SHLS 8-K
Shoals Technologies Group, Inc. (SHLS)
8-K
2021-11-10
For: 2021-11-09
View Original
Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————
FORM 8-K
——————————
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 9, 2021
——————————
| (Exact name of registrant as specified in its charter) | |||||||||||||||||
——————————
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||||||||
——————————
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On November 9, 2021, Shoals Technologies Group, Inc. (the “Company”) issued a press release announcing its financial results for the quarter and nine months ended September 30, 2021. In the press release, the Company also announced that it would be holding a conference call on November 9, 2021 to discuss its financial results for the quarter and nine months ended September 30, 2021. The full text of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. The transcript of the conference call is attached hereto as Exhibit 99.2 to this Form 8-K.
The information set forth in this Item 2.02, including Exhibit 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Shoals Technologies Group, Inc. | |||||||||||
| By: | /s/ Jason Whitaker | ||||||||||
| Name: | Jason Whitaker | ||||||||||
| Title: | Chief Executive Officer | ||||||||||
Date: November 9, 2021
Shoals Technologies Group, Inc. Reports Financial Results for Third Quarter 2021
– Revenue Increased 14% Year-Over-Year to a Record $59.8 million –
– System Solutions Revenue Increased 5% Year-Over-Year to $38.6 million –
– Gross Margin of 36.4% reflecting higher mix of Components sales and Acquisition Impacts–
– Backlog and Awarded Orders Up 101% Year-Over-Year to a Record $270.7 million –
– Acquires ConnectPV, a Leading Provider of EBOS Products for Battery Storage –
– Provides Fourth Quarter and First Quarter 2022 Outlook –
PORTLAND, TN., November 9, 2021 (GLOBE NEWSWIRE) – Shoals Technologies Group, Inc. (“Shoals” or the “Company”) (Nasdaq: SHLS), a leading provider of electrical balance of system (“EBOS”) solutions for solar, battery storage and electric vehicle charging infrastructure, today announced results for its third quarter ended September 30, 2021.
“We are continuing to grow faster than the market as Shoals’ System Solutions take share from conventional solar EBOS. Third quarter revenues increased 14% year over year and we ended the quarter with the highest level of backlog and awarded orders in the company’s history. Since the beginning of the year, the number of solar EPCs and developers that use BLA has more than quadrupled and there are an additional 12 customers that are currently transitioning to our system” said Jason Whitaker, Chief Executive Officer of Shoals.
Mr. Whitaker added, “We are not just taking a bigger slice of the pie we are in, we are growing the size of the pie available to us by broadening our product portfolio. We have been doing that organically through new product introductions like our wire management solutions and IV curve benchmarking products, and now inorganically through the acquisition of ConnectPV, which we completed during the third quarter. ConnectPV brings us new products targeted specifically to energy storage where we see tremendous growth potential. ConnectPV also gives us access to a number of customers that we did not historically serve which should further accelerate our market share gains. We are also expanding beyond solar by taking our technology and expertise to the rapidly growing EV charging market. We manufactured the first commercial versions of our full EV System Solution set including all four product families during the third quarter, and took first orders from customers in November. We remain very focused on the EV charging opportunity and are excited about the prospect of creating a significant business in EV to complement our core solar business. Between continued share gains with BLA, new products for solar and the business we are building in EV, I am incredibly excited about the future for Shoals.”
1
“Like many other companies, the key challenge to our growth is the current supply chain environment. Our business model has effectively insulated us from most of the margin pressure that many of our peers are experiencing as a result of rising commodity prices and the form factor of our products has limited the impact of shipping and logistics shortages on our business—but, unfortunately our customers still have to contend with these issues as they progress their projects. The result is very fluid delivery schedules, with customers making frequent changes both to product specifications and when they want product on site. Recently some of our customers’ projects have been delayed to accommodate design updates as a result of panel changes or because other materials or components needed are not available. In both cases, the impact to us is to delay when we can produce and ship product which will have the effect of shifting revenues that we expected to recognize in the fourth quarter of this year into the beginning of next year. Importantly, we have not had a single order cancel. We view these conditions as temporary and expect delivery schedules to normalize as the supply chain and logistics issues our customers are contending with abate,” concluded Mr. Whitaker.
Third Quarter 2021 Financial Results
Revenue was $59.8 million, compared to $52.6 million for the prior-year period, an increase of 14%, driven by increases in sales of both Components and System solutions. Revenues increased less than expected as certain customers changed product specifications or delayed shipment.
System Solutions represented 65% of revenues in the quarter versus 70% in the prior-year period primarily as a result of higher Components sales during the third quarter of this year compared to the third quarter of last year. The increase in Components sales as a percentage of total sales during the quarter was expected.
Gross profit increased 5% to $21.8 million, compared to $20.7 million in the prior-year period. Gross profit as a percentage of revenue decreased to 36.4% from 39.3% in the prior year period, due to the expected higher mix of Components sales in the quarter which carry lower margins than System Solutions as well as the impact of ConnectPV which we acquired during the quarter. Gross margins on Components and System Solutions products were in line with prior periods. ConnectPV’s historical gross margins are lower than Shoals’ historical gross margins primarily due to the higher prices they pay for components used in their products as a result of their smaller size relative to Shoals. Excluding the impact of ConnectPV, gross margins would have been higher in the quarter. We expect to bring ConnectPV’s margins in line with Shoals’ average gross margin as we migrate their business to our suppliers.
General and administrative expenses were $10.0 million compared to $3.5 million during the same period in the prior year. This change was primarily a result of higher non-cash stock-based compensation, acquisition related expenses for ConnectPV, planned increases in payroll expense due to higher headcount to support growth and new product initiatives, new public company costs and one-time public offering expenses.
2
Income from operations was $9.6 million, compared to $15.1 million during the same period in the prior year.
Net income was $5.3 million, compared to net income of $15.0 million during the same period in the prior year. This change was primarily due to higher general and administrative expenses and higher interest expense partially offset by a tax benefit. Net income for 2021 is not directly comparable to 2020 because prior to its IPO, the Company was organized as a tax flow-through partnership rather than a corporation and did not record income taxes. Basic and diluted earnings per share were $0.02.
Adjusted EBITDA was $16.9 million, compared to $19.9 million for the prior-year period.
Adjusted net income was $11.6 million, compared to $15.4 million during the same period in the prior year. Adjusted diluted earnings per share was $0.07.
During the quarter we acquired ConnectPV for a combination of cash and stock. The transaction was not significant to Shoals and the Company expects it to be accretive to 2022 earnings per share. Guggenheim Securities LLC acted as Shoals’ exclusive financial advisor in connection with the transaction.
Backlog and Awarded Orders
The Company’s backlog and awarded orders on September 30, 2021 were $270.7 million, representing an all-time record for the company and an increase of 101% and 35% versus the same time last year and June 30, 2021, respectively. The increase in backlog and awarded orders reflects continued robust demand for the company’s products from customers in the U.S. The acquisition of ConnectPV did not contribute materially to the year-over-year increase in backlog.
Fourth and First Quarter Outlook
The Company is providing an outlook for the next two quarters given the impacts of recent changes some of its customers have made to their orders as well as continued disruption in supply chain, freight and logistics availability across the solar industry. It is not the Company’s intention to provide quarterly guidance on an ongoing basis. Based on current market conditions, business trends and other factors, the Company expects:
For the quarter ended December 31, 2021:
•Revenues to be in the range of $40 million to $50 million
•Adjusted EBITDA to be in the range of $11 million to $15 million
•Adjusted net income to be in the range of $3 to $7 million
For the quarter ended March 31, 2022:
•Revenues to be in the range of $71 million to $76 million
•Adjusted EBITDA to be in the range of $22 million to $24 million
•Adjusted net income to be in the range of $14 to $17 million
3
A reconciliation of the Company’s non-GAAP measures to the applicable GAAP measures are found within this release. These expectations do not consider, or give effect to, material acquisitions that may be completed by the Company during 2021 or 2022, other than ConnectPV, or other unforeseen events, including changes in global economic conditions or further disruption in supply chain, freight or logistics availability.
Webcast and Conference Call Information
Company management will host a webcast and conference call on November 9, 2021, at 5:00 p.m. Eastern Time, to discuss the Company's financial results.
Interested investors and other parties can listen to a webcast of the live conference call by logging onto the Investor Relations section of the Company's website at https://investors.shoals.com.
The conference call can be accessed live over the phone by dialing 1-844-826-3033 (domestic) or +1-412-317-5185 (international). A telephonic replay will be available approximately two hours after the call by dialing 1-844-512-2921 or for international callers, + 1-412-317-6671. The conference ID for the live call and pin number for the replay is 10161234. The replay will be available until 11:59 p.m. Eastern Time on November 22, 2021.
About Shoals Technologies Group, Inc.
Shoals Technologies Group, Inc. is a leading provider of electrical balance of system (“EBOS”) solutions for solar, battery storage and electric vehicle charging infrastructure. The Company’s mission is to provide innovative products that reduce the cost of installation while improving system performance, reliability and safety. At least one Shoals’ product was used on more than half of the solar energy projects installed in the U.S. in 2020. To learn more about Shoals Technologies, please visit the company's website at https://www.shoals.com.
Investor Relations Contact
Shoals Technologies Group, Inc.
Email: [email protected]
Phone: 615-323-9836
Forward-Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” "seek," “should,” “will,” “would” or similar expressions and the negatives of those terms.
4
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Non-GAAP Financial Measures
(1) A reconciliation of projected adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, which are forward-looking measures that are not prepared in accordance with GAAP, to the most directly comparable GAAP financial measures, is not provided because we are unable to provide such reconciliation without unreasonable effort. The inability to provide a quantitative reconciliation is due to the uncertainty and inherent difficulty in predicting the occurrence, the financial impact and the periods in which the components of the applicable GAAP measures and non-GAAP adjustments may be recognized. The GAAP measures may include the impact of such items as non-cash share-based compensation, amortization of intangible assets and the tax effect of such items, in addition to other items we have historically excluded from adjusted EBITDA and adjusted net income per share. We expect to continue to exclude these items in future disclosures of these non-GAAP measures and may also exclude other similar items that may arise in the future (collectively, "non-GAAP adjustments").
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS
We define Adjusted EBITDA as net income (loss) plus (i) interest expense, (ii) income taxes, (iii) depreciation expense, (iv) amortization of intangibles, (v) tax receivable agreement liability adjustment, (vi) loss on debt repayment, (vii) equity-based compensation, (viii) acquisition-related expenses (ix) COVID-19 expenses and (x) non-recurring and other expenses. We define Adjusted Net Income as net income (loss) plus (i) amortization of intangibles, (ii) tax receivable agreement liability adjustment, (iii) loss on debt repayment, (iv) amortization of deferred financing costs, (v) equity-based compensation, (vi) acquisition-related expenses (vii) COVID-19 expenses and (viii) non-recurring and other 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 shares outstanding for the applicable period, which assumes the pro forma exchange of all outstanding Class B common shares for Class A common shares.
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 EBITDA, Adjusted Net Income and Adjusted Diluted EPS because
5
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 EBITDA, Adjusted Net Income and Adjusted Diluted EPS: (i) as factors in evaluating management’s performance when determining incentive compensation; (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 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; in the case of Adjusted EBITDA, does not reflect income tax expense or benefit for periods prior to the reorganization; 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 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 net income to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.
6
Shoals Technologies Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except shares)
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 14,189 | $ | 10,073 | |||||||
| Accounts receivable, net | 44,588 | 27,004 | |||||||||
| Unbilled receivables | 10,554 | 3,794 | |||||||||
| Inventory, net | 27,832 | 15,121 | |||||||||
| Other current assets | 11,706 | 155 | |||||||||
| Total Current Assets | 108,869 | 56,147 | |||||||||
| Property, plant and equipment, net | 14,358 | 12,763 | |||||||||
| Goodwill | 69,321 | 50,176 | |||||||||
| Other intangible assets, net | 67,508 | 71,988 | |||||||||
| Deferred tax asset | 121,545 | — | |||||||||
| Other assets | 1,204 | 4,236 | |||||||||
| Total Assets | $ | 382,805 | $ | 195,310 | |||||||
| Liabilities and Stockholders' Deficit / Members’ Deficit | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 18,664 | $ | 14,634 | |||||||
| Accrued expenses | 15,112 | 5,967 | |||||||||
| Long-term debt—current portion | 2,000 | 3,500 | |||||||||
| Total Current Liabilities | 35,776 | 24,101 | |||||||||
| Revolving line of credit | 60,140 | 20,000 | |||||||||
| Long-term debt, less current portion | 190,136 | 335,332 | |||||||||
| Payable Pursuant to the Tax Receivable Agreement | 107,880 | — | |||||||||
| Total Liabilities | 393,932 | 379,433 | |||||||||
| Commitments and Contingencies (Note 13) | |||||||||||
| Stockholders’ Deficit / Members’ Deficit | |||||||||||
| Members’ deficit | — | (184,123) | |||||||||
Preferred stock, $0.00001 par value - 5,000,000 shares authorized; none issued and outstanding as of September 30, 2021 | — | — | |||||||||
Class A common stock, $0.00001 par value - 1,000,000,000 shares authorized; 104,179,939 shares issued and outstanding as of September 30, 2021 | 1 | — | |||||||||
Class B common stock, $0.00001 par value - 195,000,000 shares authorized; 62,664,521 shares issued and outstanding as of September 30, 2021 | 1 | — | |||||||||
| Additional paid-in capital | 92,149 | — | |||||||||
| Accumulated deficit | (91,296) | — | |||||||||
| Total stockholders’ equity attributable to Shoals Technologies Group, Inc. / members' deficit | 855 | (184,123) | |||||||||
| Non-controlling interests | (11,982) | — | |||||||||
| Total stockholders’ deficit / members’ deficit | (11,127) | (184,123) | |||||||||
| Total Liabilities and Stockholders’ Deficit / Members’ Deficit | $ | 382,805 | $ | 195,310 | |||||||
7
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue | $ | 59,840 | $ | 52,598 | $ | 165,166 | $ | 136,765 | |||||||||||||||
| Cost of revenue | 38,071 | 31,909 | 98,444 | 85,061 | |||||||||||||||||||
| Gross profit | 21,769 | 20,689 | 66,722 | 51,704 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| General and administrative expenses | 10,031 | 3,515 | 26,865 | 15,390 | |||||||||||||||||||
| Depreciation and amortization | 2,175 | 2,069 | 6,305 | 6,194 | |||||||||||||||||||
| Total Operating Expenses | 12,206 | 5,584 | 33,170 | 21,584 | |||||||||||||||||||
| Income from Operations | 9,563 | 15,105 | 33,552 | 30,120 | |||||||||||||||||||
| Interest expense, net | (3,582) | (104) | (10,911) | (601) | |||||||||||||||||||
| Tax receivable agreement liability adjustment | (2,014) | — | (3,678) | — | |||||||||||||||||||
| Loss on debt repayment | — | — | (15,990) | — | |||||||||||||||||||
| Income before income taxes | 3,967 | 15,001 | 2,973 | 29,519 | |||||||||||||||||||
| Income tax benefit | 1,309 | — | 3,123 | — | |||||||||||||||||||
| Net income | 5,276 | 15,001 | 6,096 | 29,519 | |||||||||||||||||||
| Less: net income attributable to non-controlling interests | 2,790 | — | 1,911 | — | |||||||||||||||||||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 2,486 | $ | 15,001 | $ | 4,185 | $ | 29,519 | |||||||||||||||
| Three Months Ended September 30, 2021 | Period from January 27, 2021 to September 30, 2021 | ||||||||||||||||||||||
Earnings per share of Class A common stock: | |||||||||||||||||||||||
| Basic | $ | 0.02 | $ | 0.02 | |||||||||||||||||||
| Diluted | $ | 0.02 | $ | 0.02 | |||||||||||||||||||
Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||
| Basic | 101,890 | 96,354 | |||||||||||||||||||||
| Diluted | 102,251 | 96,527 | |||||||||||||||||||||
8
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 6,096 | $ | 29,519 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 7,345 | 7,017 | |||||||||
| Amortization/write off of deferred financing costs | 5,692 | 31 | |||||||||
| Equity-based compensation | 6,404 | 7,219 | |||||||||
| Provision for slow-moving inventory | 435 | 488 | |||||||||
| Deferred taxes | 640 | — | |||||||||
| Tax receivable agreement liability adjustment | 3,678 | — | |||||||||
| Gain on sale of assets | 61 | — | |||||||||
| Changes in assets and liabilities, net of business acquisition: | |||||||||||
| Accounts receivable | (12,271) | (1,087) | |||||||||
| Unbilled receivables | (6,760) | (6,076) | |||||||||
| Inventory | (8,505) | (2,953) | |||||||||
| Other assets | (6,904) | 670 | |||||||||
| Accounts payable | (5,198) | 285 | |||||||||
| Accrued expenses | 2,608 | 3,002 | |||||||||
| Net Cash Provided by (Used in) Operating Activities | (6,679) | 38,115 | |||||||||
| Cash Flows Used In Investing Activities | |||||||||||
| Purchases of property, plant and equipment | (2,483) | (2,786) | |||||||||
| Acquisition of a business, net of cash acquired | (12,909) | — | |||||||||
| Net Cash Used in Investing Activities | (15,392) | (2,786) | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Member / non-controlling interest distributions | (4,837) | (11,356) | |||||||||
| Employee withholding taxes related to net settled equity awards | (137) | — | |||||||||
| Deferred financing costs | (94) | — | |||||||||
| Payments on term loan facility | (152,250) | — | |||||||||
| Proceeds from revolving credit facility | 40,140 | — | |||||||||
| Payments on senior debt - term loan | — | (21,810) | |||||||||
| Proceeds from issuance of Class A common stock sold in an IPO, net of underwriting discounts and commissions | 154,521 | — | |||||||||
| Proceeds from issuance of Class A common stock in follow-on offering, net of underwriting discounts and commissions | 281,064 | — | |||||||||
| Purchase of LLC Interests with proceeds from follow-on offering | (281,064) | — | |||||||||
| Payment of debt acquired in acquisition | (1,537) | — | |||||||||
| Deferred offering costs | (9,619) | — | |||||||||
| Net Cash Provided by (Used in) Financing Activities | 26,187 | (33,166) | |||||||||
| Net Increase in Cash and Cash Equivalents | 4,116 | 2,163 | |||||||||
| Cash and Cash Equivalents—Beginning of Period | 10,073 | 7,082 | |||||||||
| Cash and Cash Equivalents—End of Period | $ | 14,189 | $ | 9,245 | |||||||
9
Shoals Technologies Group, Inc.
Adjusted EBITDA and Adjusted Net Income Reconciliation (Unaudited)
(in thousands)
Reconciliation of Net Income to Adjusted EBITDA (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income | $ | 5,276 | $ | 15,001 | $ | 6,096 | $ | 29,519 | |||||||||||||||
| Interest expense | 3,582 | 104 | 10,911 | 601 | |||||||||||||||||||
| Income tax benefit | (1,309) | — | (3,123) | — | |||||||||||||||||||
| Depreciation expense | 449 | 391 | 1,265 | 1,029 | |||||||||||||||||||
| Amortization of intangibles | 2,088 | 1,996 | 6,080 | 5,988 | |||||||||||||||||||
Tax receivable agreement liability adjustment(a) | 2,014 | — | 3,678 | — | |||||||||||||||||||
| Loss on debt repayment | — | — | 15,990 | — | |||||||||||||||||||
| Equity-based compensation | 2,732 | 1,032 | 6,904 | 7,219 | |||||||||||||||||||
| Acquisition-related expenses | 1,697 | — | 1,697 | — | |||||||||||||||||||
COVID-19 expenses(b) | 108 | 1,200 | 269 | 2,006 | |||||||||||||||||||
Non-recurring and other expenses(c) | 243 | 150 | 1,821 | 444 | |||||||||||||||||||
| Adjusted EBITDA | $ | 16,880 | $ | 19,874 | $ | 51,588 | $ | 46,806 | |||||||||||||||
(a) Represents an adjustment to eliminate the remeasurement of the Tax Receivable Agreement.
(b) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.
(c) Represents certain costs associated with non-recurring professional services, Oaktree’s expenses and other costs.
10
Shoals Technologies Group, Inc.
Adjusted EBITDA and Adjusted Net Income Reconciliation (Unaudited)
(in thousands)
Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 2,486 | $ | 15,001 | $ | 4,185 | $ | 29,519 | |||||||||||||||
Net income impact from pro forma conversion of Class B common stock to Class A common stock (a) | 2,790 | — | 1,911 | — | |||||||||||||||||||
Adjustment to the provision for income tax (b) | (668) | (3,255) | (476) | (6,406) | |||||||||||||||||||
| Tax effected net income | 4,608 | 11,746 | 5,620 | 23,113 | |||||||||||||||||||
| Amortization of intangibles | 2,088 | 1,996 | 6,080 | 5,988 | |||||||||||||||||||
| Amortization of deferred financing costs | 278 | 10 | 953 | 31 | |||||||||||||||||||
Tax receivable agreement liability adjustment(c) | 2,014 | — | 3,678 | — | |||||||||||||||||||
| Loss on debt repayment | — | — | 15,990 | — | |||||||||||||||||||
| Equity-based compensation | 2,732 | 1,032 | 6,904 | 7,219 | |||||||||||||||||||
| Acquisition-related expenses | 1,697 | — | 1,697 | — | |||||||||||||||||||
COVID-19 expenses (d) | 108 | 1,200 | 269 | 2,006 | |||||||||||||||||||
Non-recurring and other expenses (e) | 243 | 150 | 1,821 | 444 | |||||||||||||||||||
Tax impact of adjustments (f) | (2,166) | (728) | (7,972) | (1,838) | |||||||||||||||||||
| Adjusted Net Income | $ | 11,602 | $ | 15,406 | $ | 35,040 | $ | 36,963 | |||||||||||||||
(a) Reflects net income to Class A common shares from pro forma exchange of corresponding shares of our Class B common shares held by our founder and management.
(b) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes with respect to its allocable share of any net taxable income of Shoals Parent LLC. The adjustment to the provision for income tax reflects the effective tax rates below, assuming Shoals Technologies Group, Inc. owns 100% of the units in Shoals Parent LLC.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||||||
| State and local taxes (net of federal benefit) | 2.9 | % | 0.7 | % | 2.9 | % | 0.7 | % | |||||||||||||||
| Permanent items, including valuation adjustment | 0.1 | % | — | % | 1.0 | % | — | % | |||||||||||||||
| Effective income tax rate for Adjusted Net Income | 24.0 | % | 21.7 | % | 24.9 | % | 21.7 | % | |||||||||||||||
(c) Represents an adjustment to eliminate the remeasurement of the Tax Receivable Agreement.
11
Shoals Technologies Group, Inc.
Adjusted EBITDA and Adjusted Net Income Reconciliation (Unaudited)
(in thousands)
(d) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.
(e) Represents certain costs associated with non-recurring professional services, Oaktree’s expenses and other costs.
(f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Diluted weighted average shares of Class A common shares outstanding, excluding Class B common shares | 102,251 | N/A (b) | 96,527 | N/A (b) | |||||||||||||||||||
| Assumed pro forma conversion of Class B common shares to Class A common shares | 64,813 | N/A (b) | 70,285 | N/A (b) | |||||||||||||||||||
| Adjusted diluted weighted average shares outstanding | 167,064 | N/A (b) | 166,812 | N/A (b) | |||||||||||||||||||
Adjusted Net Income (a) | $ | 11,602 | N/A (b) | $ | 35,040 | N/A (b) | |||||||||||||||||
| Adjusted Diluted EPS | $ | 0.07 | N/A (b) | $ | 0.21 | N/A (b) | |||||||||||||||||
(a) Represents Adjusted Net Income for the full period presented.
(b) This Non-GAAP measure is not applicable for this period, as the reorganization transactions had not yet occurred.
12
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
| Operator | ||
Good afternoon, and welcome to Shoals Technologies Group Third Quarter 2021 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Mehgan Peetz, General Counsel for Shoals Technologies Group. Thank you. You may begin.
| Mehgan Peetz, General Counsel, Shoals Technologies Group, Inc. | ||
Thank you, operator and thank you everyone for joining us today. Hosting the call with me are CEO, Jason Whitaker, CFO, Philip Garton and SVP of EV Solutions, Jeff Tolnar.
On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including the guidance regarding the fourth quarter of 2021 and the first quarter of 2022, are not guarantees of performance or results. Actual results could differ materially from our forward-looking statements if any of our assumptions are incorrect or because of other factors. These factors include, among other things, the risk factors described in our filings with the Securities and Exchange Commission, as well as economic and market circumstances, industry conditions, company performance and financial results, the COVID-19 pandemic, supply chain disruptions, availability and price of our components and materials, project cancellations, decreased demand for our products, and policy and regulatory changes.
Although we may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. We caution that any forward-looking statement included in this discussion is made as of the date of this discussion and do not undertake any duty to update any forward-looking statements.
Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter
1
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures.
With that, let me turn the call over to Jason.
| Jason Whitaker, CEO, Shoals Technologies Group, Inc. | ||
Thank you very much, Mehgan, and good afternoon, everyone. I’ll start off with some highlights from the quarter, provide an overview of our acquisition of ConnectPV and I’ll wrap up with a progress report on our new EV business. Phil will then provide the financial details for the quarter and then turn it back over to me for an update on our outlook for the fourth and the first quarters of 2022.
During the third quarter, we continued to successfully convert customers to BLA. We now have four times as many customers using our system as we did at the time of our IPO earlier this year and we don’t see our market share gains slowing down. As of the end of the third quarter, we had 12 additional customers transitioning to our system. I couldn’t be more pleased with customer conversion and the number of new customer prospects coming into our sales funnel. We have a lot more growth ahead of us.
We also made good progress during the quarter outside of our BLA with new products for solar. As of the end of the quarter we were sold out of our new wire management solution and we are currently manufacturing our first large order of our new IV curve benchmarking product. Both of these products have gross margins at or above our overall System Solutions margins so we are very excited about their growth.
The gains we are seeing in BLA as well as the ramp of our new products for solar was reflected in our record backlog and awarded orders of $270.7 million at the end of September. To put that number in perspective, we now have over 30% more backlog and awarded orders than we generated in revenues over the past 12 months.
During the third quarter, we also completed our first acquisition—ConnectPV. ConnectPV is a California-based provider of solar and storage EBOS products.
The acquisition accomplishes several things for Shoals:
First, ConnectPV is a leader in EBOS for utility-scale battery energy storage systems and their product line and expertise significantly strengthens our offerings for this rapidly growing market segment. ConnectPV was one of the first companies to introduce specialized EBOS for battery storage and their products have been specified for some of the largest standalone storage projects in the
2
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
U.S. We are very excited about what we can do with their products leveraging our customer relationships and manufacturing cost structure. I should also mention that ConnectPV has a very strong expertise in AC solutions, which is another area we see an opportunity to introduce new products.
Second, ConnectPV sells solar EBOS offerings to customers that we did not historically have relationships with. Making ConnectPV part of Shoals will allow us to convert these customers to our system more rapidly and accelerate our market share gains.
Third, ConnectPV has excellent engineering talent that will help support our growth. The company’s historical business model was to focus on more challenging projects where a significant amount of customization was required. They are very skilled at designing and specifying product. Having their engineers on the west coast with our engineering team in Tennessee adds to our capability with two teams across times zones, we have more hours in the day to work with customers.
The purchase price for ConnectPV was a combination of cash and stock and was not material to our financials. We expect the transaction to be accretive to our 2022 earnings per share.
Now turning to our EV business.
During the third quarter we deployed our full EV Solution set— skidded charging stations, the quad charger, raceways and EV-BLA – at a demonstration site outside of our headquarters. We are using the site to showcase our products for prospective customers. We have begun taking orders from customers and to date have received orders from a charging network operator, a large investor-owned utility and an EPC – for one or more of our EV charging products. We expect to begin shipping products to our customers during the fourth quarter. The first public charging station to use our solution will be installed in the end of this year and we expect that if it performs well, it could become the basis for the rollout of hundreds or more stations using our equipment.
We remain very focused on the EV charging opportunity and are excited about the prospect of creating a significant business in EV to complement our core solar business.
I'll now turn it over to Phil who will discuss our third quarter financial results.
| Philip Garton, CFO, Shoals Technologies Group, Inc. | ||
3
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
Thank you, Jason. For the third quarter, revenues increased 14% versus the prior-year period to $59.8 million, driven by an increase in revenue from solar components as well as an increase in demand for solar EBOS generally and our combine-as-you-go system solutions specifically. The strength in Components revenue during the quarter was consistent with the expected change in mix, driven by the addition of a significant number of new customers who typically start with component purchases. Sales of System Solutions represented 65% of total revenues versus 70% in the prior-year period. The acquisition of ConnectPV closed on August 26 and its contribution during the quarter was immaterial.
Prices across our product lines during the third quarter were comparable to the prior year.
Gross margin in the third quarter was 36.4% compared to 39.3% in the prior-year period, due to a higher mix of Components sales which have a lower margin than System Solutions, as well as the impact of ConnectPV during the quarter. Gross margins on Components and System Solutions products were in line with prior periods. ConnectPV’s historical gross margins are lower than Shoals’ historical gross margins, primarily due to the higher prices they pay for components used in their products. This results from their smaller size relative to Shoals. Excluding the impact of ConnectPV, gross margins would have been higher in the quarter. We expect to bring ConnectPV’s margins in line with Shoals’ average gross margin as we migrate them to our suppliers.
Third quarter general and administrative expenses were $10.0 million compared to $3.5 million in the prior-year period. This increase was primarily a result of higher stock-based compensation, acquisition-related expenses for ConnectPV, planned increased payroll expense due to higher headcount to support our growth and product initiatives, new public company costs and non-recurring public offering expenses.
Adjusted EBITDA for the third quarter was $16.9 compared to $19.9 million in the prior-year period.
Adjusted net income was $11.6 million in the third quarter compared to $15.4 million in the prior-year period.
Please see the adjusted EBITDA and adjusted net income reconciliation tables in our third quarter press release for a bridge to our GAAP results.
4
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
As of September 30, 2021, we had backlog and awarded orders of $270.7 million, an increase of 101% year-over-year and 35% versus June 30, 2021. The increase in backlog and awarded orders reflects continued robust demand for Shoals’ products from our customers.
| Jason Whitaker, CEO, Shoals Technologies Group, Inc. | ||
Thanks Phil.
Now I’ll provide an update on the current market environment in solar and how it is impacting our near-term results.
The key challenge to our growth is the current supply chain environment. Our business model has effectively insulated us from most of the margin pressure that many of our peers are experiencing as a result of rising commodity prices, and the form factor of our products has limited the impact of shipping and logistics shortages on our business—but, unfortunately our customers still have to contend with these issues as they progress their projects. The result is very fluid delivery schedules, with customers making frequent changes both to product specifications and when they want the product on site.
Recently, some of our projects have been delayed to accommodate design updates as a result of panel changes or because other materials or components needed are not available. In both cases, the impact to us is to delay when we can produce and ship product, which will have the effect of shifting revenues that we expected to recognize in the fourth quarter of this year into the first quarter of next.
While it is not our practice to provide quarterly guidance, we felt it was important to quantify for our shareholders the impact on our results of the changes that our customers have made, which is why we are providing our outlook for the next two quarters.
Phil will take you through the numbers, but before I turn it over to him, I’d like to make three final points:
First, this is truly a timing issue. We have not had a single order cancel and candidly, our primary focus right now is making sure we have the capacity to deliver on the tremendous demand that we are seeing across our business.
Second, we are not seeing any pressure on our margins. Our lower gross profit margin in Q3 is solely related to mix. We expected it and talked about it on our last call. I feel very good about our ability to continue to expand our margins based upon the order book we have in hand today.
5
Shoals Technologies Group, Inc.
3Q21 Earnings Conference Call Script
November 9, 2021
Third, this is a temporary situation. We have seen an extraordinary amount of disruption in global supply chains, but it is clear to us that the market is slowly beginning to normalize. Suppliers are adapting. Customers are adapting. Logistics providers are adapting. This won’t last forever.
Now I’ll turn it back over to Phil to talk about the specifics of what we see for Q4 and Q1.
| Philip Garton, CFO, Shoals Technologies Group, Inc. | ||
Based on what we are seeing in the market and feedback from our customers, we currently expect fourth quarter revenues to be in the range of $40 million to $50 million. We expect adjusted EBITDA to be in the range of $11 million to $15 million, and adjusted net income to be in the range of $3 million to $7 million.
As for the first quarter of 2022, we expect revenues to be in the range of $71 million to $76 million. We expect adjusted EBITDA to be in the range of $22 million to $24 million, and adjusted net income to be in the range of $14 million to $17 million.
While the mix of component sales is expected to remain high in the fourth quarter which will reduce our gross margin in the quarter, we expect that to reverse in the first quarter of 2022, consistent with our outlook for adjusted EBITDA.
Jason, back to you.
| Jason Whitaker, CEO, Shoals Technologies Group, Inc. | ||
I would like to close by thanking all our customers for their commitment to Shoals, our employees for their contributions to our company’s success and our shareholders for their continuous support.
And with that, thank you everyone, and I appreciate your time today. I would like to ask the operator to open the line for questions.
6