Array Technologies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow statement. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Array manufactures ground-mounted solar tracking systems, principally its DuraTrack single-axis tracker, and related products and software. Revenue is driven by solar project installations, tracker adoption, project mix and customer demand. In 2020, 92% of revenue came from U.S. customers and 8% from international customers. The company completed its IPO in October 2020.
Financial results and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $872.7 million | $647.9 million | +35% |
| Gross profit | $202.8 million | $150.8 million | +35% |
| Gross margin | 23.2% | 23.3% | Down 0.1 percentage point |
| Income from operations | $95.2 million | $83.4 million | +14% |
| Net income | $59.1 million | $39.7 million | +49% |
| Diluted earnings per share | $0.49 | $0.33 | — |
| Adjusted EBITDA (non-GAAP) | $160.5 million | $121.8 million | +32% |
| Adjusted net income (non-GAAP) | $112.4 million | $80.2 million | +40% |
- Management attributed revenue growth primarily to a roughly 32% increase in megawatts delivered; average selling price rose 2%, reflecting project mix. Cost per watt also increased 2% on mix.
- Cash used in operating activities was $122.2 million, versus $386.1 million provided in 2019. The 2020 outflow mainly reflected payments to suppliers for products customers had prepaid in 2019 but that shipped in 2020, alongside a $179.0 million reduction in deferred revenue.
- Cash and cash equivalents were $108.4 million at year-end, versus $310.3 million in 2019; 2019 also included $51.0 million of restricted cash. Net working capital was $86.1 million. Investing cash outflow was $1.3 million and financing cash outflow was $129.3 million.
- Year-end term-loan borrowings were $460.0 million; $103.4 million of the $150.0 million revolving facility was available after letters of credit. Debt is variable-rate and secured. A 50-basis-point rate increase was estimated to add about $2.3 million to annual interest expense. The company reported compliance with debt covenants at year-end.
- Total assets were $656.0 million and total liabilities were $736.9 million at year-end; stockholders’ deficit was $80.9 million. The deficit followed, among other transactions, a $589.0 million special distribution to the former parent.
- Remaining performance obligations were $455.3 million, which the company expected to recognize as revenue within the following 12 months.
Material changes and unusual items
- The $25.0 million earn-out was paid in 2020 following the IPO, special distribution and follow-on offering. A $26.4 million contingent-consideration expense was recorded, primarily from remeasurement of the earn-out liability.
- The company raised $139.1 million in net IPO proceeds and entered a new $575.0 million term loan facility. It used IPO proceeds and other payments to reduce the term loan to $460.0 million by year-end, and repaid prior term and related-party debt during 2020.
- The effective tax rate was 24.0%, compared with 38.5% in 2019. The 2020 result included a $6.6 million tax benefit from CARES Act NOL carryback provisions; 2019 included tax effects of an IRS examination settlement.
- General and administrative expense increased 35%, partly due to employee growth and higher equity compensation. The company also reported $4.8 million of equity-based compensation, versus $0.8 million in 2019.
- The filing reports $25.3 million of undiscounted estimated future payments under the Tax Receivable Agreement (TRA), including $9.1 million expected in 2021. TRA payments depend on realized or deemed tax benefits and estimates.
Outlook, risks and contingencies
- No specific company revenue or earnings guidance is stated in the supplied filing text. Management expects continued investment in engineering, international sales and public-company compliance, and is developing a fourth-generation DuraTrack system and additional SmarTrack software functionality.
- The federal solar Investment Tax Credit was extended: the filing describes a 26% credit for projects beginning construction before 2023, declining to 22% for 2023 starts and generally 10% for 2024 or later. Incentive changes may shift the timing and volume of customer orders.
- Key risks include dependence on solar-project demand and government incentives; customer concentration (the five largest customers represented 40.9% of revenue); supplier, raw-material and shipping costs; tariffs; product warranty or performance claims; regulation; and interest-rate and financing conditions.
- COVID-19 had not caused a significant interruption to operations or liquidated damages for delays by the filing date, but the company cited possible supplier, project-site and logistics disruptions, including effects on vendors in India.
- A trade-secret and related claims lawsuit against Nextracker and other defendants remained pending. Management stated it did not believe current claims or proceedings would materially adversely affect the company, while noting litigation outcomes are uncertain.
- Management concluded disclosure controls were not effective at a reasonable-assurance level because of an unremediated material weakness in inventory cut-off for in-transit inventory. Other previously reported weaknesses were deemed remediated. The external auditor did not attest to internal-control effectiveness under the emerging-growth-company transition exemption.
- The audited financial statements received an unqualified opinion. The filing also notes surety bonds with a maximum potential payment obligation of $121.2 million; management stated these arrangements did not adversely affect liquidity or capital resources.
Important facts for investors to verify
- Whether operating cash flow and working-capital conversion improve after the reversal of large customer prepayments and deferred revenue.
- Current debt balance, variable-rate exposure, revolver availability and the effect of the February 2021 credit amendments, which lowered the term-loan rate and increased revolver commitments to $200 million.
- Customer concentration, order conversion and delivery timing, including the $455.3 million of remaining performance obligations.
- Progress remediating the inventory cut-off material weakness and the reliability of inventory and financial reporting controls.
- Actual TRA payments and tax benefits, warranty claims, and developments in the pending trade-secret litigation.
- Whether growth in international sales and new products can reduce U.S. and customer concentration without pressuring margins.