Shoals Technologies Group Inc
11/04/2025 | Press release | Distributed by Public on 11/04/2025 06:44
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
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 ("MD&A") should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Form 10-K") and this Quarterly Report on Form 10-Q ("Form 10-Q"). In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. 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 our 2024 Form 10-K and this Form 10-Q captioned "Forward-Looking Statements" and "Risk Factors".
This MD&A contains the presentation of Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"). Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are being presented because management believes they provide investors and readers of this Form 10-Q with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information. Readers of this Form 10-Q should use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share only in conjunction with Gross Profit, and Net Income, the most closely comparable GAAP financial measures, as applicable. Reconciliations of Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Gross Profit Percentage and Adjusted Diluted Weighted Average Shares Outstanding, are provided below, in "-Non-GAAP Financial Measures."
Overview
We are a leading provider of electrical balance of system ("EBOS") solutions and components, including battery energy storage solutions ("BESS") and Original Equipment Manufacturer ("OEM") components, for the global energy transition market. EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels to an inverter and ultimately to the power grid. EBOS components are mission-critical products that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death. As a result, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions.
We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions; Homeruns, Interconnection and Extension Solutions; Combiners and Re-Combiners; Load Break Disconnects and Transition Solutions; Wireless Performance Monitoring; and BESS. We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as "system solutions". When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost. We also provide technical support during installation and the transition to operations and maintenance. We refer to individual, often custom and proprietary, products we sell as "components". We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that
would otherwise be challenging for a customer to obtain from a single provider or at all. The custom nature of our system solutions and the long development cycle for solar energy projects typically gives us 12 months or more of lead time to quote, engineer, produce and ship each order we receive, and we do not stock large amounts of finished goods.
Traditionally, and for the three and nine months ended September 30, 2025, we primarily sold our EBOS solutions and components and OEM components to customers in the United States. Specifically, we primarily sold to engineering, procurement and construction firms ("EPCs") for use in large solar projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt ("MW") or greater ("utility-scale solar"). These EPCs work with owners and developers of solar assets to build solar energy projects. However, given the mission critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner/developer of the solar energy project. We are proud of the breadth of EPCs we have worked with. We believe that as of September 30, 2025, we have worked with 14 of the top 15 U.S. solar EPCs, per Wood Mackenzie data from 2022-2024.
In the third quarter of 2024, we announced our strategic decision to expand our reach and capitalize on international, BESS, data centers, and Commercial, Community, and Industrial ("CC&I") markets, while also maintaining our focus on domestic utility-scale solar and OEM markets. This decision is aimed at capitalizing on the growing global demand for renewable energy solutions and diversifying our market presence. By entering new geographic regions, markets, and applications we aim to enhance our competitive position and drive long-term growth.
We derived 77.1% of our revenue from the sale of system solutions for the nine months ended September 30, 2025. For the same period, we derived substantially all of our revenue from customers in the U.S. As of September 30, 2025, we had $720.9 million of backlog and awarded orders, backlog of $297.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $423.1 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed. As of September 30, 2025, we believe approximately $297.8 million of backlog and $277.1 million of awarded orders have delivery dates in the next twelve months. Additionally, more than 11.5% of our September 30, 2025 backlog and awarded orders related to international projects. As of September 30, 2025, backlog and awarded orders increased by 21.0% relative to the same date last year and increased by 7.4% relative to June 30, 2025.
Trends and Uncertainties
Trade Regulation and Import Tariffs
Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, including reciprocal tariffs, could have an adverse effect on our business and results of operations.
Beginning in March 2025, the current U.S. Presidential Administration (the "Administration") unveiled broad actions related to tariffs with global trading partners. Subsequently, the Administration has imposed a series of significant tariffs, including a 10% tariff on most imports from other trading partners, as well as additional reciprocal tariffs on specific countries. Administration activity related to changes in tariff percentages and qualifying products, including active negotiations with trading partners and internal trade policy development, is ongoing. Future changes in tariff policies are possible. The Administration's imposition of tariffs
has led to retaliatory tariffs and tariff countermeasures, and the Administration and U.S. trading partners have threatened further restrictions on trade.
As a result, the global trade environment has experienced extreme uncertainty and volatility and is rapidly evolving. In recent years, we have expanded our domestic capabilities, supply chain resiliency, and manufacturing capacity, which helps offset some of the volatility we face due to trade policies and regulations.
To date, these tariff actions have not materially impacted our business or results of operations. However, as the implementation and scope of these proposed tariffs is still uncertain, any significant new tariffs or the threat thereof, which may last for an indefinite period of time, may make it more difficult for us to source raw materials and could result in increased prices for certain of our raw materials including steel, copper and aluminum. Retaliatory tariffs imposed by trading partners could impact the export of our manufactured projects and cause our customers to seek alternatives. The implementation of these proposed tariffs, any future increases in existing tariff rates, additional tariffs on other goods, or further retaliatory actions from other governments, or the threat thereof, may result in higher costs for us, and there can be no assurance we will be able to pass on any of the increases in raw material costs directly resulting from the tariffs to our customers. Such actions may also result in more difficulty or the inability to obtain needed materials. In addition, the threat of increased tariffs alone has caused market uncertainty.
Beyond the most recent tariffs, over the past few years, escalating trade tensions between the United States and China and other jurisdictions led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. We have been assessing and monitoring the potential impact of tariffs on our supply chain and proactively seeking to mitigate the impact such may have on our operations, including working on alternative sourcing strategies and preparing our trade partners to absorb potential increases in their costs due to tariffs. However, we cannot be certain that we would not experience negative effects in the remainder of 2025, particularly given the Administration's positions concerning trade and tariffs and the fluctuating nature of such actions to date.
We also continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. During the period ended September 30, 2025, we continued to monitor and optimize our inventory levels.
Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors and manufacturers of solar energy systems to promote the development of solar electricity. The range and duration of these incentives varies widely by geographic market.
The 2022 Inflation Reduction Act ("IRA") in the U.S. made significant changes to the U.S. tax code to incentivize the development and use of solar-generated electricity to meet the country's growing demand for power. The IRA offered tax incentives to companies who provide goods connected to the development and use of solar energy. The IRA allowed U.S. taxpayers making capital investments in solar projects to claim certain Investment Tax Credits ("TC") for the installation of these solar projects. The IRA also generally allowed U.S. taxpayers to elect to receive a production tax credit ("PTC") in lieu of the TC for qualified solar facilities if the construction began before January 1, 2025, among other requirements.
On July 4, 2025, President Donald Trump signed H.R. 1, which significantly modifies certain energy tax provisions aforementioned, in the IRA. Changes to the IRA made by H.R. 1 include an accelerated phaseout or termination of the PTC and TC for solar projects placed in service after 2027. There are also rules related to foreign entities of concern that make any solar projects owned or controlled by a prohibited foreign entity ineligible for certain tax credits. The removal of the incentives that drive demand for solar energy production could reduce the financial attractiveness of solar projects, leading to decreased demand for our products.
Additionally, the uncertainty surrounding the future of these incentives could cause delays in project financing and execution, further impacting our sales volume and growth rate.
The Solar Market
The domestic utility scale solar market has experienced volatility that has had an impact on our business. Industry trends are impacted by a variety of factors, including: permitting issues; supply chain disruptions; labor availability; project financing; anti-dumping and countervailing duties; interconnection complications; and uncertainty regarding changes in public policy and the U.S. trade environment. Amidst the volatility, the U.S. solar industry has shown demonstrated levels of growth in 2025, with recorded expansion in new solar module manufacturing capacity according to the Solar Energy Industries Association. As a result, we believe the industry is poised for continued growth across both our core and new markets, driven by the continued and increasing need for energy around the world.
We will continue to navigate the uncertainties in our industry, including those relating to project delays, as well as strategic pricing actions, volume discounts, and impacts to customer mix in our key markets, which so far have immaterially impacted our results of operations.
U.S. Government Shutdown
The U.S. federal government's new fiscal year began October 1, 2025, without the passage of appropriation acts or a continuing resolution ("CR") and the government began its shutdown procedures, to include furloughing government civilian employees. It is unclear at this time when either a CR or appropriations act will be enacted. Federal agencies have published guidance for identifying those functions that may continue to be carried out in the absence of available appropriations. At this time, we do not anticipate the shutdown as having a material effect on our business. However, we are closely monitoring the known and potential impact of any short-term or extended shutdown.
Other Macroeconomic Pressures
Global inflationary pressures persisted during the first three quarters of 2025 and are expected to persist to a lesser extent during the remainder of 2025; however, the impact of inflation remains uncertain for the rest of 2025. Interest rates have remained generally higher when compared to historical rates, causing the interest rates associated with our Senior Secured Credit Agreement to be generally higher; however, interest rates did decline from their historically high levels during the course of 2024. Should interest rates rise, when combined with the implications of higher government deficits and debt, evolving monetary policy, political instability, and volatility and uncertainty in global trade, the Company's costs for accessing capital are uncertain and may rise during our forecasted period.
Our ability to obtain the raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, remained challenging during the first three quarters of 2025, complicated by volatility in government policies and regulation concerning trade and ongoing political conflict. While the Company does not directly source a significant amount of raw materials from Europe, the Russia-Ukraine war has reduced the availability of certain materials that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist as challenges and conflicts remain in 2025.
Key Components of Our Results of Operations
The following discussion describes certain line items in our condensed consolidated statements of operations.
Revenue
We generate revenue from the sale of EBOS solutions and components for homerun and plug-and-play architectures, battery storage, and OEM offerings. Our customers include EPCs, utilities, solar developers, independent power producers, and solar module manufacturers. We derive the majority of our revenue from selling solar system solutions. When we sell a solar system solution, 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 solar system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame. Contracts for solar system solutions can range in value from several hundred thousand to several million dollars.
Our revenue is affected by changes in the geography, price, volume and mix of EBOS system solutions and components purchased by our customers. The price and volume of our EBOS system solutions and components is driven by the demand for our solar system solutions and components, volume based discounts and rebate incentives, changes in product mix between homerun and plug-and-play EBOS, geographic mix of our customers, strength of competitors' product offerings, and availability of government incentives to the end-users of our products.
Our revenue growth depends on continued growth in the number of solar energy projects constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future, as well as our ability to continue to develop and commercialize new and innovative products that address the changing technology and performance requirements of our customers.
Cost of Revenue and Gross Profit
Cost of revenue consists primarily of EBOS system solutions and components costs, including purchased raw materials, as well as costs related to shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment. Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including copper and aluminum; component costs, including fuses, resin, enclosures, and cable; technological innovation; economies of scale resulting in lower component costs; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.
Operating Expenses
Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions. The number of our full-time employees increased from 165 to 186 from September 30, 2024 to September 30, 2025, and we expect to hire new employees in the future to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes; our sales, finance, human resources, information technology, engineering and legal organizations; travel expenses; facilities costs; marketing expenses; insurance; bad debt expense; and, fees for professional services. Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales
and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa. We intend to grow our sales presence and marketing efforts in current geographic markets and expand to additional countries in the future.
Depreciation
Depreciation in our operating expenses consists of costs associated with property, plant and equipment ("PP&E") not used in manufacturing our products. We expect that as we increase both our revenue and the number of our general and administrative personnel, we will invest in additional PP&E to support our growth resulting in additional depreciation expense.
Amortization
Amortization of intangibles consists of amortization of customer relationships, developed technology, trade names, backlog and noncompete agreements over their expected period of use.
Non-operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement.
Interest income
Interest income is related to interest on bank deposits.
Gain on sale of asset
Gain on sale of asset represents consideration received in excess of the net book value of assets sold.
Income Tax Expense
Shoals Technologies Group, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions.
Results of Operations
The following table summarizes our results of operations (dollars in thousands):
|
Three Months Ended September 30, |
Increase / (Decrease) |
Nine Months Ended September 30, |
Increase / (Decrease) | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 135,804 | $ | 102,165 | $ | 33,639 | 32.9 | % | $ | 327,006 | $ | 292,221 | $ | 34,785 | 11.9 | % | |||||||||||||||||||||||||
| Cost of revenue | 85,552 | 76,789 | 8,763 | 11.4 | % | 207,412 | 190,388 | 17,024 | 8.9 | % | |||||||||||||||||||||||||||||||
| Gross profit | 50,252 | 25,376 | 24,876 | 98.0 | % | 119,594 | 101,833 | 17,761 | 17.4 | % | |||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 29,423 | 18,743 | 10,680 | 57.0 | % | 74,180 | 60,733 | 13,447 | 22.1 | % | |||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,158 | 2,109 | 49 | 2.3 | % | 6,433 | 6,411 | 22 | 0.3 | % | |||||||||||||||||||||||||||||||
| Total operating expenses | 31,581 | 20,852 | 10,729 | 51.5 | % | 80,613 | 67,144 | 13,469 | 20.1 | % | |||||||||||||||||||||||||||||||
| Income from operations | 18,671 | 4,524 | 14,147 | 312.7 | % | 38,981 | 34,689 | 4,292 | 12.4 | % | |||||||||||||||||||||||||||||||
| Interest expense | (2,832) | (3,173) | (341) | (10.7) | % | (7,483) | (10,913) | (3,430) | (31.4) | % | |||||||||||||||||||||||||||||||
| Interest income | 38 | 85 | (47) | (55.3) | % | 232 | 400 | (168) | (42.0) | % | |||||||||||||||||||||||||||||||
| Gain (loss) on sale of assets | (7) | - | (7) | 100.0 | % | 3,127 | - | 3,127 | 100.0 | % | |||||||||||||||||||||||||||||||
| Income before income taxes | 15,870 | 1,436 | 14,434 | 1005.2 | % | 34,857 | 24,176 | 10,681 | 44.2 | % | |||||||||||||||||||||||||||||||
| Income tax expense | (3,991) | (1,703) | 2,288 | 134.4 | % | (9,405) | (7,867) | 1,538 | 19.6 | % | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | 11,879 | $ | (267) | $ | 12,146 | 4549.1 | % | $ | 25,452 | $ | 16,309 | $ | 9,143 | 56.1 | % | |||||||||||||||||||||||||
Comparison of the Three Months Ended September 30, 2025 and 2024
Revenue
Revenue increased by $33.6 million, or 32.9%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, driven by increased volume of products produced to meet utility scale solar project demands.
Cost of Revenue and Gross Profit
Cost of revenue increased by $8.8 million, or 11.4%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, driven by the increase in revenue. Gross profit as a percentage of revenue was 37.0% during the three months ended September 30, 2025, and 24.8% during the three months ended September 30, 2024. The increase in gross profit as a percentage of revenue was driven by an additional $13.3 million of expense for wire insulation shrinkback warranty expense recorded in the prior year.
Operating Expenses
General and Administrative
General and administrative expenses increased $10.7 million, or 57.0%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. The increase in general and administrative expenses was the result of a $5.7 million increase in general legal expenses for wire
insulation shrinkback, intellectual property, and shareholder litigation matters along with a $3.5 million increase in expenses related to cash and stock-based incentive compensation.
Depreciation and Amortization
Depreciation and amortization expenses increased by less than $0.1 million, or 2.3%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. Levels of intangible assets and property, plant, and equipment associated with operating expenses remained consistent period over period.
Interest Expense
Interest expense, decreased by $0.3 million, or 10.7%, for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. This decrease was due to a decrease in the total weighted average outstanding balance of the Revolving Credit Facility during the three months ended September 30, 2025 compared to the three months ended September 30, 2024, and decreases in the federal funds effective rate as compared to the prior period.
Income tax expense
Income tax expense totaled $4.0 million for the three months ended September 30, 2025, as compared to income tax expense of $1.7 million for the three months ended September 30, 2024. Our effective income tax rate for the three months ended September 30, 2025 and 2024 was 25.1% and 118.6%, respectively. The change in our effective income tax rate was due to various discrete items, particularly RSU and PSU shortfalls and changes in return to provision adjustments, during the three months ended September 30, 2025.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Revenue
Revenue increased by $34.8 million, or 11.9%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, driven by increased volume of products produced to meet utility scale solar project demands.
Cost of Revenue and Gross Profit
Cost of revenue increased by $17.0 million, or 8.9%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, driven by the increase in revenue and increased costs of materials. Gross profit as a percentage of revenue was 36.6% during the nine months ended September 30, 2025, and 34.8% during the nine months ended September 30, 2024. The increase in gross profit as a percentage of revenue was driven by an additional $13.3 million of expense for wire insulation shrinkback warranty expense recorded in the prior year along with some strategic pricing actions, volume discounts, and customer and product mix.
Operating Expenses
General and Administrative
General and administrative expenses increased $13.4 million, or 22.1%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The increase in general and administrative expenses was the result of a $7.7 million increase in general legal expenses for wire insulation shrinkback, intellectual property, and shareholder litigation matters along with an increase of $3.5 million in expenses related to incentive compensation.
Depreciation and Amortization
Depreciation and amortization expenses increased by less than $0.1 million, or 0.3%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. Levels of intangible assets and property, plant, and equipment associated with operating expenses remained consistent period over period.
Interest Expense
Interest expense, decreased by $3.4 million, or 31.4%, for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. This decrease was due to a decrease in the total weighted average outstanding balance of the Term Loan Facility and Revolving Credit Facility during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, as well as a decrease in borrowing rates applicable to the Senior Secured Credit Agreement and decreases in the federal funds effective rate as compared to the prior period.
Gain on sale of asset
Gain on sale of asset increased $3.1 million from the previous period due to the sale of owned land and building assets to consolidate operations into new facilities.
Income tax expense
Income tax expense totaled $9.4 million for the nine months ended September 30, 2025, as compared to income tax expense of $7.9 million for the nine months ended September 30, 2024. Our effective income tax rate for the nine months ended September 30, 2025 and 2024 was 27.0% and 32.5%, respectively. The change in our effective income tax rate was due to various discrete items, particularly RSU and PSU shortfalls and a state tax refund, during the nine months ended September 30, 2025.
Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share ("EPS")
We define Adjusted Gross Profit as gross profit plus wire insulation shrinkback expenses. We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue. We define Adjusted EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income, (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) gain on sale of asset (viii) wire insulation shrinkback expenses, (ix) wire insulation shrinkback litigation expenses, and (x) plant optimization expenses. We define Adjusted Net Income as net income plus (i) amortization of intangibles, (ii) amortization / write-off of deferred financing costs, (iii) equity-based compensation, (iv) gain on sale of asset (v) wire insulation shrinkback expenses, (vi) wire insulation shrinkback litigation expenses, and (vii) plant optimization expenses, all net of applicable income taxes. We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP. We present Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted Gross
Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS: (i) as factors in evaluating management's performance when determining incentive compensation, as applicable; (ii) to evaluate the effectiveness of our business strategies; and (iii) because our credit agreement uses measures similar to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS to measure our compliance with certain covenants.
Among other limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and may be calculated by other companies in our industry differently than we do or not at all, which may limit their usefulness as comparative measures.
Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income Adjusted EBITDA, and net income to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.
Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenue | $ | 135,804 | $ | 102,165 | $ | 327,006 | $ | 292,221 | |||||||||||||||
| Cost of revenue | 85,552 | 76,789 | 207,412 | 190,388 | |||||||||||||||||||
| Gross profit | $ | 50,252 | $ | 25,376 | $ | 119,594 | $ | 101,833 | |||||||||||||||
| Gross profit percentage | 37.0 | % | 24.8 | % | 36.6 | % | 34.8 | % | |||||||||||||||
|
Wire insulation shrinkback expenses(a)
|
$ | - | $ | 13,298 | $ | - | $ | 13,765 | |||||||||||||||
| Adjusted gross profit | $ | 50,252 | $ | 38,674 | $ | 119,594 | $ | 115,598 | |||||||||||||||
| Adjusted gross profit percentage | 37.0 | % | 37.9 | % | 36.6 | % | 39.6 | % | |||||||||||||||
Reconciliation of Net Income to Adjusted EBITDA (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income (loss) | $ | 11,879 | $ | (267) | $ | 25,452 | $ | 16,309 | |||||||||||||||
| Interest expense | 2,832 | 3,173 | 7,483 | 10,913 | |||||||||||||||||||
| Interest income | (38) | (85) | (232) | (400) | |||||||||||||||||||
| Income tax expense | 3,991 | 1,703 | 9,405 | 7,867 | |||||||||||||||||||
| Depreciation expense | 1,466 | 1,254 | 4,296 | 3,643 | |||||||||||||||||||
| Amortization of intangibles | 1,909 | 1,897 | 5,710 | 5,689 | |||||||||||||||||||
| Equity-based compensation | 2,421 | 1,282 | 7,675 | 10,392 | |||||||||||||||||||
| (Gain) loss on sale of asset | 7 | - | (3,127) | - | |||||||||||||||||||
|
Wire insulation shrinkback expenses (a)
|
- | 13,298 | - | 13,765 | |||||||||||||||||||
|
Wire insulation shrinkback litigation expenses (b)
|
6,831 | 2,278 | 11,906 | 4,499 | |||||||||||||||||||
|
Plant optimization expenses (c)
|
676 | - | 676 | - | |||||||||||||||||||
| Adjusted EBITDA | $ | 31,974 | $ | 24,533 | $ | 69,244 | $ | 72,677 | |||||||||||||||
Reconciliation of Net Income to Adjusted Net Income (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income (loss) | $ | 11,879 | $ | (267) | $ | 25,452 | $ | 16,309 | |||||||||||||||
| Amortization of intangibles | 1,909 | 1,897 | 5,710 | 5,689 | |||||||||||||||||||
| Amortization / write-off of deferred financing costs | 156 | 156 | 467 | 2,937 | |||||||||||||||||||
| Equity-based compensation | 2,421 | 1,282 | 7,675 | 10,392 | |||||||||||||||||||
| (Gain) loss on sale of asset | 7 | - | (3,127) | - | |||||||||||||||||||
|
Wire insulation shrinkback expenses (a)
|
- | 13,298 | - | 13,765 | |||||||||||||||||||
|
Wire insulation shrinkback litigation expenses (b)
|
6,831 | 2,278 | 11,906 | 4,499 | |||||||||||||||||||
|
Plant optimization expenses (c)
|
676 | - | 676 | - | |||||||||||||||||||
|
Tax impact of adjustments (d)
|
(2,880) | (4,709) | (5,594) | (9,209) | |||||||||||||||||||
| Adjusted Net Income | $ | 20,999 | $ | 13,935 | $ | 43,165 | $ | 44,382 | |||||||||||||||
(a) For the three and nine months ended September 30, 2025, represents no wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, nor any inventory write-downs of wire in connection with wire insulation shrinkback. For the three and nine months ended September 30, 2024, represents (i) $13.3 million of wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, (ii) zero and $0.5 million, respectively, of inventory write-downs of wire in connection with wire insulation shrinkback. We consider expenses incurred in connection with the identification, repair and replacement of the impacted wire harnesses distinct from normal, ongoing service identification, repair and replacement expenses that would be reflected under ongoing warranty expenses within the operation of our business, which we do not exclude from our non-GAAP measures. In the future, we also intend to exclude from our non-GAAP measures the benefit of liability releases, if any. We believe excluding expenses from these discrete liability events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 8 - Warranty Liability, in our condensed consolidated financial statements included in this Form 10-Q for more information.
(b) For the three and nine months ended September 30, 2025, represents $6.8 million and $11.9 million, respectively, of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. For the three and nine months ended September 30, 2024, represents $2.3 million and $4.5 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company's complaint, the amount of damages sought, and the impact of the matter underlying the litigation on the Company's financial results. In the future, we also intend to exclude from our non-GAAP measures the benefit of recovery, if any. We believe excluding expenses from these discrete litigation events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 13 - Commitments and Contingencies, in our condensed consolidated financial statements included in this Form 10-Q for more information.
(c) For the three and nine months ended September 30, 2025, represents $0.7 million of expenses incurred in connection with actions taken to consolidate our operations into a newly constructed facility, including
items such as professional fees, relocation, facility set-up and other costs. We believe excluding expenses from these events provides investors with a better view of the operating performance of our business and allows for comparability through periods.
(d) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes. Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax. The adjustment to the provision for income tax reflects the effective tax rates below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||||||
| Permanent adjustments | 0.6 | % | 1.0 | % | 0.6 | % | 0.9 | % | |||||||||||||||
| State and local taxes (net of federal benefit) | 2.4 | % | 2.9 | % | 2.4 | % | 2.8 | % | |||||||||||||||
| Effective income tax rate for Adjusted Net Income | 24.0 | % | 24.9 | % | 24.0 | % | 24.7 | % | |||||||||||||||
Calculation of Adjusted Diluted Earnings per Share (in thousands, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Diluted weighted average shares outstanding | 168,750 | 167,381 | 167,725 | 169,310 | |||||||||||||||||||
| Adjusted Net Income | $ | 20,999 | $ | 13,935 | $ | 43,165 | $ | 44,382 | |||||||||||||||
| Adjusted Diluted EPS | $ | 0.12 | $ | 0.08 | $ | 0.26 | $ | 0.26 | |||||||||||||||
Liquidity and Capital Resources
We finance our operations primarily with operating cash flows and short and long-term borrowings. Our ability to generate positive cash flow from operations is dependent on the strength of our gross profits 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 and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs.
We generated cash from operating activities of $21.2 million during the nine months ended September 30, 2025, as compared to cash provided by operating activities of $66.4 million during the nine months ended September 30, 2024. As of September 30, 2025, our cash and cash equivalents were $8.6 million, a decrease from $23.5 million as of December 31, 2024. As of September 30, 2025 we had outstanding borrowings of $126.8 million, a $15.0 million decrease from outstanding borrowings of $141.8 million as of December 31, 2024. As of September 30, 2025, we also had $71.5 million available for additional borrowings under our $200.0 million Revolving Credit Facility.
On December 27, 2023 and January 19, 2024, we used borrowings under the Revolving Credit Facility and cash on hand to make voluntary prepayments of outstanding borrowings under the Term Loan Facility of $50.0 million and $100.0 million, respectively. Following the amendment to the Senior Secured Credit Agreement on March 19, 2024, which, among other things, increased the amount available for borrowing under the Revolving Credit Facility from $150.0 million to $200.0 million, we made a $43.8 million voluntary prepayment of all the outstanding term loans under the Senior Secured Credit Agreement, thereby terminating the Term Loan Facility.
On June 11, 2024, the Company announced the Repurchase Program authorizing the repurchase of up to $150.0 million of the Company's Class A common stock, with an estimated completion date of December 31, 2025. Under the Repurchase Program, the Company is authorized to repurchase shares of Class A common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.
The Company did not repurchase any shares of its common stock under the Repurchase Program during the nine months ended September 30, 2025. As of September 30, 2025, the Company was authorized to repurchase up to $125 million of the Company's common stock under the Repurchase Program.
During the nine months ended September 30, 2025, we also used approximately $32.6 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter. We expect to continue spending significant amounts of cash in connection thereof. For more information, see Note 8 - Warranty Liability in our condensed consolidated financial statements.
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net Cash Provided by Operating Activities | $ | 21,154 | $ | 66,400 | |||||||
| Net Cash Used in Investing Activities | (20,791) | (6,862) | |||||||||
| Net Cash Used in Financing Activities | (15,285) | (71,139) | |||||||||
| Net Decrease in Cash and Cash Equivalents | $ | (14,922) | $ | (11,601) | |||||||
Operating Activities
For the nine months ended September 30, 2025, cash provided by operating activities was $21.2 million, primarily due to operating results that included $25.5 million of net income, which included $26.9 million of non-cash expense, along with cash inflows in unbilled receivables of $13.1 million, accounts payable of $12.6 million, accrued expenses of $11.7 million, deferred revenue of $7.4 million, and other assets of $2.5 million. These cash inflows were offset by cash outflows of $39.3 million related to accounts receivable, $33.7 million of warranty liability, and $5.5 million in inventory.
For the nine months ended September 30, 2024, cash provided by operating activities was $66.4 million, primarily due to operating results that included $16.3 million of net income, which included $47.6 million of non-cash expense, along with decreases in accounts receivable and unbilled receivables of $38.2 million. These cash inflows were offset by cash outflows of $15.4 million related to the warranty liability as well as an increase in inventory of $14.6 million, an increase in other assets of $2.7 million, a decrease in accounts payable and accrued expenses of $1.4 million, and a decrease of $1.7 million in deferred revenue.
Investing Activities
For the nine months ended September 30, 2025, net cash used investing activities was $20.8 million, which was attributable to the purchase of $25.9 million in property and equipment, offset by the proceeds from the sale of property and equipment of $5.1 million.
For the nine months ended September 30, 2024, net cash used in investing activities was $6.9 million, which was primarily attributable to the purchase of property and equipment.
Financing Activities
For the nine months ended September 30, 2025, net cash used in financing activities was $15.3 million, due to $65.0 million in payments on the Revolving Credit Facility, offset by $50.0 million in borrowings, and $0.3 million in taxes paid related to net share settled equity awards.
For the nine months ended September 30, 2024, net cash used in financing activities was $71.1 million, primarily due to $143.8 million in principal payments on the Term Loan Facility, $25.3 million paid to repurchase the Company's Class A Common Stock under the ASR, $2.6 million of deferred financing costs paid in connection with the amendment to the Senior Secured Credit Agreement, and $1.2 million in taxes related to net share settled equity awards. These cash outflows are offset by $101.8 million in net proceeds on the Revolving Credit Facility.
Debt Obligations
For a discussion of our debt obligations see Note 9 - Long-Term Debt in our condensed consolidated financial statements included in this Form 10-Q.
Surety Bonds
For a discussion of our surety bond obligations see Note 13 - Commitments and Contingencies in our condensed consolidated financial statements included in this Form 10-Q.
Product Warranty
For a discussion of our product warranties see Note 8 - Warranty Liability in our condensed consolidated financial statements included in this Form 10-Q.
Critical Accounting Policies and Accounting Estimates
For a description of the application of our critical accounting policies or estimation procedures, see our 2024 Form 10-K. There were no material changes to the information previously disclosed, with the exception of the item discussed below.
Goodwill Considerations
We perform an annual assessment of our goodwill during the fourth quarter of each calendar year or more frequently if indicators of potential impairment exist, such as an adverse change in business climate, declines in market capitalization or a decline in the overall industry demand, that would indicate it is more likely than not that the fair value of our single reporting unit is less than the carrying value. If we determine that it is more likely than not that the fair value of our single reporting unit is less than the carrying value, we measure the amount of impairment as the amount the carrying value of our single reporting unit exceeds the fair value, up to the carrying value of goodwill, by using a quantitative approach.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to evaluate market indicators, such as stock price and market capitalization, and make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, growth rates, and other market factors.
Although our market capitalization declined in the first quarter of 2025, we do not believe that it is more likely than not that the fair value of our single reporting unit is less than the carrying value. Throughout the second and third quarters of 2025, our stock price and market capitalization remained at levels that support this conclusion.
The estimated fair value of our single reporting unit is sensitive to the volatility in our stock price. If our market capitalization continues to decline or future performance falls below our current expectations, assumptions, or estimates, including assumptions related to current macroeconomic uncertainties, this may trigger a future material non-cash goodwill impairment charge, which could have a material adverse effect on our business, financial condition, and results of operations in the reporting period in which a charge would be
necessary. We will continue to monitor developments, including updates to our forecasts and market capitalization. An update of our assessment and related estimates may be required in the future.
Shoals Technologies Group Inc published this content on November 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 04, 2025 at 12:44 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]