Results
Array Technologies Inc.
02/25/2026 | Press release | Distributed by Public on 02/25/2026 16:22
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and other financial information included in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this Annual Report on Form 10-K captioned "Forward-Looking Statements" and "Risk Factors."
Overview
We are a leading global provider of solar tracking technology and fixed-tilt systems to utility-scale and distributed generation customers who construct, develop, and operate solar PV sites. With solutions engineered to withstand harsh weather conditions, Array's high-quality solar trackers, fixed-tilt systems, software platforms, foundation solutions, and field services combine to optimize energy production and deliver value to our customers for the entire lifecycle of a project.
Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which significantly increases energy production. Solar energy projects that use trackers typically generate more energy and deliver a lower LCOE than projects that use "fixed tilt" mounting systems, which do not move. Hybrid sites utilizing trackers and fixed-tilt can be utilized to optimize productivity based on the topography, geography, and environment. The vast majority of ground mounted solar systems in the U.S. use trackers.
Our flagship tracker, DuraTrack®, uses a patented design that allows one motor to drive multiple rows of solar panels through articulated driveline joints. To avoid infringing on our U.S. patent, our competitors must use designs that we believe are inherently less efficient and reliable. For example, our largest competitor's design requires one motor for each row of solar panels. As a result, we believe our products have greater reliability, lower installation costs, reduced maintenance requirements and competitive manufacturing costs. Our core U.S. patent is on a linked-row, single-driving apparatus that rotates multiple tracker rows connected by an articulating drive shaft. This patent does not expire until February 5, 2030.
With our acquisition of STI in January 2022, we added a dual-row tracker design to our product portfolio, the Array STI H250. This tracker uses one motor to drive two connected rows and is ideally suited for sites with irregular and highly angled boundaries or fragmented project areas.
Our third tracker product, OmniTrack, which was introduced in September 2022, requires significantly less grading and civil works permitting prior to installation in addition to accommodating uneven terrain.
With the APA Acquisition in August 2025, we added a portfolio of fixed-tilt and foundation solutions, including the APA Titan and APA Titan Duo™ racking systems and the APA A-Frame™ Interface foundation. These products deliver adaptable designs for utility-scale projects, offering flexibility for challenging terrain, high snow loads, and large-format modules while streamlining installation and reducing material costs.
We sell our products to solar developers, independent power producers, utilities, and EPCs that build solar energy projects, often under master supply agreements or multi-year procurement contracts. During the year ended December 31, 2025, we derived 81% and 19% of our revenues from customers in the U.S. and the rest of the world, respectively. From the founding of Array through December 31, 2025, we had shipped approximately 96 gigawatts of trackers to customers worldwide.
Acquisition of APA Solar
On the Closing Date, our wholly owned subsidiary STINorland USA, Inc., a California corporation, the Buyer, completed the APA Acquisition, pursuant to the terms of the Purchase Agreement. The cash paid as of the Closing Date was $159.9 million, net of $10.1 million in preliminary and customary purchase price adjustments, which includes $6.2 million to retire debt. For U.S. GAAP purposes, the aggregate cash consideration paid was approximately $166.1 million, subject to final post-closing adjustment. We expect to finalize customary post-closing adjustments by June 2026. The Purchase Agreement also includes an earnout provision estimated to have a fair value of approximately $19.3 million as of the Closing Date (the "Earnout Consideration"), which is included in the purchase consideration, under which the Seller may receive shares of Company common stock, or equivalent cash value at the Buyer's discretion, based upon APA's achievement of certain financial performance targets during the three-year period ending on September 30, 2028. As a result, the purchase consideration for the APA Acquisition totaled approximately $185.4 million. Subject to the terms and conditions set forth in the Purchase Agreement, the Company has also agreed to pay aggregate deferred consideration of approximately $40.0 million payable in three installments over a two-year period based on service within five business days after the first and second anniversaries from the Closing Date and as set forth in Note 3 - Acquisition(the "Deferred Consideration"). For further discussion of the Earnout Consideration and Deferred Consideration, see "-APA Acquisition Earnout Consideration and Deferred Consideration" below.
The amounts recorded as of December 31, 2025 are preliminary, as the Company is finalizing working capital, post-closing, and other customary adjustments. These preliminary estimates are subject to change within the measurement period (defined as the twelve months following the Closing Date) and related accounting adjustments may be materially different, as the Company obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period. As a result of further refining its estimates and assumptions since the date of the acquisition, the Company recorded measurement period adjustments to the initial opening balance sheet. There were no measurement period adjustments materially impacting earnings that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date.
In connection with the APA Acquisition, the Company has lease agreements for offices, manufacturing facilities and warehouses located in Ohio and Connecticut. Of these lease agreements, five are with related parties owned by certain members of APA's management team.
Expenses related to these operating lease agreements are allocated based on usage to Cost of product and service revenue or General and administrative expenses in the consolidated statements of operations. Total costs related to these operating lease agreements were $1.2 million for the year ended December 31, 2025.
APA designs, engineers, and manufactures solar racking, mounting and foundation systems. Integrating such systems into our business model through the acquisition of APA expands our product portfolio to better serve the evolving needs of the solar industry and our customers.
2.875% Convertible Senior Notes due 2031
On June 27, 2025, we completed a private placement of $345 million in aggregate principal amount of the 2031 Convertible Notes, resulting in net proceeds of $334.6 million after deducting initial purchasers' discounts and offering expenses. The 2031 Convertible Notes were issued pursuant to an indenture, dated June 27, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee.
The 2031 Convertible Notes are senior unsecured obligations of the Company and will mature on July 1, 2031, unless earlier converted redeemed or repurchased. Interest is payable semiannually in arrears at a rate of 2.875% per year on January 1 and July 1 of each year, beginning on January 1, 2026.
Research and Development
R&D costs are included within General and administrative expenses in the accompanying consolidated statements of operations. We incur R&D costs during the process of researching and developing new products and significant enhancements to existing products. R&D costs are a subset of our total engineering spend and consist primarily of personnel-related costs associated with our team of internal engineers, third-party consultants, materials and overhead. We expense these costs as incurred. Total engineering expense was $18.7 million, $17.0 million and $16.7 million during the years ended December 31, 2025, 2024 and 2023, respectively, of which $9.9 million, $6.7 million and $8.5 million were related to R&D activities we performed during the same period, respectively.
Factors Affecting Results of Operations
Project Timing
Because we recognize revenue on projects as legal title to equipment is transferred from us to the customer, any delays in large projects from one quarter to another for any reason may cause our results of operations for a particular period to fall below expectations and make the timing of revenue difficult to forecast. Our end-users' ability to install solar energy systems has been affected by a number of factors including:
•Weather. Inclement weather can affect our customers' ability to install their systems, particularly in the northeastern U.S., Europe and Brazil. In addition, weather delays can adversely affect our logistics and operations by causing delays in the shipping and delivery of our materials.
•The U.S. interest rate environment. We have had customers delay planned installations or look to renegotiate power purchase agreements ("PPAs") to improve project returns based on various rate environments. For example, in anticipation of interest rate reductions and more favorable project financing conditions later in 2024, some customers delayed installations. While the Federal Reserve began lowering interest rates in the second half of 2024, the timing and impact of subsequent rate adjustments during 2025 continued to create additional considerations for our customers, and there are varying outlooks on whether additional rate cuts may occur. Customers must weigh this uncertainty in conjunction with other macroeconomic factors when assessing the returns and timing for relevant projects.
•Availability of necessary equipment. We have a broad portfolio of customer relationships including presence with most Tier 1 utilities in the U.S. Each utility has unique specifications for access to its grid, which are generally not consistent across the industry. As the supply of renewables projects has increased, shortages and long lead-times in the supply of switches, transformers and high-voltage breakers used in the interconnection of utility scale solar power plants to the grid, has historically affected the timing and completion of these projects, including for some of our customers.
•Macroeconomic factors. There has been a rapid depreciation of the Brazilian real in conjunction with existing pricing pressures on energy in the Brazilian market. Due to these dynamics, the economic cases for the PPAs, for many solar projects have become less attractive for our customers. Many of the developers in Brazil of these projects continue to signal delays as they renegotiate the pricing of these PPAs. In addition, our results will also be impacted by tax incentives we can recognize, for example the Brazil value-added tax benefit, Imposto sobre Circulação de Mercadorias e Servicos ("ICMS"), which will be fully phased out in 2033. As a result, we are focused on reducing costs and better aligning our organization, including the size thereof, in Brazil with the current market conditions.
It is uncertain what impact new or existing tariffs, trade restrictions or retaliatory actions may have on us, the solar industry and our customers. An escalation in trade tensions or the implementation of broader tariffs, trade restrictions or retaliatory measures on our products or components originating from countries outside the U.S. could adversely impact our ability to source necessary components, manufacture products at competitive cost, or sell our products at prices customers are willing to pay. Any such developments could materially and adversely affect our business operations, results of operations and cash flows.
•Local permitting. If our customers cannot receive permitting for their projects, they are unable to begin and ultimately complete them in a timely manner. A dramatic increase in solar and battery storage sites has increased the average permitting time in many geographies in which our customers operate.
Impact of OBBB
While solar power is cost-competitive with conventional forms of generation in many U.S. states even without the ITC, we believe previous step-downs in the ITC in past years have influenced the timing and quantity of some customers' orders. On July 4, 2025, President Trump signed into law the OBBB, which included changes to the energy tax credits. Specifically, the solar ITC now terminates for facilities that are placed in service after December 31, 2027, but that termination does not apply if the taxpayer begins construction on the facility before July 4, 2026. In addition, the OBBB imposes new foreign entity of concern limitations on the ITC before it expires, which could impact the ability of solar facilities to claim the ITC. Specifically, taxpayers cannot claim the credit in taxable years beginning after enactment of the OBBB if they are prohibited foreign entities (which are generally entities that are formed in or controlled by covered nations, including China, Russia, Iran, and North Korea, as well as entities determined to be under effective control as a result of contracts entered into with such entities). The credit is also disallowed for solar facilities that begin construction after December 31, 2025 that receive material assistance from a prohibited foreign entity. On February 13, 2026, Treasury guidance was released clarifying methods for calculating material assistance from a prohibited foreign entity and requesting comments.
On July 7, 2025, President Trump issued an executive order instructing Treasury to issue updated guidance, including on commencement of construction, within 45 days. On August 15, 2025, Treasury and the IRS issued Notice 2025-42 consistent with the executive order, which eliminates the 5% safe harbor for utility-scale solar projects and only allows the physical work test to determine when a project begins construction. If solar developers are unable to satisfy the physical work test, our business, financial condition, and results of operations could be adversely affected.
The Company expects certain tax provisions of the OBBB, including the reinstatement of 100% bonus depreciation for qualified property and the immediate expensing of U.S.-based R&D activities, to reduce our 2025 taxable income. These accelerated deductions are expected to lower current-year cash taxes and improve near-term operating cash flows. The favorable impact primarily represents a timing difference. As assets subject to bonus depreciation become fully depreciated and as expensed R&D activities normalize, we expect cash taxes to increase in future periods. The Company continues to evaluate additional guidance expected to be issued by Treasury related to the OBBB.
Section 45X Credit
The section 45X advanced manufacturing production tax credit was established as part of the IRA. The section 45X credit is a per-unit tax credit that is earned over time for each clean energy component domestically produced and sold by a manufacturer. The section 45X manufacturing production tax credit applies to eligible components, including torque tube and structural fasteners. Beginning in late 2023 and continuing through 2024 and 2025, we have successfully negotiated, and we continue to successfully negotiate, agreements with
key suppliers around sharing the economic benefits of section 45X credits associated with torque tube and structural fasteners. We continue to pursue additional agreements for splitting the economic benefits of section 45X with suppliers for parts we do not manufacture internally. In addition, during the second quarter of 2024, we concluded that certain parts manufactured by the Company qualify for the section 45X advanced production credits. Refer to Note 2 - Summary of Significant Accounting Policiesin the accompanying notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion on how we account for these incentives and amounts recognized for the periods presented.
The OBBB did not modify the phase-out of the section 45X credit or the definitions of eligible components relating to solar trackers; however, the OBBB did impose foreign entity of concern limitations on taxpayers claiming the section 45X credit. Specifically, taxpayers cannot claim the credit in taxable years beginning after enactment of the OBBB if they are prohibited foreign entities (which are generally entities that are formed in or controlled by covered nations, including China, Russia, Iran, and North Korea, as well as entities determined to be under effective control as a result of contracts entered into with such entities). The credit is also disallowed in taxable years beginning after enactment of the OBBB for eligible components that receive material assistance from a prohibited foreign entity. On February 13, 2026, Treasury guidance was released that further clarified methods for calculating material assistance and included a request for comments by March 30. We anticipate forthcoming Treasury proposed rule will further clarify the potential impact of the foreign entity of concern limitations may have for credits claimed in 2026 and future years.
Domestic Content Safe Harbor Guidance
The IRS issued Notice 2023-38 in May 2023 setting forth guidance on the domestic content bonus tax credits under the IRA. Uncertainties existed under this guidance, like whose costs would be used (the manufacturer's cost, a vendor's cost to acquire, etc.) and how to define manufactured product components associated with trackers. In May 2024, the IRS issued Notice 2024-41 setting forth further guidance on the domestic content bonus tax credits, including a safe harbor method for calculating domestic content percentages. On January 16, 2025, the IRS released Notice 2025-08, which modified Notice 2023-38 and Notice 2024-41, as well as introduced an updated elective safe harbor method for use in lieu of provisions of the adjusted percentage rule provided in Notice 2023-38 for calculating the domestic content bonus credit amounts applicable for certain qualified facilities and energy projects. Notice 2024-41 and Notice 2025-08 and the updated definitions described therein clarified certain pre-existing uncertainty in the industry, but also introduced new uncertainties. These uncertainties have and could continue to cause our customers to delay projects as they navigate the existing guidance in qualifying for the tax credit and possibly wait for further clarity. If these financial benefits vary significantly from our assumptions, our business, financial condition, and results of operations could be adversely affected.
The OBBB increased the domestic content threshold for solar facilities that begin construction after June 16, 2025 to claim the domestic content bonus credit, however, the OBBB did not otherwise amend the requirements for claiming a domestic content bonus credit or the guidance previously issued by the government. As domestic content guidance is not a final rule, it could be further modified by the Trump Administration.
Structured Cost Management
We actively manage the risk from certain types of customer contracts, including, for example, multi-year contracts that require fixed pricing or pricing tied to certain commodity indices. Depending on the totality of the circumstances and our ability to mitigate risk, we may or may not pursue such contractual arrangements. Where we decline, this may have the effect of driving certain customers or projects to our competitors. We believe this is the right way to manage a high-quality portfolio and drive consistent margins over time.
Impact of the Ongoing Russia-Ukraine War
The ongoing Russia-Ukraine war has reduced the availability of material that can be sourced in Europe and, as a result, increased logistics costs for the procurement of certain inputs and materials used in our products. We do not know the ultimate severity or duration of the conflict, but we continue to monitor the situation and evaluate our procurement strategy and supply chain to reduce any negative impact on our business, financial condition, and results of operations.
Impact of Disruption of Key Shipping Lanes
In the recent past, we have seen disruptions of container shipping traffic through the Red Sea create port congestion, especially in Asia, and cause many shipping companies to pause shipments through the Suez Canal and the Red Sea as a result of attacks against commercial vessels in the area, affecting transit times, capacity, and shipping costs for routes connecting the rest of the world with Asia. To address the persisting challenges arising from prolonged transit times, we have increased our local sourcing efforts where feasible within certain regions. These measures aim to reduce delays to get the product to project sites on time. There is still uncertainty on how long disruptions and the severity of their impact on our operations may last, but we continue to monitor such situations and evaluate our procurement and supply chain strategies, to reduce any negative impact on our business, financial condition, and results of operations.
Inflation
Inflationary pressure may continue to negatively impact our results of operations in the near-term. To mitigate these pressures on our business, and the volatility in steel and aluminum prices, we have continued to accelerate our productivity initiatives, expand our supplier base, and execute on our overhead cost-containment practices.
Impact of AD/CVD Petitions and Determinations
On August 18, 2023, the USDOC issued final affirmative determinations of circumvention with respect to certain CSPV cells and modules produced in Cambodia, Malaysia, Thailand and Vietnam using parts and components from China. As a result, certain CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam are now subject to AD/CVD orders on CSPV cells and modules from China that have been in place since 2012. Subject to certain certification and utilization conditions, imports of CSPV cells and modules covered by the circumvention determinations that entered the U.S. during the two-year period prior to June 6, 2024-which had been authorized by the former President Biden on June 2022-were not subject to AD/CVD cash deposit or duty requirements. Imports of CSPV cells and modules from the four Southeast Asian countries covered by the circumvention determination that entered the U.S. on or after June 6, 2024 are subject to AD/CVD cash deposit requirements of the China AD/CVD orders and, possibly, final AD/CVD duty liability. Cash deposit rates for CSPV modules covered by the China AD/CVD orders vary significantly depending on the producer and exporter of the modules and may amount to over 250% of the entered value of the imported merchandise.
Additionally, in October 2023, a coalition of U.S. aluminum extruders and a labor union filed AD/CVD cases on
aluminum extrusions from fifteen countries. The USDOC has initiated investigations based on the petitions. Certain components in our trackers, including certain clamps, U-joints, and bearing housings are made using extruded aluminum. In September 2024, the USDOC released its final determination from their investigations against aluminum extrusions from multiple countries. On October 30, 2024, USITC voted to find no injury in its pending AD/CVD investigation, meaning that the USDOC's AD/CVD orders will not go into effect. The coalition of petitioners may still appeal the USITC's decision, and we will continue to monitor developments in the appeal process. If the USITC's decision is overturned on appeal, the imposition of AD/CVD orders could
negatively impact our business, financial condition, and results of operations.
On April 24, 2024, the American Alliance for Solar Manufacturing Trade Committee, an ad hoc coalition of domestic producers of CSPV cells and modules, filed a petition with the USDOC and the USITC seeking the imposition of AD/CVD tariffs on imports of CSPV cells and modules from Cambodia, Malaysia, Thailand and Vietnam. On May 20, 2025, the USITC made a final determination that U.S. industry had been materially injured by imports of CSPV cells, whether or not assembled into modules, from Malaysia and Vietnam and threatened with material injury by such imports from Cambodia and Thailand. On June 24, 2025, the USDOC issued AD/CVD orders that took effect on June 24, 2025. The rates under the AD/CVD orders vary from below 1% to more than 3,400%, depending on the relevant company.
On July 17, 2025, the Alliance for American Solar Manufacturing and Trade, a coalition of U.S.-based solar manufacturers, filed a petition with the USDOC and USITC seeking the imposition of AD/CVD tariffs on imports of CSPV cells and modules from India, Indonesia, and Laos. The petition alleges dumping margins of 213.96% for India, 89.65% for Indonesia, and 245.79% to 249.09% for Laos. The final determinations by the USDOC are expected sometime in the summer of 2026.
While we do not sell solar modules, the degree of our exposure is dependent on, among other things, the impact of the AD/CVD orders on the projects that are also intended to use our products, with such impact being largely out of our control. We have seen a number of projects in our order book delayed as a result of the USDOC investigations, and effective enforcement of the AD/CVD orders could negatively impact our results of operations.
U.S. Trade Policy and Executive Orders
On February 1, 2025, President Trump issued executive orders directing the U.S. to impose new tariffs on imports from Canada, Mexico, and China, to take effect on February 4, 2025. On February 3, 2025, President Trump announced his intention to pause these tariffs on Canada and Mexico for a 30-day period. The tariffs impose an additional 25% ad valoremrate of duty on all imports from Canada and Mexico (other than imports of Canadian energy resources, which are subject to a 10% ad valoremrate of duty) and an additional 10% ad valoremrate of duty on all imports from China. On March 4, 2025, the previously announced 25% tariff on Canadian and Mexican goods took effect and the tariff on Chinese goods was doubled to 20%. On June 4, 2025 tariffs on steel and aluminum increased from 25% to 50% on all steel and aluminum coming from Canada. Further, on July 31, 2025, President Trump issued an executive order increasing the ad valorem rate on imports from Canada to 35%. President Trump also has threatened a 30% ad valorem rate on imports from Mexico, though those are not currently in effect.
On April 2, 2025, President Trump introduced a baseline reciprocal tariff rate of 10% on most countries and individualized rates on some countries of up to 50%. On April 9, 2025, President Trump increased tariffs for Chinese goods to 125% (making the tariff rate for certain products up to 145% due to the "stacking" nature of the relevant tariffs), while also issuing an executive order that the reciprocal tariffs that had been announced on April 2, 2025 for other countries would be reduced to a baseline rate of 10% for a period of 90 days starting on April 10, 2025. On July 7, 2025, President Trump extended the initial 90-day pause on the reciprocal tariffs (except for those relating to China) and maintained the 10% baseline rate until August 1, 2025. On July 31, 2025, President Trump announced via an executive order reciprocal tariffs above the 10% baseline rate for a number of countries; these rates became effective as of August 7, 2025. In November 2025, the Supreme Court heard arguments in a case challenging tariffs imposed under the IEEPA. In February 2026, the Supreme Court issued a ruling that IEEPA does not authorize the imposition of tariffs. Although the ruling has been issued, its implications for trade policy and related administrative actions remain uncertain. The Company is reviewing the decision and will evaluate its potential impact, including with respect to any potential refunds, as further information becomes available.
President Trump also launched a new Section 301 investigation into Brazil's alleged unreasonable or discriminatory trade practices; initiated a new Section 232 investigation into imports of polysilicon and its derivatives and a new Section 232 investigation into imports of unmanned aircraft systems and their parts and components, among other Section 232 investigations; and announced a 50% tariff on imports of copper following the conclusion of a Section 232 investigation, effective August 1, 2025.
We are continuing to evaluate the potential impact of the imposition of the announced tariffs, the effect of the Supreme Court decision on tariffs described above, and any additional or retaliatory tariffs, to our business and financial condition. While we do not believe that the tariffs announced by the U.S. in 2025 and through the date of filing this Form 10-K in 2026 will have a material adverse effect upon our results of operations, financial condition, or liquidity, the actual impact of new tariffs is subject to a number of factors, including the effective date and duration of such tariffs, changes in the amount, scope and nature of the tariffs in the future, any countermeasures that the target countries may take and any mitigating actions that may become available.
Foreign Currency Translation
For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities are translated into U.S. dollars at period-end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the period. For non-U.S. subsidiaries that operate in a U.S. dollar functional currency, local currency inventories and property, plant and equipment are translated into U.S. dollars at rates prevailing when acquired, and all other assets and liabilities are translated at period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the period. Gains and losses which result from remeasurement are included in earnings.
Concentrations of Major Customers
Our customer base consists primarily of solar developers, independent power producers, utilities and EPCs. We do not require collateral on our accounts receivable.
At December 31, 2025, our largest customer and five largest customers accounted for 13.4% and 29.8%, respectively, of total accounts receivable. At December 31, 2024, our largest and five largest customers constituted 9.0% and 31.0%, respectively, of total accounts receivable.
During the year ended December 31, 2025, our two largest customers accounted for approximately 13.7% and 12.2%, respectively, of total revenue. During the year ended December 31, 2024, our two largest customers accounted for approximately 15.6% and 11.9%, respectively, of total revenue. During the year ended December 31, 2023, our largest customer accounted for approximately 13.4% of total revenue.
Further, our accounts receivable are from companies within the solar industry and, as such, we are exposed to normal industry credit risk. We continually evaluate our reserves for potential credit losses and establish reserves for such losses.
Performance Measures
In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. The primary operating metric we use to evaluate our sales performance and to track market acceptance of our products is MWs shipped, and specifically the change in MWs shipped from period to period.
MWs are measured for each individual project and are calculated based on the respective projects' expected MW output once installed and fully operational.
We also utilize metrics related to price and cost of goods sold per MW, including average selling price ("ASP") and cost per watt ("CPW"). ASP is calculated by dividing total applicable revenues by total applicable MWs, whereas CPW is calculated by dividing total applicable costs of goods sold by total applicable MWs. These metrics enable us to evaluate trends in pricing, manufacturing cost and customer profitability.
Key Components of Our Results of Operations
The following discussion describes certain line items in our consolidated statements of operations.
Revenue
We generate revenue from the sale of solar tracking and fixed-tilt systems, foundation solutions, parts, software and services. Our customers include solar developers, independent power producers, utilities, and EPCs. For each individual solar project, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for the tracker system, fixed-tilt system, foundation solution, and parts can vary from days to several months. Contracts can range in value from hundreds of thousands to tens of millions of dollars.
Our revenue is affected by changes in the volume and ASPs of solar tracking systems purchased by our customers. The quarterly volume and ASP of our systems is driven by the supply of, and demand for, our products, changes in project mix between module type and wattage, geographic mix of our customers, strength of competitors' product offerings, commodity prices and availability of government incentives to the end-users of our products.
Our revenue growth is dependent on continued growth in the size and number of solar energy projects installed each year as well as our ability to grow or maintain market share in each geography in which we compete, expand our global footprint to new and evolving markets, grow our supply chain network and production capabilities to satisfy demand and continue to develop and introduce new and innovative products that integrate emerging technologies and meet the performance requirements of our customers.
A majority of our revenue is recognized over time as work progresses. For single performance obligations, we use an input measure, the cost-to-cost method, to determine progress. We review and update the contract related estimates on an ongoing basis and recognize adjustments for any project specific facts and circumstances that could impact the measurement of the extent of progress, such as the total costs to complete the contracts, under the cumulative catch-up method. Due to the relatively short duration of our outstanding performance obligations, and our ability to estimate the remaining costs to be incurred, which are substantially all material costs covered under our material supply agreements with our suppliers, we have not recorded any material catch-up adjustments for the periods presented that would have impacted revenues or EPS related to revisions in our measurement of remaining progress of our performance obligations.
Cost of Revenue and Gross Profit
Cost of product and service revenue consists primarily of product costs, including raw materials, purchased components, net of any incentives or rebates earned from our suppliers, salaries, wages and benefits of manufacturing personnel, freight, tariffs, customer support, product warranty, amortization of developed technology, and depreciation of manufacturing and testing equipment. Our product costs are affected by: (i) the underlying cost of raw materials, including steel and aluminum; (ii) component costs, including electric motors and gearboxes; (iii) technological innovation; and (iv) economies of scale and improvements in production
processes and automation. We may experience disruptions to our supply chain and increased material and freight costs. When possible, we modify our production schedules and processes to mitigate the impact of these disruptions and cost increases on our margins. We do not currently hedge against changes in the price of our raw materials.
Gross profit may vary from quarter to quarter and is primarily affected by our volume, ASPs, product costs, project mix, customer mix, geographical mix, commodity prices, logistics rates, warranty costs, and seasonality. Gross profit will also be impacted by tax incentives we can recognize, for example ICMS value added tax benefits in Brazil, which will discontinue in 2033.
Operating Expenses
General and administrative expense consists primarily of salaries, benefits, and equity-based compensation related to our executive, sales, R&D costs, finance, human resources, information technology, and legal personnel, as well as travel, facility costs, marketing, credit loss provision, and professional fees. We currently have a sales presence in the U.S. and across North America, Latin America, Europe, the Middle East, Asia and Australia, with the majority of our sales in the U.S. We intend to continue to expand our sales presence and marketing efforts to additional countries.
Contingent consideration consists of the changes in fair value of the tax receivable agreement ("TRA") entered into with a former indirect stockholder, concurrent with the acquisition of Array Technologies Patent Holdings Co., LLC by Former Parent, as well as the Earnout Consideration associated with the APA Purchase Agreement. The TRA liability and Earnout Consideration were recorded and subsequent changes in the fair value are recognized in earnings. See Note 15 - Commitments and Contingenciesfor discussion and analysis of the TRA and Earnout Consideration.
Depreciation consists of costs associated with property, plant and equipment not used in manufacturing of our products. We expect that as we continue to grow both our revenue and our general and administrative personnel, we may require some additional property, plant and equipment to support this growth resulting in additional depreciation expense.
Amortization consists of the expense recognized over the expected period of use of our developed technology, computer software, customer relationships, contractual backlog, and the STI and APA trade name intangible assets. Amortization related to certain acquired intangible assets is recorded as Total cost of revenue under the caption "Amortization of developed technology."
Non-Operating Expenses
Interest income consists of interest earned on our cash and cash equivalents balance.
Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Facility, the Convertible Notes, and other debt held by our operations outside of the U.S.
We are subject to U.S. federal, state and non-U.S. income taxes. As we expand into additional foreign markets, we may be subject to additional foreign tax.
Reportable Segments
We report our results of operations in two segments; the Array legacy operating segment ("Array Legacy Operations") and the legacy STI operating segment ("STI Operations"). The segment amounts included in this Item 7. Management's Discussion and Analysisare presented on a basis consistent with our internal
management reporting. Additional information on our reportable segments is contained in Note 21 - Segment and Geographic Informationin the accompanying notes to the consolidated financial statements.
Results of Operations
The following table sets forth our consolidated statements of operations (in thousands):
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| Revenue | $ | 1,284,141 | $ | 915,807 | $ | 368,334 | 40 | % | |||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Cost of product and service revenue | 938,552 | 603,572 | 334,980 | 55 | % | ||||||||||||||||||
| Inventory valuation charge | 29,516 | - | 29,516 | 100 | % | ||||||||||||||||||
| Amortization of developed technology and backlog | 17,520 | 14,558 | 2,962 | 20 | % | ||||||||||||||||||
| Total cost of revenue | 985,588 | 618,130 | 367,458 | 59 | % | ||||||||||||||||||
| Gross profit | 298,553 | 297,677 | 876 | - | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| General and administrative | 198,612 | 160,567 | 38,045 | 24 | % | ||||||||||||||||||
| Change in fair value of contingent consideration | 177 | 125 | 52 | 42 | % | ||||||||||||||||||
| Depreciation and amortization | 26,199 | 36,086 | (9,887) | (27) | % | ||||||||||||||||||
| Long-lived assets impairment | - | 91,904 | (91,904) | (100) | % | ||||||||||||||||||
| Goodwill impairment | 102,560 | 236,000 | (133,440) | (57) | % | ||||||||||||||||||
| Total operating expenses | 327,548 | 524,682 | (197,134) | (38) | % | ||||||||||||||||||
|
Loss from operations
|
(28,995) | (227,005) | 198,010 | (87) | % | ||||||||||||||||||
| Interest income | 11,852 | 16,777 | (4,925) | (29) | % | ||||||||||||||||||
| Interest expense | (27,331) | (34,825) | 7,494 | 22 | % | ||||||||||||||||||
| Foreign currency gain (loss), net | 2,042 | (4,515) | 6,557 | 145 | % | ||||||||||||||||||
| Gain on extinguishment of debt, net | 14,207 | - | 14,207 | (100) | % | ||||||||||||||||||
|
Other expense, net
|
(992) | (1,008) | 16 | 2 | % | ||||||||||||||||||
| Total other expense | (222) | (23,571) | (23,349) | (99) | % | ||||||||||||||||||
|
Loss before income tax expense (benefit)
|
(29,217) | (250,576) | 221,359 | (88) | % | ||||||||||||||||||
| Income tax expense (benefit) | 23,018 | (10,182) | 33,200 | (326) | % | ||||||||||||||||||
|
Net loss
|
$ | (52,235) | $ | (240,394) | $ | 188,159 | (78) | % | |||||||||||||||
The following table provides details on our operating results by reportable segment for the respective periods (in thousands):
| Year Ended December 31, | Increase/Decrease | ||||||||||||||||||||||
| Revenue: | 2025 | 2024 | $ | % | |||||||||||||||||||
| Array Legacy Operations | $ | 1,070,478 | $ | 661,629 | $ | 408,849 | 62 | % | |||||||||||||||
| STI Operations | 213,663 | 254,178 | (40,515) | (16) | % | ||||||||||||||||||
| Total | $ | 1,284,141 | $ | 915,807 | $ | 368,334 | 40 | % | |||||||||||||||
| Gross Profit: | |||||||||||||||||||||||
| Array Legacy Operations | $ | 299,992 | $ | 270,031 | $ | 29,961 | 11 | % | |||||||||||||||
| STI Operations | (1,439) | 27,646 | (29,085) | (105) | % | ||||||||||||||||||
| Total | $ | 298,553 | $ | 297,677 | $ | 876 | - | % | |||||||||||||||
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Revenue
Consolidated revenue for the year ended December 31, 2025 increased by $368.3 million, or 40%, compared to the year ended December 31, 2024, primarily driven by higher revenue from Array Legacy Operations of 62%, partially offset by a 16% decline in STI Operations revenue.
Revenue from Array Legacy Operations, inclusive of contributions from APA, increased by $408.8 million, or 62%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by an increase of approximately 62% in volume.
Revenue from STI Operations decreased by $40.5 million, or 16%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily driven by a decrease of approximately 20% in volume, partially offset by a 5% increase in ASP.
Cost of Revenue and Gross Profit
Consolidated cost of revenue increased by $367.5 million, or 59%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, in line with higher volume.
Consolidated gross profit increased by $0.9 million, or 0.3%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Consolidated gross margin decreased to 23% for the year ended December 31, 2025, as compared to 33% during the same period in the prior year.
Array Legacy Operations gross profit, inclusive of contributions from APA, increased by $30.0 million, or 11%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Gross margin decreased to 28% from 41% for the years ended December 31, 2025 and 2024, respectively. The decrease in gross margin was driven by a 22% increase in CPW, attributable to 13% higher tariffs, 6% from reduction in 45x amortization, and 3% from inflationary cost pressures. In addition, gross margin during the year ended December 31, 2024, included a one-time benefit of $4.0 million related to a settlement with a supplier, which was recorded as a reduction to Cost of product and service revenue.
STI Operations gross profit decreased by $29.1 million, or 105%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Gross margin for STI Operations decreased to (1)% from 11% for the years ended December 31, 2025 and 2024, driven primarily by a 5% increase in ASP that was
more than offset by a 16% increase in CPW from a one-time inventory valuation charge of $29.5 million and a 3% increase in CPW from inflationary cost pressures.
Operating Expenses
Consolidated general and administrative expenses, inclusive of APA, increased by $38.0 million, or 24%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to a $17.7 million increase in total compensation costs during the year ended December 31, 2025, the absence of $3.0 million in favorable one-time variable compensation adjustments recorded during the year ended December 31, 2024, $16.9 million in acquisition-related expenses and deferred compensation, and a $0.4 million increase in other costs.
Change in the fair value of contingent consideration, inclusive of APA, resulted in a loss of $0.2 million for the year ended December 31, 2025, driven by a $0.4 million increase in the fair value of the TRA liability, partially offset by a $0.2 million decrease in the fair value of the Earnout Consideration.
Consolidated depreciation and amortization expense, inclusive of APA, for the year ended December 31, 2025 decreased $9.9 million, or 27%, primarily due to certain assets acquired becoming fully amortized or fully impaired at December 31, 2024, partially offset by $3.5 million of incremental depreciation and amortization related to fixed and intangible assets acquired in the APA Acquisition.
During the years ended December 31, 2025 and 2024, the Company identified certain indicators of impairment related to the STI Operations reporting unit, which resulted in an impairment of goodwill and long-lived assets of $102.6 million and $327.9 million, respectively.
Other (Expense) Income, Net
Other expense was $1.0 million for both years ended December 31, 2025 and 2024. Other expense primarily consists of miscellaneous income and expense items.
Interest Income
Consolidated interest income for the year ended December 31, 2025 decreased by $4.9 million, or 29%, as compared to the year ended December 31, 2024, primarily as a result of lower yields on our cash management program.
Foreign Currency (Gain) Loss
Consolidated foreign currency gain was $2.0 million during the year ended December 31, 2025, due to currency movements related to monetary assets and liabilities denominated in currencies other than the respective functional currencies of the transacting entities. Consolidated foreign currency loss was $4.5 million during the year ended December 31, 2024, due to certain monetary assets and liabilities denominated in currencies other than the Brazilian real, which weakened significantly during 2024.
Interest Expense
Consolidated interest expense for the year ended December 31, 2025 decreased by $7.5 million, or 22%, compared to the year ended December 31, 2024, primarily due to refinancing with lower interest debt and changes in interest rates on our variable rate obligations.
Income Tax Expense (Benefit)
Consolidated income tax expense for the year ended December 31, 2025 increased by $33.2 million, or 326%, compared to the year ended December 31, 2024, shifting from an income tax benefit of $10.2 million in 2024 to income tax expense of $23.0 million in 2025. The increase in tax expense was primarily due to a decrease in our pre-tax loss, as we recorded a pre-tax loss of $29.2 million in 2025, compared to a pre-tax loss of $250.6 million in 2024.
An impairment charge of $102.6 million in 2025 for goodwill was reversed for tax purposes resulting in positive taxable income. The impairment reversal resulted in additional tax expense of approximately $22.3 million. A $10.2 million valuation allowance related to the inventory valuation charge and debt restructuring charge was accrued for Brazil. The APA acquisition added new state tax filing requirements and increased the Company's apportioned income in existing states. Other book-tax basis differences attributed to the increased tax expense as well.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
A discussion and analysis covering the comparison of the year ended December 31, 2024, to the year ended December 31, 2023, is included in our Annual Report on Form 10-K filed with the SEC on March 3, 2025.
Liquidity and Capital Resources
Financing Transactions
Series A Shares
For more information related to the 2022 and 2021 issuances of Series A Shares, see Note 11 - Redeemable Perpetual Preferred Stock, in the accompanying notes to the consolidated financial statements.
Debt Obligations
Senior Secured Credit Facility
On October 14, 2020, the Company entered into a credit agreement (as amended, the "Credit Agreement") governing the Company's senior secured credit facility, consisting of: (i) a $575 million senior secured seven-year term loan facility (the "Term Loan Facility"); and (ii) a $200 million senior secured five-year revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Senior Secured Credit Facility"). The Credit Agreement was amended on February 23, 2021, February 26, 2021, March 2, 2023, and May 1, 2025 (the "Fourth Amendment"). The Fourth Amendment, among other things: (y) refinanced the Revolving Credit Facility with new revolving commitments and loans thereunder, reducing the total commitments to $166 million and extending the maturity date to October 14, 2028; and (z) revised the Consolidated First Lien Secured Leverage Ratio as applicable under Section 7.09 (Financial Covenant) of the Credit Agreement from 7.10:1.00 to 5.50:1.00.
On February 18, 2026, Array Tech, Inc. (f/k/a Array Technologies, Inc.) (the "Borrower"), a New Mexico corporation and wholly-owned subsidiary of the Company, entered into that certain Amendment No. 5 to Credit Agreement (the "Fifth Amendment"), by and among the Borrower, the Company's wholly-owned subsidiary ATI Investment Sub, Inc., as holdings ("Holdings"), Goldman Sachs Bank USA, as administrative agent and collateral agent ("Goldman Sachs"), and the Lenders (as defined in the Fifth Amendment), to the Credit Agreement. The Fifth Amendment: (i) increases the revolving credit facility commitments under the original Credit Agreement from $166,000,000 to $370,000,000; (ii) extends the maturity of the revolving credit facility from October 14, 2028 to February 18, 2031; (iii) removes the credit spread adjustment with respect to Term SOFR (as defined in the Credit Agreement); and (iv) expands the number of currencies under which the Borrower can request revolving credit loans and letters of credit.
For further discussion regarding our debt obligations see Note 10 - Debt, in the accompanying notes to the consolidated financial statements.
Surety Bonds
We are required to provide surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee our performance in accordance with contractual or legal obligations. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources. As of December 31, 2025, we posted surety bonds totaling approximately $215.5 million.
Cash Flows (in thousands)
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Net cash provided by operating activities
|
$ | 101,785 | $ | 153,980 | |||||||
| Net cash used in investing activities | (187,888) | (9,572) | |||||||||
| Net cash used in financing activities | (38,053) | (11,844) | |||||||||
| Effect of exchange rate changes on cash and cash equivalent balances | 5,999 | (17,503) | |||||||||
| Net change in cash and cash equivalents | $ | (118,157) | $ | 115,061 | |||||||
Historically, we have financed our operations with the proceeds from operating cash flows, capital contributions and short and long-term borrowings. Our ability to generate positive cash flow from operations is dependent on the strength of our gross margins as well as our ability to quickly turn our working capital. Based on our past performance and current expectations, we believe that operating cash flows will be sufficient to meet our liquidity needs in the next 12 months and beyond.
As of December 31, 2025, our cash balance was $244.4 million, of which $32.3 million was held outside the U.S., and net working capital was $492.0 million. We had $137.9 million available to us under our $166.0 million Revolving Credit Facility.
As amended by the Fourth Amendment, the Revolving Credit Facility had total commitments of $166.0 million at December 31, 2025 and a maturity date of October 14, 2028.
On June 27, 2025, we completed a private placement of $345 million in aggregate principal amount of 2031 Convertible Notes, resulting in net proceeds of $334.6 million, after deducting initial purchasers' discounts and offering expenses. The proceeds were used to repay in full our Term Loan Facility and to repurchase $100.0 million aggregate principal amount of the 2028 Convertible Notes. The repurchased 2028 Convertible Notes had a net carrying value of $98.5 million, inclusive of unamortized debt discount, resulting in a gain on extinguishment of debt of approximately $20.1 million.
In connection with the issuance of the 2031 Convertible Notes, we also entered into capped call transactions designed to reduce potential dilution to common stockholders upon conversion of the notes (the "2031 Capped Calls"). These instruments cover approximately 42.5 million shares of common stock, with an initial strike price of $8.12 and a cap price of $12.74 per share, subject to anti-dilution adjustments. These instruments are scheduled to expire on July 1, 2031. The net effect of the 2031 Capped Calls is to raise the conversion price on the 2031 Convertible Notes from $8.12 to $12.74. However, these transactions are separate from the 2031 Convertible Notes and do not affect the terms of the notes or the rights of note holders.
We continually monitor and review our liquidity position and funding needs. Management believes that our ability to generate operating cash flows in the future and available borrowing capacity under our Senior Secured Credit Facility will be sufficient to meet our future short-term liquidity needs.
Operating Activities
For the year ended December 31, 2025, cash provided by operating activities was $101.8 million attributable to cash generated from earnings of $156.8 million, partially offset by a net cash outflow of $55.0 million from changes in our operating assets and liabilities.
Investing Activities
For the year ended December 31, 2025, cash used in investing activities was $187.9 million, of which $164.9 million related to cash consideration transferred to acquire APA, net of cash obtained in the acquisition, $22.0 million related to purchases of property, plant and equipment, and $1.0 million related to an additional equity investment.
Financing Activities
For the year ended December 31, 2025, net cash used in financing activities was $38.1 million. This was primarily driven by a $233.9 million repayment on our Term Loan Facility, $174.4 million repayment of other debt, $78.4 million repurchase of 2028 Convertible Notes, and $35.1 million premium paid in connection with the purchase of the 2031 Capped Calls, partially offset by an increase of $334.6 million and $151.1 million from net proceeds from the issuance of 2031 Convertible Notes and proceeds from the issuance of other debt, respectively, after deducting initial purchasers' discounts and offering expenses.
Discussion of Historical Cash Flows for the Years Ended December 31, 2024 and 2023
A discussion and analysis covering historical cash flows for the years ended December 31, 2024 and 2023, is included in our Annual Report on Form 10-K filed with the SEC on March 3, 2025.
APA Acquisition Earnout Consideration and Deferred Consideration
As discussed in Note 3 - Acquisitionin the accompanying notes to the consolidated financial statements, the Purchase Agreement includes provisions providing for the Earnout Consideration and the payment of the Deferred Consideration of approximately $40.0 million. Each of the Deferred Consideration and the Earnout Consideration are described in more detail below.
Earnout Consideration
The PurchaseAgreement includes an earnout provision pursuant to which Seller may be granted shares of the Company's common stock, or equivalent cash value at the Buyer's discretion,based upon APA's achievement of certain financial performance targets during the three-year period ending September 30, 2028. The maximum number of shares payable as Earnout Consideration is 4,686,530 shares of common stock, which was determined by dividing $40 million by the volume weighted average price of the Company's common stock for the 10 trading days immediately following the Closing Date. The number of shares payable will be subject to reduction if the cumulative value of the Earnout Consideration earned (measured on each date such shares are issued) exceeds $90 million. The Purchase Agreement provides that, to the extent the issuance of any Earnout Consideration or Deferred Consideration Shares would require stockholder approval under Nasdaq Listing Rule 5635(a), the Company will pay cash in lieu of issuing such shares, unless such stockholder approval has been obtained. The principal Seller continues to assume the managerial responsibilities of APA. For a discussion of the accounting of the Earnout Consideration, see "-Business Combinations" below.
Deferred Consideration
The Deferred Consideration which will be payable to Seller in three installments (each, a "Deferred Consideration Installment"): (i) within five business days after the first anniversary of the Closing Date, an amount equal to 50% of the Deferred Consideration; (ii) on December 31, 2026, an amount equal to (A) 50% of the Deferred Consideration multiplied by (B) the proportion of the two-year period from the Closing Date to the second anniversary of the Closing Date that has elapsed as of December 31, 2026; and (iii) within five business days after the second anniversary of the Closing Date, an amount equal to the remaining balance of the Deferred Consideration. As more fully described in the Purchase Agreement, the Deferred Consideration Installments are subject to reduction if certain equity holders of Seller cease to be employees of the Company under certain circumstances. Each Deferred Consideration Installment will, at the Company's election, be paid; (x) in cash; (y) through the issuance of shares of Company common stock, par value $0.001 per share, valued at the closing price on the trading day immediately preceding the applicable Deferred Consideration anniversary (if any such shares are issued, the "Deferred Consideration Shares"); or (z) by any combination of the foregoing. As the Deferred Consideration Installments are tied to future service to the Company, they are considered compensatory and not included in purchase consideration.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
Business Combinations
We completed one business combination for purchase consideration of $185.4 million during the year ended December 31, 2025. In accordance with Accounting Standards Codification ("ASC") Topic 805 Business Combinations, total consideration was first allocated to the fair value of assets acquired and liabilities assumed, with the excess being recorded as Goodwill. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Intangible assets have been recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity. Determining these fair values required us to make significant estimates and assumptions, particularly with respect to acquired intangible assets. The determination of fair value required considerable judgment and were sensitive to changes in underlying assumptions, estimates and market factors. The preliminary fair value of the identifiable intangible assets has been estimated using the Multi-Period Excess Earnings Method (Customer relationships and Backlog), Relief from Royalty Method (Trade name), and Replacement Cost Method
(Developed technology and Computer software and other). The significant fair value inputs used to estimate the fair value of the identifiable intangible assets include a discount rate and revenue and expense projections.
Earnout Consideration
As discussed, the Purchase Agreement includes a provision for the Earnout Consideration. The maximum number of shares payable as Earnout Consideration is 4,686,530 shares of common stock, which was determined by dividing $40 million by the volume weighted average price of the Company's common stock for the 10 trading days immediately following the Closing Date. The number of shares payable will be subject to reduction if the cumulative value of the Earnout Consideration earned (measured on each date such shares are issued) exceeds $90 million. The Purchase Agreement provides that, to the extent the issuance of any Earnout Consideration or Deferred Consideration Shares would require stockholder approval under Nasdaq Listing Rule 5635(a), the Company will pay cash in lieu of issuing such shares, unless such stockholder approval has been obtained.
The Earnout Consideration is accounted for as contingent consideration, and the fair value is estimated each reporting period. As of December 31, 2025, the Earnout Consideration was estimated to have a fair value of $22.4 million using a Monte-Carlo simulation method. Changes in fair value of the contingent liability are recognized in Changes in fair value of contingent consideration in the accompanying consolidated statements of operations. Estimating the amount of payments that may be made under the Earnout Consideration is by nature imprecise. The significant fair value inputs used to estimate the future expected Earnout Consideration payments to Seller include a discount rate, earnings forecasts, and actual and estimated future volatility in the Company's stock price.
Goodwill
Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired. Goodwill impairment testing requires significant judgment and management estimates, including, but not limited to, the determination of: (i) the number of reporting units; (ii) the goodwill and other assets and liabilities to be allocated to the reporting units; and (iii) the fair values of the reporting units. The estimates and assumptions described above, along with other factors such as discount rates, will significantly affect the outcome of the impairment tests and the amounts of any resulting impairment losses. We may use either a qualitative or quantitative approach when testing a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year, and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we use a qualitative approach and determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we would then perform the first step of the goodwill impairment test, which would consist primarily of a discounted cash flow ("DCF") analysis using the income approach, with the resulting value compared to the Guideline Public Company method ("GPC") marketplace EBITDA multiples to corroborate the fair value of the reporting unit.
During the fourth quarter of 2025, the Company updated the long-term projections for its reporting units as part of its annual goodwill impairment testing process. These projections reflect local market conditions, expected market share, strategic changes, and other key assumptions. For STI Operations, the updated projections incorporated the Company's fourth-quarter 2025 decision to phase out a version of the H250 product that was not compatible with SmarTrack®and to focus instead on the SmarTrack®-compatible version introduced in 2024. The projections also reflected management's intent to begin selling and distributing the Company's flagship tracker, DuraTrack®, through STI in the future. These changes, together with local market conditions experienced during the fourth quarter of 2025, significantly reduced projected cash flows and indicated potential impairment related to the Company's STI Operations reporting unit as of December 31, 2025. Although the Company did not identify indicators of impairment related to the Company's Array Legacy Operations reporting unit as of December 31, 2025, Management, with the assistance of a third-party valuation specialist, elected to perform quantitative goodwill impairment tests of both the Array Legacy Operations and STI Operations reporting units as of December 31, 2025.
During the quarters ended September 30, 2024 and December 31, 2024, the Company experienced a sustained decline in its stock price, which hit a 52-week low during the third quarter of 2024 and again during the fourth quarter of 2024, resulting in a decrease in market capitalization. In addition, the Company updated its long-term projections for the Company's reporting units as of September 30, 2024 and December 31, 2024 and evaluated the execution risk associated with the Company's projections and market conditions. As a result, the Company identified indicators of impairment related to the Company's reporting units during the third and fourth quarters of 2024. Management, with the assistance of a third-party valuation specialist, performed quantitative goodwill impairment tests of the Array Legacy Operations and STI Operations reporting units as of September 30, 2024 and December 31, 2024.
The estimated fair value of the Array Legacy Operations reporting unit was significantly higher than the carrying balance of the reporting unit as of each of the testing dates. The fair value of the Array Legacy Operations and STI Operations reporting units were determined using the income approach and then compared to the GPC marketplace EBITDA multiples to corroborate the fair value of the reporting unit. As a result of these tests, the Company recorded impairments to goodwill totaling $102.6 million and $236.0 million during years ended December 31, 2025 and 2024, respectively, related to STI Operations reporting unit. Subsequent to recording the impairment of goodwill, the Company reconciled the overall market capitalization of the Company, within a reasonable range, to the sum of the estimated fair values of both of the Company's reporting units.
The significant assumptions used in determining the fair value of the Company's reporting units primarily relate to the revenue growth rate, the forecasted EBITDA margin, and the selected discount rate used in the discounted cash flow model under the income approach. Under the GPC method, the selection of EBITDA multiples to be used requires significant judgment.
The most significant assumption used in determining the estimated fair value of STI Operations is the discount rate assumption. Refer also to Note 7 - Goodwill, Long-Lived Assets, and Other Intangible Assetsfor further information.
Long-Lived Assets
When events, circumstances or operating results indicate that the carrying values of long-lived assets, including our finite lived intangible assets, might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to be generated from the underlying asset group and the cash flows resulting from the asset groupings eventual disposition. If the projections indicate that the underlying asset grouping is not expected to be recoverable, the estimated fair value of the asset group is determined. An impairment loss is recognized based on the difference between the carrying value of the asset
group and its estimated fair value. The loss is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets. The Company identified indicators of impairment during the years ended December 31, 2025 and 2024 associated with the STI Operations asset groups, and as a result, performed an undiscounted cash flow tests on the same dates that the reporting unit goodwill was tested for impairment. The sum of the undiscounted cash flows exceeded the carrying balances for each of the STI Operations asset groups as of December 31, 2025. However, the sum of the undiscounted cash flows was less than the carrying balance for one of the STI Operations asset groups as of December 31, 2024.
As a result, with the assistance of a third-party valuation specialist, management estimated the fair value of the asset group as of December 31, 2024, and recorded an impairment loss of $91.9 million, which was allocated to the long-lived assets of the group on a pro rata basis on the difference between the estimated fair value of the asset group and its carrying value. In determining the fair value of the asset group, the Company used a DCF analysis using the income approach with the resulting value compared to GPC marketplace EBITDA multiples to corroborate the fair value of the reporting unit. The significant assumptions used in determining the fair value of the asset group are similar to the significant assumptions used in determining the fair value the Company's reporting units. Refer to Note 7 - Goodwill, Long-Lived Assets, and Other Intangible Assetsfor further information.
Equity-Based Compensation
We granted restricted stock units ("RSUs") to employees and Performance Stock Units ("PSUs") to certain executives. The PSUs contain performance and market conditions. The PSU grants were valued using the Monte Carlo simulation method and the assigned fair value on grant date will be recognized on a straight-line basis over the vesting term of the awards. The probability of the awards meeting the performance related vested conditions is not included in the grant date fair value, but rather will be estimated quarterly and we will true-up the expense recognition accordingly upon any probability to vest revision. We account for forfeitures as they occur.
Recent Accounting Pronouncements
Refer to Note 2 - Summary of Significant Accounting Policiesin the accompanying notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
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