Array Technologies Up 30.6% Ahead of Potential Revenue Restatement
Solar company can’t file its annual report on time as it investigates whether it improperly recognized revenue.
March 28, 2022
Shares of Array Technologies (ARRY), a manufacturer of solar tracking systems are up 30.6% since revealing it would not file its annual report on time due to potential accounting issues. In a late filing notice, Array blamed the delay on becoming a large accelerated filer and revealed it may have improperly recognized revenue from its tracker products:
“The Company is still evaluating whether any adjustments would be required and, if so, whether they would be material.”
The company assured investors that there will be no change in the total amount of revenue recognized or what it says is “profitability of…contracts over time.” Unlike other late filers that provide a date by which they’ll file, Array says only that it will file “as soon as practicable” following a review.
Two days later, Array received a letter from the Nasdaq notifying the company it is not in compliance with the timely filing requirement. Two weeks later, Array issued a news release saying it was “quickly progressing” through the review and reporting process and that it expects to file the annual report in the “coming weeks”.
If we assume Array was not recognizing revenue too slowly during the first nine months of 2021, fourth quarter and full year 2021 consensus estimates may be difficult to meet.
To meet consensus full year 2021 sales estimates of $856.48 million, Array has to report fourth quarter sales of $215.68 million, a 19.4% YoY quarterly increase. This may be a stretch if Array recognized revenue too aggressively during the first nine months as Wall Street is forecasting full year 2021 sales to be down 1.9% YoY.
Especially when you consider fourth quarters aren’t particularly kind to Array. Installation of solar trackers requires setting foundations in the ground which is more costly when the ground is frozen. This seasonality typically results, according to Array, in revenue being higher in the second and third quarters and lower in the fourth and first quarters when the weather is colder.
With the stock up more than a third since Array’s late filing notice— and 2022 consensus forecasts calling for a 70.5% increase in annual sales— investors should not be surprised by revenue restatements or reclassifications that, while falling short of 2021 expectations, seek to preserve lofty 2022 expectations.
Related: FLEX, FTCI, Artech Solar (SHA: 688408), ROCK
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