Equity-Based Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

2020 Plan

On October 14, 2020, the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) became effective. The 2020 Plan authorized 6,683,919 new shares, subject to adjustments pursuant to the 2020 Plan.

During the six months ended June 30, 2022, the Company granted an aggregate of 1,378,851 restricted stock units (“RSUs”) to employees and board of director members and 451,671 Performance Stock Units (“PSUs”) to certain executives. The fair value of the RSUs is determined using the market value of common stock on the grant date. The PSUs cliff vest after three years and upon meeting certain revenue and adjusted EPS targets. The PSUs also contain a modifier based on the total stock return (TSR) compared to a certain Index which modifies the number of PSUs that vest. The PSUs were valued using a Monte-Carlo simulation method with a volatility assumption of 66%, risk free interest rate of 0.28% based on the United States Treasury Constant Maturity rates and no dividends paid assumption.

Activity under the 2020 Plan was as follows:


RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, December 31, 2021	930,409	$	21.66
Granted	1,378,851	$	9.99
Vested	(248,661)	$	19.14
Forfeited	(99,040)	$	19.89
Unvested, June 30, 2022	1,961,559	$	14.05


PSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, December 31, 2021	147,687	$	27.75
Granted	451,671	$	10.63
Vested	—	$	—
Forfeited	(20,027)	$	30.74
Unvested, June 30, 2022	579,331	$	14.30

Class B Units and Class C Units of Former Parent

The Company accounted for equity grants to employees of Class B Units and Class C Units (collectively, the “Units”) of Former Parent as equity-based compensation under ASC 718, Compensation-Stock Compensation. The Units contain vesting provisions as defined in the agreement. Vested Units do not forfeit upon termination and represent a residual interest in Former Parent. Equity-based compensation cost is measured at the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those Units

with graded vesting with a corresponding credit to additional paid-in capital as a capital contribution from Former Parent. However, the amount of equity-based compensation at any date is equal to the portion of the grant date value of the award that is vested.

The Units issued to employees are measured at fair value on the grant date using an option pricing model. The Company utilizes the estimated weighted average of the Company’s expected fund life dependent on various exit scenarios to estimate the expected term of the awards. Expected volatility is based on the average of historical and implied volatility of a set of comparable companies, adjusted for size and leverage. The risk-free rates are based on the yields of U.S. Treasury instruments with comparable terms. Actual results may vary depending on the assumptions applied within the model.

On November 19, 2019 and May 19, 2020, Former Parent issued 22,326,653 and 4,344,941, respectively, Class B Units to certain employees of the Company. On March 28, 2020, Former Parent issued 1,000 Class C Units to a member of the board of directors of Array Technologies, Inc.

On March 23, 2021, in connection with the closing of the 2021 Follow-on Offering, all of the outstanding Class B Units of Former Parent were immediately vested per the terms of the equity awards, resulting in the Company accelerating the recognition of equity-based compensation of $8.9 million for the six months ended June 30, 2021.

For the three months ended June 30, 2022 and 2021, the Company recognized $3.0 million and $4.1 million in equity-based compensation, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized $7.5 million and $12.0 million in equity-based compensation, respectively. As of June 30, 2022, the Company had $25.4 million of unrecognized compensation costs related to RSUs which is expected to be recognized over a period of 2.4 years. There were 119,067 forfeitures during the three and six months ended June 30, 2022 and 57,424 forfeitures during both the three and six months ended June 30, 2021.