Array Technologies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Array manufactures single-axis solar trackers; 97% of 2021 revenue came from U.S. customers.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $853.3 million | $872.7 million |
| Gross profit / margin | $82.9 million / 9.7% | $202.8 million / 23.2% |
| Operating income (loss) | $(24.7) million | $95.2 million |
| Net income (loss) | $(50.4) million | $59.1 million |
| Net income (loss) attributable to common shareholders; diluted EPS | $(66.1) million; $(0.51) | $59.1 million; $0.49 |
| Cash from (used in) operating activities | $(263.2) million | $(122.2) million |
- Revenue declined 2%, while megawatts shipped increased approximately 19%. Higher steel, other commodity and logistics costs were not fully passed through to customers, sharply reducing gross margin.
- Operating cash use reflected $96.6 million invested in inventory and $118.4 million used by increased accounts receivable, alongside weaker project margins. Unbilled receivables rose to $111.2 million from $18.1 million.
- Year-end cash was $367.7 million; reported net working capital was $606.7 million. Current assets were $852.0 million and current liabilities $245.3 million.
- Year-end principal debt comprised $326.8 million under the term loan and $425.0 million of 1.00% convertible notes due 2028. The balance sheet reported debt of $711.1 million net of discounts and issuance costs. The $200 million revolver had $186.4 million available, but the company cautioned that covenants limited its ability to draw. It was in compliance with covenants at year-end.
- A 50-basis-point increase in interest rates was estimated to raise annual interest expense by approximately $1.6 million. The company reported no cash dividends on common stock and did not expect to pay them in the foreseeable future.
Quarterly performance and material changes
As restated, fourth-quarter revenue was $219.9 million, gross profit $10.3 million, net loss $21.9 million, and loss attributable to common shareholders $32.1 million (diluted loss per share $0.24). Gross profit was particularly weak in the third and fourth quarters, at $5.9 million and $10.3 million, respectively.
- Revenue decreased $19.3 million year over year, while cost of revenue increased $100.6 million, or 15%. Management attributed the margin decline primarily to higher commodity and logistics costs.
- Interest expense increased $20.3 million to $35.5 million, including $9.6 million of debt-fee and discount write-offs following early principal repayments.
- General and administrative expense rose 46% to $81.0 million, reflecting higher equity compensation, professional fees, insurance and staffing. Contingent consideration expense fell substantially from 2020.
- In March 2022, the company determined that its previously issued interim 2021 financial statements should no longer be relied upon. ASC 606 errors concerned identification of performance obligations and combining contracts; the restated treatment changed the timing and allocation of revenue and profit. For the first nine months, revenue was reduced by $7.4 million and net income was reduced by $5.8 million. Restated quarterly figures are presented in this 10-K; prior 10-Q filings were not amended.
Outlook, risks and unusual items
- The filing gives no numerical revenue, earnings or margin guidance. Management said it had taken steps to mitigate cost pressures but could not predict when margins would improve; persistent COVID-19 effects, supply-chain disruption, labor shortages, shipping costs and commodity inflation remained risks.
- STI acquisition: completed January 11, 2022, after year-end, for stated consideration valued at $610.7 million—$410.5 million cash and 13,894,800 common shares. The acquisition is intended to expand Array’s presence in Brazil and Western Europe. The company reported that the contingent-price targets were not met; purchase accounting was still in process. Integration, financing, execution and foreign-currency risks apply.
- Array raised $425 million principal through convertible notes and issued Series A redeemable perpetual preferred stock and common stock in 2021. The preferred stock carries a 5.75% initial cash dividend rate, subject to step-ups; 2021 preferred dividends and accretion totaled $15.7 million. An additional preferred/common-stock closing raised $49.4 million in January 2022.
- Customer concentration is material: the largest customer represented 12.6% and the five largest 46.0% of annual revenue. Steel and aluminum prices are not hedged. Solar demand also depends on project financing, government incentives, regulation and electricity economics.
- Management identified material weaknesses in entity-level monitoring, inventory, revenue recognition and accounts-receivable controls. Disclosure controls and internal control over financial reporting were deemed ineffective; the auditor issued an adverse opinion on internal control, while providing an unqualified opinion on the financial statements. Remediation was underway and had not yet been validated over sustained reporting cycles.
- Other items to monitor include securities class and derivative litigation, a trade-secret lawsuit against a competitor with trial scheduled for July 2022, and $160.4 million of surety bonds. Management said it considered the likelihood of material loss from the securities matters remote and had recorded no material loss contingency.
Important facts for investors to verify
- Use the restated 2021 interim figures in this 10-K, not previously released quarterly statements or related earnings communications.
- Track whether Array remediates the disclosed control weaknesses and sustains effective controls, particularly for ASC 606 revenue, inventory and receivables.
- Assess whether margins and operating cash flow recover, and whether unbilled receivables convert to invoices and cash as expected.
- Confirm liquidity and covenant headroom after the STI acquisition; year-end revolver availability was subject to borrowing restrictions, and the filing separately estimated cash of $40.4 million at March 31, 2022.
- Review STI integration and acquisition accounting, customer concentration, commodity and logistics exposure, preferred-stock costs, debt service and litigation developments.