Array Technologies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Amounts below are in U.S. dollars. Array manufactures utility-scale solar tracking systems and reported two segments: Array Legacy Operations and STI Operations.
Financial performance and position
- Revenue: $153.4 million, down 59% from $376.8 million. Management attributed the decline primarily to lower shipment volume: revenue fell 60% by volume at Array Legacy and 41% at STI; lower selling prices also contributed.
- Profitability: Gross profit was $55.1 million, down 44%, while gross margin increased to 36% from 26%. Management cited structural cost improvements, 45X-related vendor benefits and a one-time $4.0 million vendor settlement. Operating income was $8.4 million versus $47.5 million; operating margin was approximately 5.5% versus 12.6%.
- Net income and EPS: Net income was $2.2 million versus $29.6 million. After $13.5 million of preferred dividends and accretion, the loss attributable to common shareholders was $11.3 million, or $0.07 per share, versus income of $17.2 million, or $0.11 per share.
- Cash flow: Operating cash flow was $47.5 million versus $45.8 million. Capital spending was $2.4 million; financing activities used $4.6 million. Cash increased $38.5 million to $287.6 million.
- Liquidity: Current assets were $774.4 million and current liabilities were $283.7 million; management reported net working capital of $490.8 million. The company had $179.0 million available on its revolving facility, net of letters of credit.
- Debt and preferred stock: Debt principal totaled $699.5 million, including $237.1 million under the term loan, $425.0 million of 1.00% convertible notes due 2028, and $37.4 million of other debt. The revolver had no borrowings. Series A preferred stock had a $493.1 million liquidation preference and $39.6 million of accrued, unpaid dividends.
- Segments: Array Legacy revenue was $114.4 million and gross profit $49.1 million; STI revenue was $39.0 million and gross profit $6.0 million. STI gross margin declined to 15% from 25%, which management attributed mainly to changes in Brazilian incentive-tax-credit reductions and expedited delivery costs.
Changes, outlook and notable matters
- Remaining performance obligations were $396.9 million at quarter-end; the company expected to recognize all of them within the next 12 months. The filing does not provide specific company-wide revenue or earnings guidance.
- Management said project timing remains sensitive to customer financing and interest rates, weather, permitting, and shortages or long lead times for grid-interconnection equipment. Customers have delayed some installations while awaiting more favorable financing conditions.
- Supply-chain and cost risks include Red Sea shipping diversions, the Russia-Ukraine conflict, inflation, and potential U.S. AD/CVD duties on solar modules and aluminum extrusions. The company said it is monitoring these developments; project delays related to trade investigations have already occurred.
- Vendor rebates tied to IRA 45X credits totaled $57.1 million outstanding, recorded in prepaid and other assets. Their recognition reduces inventory cost and, when inventory is sold, cost of revenue.
- The $4.0 million vendor settlement was a one-time benefit to Q1 cost of revenue: $2.6 million was payable in cash and $1.4 million was provided as credits for future purchases, with unused credits payable in cash after January 2026.
- The company corrected its Q1 2023 comparative accounting for capped calls and a put option after concluding the original equity treatment was appropriate. The correction increased comparative net income by $3.5 million to $29.6 million and EPS by $0.02 to $0.11; management assessed the prior misstatements as immaterial.
- Disclosure controls were assessed as ineffective because of previously identified material weaknesses: insufficient qualified finance and accounting personnel, and STI weaknesses in IT controls and formal accounting processes. The company described remediation actions, including added finance resources, a Brazil ERP implementation in Q2 2024, and further planned enhancements in the second half of 2024.
- A securities class-action dismissal is on appeal; related derivative cases remain stayed. The company considers a material loss remote and recorded no material loss contingency. It also posted $173.5 million in surety bonds, which it said did not adversely affect liquidity.
Investor verification checklist
- Check whether shipment volumes recover and whether the Q1 gross-margin improvement persists without the one-time settlement and with changes in 45X vendor benefits.
- Track STI profitability, Brazilian tax-incentive treatment, and delivery-expediting costs.
- Verify conversion of the $396.9 million remaining performance obligations into revenue and monitor project delays, customer financing, and interconnection-equipment availability.
- Monitor cash generation, working-capital movements, debt paydown, interest costs, and the preferred stock’s accruing dividends and liquidation preference.
- Assess progress in remediating the material weaknesses and whether controls operate effectively for a sufficient period.
- Follow potential trade duties, shipping and sourcing disruptions, and the appeal and related derivative litigation.