Commitment and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Operating Leases

Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 are as follows (in thousands):


For the Year Ending December 31,
2021	$	6,663
2022	6,073
2023	893
2024	791
2025	15
Thereafter	—
	$	14,435

For the year ended December 31, 2020, the Company recorded lease expenses associated with its operating leases in cost of revenues and general and administrative within its consolidated statements of operations totaling $7.0 million and $0.4 million, respectively. For the year ended December 31, 2019, the Company recorded lease expenses associated with its operating leases in cost of revenues and general and administrative within its consolidated statements of operations totaling $1.5 million and $0.3 million, respectively.

Litigation

The Company, in the normal course of business, is subject to claims and litigation. Management believes that there are no outstanding claims or assessments against the Company that would result in a material unfavorable outcome.

Contingent Consideration

TRA

Concurrent with Former Parent’s acquisition of Array Technologies Patent Holdings Co., LLC (the “Patent LLC”), Array Tech, Inc. (f/k/a Array Technologies, Inc.) entered into a TRA with the former majority shareholder of Array. The TRA is valued based on the future expected payments under the agreement. The TRA provides for the payment by Array Tech, Inc. (f/k/a Array Technologies, Inc.) to the former owners for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Array, from the use of certain deductions generated by the increase in the tax value of the developed technology. The TRA is accounted for as contingent consideration and subsequent changes in fair value of the contingent liability are included in general and administrative in the accompanying consolidated statements of operations. At December 31, 2020 and December 31, 2019, the fair value of the TRA was $19.7 million and $17.8 million, respectively.

Estimating the amount of payments that may be made under the TRA is by nature imprecise. The significant fair value inputs used to estimate the future expected TRA payments to the former owners include the timing of tax payments, a discount rate, book income projections, timing of expected adjustments to calculate taxable income and the projected rate of use for attributes defined in the TRA.

Payments made under the TRA consider tax positions taken by the Company and are due within 125 days following the filing of the Company’s U.S. federal and state income tax returns under procedures described in the agreement. The current portion of the TRA liability is based on tax returns. The TRA will continue until all tax benefit payments have been made or the Company elects early termination under the terms described in the TRA.

As of December 31, 2020, the undiscounted future expected payments through December 31, under the TRA are as follows (in thousands):


	Amount
2021	$	9,113
2022	1,748
2023	1,748
2024	1,748
2025	1,749
Thereafter	9,186
	$	25,292

Earn-Out Liability

The Company is required to pay the selling stockholders of Array future contingent consideration consisting of earn-out payments in the form of cash upon the occurrence of certain events, including the sale, transfer, assignment, pledge, encumbrance, distribution or disposition of shares held by the acquirer to a third party; initial public offering of the equity securities of Former Parent, acquirer or the Company; the sale of equity securities or assets of Former Parent, acquirer or the Company to a third-party; or a merger, consolidation, recapitalization or reorganization of Former Parent, acquirer or the Company. The maximum aggregate earn-out consideration was $25.0 million.

The fair value of the earn-out liability was initially determined as of the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of future cash flows, the probability of a qualifying event occurring, and a risk-free rate used to adjust the probability-weighted cash flows to their present value. Subsequent to the acquisition date, at each reporting period, the earn-out liability is re-measured to fair value with changes in fair value included in general and administrative in the accompanying consolidated statements of operations.

On October 14, 2020 and December 7, 2020, as a result of certain qualifying events, the Special Distribution (see Note 15 - Related Party Transactions) shares sold in the IPO and follow on offering by the Former Parent, a payment of $9.1 million and $15.9 million was made to holders of the earn-out. As a result of the payments there are no further obligations related to the Earn-out.

The following table summarizes the liability related to the estimated contingent consideration (in thousands):


	TRA		Earn-Out Liability		Contingent Consideration
Balance, December 31, 2017	$	17,993	$	442	$	18,435
Fair value adjustment	(825)		—		(825)
Balance, December 31, 2018	17,168		442		17,610
IRS Settlement	(2,727)		—		(2,727)
Fair value adjustment	3,367		—		3,367


Balance, December 31, 2019	17,808		442		18,250
Fair value adjustment	1,883		24,558		26,441
Payments	—		(25,000)		(25,000)
Balance, December 31, 2020	$	19,691	$	—	$	19,691

The TRA and earn-out liabilities require significant judgment and are classified as Level 3 in the fair value hierarchy.

Surety Bond

The Company provides surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. As of December 31, 2020, the maximum potential payment obligation with regard to surety bonds was $121.2 million.