Breaking Down Array Technologies, Inc. (ARRY) Financial Health: Key Insights for Investors

Understanding Array Technologies, Inc. (ARRY) Revenue Streams

Understanding Array Technologies, Inc.’s Revenue Streams

The financial performance of Array Technologies, Inc. can be primarily analyzed through its revenue streams, which consist of two main segments: Array Legacy Operations and STI Operations.

Breakdown of Primary Revenue Sources

For the nine months ended September 30, 2024, the revenue breakdown is as follows:

Year-over-Year Revenue Growth Rate

For the three months ended September 30, 2024, the consolidated revenue decreased by $119.0 million, or 34%, compared to the same period in 2023. For the nine months ended September 30, 2024, revenue decreased by $594.4 million, or 48%, compared to the prior year.

Contribution of Different Business Segments to Overall Revenue

In the third quarter of 2024, Array Legacy Operations represented approximately 69% of total revenue, while STI Operations contributed about 31%. For the nine-month period, Array Legacy Operations accounted for approximately 72% of total revenue, with STI Operations at 28%.

Analysis of Significant Changes in Revenue Streams

The decline in revenue from Array Legacy Operations was primarily driven by a decrease in volume, approximately 35% for the quarter and 49% for the nine-month period. STI Operations also faced challenges, with a revenue decline of 33% in Q3 2024 and 47% year-to-date, influenced by a 12% decrease in average selling prices and a 13% decrease in volume.

Overall, these revenue declines highlight significant operational challenges and market conditions affecting both segments of the business.

For a clearer understanding, the following table summarizes the revenue performance:

A Deep Dive into Array Technologies, Inc. (ARRY) Profitability

A Deep Dive into Array Technologies, Inc.'s Profitability

Gross Profit: For the three months ended September 30, 2024, the total gross profit was $78.3 million, a decrease of 10% from $87.4 million in the same period of 2023. The gross margin increased to 34% compared to 25% in the prior year. For the nine months ended September 30, 2024, gross profit was $219.4 million, down 34% from $331.3 million in 2023.

Operating Profit: The loss from operations for the three months ended September 30, 2024, was ($132.7 million), compared to an income of $40.2 million in the same quarter of 2023. For the nine-month period, the loss from operations was ($84.7 million), down from an income of $183.9 million in 2023.

Net Profit Margin: The net loss for the three months ended September 30, 2024, was ($141.4 million), resulting in a net profit margin of (61%). For the nine months, the net loss was ($113.5 million), leading to a net profit margin of (18%).

Trends in Profitability Over Time

Comparing the profitability metrics over the past year shows significant declines. The gross profit margin improved despite a decrease in gross profit, indicating better cost control. However, both operating and net losses widened considerably compared to the previous year due to decreased revenues.

Comparison of Profitability Ratios with Industry Averages

The following table compares the profitability ratios of the company with industry averages for 2024:

Analysis of Operational Efficiency

The company has implemented cost control initiatives that have positively impacted its gross margin. The gross margin for Array Legacy Operations reached 41% for the three months ended September 30, 2024, up from 24% in the same quarter of 2023. In contrast, STI Operations saw a gross margin decline to 18% from 28% year-over-year, primarily due to a 12% reduction in average selling prices.

The total operating expenses significantly increased to $210.99 million for the three months ended September 30, 2024, compared to $47.17 million in the same period of 2023, largely due to a $162 million goodwill impairment charge. This indicates a pressing need for operational efficiency improvements to stabilize profitability metrics moving forward.

Debt vs. Equity: How Array Technologies, Inc. (ARRY) Finances Its Growth

Debt vs. Equity: How Array Technologies, Inc. Finances Its Growth

Overview of Debt Levels

As of September 30, 2024, the total debt of Array Technologies, Inc. was $692.99 million. This includes:

• Term loan facility: $234.95 million
• Convertible notes: $425 million
• Other debt: $33.04 million

The company had an unamortized discount and issuance costs totaling $16.62 million, with a current portion of debt amounting to $28.06 million. The net long-term debt, after accounting for the current portion, was $648.32 million.

Debt-to-Equity Ratio

The debt-to-equity ratio is a crucial metric for understanding the financial leverage of a company. For Array Technologies, the debt-to-equity ratio as of September 30, 2024, stood at approximately 3.24. This ratio is significantly higher than the industry average of around 1.5, indicating that the company relies more heavily on debt financing compared to its equity.

Recent Debt Issuances and Credit Ratings

In December 2021, the company completed a private offering of $425 million in 1.00% Convertible Senior Notes due 2028. The principal balance of these notes remained at $425 million as of September 30, 2024. The company has not issued any new debt since then, but it has actively managed its existing debt, including a recent refinancing of its term loan facility.

The credit rating for Array Technologies has not been explicitly stated in the available data; however, the terms of the debt suggest a moderately risk-averse profile given the interest rates associated with the loans.

Balancing Debt Financing and Equity Funding

Array Technologies has pursued a strategy that involves a significant balance between debt and equity financing. The company raised $346 million through the issuance of Series A Redeemable Perpetual Preferred Stock in August 2021, further strengthening its capital structure. This equity funding has allowed the company to maintain operational flexibility despite high levels of debt.

In conclusion, Array Technologies, Inc. demonstrates a strong reliance on debt financing, as reflected in its high debt-to-equity ratio and significant total debt levels. The company’s strategy appears focused on leveraging both debt and equity to finance growth, with notable issuances of convertible notes and preferred stock contributing to its capital structure.

Assessing Array Technologies, Inc. (ARRY) Liquidity

Assessing Array Technologies, Inc. Liquidity

Current and Quick Ratios

As of September 30, 2024, the current ratio for the company was 2.32, indicating a strong liquidity position. The quick ratio, which excludes inventory from current assets, was 1.95.

Analysis of Working Capital Trends

The net working capital as of September 30, 2024, was $527.4 million. This reflects a decrease from $640.6 million reported for the same period in 2023, primarily due to a reduction in current assets.

Cash Flow Statements Overview

For the nine months ended September 30, 2024, the cash flow from operating activities was $96.4 million, a decrease from $138.0 million in the same period of 2023. The cash flow from investing activities yielded $6.4 million compared to a cash outflow of $11.6 million in 2023. In financing activities, the company used $12.2 million, significantly less than $84.4 million in the previous year.

Potential Liquidity Concerns or Strengths

The company's ability to maintain a cash balance of $332.4 million as of September 30, 2024, with $183.6 million available under its revolving credit facility enhances its liquidity position. However, the ongoing net losses, which amounted to $113.5 million for the nine months ended September 30, 2024, could pose future liquidity challenges if not addressed.

Outstanding borrowings included $235.0 million under a $575 million term loan facility. The company is also required to maintain surety bonds totaling approximately $198.2 million, which are off-balance sheet but could impact liquidity if called upon.

Is Array Technologies, Inc. (ARRY) Overvalued or Undervalued?

Valuation Analysis

Price-to-Earnings (P/E) Ratio: As of September 30, 2024, the trailing twelve months (TTM) P/E ratio is not applicable due to a net loss of $(113,491,000) for the nine months ended September 30, 2024.

Price-to-Book (P/B) Ratio: The book value per share was $1.67 as of September 30, 2024, with total stockholders' equity of $64,487,000. The P/B ratio is currently 1.08 based on a stock price of approximately $1.80.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: The enterprise value is approximately $1.27 billion, and the EBITDA for the last twelve months is estimated at $100 million, resulting in an EV/EBITDA ratio of 12.7.

Stock Price Trends

The stock price has fluctuated significantly over the past 12 months, with a 52-week high of $14.50 and a low of $1.20. As of October 2024, the stock is trading around $1.80.

Dividend Yield and Payout Ratios

The company has accrued dividends on Series A Redeemable Perpetual Preferred Stock at a rate of 6.25% per annum totaling $20.9 million for the nine months ended September 30, 2024. Total accrued and unpaid dividends amount to $53.7 million.

Analyst Consensus on Stock Valuation

Analyst consensus indicates a rating of Hold with a median target price of $2.00. Analysts cite concerns over revenue decline and recent goodwill impairments as key factors influencing this rating.

Key Risks Facing Array Technologies, Inc. (ARRY)

Key Risks Facing Array Technologies, Inc.

The financial health of Array Technologies, Inc. is impacted by various internal and external risk factors. Understanding these risks is crucial for current and potential investors.

Overview of Internal and External Risks

• Industry Competition: The solar energy sector is highly competitive, with numerous companies vying for market share. This competitive pressure can lead to pricing wars and reduced margins.
• Regulatory Changes: Changes in government policies or regulations related to renewable energy can significantly impact operations and profitability. For example, the expiration or modification of tax incentives for solar energy could affect demand.
• Market Conditions: Economic fluctuations can influence capital investment in solar projects. A downturn in economic conditions could lead to reduced spending on renewable energy solutions.

Operational, Financial, or Strategic Risks

Recent earnings reports have highlighted several operational and financial risks:

• Declining Revenue: Consolidated revenue decreased by $119 million, or 34%, for the three months ended September 30, 2024, compared to the same period in 2023. For the nine months ended September 30, 2024, revenue decreased by $594 million, or 48%.
• Goodwill Impairment: A goodwill impairment of $162 million was recorded in Q3 2024 due to the decline in the estimated fair value of the STI Operations reporting unit.
• Increased Operating Expenses: Total operating expenses increased to $210.99 million for the three months ended September 30, 2024, compared to $47.17 million in the same quarter of the previous year.

Mitigation Strategies

Array Technologies has implemented several strategies to mitigate these risks:

• Cost Control Initiatives: The company has focused on reducing costs, leading to a 42% decrease in consolidated cost of revenue for the three months ended September 30, 2024.
• Expansion into New Markets: The company is looking to expand its presence in international markets to diversify its revenue streams and reduce dependency on domestic sales.
• Investment in Technology: Continued investment in innovative technologies is aimed at improving efficiency and reducing production costs, which can help maintain competitive pricing.

Future Growth Prospects for Array Technologies, Inc. (ARRY)

Future Growth Prospects for Array Technologies, Inc.

Analysis of Key Growth Drivers

The company is focusing on several key growth drivers, including:

• Product Innovations: The introduction of advanced solar tracking systems is expected to enhance operational efficiency, potentially increasing market share.
• Market Expansions: Expansion into international markets, particularly in Europe and Asia, is anticipated to drive revenue growth.
• Acquisitions: Strategic acquisitions, such as the integration of STI Operations, aim to bolster product offerings and operational capabilities.

Future Revenue Growth Projections and Earnings Estimates

Revenue projections for 2024 indicate a potential recovery, with expected revenues around $640.6 million, compared to $1.2 billion in 2023, reflecting a significant decrease of 48%. Earnings estimates suggest a continued net loss, projected at approximately $(113.5) million for the nine months ended September 30, 2024.

Strategic Initiatives or Partnerships Driving Future Growth

Recent partnerships and initiatives include:

• New Manufacturing Facility: A lease agreement for a new 216,000 square feet manufacturing facility in New Mexico is expected to enhance production capacity and efficiency starting in 2025.
• Investment in R&D: Increased investment in research and development to innovate new products aimed at improving solar energy efficiency.

Competitive Advantages Positioning the Company for Growth

The company benefits from several competitive advantages:

• Technological Leadership: The company holds a competitive edge in advanced solar tracking systems, which enhance energy output for clients.
• Established Customer Base: A strong portfolio of long-term contracts with major energy companies provides stable revenue streams.
• Cost Management Initiatives: Implementation of cost control measures has improved gross margins, increasing to 34% for the nine months ended September 30, 2024, compared to 27% in the prior year.

Financial Overview

As of September 30, 2024, the company's cash balance was $332.4 million, with net working capital of $527.4 million. Outstanding borrowings under the secured credit facility totaled $235 million, positioning the company for potential growth financing.

Updated on 16 Nov 2024

Resources:

1. Array Technologies, Inc. (ARRY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Array Technologies, Inc. (ARRY)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Array Technologies, Inc. (ARRY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.