 million at December 31, 2021. Net working capital was $358.7 million. Nine-month operating cash flow was $44.0 million, including the $42.8 million Nextracker settlement payment; accounts receivable growth used $139.0 million of cash. Investing activities used $380.5 million, principally for the STI acquisition. Net cash declined $304.9 million over the period.
At quarter-end, the company reported $323.6 million of term-loan principal, $425.0 million of convertible-note principal, and $56.0 million of STI-assumed debt. The revolving facility had no borrowings and $166.6 million available under its $200 million commitment. Balance-sheet current and long-term debt totaled $772.8 million, net of applicable discounts and issuance costs. The convertible notes bear 1% interest and mature in 2028; the term loan’s stated effective rate was 6.75%.
Series A preferred stock had a $400 million liquidation preference and a $287.6 million carrying amount. Cash dividends paid on the preferred stock totaled $18.7 million in the first nine months. Management stated it expected sufficient liquidity for the next 12 months, citing operating cash generation, revolver availability and a remaining delayed-draw preferred-stock commitment; drawing that commitment would increase dividend obligations and common shares, while not drawing it would result in commitment-related interest expense.
Material changes, outlook and risks
- STI acquisition: Consideration was $610.8 million, comprising $410.5 million cash and $200.2 million in stock. STI added $237.2 million of revenue from acquisition through September 30, but recorded a $14.1 million net loss over that period. Purchase accounting remained preliminary; reported goodwill was $359.6 million, including $289.9 million assigned to STI operations.
- Unusual item: The $42.8 million Nextracker litigation settlement was received in August and recognized in Q3. It materially contributed to Q3 pretax and net income; it is not recurring operating revenue.
- Revenue visibility: Remaining performance obligations were $386.3 million at September 30, and the company expected to recognize all of them within the following 12 months. The filing provides no clear quantified full-year revenue or earnings guidance.
- Management commentary: The company cited sequential margin improvement and mitigation measures including new supply routes and changes to contracting practices. It said the solar-module trade investigation had delayed some projects, but, following a 24-month suspension of certain duties, it had not observed a material demand decline. Future effects remained uncertain.
- Risks: Elevated commodity, logistics and labor costs; supply-chain constraints, including the Ukraine conflict; inflation and rising interest rates; customer project financing and demand; and possible solar-module import disruptions could affect deliveries, margins and cash flow. COVID-19 effects also remained uncertain.
- Litigation and contingencies: Securities class-action and related derivative lawsuits remained pending. Management considered a material loss remote and recorded no material loss contingency. The company also reported approximately $175.2 million of surety bonds, which it said did not adversely affect liquidity or capital resources.
- Financial reporting controls: Management concluded disclosure controls were not effective as of September 30, 2022, due to continuing material weaknesses involving the control environment and monitoring, inventory, revenue recognition, accounts receivable, sales order entry and consolidation. Remediation was underway; STI’s internal controls were excluded from management’s year-end 2022 assessment.
Most important facts for investors to verify
- Whether gross-margin improvements and pass-through pricing persist as commodity, shipping and labor costs evolve.
- How much operating cash flow is generated excluding the one-time settlement, and whether receivables and unbilled receivables convert to cash on schedule.
- STI’s ongoing profitability, integration progress and final purchase-price allocation, including foreign-currency and goodwill effects.
- Liquidity needs and the cost, dividend and dilution implications of the preferred-stock delayed-draw commitment, alongside debt service and variable-rate exposure.
- Progress in remediating material weaknesses and the status and potential exposure of the securities and derivative litigation.
- Conversion of the $386.3 million performance-obligation balance into revenue and any subsequent changes to project timing or customer demand.